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Corporations Act used to stop employee using his employer's confidential information |
Case Summary - Miles v Genesys Wealth Advisors Limited |
In this case the courts found that a 30-month restraint was reasonable for a former MD:
- MD signed 30-month deed of restraint
- Began working for competitor, claiming restraint invalid
- NSW Court of Appeal upheld restraint because of specialist knowledge
- High Court of Australia rejected leave to appeal because of poor prospects of success
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| The NSW Court of Appeal (NSWCA) has ruled that a two-and-a-half-year restraint preventing a former managing director from working for a competitor or soliciting clients was reasonable because of his specialist knowledge. |
The MD executed the deed of release prior to leaving his employer, Genesys Wealth Advisers (Genesys), in March 2007. He obtained his own legal advice and negotiated the terms of the restraint. The restraint purported to be effective until 15 September 2009. |
The restraint stopped the MD from:
- Competing with Genesys
- Soliciting Genesys clients
- Using Genesys confidential information
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| Genesys was involved in providing financial services and the MD was directly responsible for managing high level relationships with its "member firms". These were generally financial planners who sold Genesys's products on to their clients. |
To this end, the MD was privy to considerable detail on which member firms were likely to be enticed away from Genesys and had even prepared a report to this end in late 2006. |
In May 2008 the MD held discussions about setting up a rival business with a major financial backer, Suncorp. The new business aimed to provide financial services in relation to $2 billion worth of funds within two years. |
The MD was to run this new business and he began soliciting Genesys's member firms. |
In August 2008 Genesys obtained an injunction in the NSW Supreme Court which enforced the terms of the deed of release and restrained the MD from continuing with his actions. The MD appealed against this decision. |
In doing so, the MD argued that the Supreme Court had misconstrued what was meant by "clients or customers" in the deed of release. He had been soliciting member firms and these were merely agents for Genesys's products. The clients that the deed envisaged were the end-users. |
The MD also submitted that he would not be using Genesys's confidential information in his new role and argued that the restraint was not reasonable because it served merely to stifle competition rather than to protect any legitimate interest. |
The NSWCA rejected these arguments. |
All three NSWCA judges ruled that the member firms were the clients envisaged by the terms of the deed of release because these were the customers of Genesys with whom the MD had contact and was in a position to solicit. |
A two-to-one of the NSWCA also ruled that through his knowledge of Genesys's clients, the MD still had access to the company's confidential information and that it was necessary to restrain him from using this in order to protect Genesys's interests. Otherwise, the MD would only be restrained from soliciting Genesys's clients and he would still be able to set up his business by having colleagues do the soliciting while he provided the expertise. |
The dissenting judge, Hodgson JA, ruled that this restriction would prevent the MD from earning a living in his field. |
All three judges agreed that the terms of the restraint were otherwise reasonable because the MD was in a position to use the detailed knowledge of Genesys's business which he had acquired to gain an advantage over the business. In particular, Hodgson JA noted that the MD's specialist knowledge "directly equipped a competitor to attack Genesys' weak points in its relationships with member firms and to build upon them". |
Genesys Wealth Advisers v Miles [2008] NSWSC 802 |
| Miles v Genesys Wealth Advisers Limited [2009] NSWCA 25 (24 February 2009) |
| Miles v Genesys Wealth Advisers Limited [2009] HCATrans 182 (29 July 2009) |
Last Updated: 12 August 2009 |
