FEDERAL COURT OF AUSTRALIA

Monarch Advisory Group Pty Ltd v Puxty (No 4) [2025] FCA 534

ORDERS

THE COURT ORDERS THAT:

1.    Subject to Order 2 below, by 6 June 2025 the parties are to provide draft short minutes of order giving effect to these reasons including in relation to the date from which interest should run and on the question of costs.

2.    In the event that the parties cannot agree on the form of orders:

(a)    by 6 June 2025 they are to provide to my Associate their competing orders and submissions, not exceeding three pages in length, addressing the areas and extent of the disagreement between them; and

(b)    the proceeding will be listed for case management hearing to allow all outstanding matters in dispute to be determined and for final orders to be made.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    Monarch Advisory Group Pty Ltd, the applicant, operated a financial services business offering financial planning services from 5 March 2012 to 2 February 2021. Tatiana Coulter is the sole director of Monarch.

2    Brett James Puxty and Francis Coggan, the first and second respondents respectively, were employed by Monarch in the period from 7 December 2018 to 31 January 2020. Odyssey Advisory Services Pty Ltd, the third respondent, was incorporated on 18 September 2019. Its directors are Messrs Puxty and Coggan and its shareholders are Mr Puxty and his wife who hold those shares on behalf of a family trust. Odyssey operates a financial planning business.

3    By amended originating application filed on 4 February 2022 (Amended OA) Monarch seeks damages from Messrs Puxty and Coggan for breach of their respective employment agreements.

4    Until the final day of the hearing, in its Amended OA Monarch also sought damages and an account of profits occasioned by an alleged breach of fiduciary duty by Messrs Puxty and Coggan and damages pursuant to s 1317H of the Corporations Act 2001 (Cth), s 236 of the Australian Consumer Law (ACL) being Sch 2 to the Competition and Consumer Act 2010 (Cth) and for passing off.

5    Similarly, in its amended statement of claim filed on 4 February 2022 (ASoC) Monarch pleaded a broader case alleging, in addition to breaches by Messrs Puxty and Coggan of various clauses of their respective employment agreements with Monarch, breach by Messrs Puxty and Coggan of their fiduciary duties owed to Monarch, breach by Messrs Puxty and Coggan of s 182 and s 183 of the Corporations Act and Odyssey’s involvement in such breaches and breach by Messrs Puxty and Coggan and Odyssey (together respondents) of s 18 of the ACL and that the respondents engaged in passing off.

6    On 27 February 2023 Mr Puxty and Odyssey (together cross-claimants) filed an amended notice of cross-claim and amended statement of cross-claim (Amended CC) seeking damages for alleged breach of contract and repayment of a loan of $30,000 which the cross-claimants allege was advanced by Mr Puxty to Monarch. In Monarch’s opening submissions it informed the Court that, without admission of liability, it would consent to an order requiring it to pay Mr Puxty the $30,000 it received from him but says that payment of this amount should await the determination of the relief it seeks in the ASoC (such that the amount could be offset against any monetary judgment made in Monarch’s favour as opposed to it constituting a stand-alone order against it).

7    In oral closing submissions on the final day of hearing, counsel for Monarch informed the Court that Monarch only alleges and relies on breach by each of Messrs Puxty and Coggan of cl 19 of their respective employment agreements, which are post employment restraint clauses, and claims damages for those alleged breaches. Monarch otherwise abandoned all other relief sought and claims made in its Amended OA and ASoC, including in relation to alleged breaches of other clauses of Messrs Puxty’s and Coggan’s respective employment agreements.

8    I return to the detail of the remaining pleaded claim as against Messrs Puxty and Coggan below. Before doing so it is convenient to set out the evidence relied on by the parties and the relevant facts, noting that it is no longer necessary to resolve some of the factual issues that might have arisen. To that end I have only included the evidence insofar as it is relevant to the remaining pleaded and defended claim based on an alleged breach of cl 19 of the employment agreements and the components of the Amended CC that remain in issue and otherwise to the extent it provides background and context.

THE FACTS

Witnesses

9    Monarch relied on evidence given by the following witnesses:

(1)    Ms Coulter, the sole director and secretary of Monarch. Ms Coulter obtained a Diploma of Financial Services – Financial Advice in 2003, which enabled her to provide financial advice, and an Advanced Diploma Financial Services from RMIT University in 2005. She has held the following positions:

(a)    from about 2001 she worked for AdvantEdge, a subsidiary of MLC Limited, in its call centre providing “no advice” information for investments and superannuation to members of AdvantEdge;

(b)    from 2002 to 2003 she was a mortgage broker at MLC;

(c)    from 2003 to 2004 she was an education specialist for corporate super at MLC. While undertaking these roles for MLC, Ms Coulter focused largely on superannuation. As an education specialist for MLC superannuation, she travelled around Australia educating members of the MLC Super Fund about the mechanics of investing in super and the investment options available to them. Ms Coulter was not able to provide financial advice to members at the time, but she provided them with financial literacy to assist them in making informed decisions about consolidating their super and member investment choice including if appropriate by providing assistance so that members could tailor the investment approach for their super rather than remaining with the default option. Ms Coulter educated staff from a number of large corporations including Telstra, PwC, Sony, Thales and Australian Defence Industries;

(d)    in 2005 she worked as a financial planner at Westpac Banking Corporation providing advice to businesses on strategies and structures such as business insurance, including buy/sell and keyperson insurance, superannuation for individual business owners and group superannuation options for staff, along with other investments outside of superannuation. Ms Coulter advised small to medium enterprises where the businesses employed at least 10 staff and had a minimum turnover of $1,000,000;

(e)    in 2006 she moved to AMP where she held the role of business development manager. In that role Ms Coulter assisted AMP aligned advisors (advisors licenced by AMP) with structures and strategies for superannuation, investments and insurance;

(f)    in 2007 she moved to Perpetual Private Wealth as business development manager in private wealth and investments where she assisted advisors to structure their client investments through separately managed accounts (SMAs). Ms Coulter worked closely with the investment managers to understand their investment philosophy and the individual stocks they chose for the SMAs so as to assist the advisors to understand how to incorporate the SMAs in their client’s overall investment portfolio;

(g)    in 2008 she moved to Macquarie Bank where she held the role of business development manager in insurance. In that role Ms Coulter assisted advisors to understand how to structure complex insurance strategies for their high-net-worth clients, being those requiring in excess of the standard sums insured, for example, $15 million total and permanent disability insurance coverage, $10 million trauma insurance coverage and $60,000 per month income protection. Ms Coulter met with advisors and helped them to understand how to calculate the amounts insured to best present to the underwriter, which for those clients were significantly higher than the industry standard at the time; and

(h)    in 2010 she moved to OnePath where she held the role of business development manager in insurance until 2012 when she established Monarch. In that role Ms Coulter spent most of her time with advisors working on the OnePath product. However, there was a comprehensive training program that Ms Coulter and the technical advice manager presented to advisors around business insurance which included presenting strategies to advisors and assisting them to implement the strategies, including in depth underwriting case studies. While Ms Coulter was at OnePath, there was a focus on business insurance. After she left OnePath, Ms Coulter maintained her relationship with the technical managers and would often run strategies by them. Ms Coulter was cross-examined;

(2)    Alex Lee, managing partner of Newlane Risk Pty Ltd, a financial planning and advisory business. Mr Lee has over 16 years’ experience as a financial advisor and has owned and operated his own advisory business since about 2017. Mr Lee gave evidence in relation to the calculation of the purchase price for the purchase by Newlane of Monarch’s client book. Mr Lee was not cross-examined; and

(3)    Michael Potter, a chartered accountant and a partner of EY. Mr Potter is an accredited business valuation specialist and forensic accountant with over 38 years’ experience. Mr Potter prepared a report in relation to the loss of profit suffered by Monarch during the “Restraint Period as a result of the claimed employment contract breaches” and the question of “whether the claimed employment contract breaches resulted in a reduced [purchase price for the purchase by Newlane of Monarch’s client book] and if so, the quantum of that reduction”. Mr Potter was cross-examined.

10    The respondents relied on evidence given by:

(1)    Mr Puxty, who has worked as a financial planner for approximately 20 years. In that capacity he worked for AON Hewitt Australia and WiZDOM Advisory, before moving to Monarch. In 2017-2018 while working for WiZDOM Mr Puxty developed his own client base. He also continued to service some of the clients to whom he had provided services while at AON (some of whom followed him to Monarch) and, in addition, received referrals. Mr Puxty was cross-examined; and

(2)    Paul Minett, a director of Martin Minett, with experience in the quantification of economic loss and financial analysis including forensic accounting. Mr Minett prepared a report in response to the report prepared by Mr Potter. Mr Minett was not cross-examined.

11    Messrs Potter and Minett also provided a joint report. Their evidence is dealt with below in relation to the third question for consideration, the measure of damages assuming liability is established.

12    As is apparent, the central witnesses were Ms Coulter and Mr Puxty. They each gave evidence about the development of their professional friendship, the interactions and dealings which led to Monarch’s employment of Messrs Puxty and Coggan and the subsequent termination by Messrs Puxty and Coggan of their employment with Monarch. Much of their evidence centred around their recollections of conversations and meetings which took place in 2018 and 2019 as recounted by them in their respective affidavits which were sworn or affirmed several years later. While I accept that Ms Coulter and Mr Puxty may have some recollection of those events, it is difficult to accept that either of them has the recollection of conversations which they attribute to themselves given the passage of time. That being so while I have, in some instances, recounted their recollections of conversations and meetings, in the absence of contemporaneous documents, I have attributed little weight to that evidence in coming to my conclusions preferring the documentary evidence and what it establishes about the dealings between the parties.

13    Mr Puxty submits that when giving oral evidence Ms Coulter was defensive and evasive and that she was not a credible witness, pointing to several examples which he says highlight concerns about Ms Coulter’s credit. Having regard to the whole of Ms Coulter’s evidence I am not satisfied over all that she was not a credible witness. While I accept that at times she was evasive and had to be challenged to answer questions directly, that did not infect the entirety of her evidence. Nor am I satisfied that Ms Coulter telling the cross-examiner that a proposition put to her was only partially correct impacts on her credit. Ms Coulter was entitled to give that answer where that was so. Thereafter, when questioned, she attempted to explain her position and what aspect of the proposition put was incorrect.

Monarch

14    Monarch was incorporated on 7 February 2012 and commenced operating as a financial planning business specialising in wealth protection on 5 March 2012. Monarch offers financial advice but specialises in the provision of insurance solutions for individuals and businesses.

15    Prior to Monarch commencing its business Ms Coulter spent significant time setting it up. By way of example she:

(1)    spent about 18 months researching and interviewing dealer groups through which Monarch could be licensed and completing “white papers”;

(2)    created a board of advice made up of various contacts within the industry including a financial advisor, senior personnel from the financial services and other industries (e.g. marketing managers) and potential clients with whom she tested her ideas and strategies about how to operate a business and create a successful financial planning business; and

(3)    prepared and developed a business and marketing plan.

16    When Ms Coulter established Monarch she wished to specialise in life risk strategies and advice. Notwithstanding that, she joined a dealer group (Securitor) that was focused on wealth creation and retirement advice. She did so because she did not want Monarch to be “pigeonholed” as a risk only advisor but wanted it to work with a more rounded dealer group that dealt with all facets of financial planning. At the time Ms Coulter’s training had been more holistic and she knew that, whilst her speciality was insurance, she would have to provide advice in all areas of financial planning.

17    At the time of commencement of its business Monarch had no clients. However, Ms Coulter had a number of friends and contacts who were ready to sign up with Monarch as clients and she had lined up referral partners.

18    Ms Coulter spent time networking in the Inner West and CBD areas of Sydney to build up Monarch’s client base and engaged in a number of networking activities including joining business networking groups and arranging for Monarch to sponsor sporting teams. She also built her personal profile in the market through various industry publications and by hosting a segment each week as broadcast host on Eagle Waves Radio called “Risky Business” where she discussed matters associated with risks such as insurance and business risk.

19    Ms Coulter worked to maintain Monarch’s clients, including by sending new clients welcome packs, working long hours to ensure she was available to clients and conducting regular reviews with clients.

20    On or about 13 March 2018 Consolidated Corporate Pty Ltd, the parent company of law firm Madison Marcus, acquired 5,000 of the total 10,000 shares on issue in Monarch. Consolidated’s acquisition of shares in Monarch was with a view to Consolidated and Monarch undertaking a joint venture business in the future by which Consolidated, in the form of the Madison Marcus legal business, was to be a source of referrals for Monarch. Ultimately as explained below, the joint venture did not proceed and on 4 March 2019 Consolidated ceased to be a shareholder of Monarch. Other than the period between 13 March 2018 and 4 April 2019, when Consolidated was a shareholder, Ms Coulter has been the sole shareholder of Monarch.

21    Prior to the sale of Monarch’s business to Newlane (see [112] below), it operated a financial planning business specialising in wealth protection, that is insurance advice. About 85% to 90% of its business was insurance advice and the remainder was superannuation advice. Excluding clients introduced by Mr Puxty, Monarch had about 215 insurance clients of which about 20 were superannuation clients. Its primary client base was “white collar professionals” seeking advice on their insurance needs. Monarch did not advertise. Most of its business came from referrals from existing clients and referral partners.

22    Monarch earned its income via its dealer group. It was initially licensed with (i.e. was an authorised representative of) Securitor and was most recently licensed with RI Advice. The dealer groups earn their remuneration from product providers e.g. insurance companies and superannuation funds. Monarch did not receive payment directly from its clients.

Ms Coulter meets Mr Puxty

23    Ms Coulter met Mr Puxty in about October or November 2010 while she was employed at OnePath. At the time Mr Puxty worked for LIFP Consultants, a business which was subsequently purchased by AON, one of the dealer groups Ms Coulter managed while employed by OnePath. Over the years Ms Coulter and Mr Puxty developed a good friendship.

24    After Ms Coulter established Monarch, from time to time she spoke with Mr Puxty as well as other advisors. She recalls that Mr Puxty would often assist her in dealing with work related issues and, during her regular calls and catch ups with him, they often spoke about Mr Puxty’s role at AON. Ms Coulter formed the view, based on those conversations, that she and Mr Puxty were aligned in the way they wanted to “go over and above” for their clients.

25    Ms Coulter recalls that in about 2013 or 2014 she and Mr Puxty had a conversation during which Mr Puxty informed Ms Coulter that his current employer, Rob Jason, was selling his business, LIFP, to AON. LIFP was a consulting business in which Mr Puxty had an equity stake. At the time Mr Puxty was not enjoying his working relationship with Mr Jason. He informed Ms Coulter that following the sale he would become an employee of AON.

26    Ms Coulter recalls that during the conversation referred to in the preceding paragraph she and Mr Puxty discussed the potential to work together in the future. At the time, Ms Coulter was still in the process of building Monarch’s client base, which was not sufficiently established to employ, or partner with, another person.

27    Mr Puxty worked for AON from August 2014 to September 2017. He commenced working for WiZDOM in October 2017 as a senior financial advisor. The terms of Mr Puxty’s employment with AON included a post-employment restraint which restrained him from soliciting, approaching or accepting any approach or dealing with any person who was, at any time during the last 13 months of employment with AON, a client or potential client of AON (AON Restraint). The AON Restraint operated for a period of 12 months.

28    Ms Coulter recalls that on several occasions after Mr Puxty commenced employment with WiZDOM he informed her that he was not happy with the conditions and processes there.

29    Over the years Ms Coulter and Mr Puxty maintained their friendship and, as is apparent from the evidence before me, kept each other apprised of developments in their respective professional lives and from time to time Ms Coulter sought Mr Puxty’s advice on issues that arose in relation to provision of services. It was also evident that the relationship between Ms Coulter and Mr Puxty extended to Ms Coulter informing Mr Puxty of her partnership with Consolidated/Madison Marcus. For example:

(1)    on 21 October 2017 Ms Coulter and Mr Puxty exchanged text messages and, in the course of their exchange, Ms Coulter informed Ms Puxty that “[i]n other news – got my first referral from the lawyers”, where the reference to “the lawyers” was a reference to Consolidated/Madison Marcus;

(2)    on 19 January 2018, Ms Coulter sent a text message which read: “[m]eanwhile the lawyers have come to the valuation party”. Ms Coulter agreed in cross-examination that the reference to the “lawyers” was to Madison Marcus and that the valuation to which she referred was part of the process of coming to an agreement about a joint venture with Consolidated/Madison Marcus;

(3)    on 19 March 2018 Ms Coulter and Mr Puxty exchanged the following text messages:

    Once again Ms Coulter accepted that the reference to “lawyers” in her initial text was to Madison Marcus;

(4)    on 27 April 2018 Ms Coulter sent a text to Mr Puxty in the following terms:

The lawyers referred to by Ms Coulter were Madison Marcus. Ms Coulter had passed on to them an idea about JV insurance that Mr Puxty had communicated to her; and

(5)    on 4 May 2018 in a text message exchange with Mr Puxty, Ms Coulter told him that she had “Madison Marcus at 4pm followed by their staff meeting over a champers at 5”. Ms Coulter accepted that in her discussions and exchanges with Mr Puxty she used the term “Madison Marcus” to refer to the arrangement with Consolidated.

30    In about March 2018 Ms Coulter and her husband, Rob Coulter, had a conversation with Mr Puxty to the following effect:

Mr Puxty:    I received this letter from AON reminding me of the restraint I had with them and demanding that I pay for the clients I have taken. They have asked for about $90,000. This is about 2.7 times the recurring revenue I took. I took about $30,000. I am very concerned about this letter and the consequences. They are my clients, and I didn’t think the restraint would apply to them.

Mr Coulter:    Relationships outlast restraints so just stop taking the clients and see out your restraint period.

Mr Puxty explained that about six months into his employment with WiZDOM his family and close friends, amounting to about $30,000 in revenue, followed him to WiZDOM. AON never took any action against Mr Puxty in relation to those clients.

Ms Coulter suggests that Mr Puxty join Monarch

31    In about June 2018, while in Bali, Ms Coulter had an idea about working with Mr Puxty. She thought that if Mr Puxty could bring $200,000 in recurring revenue to Monarch, which was about the same amount of recurring revenue that she generated at the time, they should be able to make working together viable. Ms Coulter was not sure whether she would buy Mr Puxty’s “book” (i.e. his clients and thus recurring revenue) or partner with him. She recalls that she sent Mr Puxty a text message about her idea, and he replied positively.

32    Ms Coulter explained that recurring revenue in the context of financial planning is the income received from an existing client base in the form of commissions from insurance companies or advice fees funded via superannuation funds and that, upon a client taking out an insurance policy for the first time, an initial commission is payable upfront to the advisor, typically at around 66% of the first year’s insurance premium. The recurring revenue is usually 10% to 30% of a premium in the case of renewal commission for insurance, depending on how the policy is set up.

33    On 19 June 2018 Ms Coulter sent a text message to Mr Puxty in which she told Mr Puxty that “Rob [Coulter] wants to talk to you about you coming across to Monarch. Your hours are ridiculous and they can change terms anytime”.

34    On her return to Australia on or about 19 June 2018 Ms Coulter and Mr Puxty progressed discussions about Ms Coulter’s idea that they work together, centred around the opening of a Newcastle office. While Consolidated was a shareholder in Monarch at the time, Ms Coulter did not agree that her discussions with Mr Puxty were connected to the fact of her partnership with Consolidated. She maintained that she had been having these types of discussion with Mr Puxty for years because he was unhappy with his current employment.

35    It is difficult to accept that the catalyst for Ms Coulter’s discussions with Mr Puxty in mid 2018 was not connected in some way to Monarch’s partnership with Consolidated/Madison Marcus particularly given the anticipated growth from that partnership. So much is apparent from the following exchange between Ms Coulter and senior counsel for Mr Puxty, Mr Bedrossian SC:

Mr Bedrossian:    You accept, don’t you, that, at this point in time, between March 2018 through to June 2018, your anticipation was that this arrangement with Madison Marcus could result in millions of dollars of referred clients; correct?

Ms Coulter:    I accept that that part is correct, but not necessarily the reason for employing Brett.

Mr Bedrossian:    And to be specific, part of your discussion with Madison Marcus was around the idea of having $1 million of new referrals – that’s new income each year for a five-year straight period; correct?

Ms Coulter:    Yes.

Mr Bedrossian:    And that, at the end of that five-year period, on that approximate maths, you have a business that would be worth at least $6 million; correct?

Ms Coulter:    Yes.

Mr Bedrossian:    And there was a proposal – it might have been a concept – that that entity would then be floated on the public stock exchange; correct?

Ms Coulter:    Correct.

Mr Bedrossian:    And, presumably, if that went well - - -?

Ms Coulter:    Mmm.

Mr Bedrossian:    - - - huge returns?

Ms Coulter:    Yes.

36    At the time of their discussions referred to in [34] above, Ms Coulter informed Mr Puxty that she would need to discuss the proposal with “the board,” which was a reference to the board of Consolidated. For that purpose she asked Mr Puxty to “put some numbers together so that [she could] understand the viability of this going forward” including “expected salaries for [Mr Puxty] and [Mr Coggan], estimated rent in Newcastle, expected revenue”.

37    Ms Coulter said that, as a shareholder in Monarch, Consolidated was entitled to a say in relation to new employees and, given that the board was made up of lawyers, she wanted to obtain their views about employing new staff. At the time, Ms Coulter spoke with Ramy Qutami of Consolidated who gave her the go ahead to look into the viability of expanding the business and working with Mr Puxty.

38    Ms Coulter recalls that when she and Mr Puxty began their discussions about potentially working together, she needed to understand which of the clients from WiZDOM Mr Puxty could bring over and whether they were subject to any restraint. Ms Coulter did not want Monarch to be involved in any dispute between Mr Puxty and his former employer about breaches of restraints. She recalls having a conversation with Mr Puxty to the following effect:

Ms Coulter:    Do you think you will have any issues with Clint if you bring clients over?

Mr Puxty:    It will be fine I will work it out. These are my clients so I will not have a problem taking them.

The reference to Clint was to Clint Ducat the owner of the WiZDOM. At the time of his discussion with Ms Coulter, Mr Puxty believed, based on his discussions with Mr Ducat, that there be no restraint in relation to clients he brought over to WiZDOM upon commencing his employment there, although that was not reflected in his employment contract with WiZDOM.

39    On 6 September 2018 Ms Coulter attended a meeting (6 September Meeting) with Mr Puxty and Mario Kardum, who Ms Coulter describes as a representative of Consolidated, at the offices of Madison Marcus solicitors. Ms Coulter recalls that during the meeting she had a conversation to the following effect:

Ms Coulter:    We need to discuss what this could look like for you Brett. I think that there could be a contingency for you to own a percentage in Monarch provided that you bring enough business over.

Mr Puxty:    Okay.

Ms Coulter:    If you bring over $200,000 recurring revenue within 12 months, we will give you a shareholding in Monarch. Monarch will purchase your book in $50,000 bundles. When Monarch earns $50,000 of recurring revenue, we will pay you two times the recurring revenue.

Mr Puxty:    Okay I agree.

Based on this conversation Ms Coulter understood the agreed incentive program for Mr Puxty would be, among other things, that for every $50,000 of recurring revenue he brought to Monarch from his AON clients and his WiZDOM clients he would receive two times the recurring revenue as a bonus (Incentive Program) and that the $50,000 bundles would come to Monarch each quarter, on average, rather than all at the end of the 12 months.

40    Mr Puxty has a different recollection of the 6 September Meeting. He says that there were no specific discussions in relation to revenue and he did not agree to any particular financial arrangements. He understood that the purpose of the meeting was to introduce him to Madison Marcus. Although Mr Puxty had spoken to Mr Kardum previously, they had never met. Mr Puxty recalls that during the meeting the following exchanges also took place:

Ms Coulter:    We will buy your clients at two times revenue and provide you with a 6% ownership in Monarch. We anticipate that the business will be worth about six million dollars in five years’ time.

Mr Kardum:    This is correct. We want you to join the business and bring your clients over. We see the business growing to a point where in five years we will look to list on the stock exchange and realise the value. We are willing to also offer a percentage share in the business if the client value we purchase, stays.

And:

Mr Kardum:    What is your experience in financial planning?

Mr Puxty:    I have been in financial services since 2001 and have been providing advice in all areas of financial planning, apart from gearing strategies. I can provide advice on superannuation, including SMSFs, retirement planning, personal insurance, business insurance, and joint venture protection.

Mr Kardum:    What is joint venture protection?

After he explained joint venture protection Mr Puxty said the conversation continued:

Mr Kardum:    We have a solicitor here in Madison Marcus that deals solely with joint venture clients. This could be a great opportunity as I do not believe this has ever been discussed.

Ms Coulter:    I told you this would be a good opportunity.

Mr Kardum:    We are also looking for someone who can do investment, super and financial planning advice. It is good to see that you can do this.

Ms Coulter:    Yes, because I am only specialising in insurance.

Mr Kardum:    This would be a good fit, as the referrals that we are looking to offer to Monarch are mostly financial planning clients, not insurance-only clients.

41    After the 6 September Meeting Mr Kardum asked Ms Coulter “for verification of the restraint terms in [Mr Puxty’s] contract”. Ms Coulter then spoke with Mr Puxty asking him to provide her with a copy of his employment contract with WiZDOM so that she could check the restraint clause in it.

42    On 7 November 2018 Ms Coulter and Mr Puxty exchanged the following text messages (as produced in evidence):

Ms Coulter accepted that the reference to “6% equity” was in relation to the proposed future arrangement with Mr Puxty, explained that “Rex and Rhonda” were employees of AON who might become employees of Monarch, accepted that the reference to “them” in the third message was to Consolidated/Madison Marcus and accepted that the viability of the entire partnership arrangement with Consolidated rested upon the flow of referrals, absent which there was no reasons to enter into a 50/50 arrangement with it.

43    A number of things happened on 8 November 2018.

44    First, commencing at 10.20 am Ms Coulter and Mr Puxty exchanged the following text messages:

Ms Coulter accepted that in suggesting as “a worst case” she would see and transfer clients, she was suggesting that she could chase WiZDOM clients so that, even if Mr Puxty was subject to restraint, she would get the clients across to Monarch.

45    Secondly, as referred to in his text message timed at midday Mr Puxty sent Ms Coulter an email attaching “the wording from [his] current employment contract”. He told Ms Coulter that “the clients that [he] brought with [him] are under a separate code to that of the WiZDOM clients [he had] written” and that the “separate code does not form part of the responsibility period (although not stipulated in the contract)”.

46    Thirdly, after receipt of the email referred to in the preceding paragraph Ms Coulter had a conversation with Mr Puxty to the following effect:

Ms Coulter:    The contract says that there is a restraint with WiZDOM. Do you think you can get something from [Mr Ducat] in writing to confirm that there is no restraint?

Mr Puxty:    I am not comfortable with that because it will look suspicious and he will know I am looking for employment elsewhere if I ask him about my contract.

Ms Coulter:    Well I don’t think the board is going to be comfortable without something in writing.

Mr Puxty:    Okay. Let me see what I can do.

47    Fourthly, Ms Coulter attended a meeting with the board of Consolidated to discuss Mr Puxty’s restraint and if and how Monarch could get around it. At that meeting it was agreed that Monarch would not proceed with the Newcastle expansion because of the risks associated with Mr Puxty’s restraint. However, the board informed Ms Coulter that it was open to her to prepare revised figures without any clients from WiZDOM.

48    Fifthly, at 1.31 pm Ms Coulter sent the following further message to Mr Puxty:

49    On 9 November 2018 Messrs Kardum and Puxty had a telephone conversation which included an exchange to the following effect:

Mr Kardum:    Brett, I want to know about your WiZDOM employment contract and bringing your ex-AON clients, who are currently at WiZDOM, over to Monarch. We are hoping that your clients are not subject to restraint and that you can bring them across.

Mr Puxty:    There is nothing in my contract with WiZDOM but I will obtain the release of my clients from WiZDOM in writing from the owner of WiZDOM, Clint Ducat.

Mr Kardum:    Are you happy with a 6% share offering, the responsibility period and payment occurring in stages where the projected value of clients reaches $50,000.00 lots? We will be looking to hold back 25% of the payment until the revenue is proven to be consistent over a 12-month period.

Mr Puxty:    That sounds fair, given it only needs to be proven in a 12-month period.

50    On 11 November 2018 Ms Coulter had a discussion with Mr Puxty to the following effect:

Ms Coulter:    The board is concerned. They feel as if you have lied to them about the restraint. I have to go back and speak to them again. Can we readjust the figures to take the restraint into consideration so I can go back to the board.

Mr Puxty:    Okay. I have emailed Clint about the restraint. He said as long as the client was on the books for 12 months with WiZDOM, I could take them at the expiry of my restraint period.

Ms Coulter understood, based on that conversation and the email exchange set out at [51] below, that Mr Puxty’s employment agreement with WiZDOM included a restraint over the WiZDOM clients and that WiZDOM was not willing to release those clients to Mr Puxty should he terminate his employment with it.

51    On 14 November 2018 commencing at 10.21 am Ms Coulter and Mr Puxty exchanged the following text messages:

And:

52    On 14 November 2018 at 8.20 pm Mr Puxty forwarded to Ms Coulter his email exchange with Mr Ducat about the extent of the restraint imposed on him as an employee of WiZDOM. That exchange commenced with an email from Mr Puxty to Mr Ducat sent on 9 November 2018 in which he wrote:

Following from our conversation:

I understand the many business changes that have occurred recently, including the change in the process for transferring clients over to Wizdom, is a way of mitigating risk and I understand the need to protect the business.

This will also limit the number of clients that will potentially be coming over from here on and will also create a push to concentrate on the larger value clients. I also understand this to be strategic and potentially provide a better outcome to the business.

With all these changes, can you please confirm that there is no change to our original agreement that these clients, going forward, still form part of the group of existing clients I have already brought over (ex-Aon clients) and that they all remain quarantined (my introduced clients as a whole) and do not form part of any restraint period.

I’m just after peace of mind that the many changes to the business have and will not affect our original agreement.

Mr Ducat responded on 14 November 2018 in the following terms:

As discussed, I think the fair thing would be that any client introduced to WiZDOM would have a 12 month restraint from initial date that we received revenue to ensure we cover the costs of advice and onboarding.

After the minimum 12 months of revenue then there would be no restraint on the clients that you introduce to WiZDOM directly.

53    Mr Puxty and Mr Ducat then exchanged the following messages on the evening of 14 November 2018. Mr Puxty wrote:

I take it this would be for any clients moving forward under WiZDOM Wealth. I understand due to the change in transfer processes that this has been introduced.

Considering there was no ‘on-boarding’ apart from sending off the transfer form under MyPlanner, I assume these clients (pre Aug 2018) don’t fall under this category and are free from any restraint period. (Majority of these are close to or beyond this anyway).

And Mr Ducat responded:

Yes exactly, although remember that we really want to have an SoA written (simple hold or full review) for the clients transferred under MyPlanner within 12 months (before August 2019).

Mate, I can assure you I’m not going to play silly buggers. As long as everyone plays fair then I’m happy.

Saying this, I know there has been a number of changes and I hope that you plan to hang in there with us through this time.

Once we get the right people and streamline our systems we will be a fair way in front of most of the industry. I’m still very positive about the future.

54    Thereafter, on 14 November 2018 Ms Coulter and Mr Puxty exchanged text messages including:

55    Ms Coulter felt that the Incentive Program would need to be changed. She spoke to Mr Puxty informing him that Monarch could not take the WiZDOM clients into consideration as it did not want to be involved in any disputes about restraints. Following that conversation Ms Coulter proceeded on the basis that she and Mr Puxty had agreed to exclude WiZDOM clients from the Incentive Program and to include only AON clients who were no longer subject to restraint (Amended Incentive Program).

56    On 19 November 2018 at 5.30 pm Ms Coulter sent Mr Puxty the following text messages:

Mr Puxty accepted that at this time his discussions with Ms Coulter related to Monarch’s concerns about becoming involved in litigation about the restraint of trade clause in his employment agreement with WiZDOM and that there was going to be a delay in his acquiring a shareholding in Monarch of about nine to 12 months during which period he could transfer his clients across to Monarch. In other words, Monarch wanted to have the clients transferred to it before Mr Puxty became a shareholder.

57    Ms Coulter said that it was a term of the Amended Incentive Program that if Mr Puxty could bring in recurring revenue and maintain that recurring revenue for a period of twenty-four months, he would acquire a 5% shareholding in Monarch. Ms Coulter recalls that in about mid November 2018 she had a further conversation with Mr Puxty to the following effect:

Ms Coulter:    Brett, if we can present figures to the board, based on $150,000 in recurring revenue and excluding the WiZDOM clients, I think we can get this across the line. Based on the initial projections for the Newcastle expansion, I think we should still be able to break even within 12 months. Similar terms would apply in that you can potentially earn 5% equity in the business once you’ve achieved your targets. Monarch would pay you a bonus of 2x for every $50,000 received. Monarch will hold back 20% of the payment for another 12 months to ensure clients remain part of the business.

Mr Puxty    I am happy with that.

58    On 23 November 2018 Ms Coulter and Mr Puxty exchanged emails which were light hearted in tone and in which each described what they were doing that evening. That exchange included:

In cross-examination Mr Puxty accepted that, despite the light-hearted nature of the exchange set out above, he was somewhat frustrated because he was yet to receive an employment agreement.

59    On 26 November 2018 at 4.44 pm Ms Coulter and Mr Puxty exchanged the following text messages:

At this stage of his discussions with Ms Coulter, Mr Puxty believed that, given the passage of time, he could now take his AON clients to Monarch. He had no intention of taking WiZDOM clients.

60    Both Ms Coulter and Mr Puxty recall a discussion in late November 2018 about the possible transfer of Mr Puxty’s AON clients to Monarch prior to the finalisation of Mr Puxty’s employment agreement with Monarch. However, they do not agree on the content of that discussion. Given my earlier observations about the weight I can give evidence of this nature, I do not propose to set out their respective versions of the discussion. The better and more reliable evidence of what occurred in late November 2018 is found in the documentary evidence and, in particular, in the following text messages that Ms Coulter and Mr Puxty exchanged on 28 November 2018:

(1)    at 2.15 pm Ms Coulter and Mr Puxty had the following exchange:

(2)    at 4.03 pm Ms Coulter sent Mr Puxty the following message:

(3)    commencing at 6.39 pm Ms Coulter and Mr Puxty exchanged the following messages:

61    When asked by counsel for Monarch, Mr Mahendra, about Ms Coulter’s text message in which she stated that she was “going to have a very frank conversation with Mario [Kardum]” the following day, Mr Puxty gave the following evidence:

Mr Mahendra:    So you know at that particular point in time that this arrangement with Madison Marcus is not something that was concrete?

Mr Puxty:    No. This was to do with the employment contracts.

Mr Mahendra:    “… tell them that they are not treating this like a partnership, and I’m having second thoughts”. You say that’s to do with your employment as opposed to the partnership with Madison Marcus?

Mr Puxty:    It’s what caused her to get cranky, yes.

62    It is clear from the text messages exchanged on 28 November 2018 that: Ms Coulter wanted Mr Puxty to join Monarch as an employee; she saw the value in Mr Puxty joining both because he had clients he could bring to the Monarch business and because of his skills which he would bring to the business; by November 2018 there were doubts about the viability of the arrangement with Consolidated/Madison Marcus; and the partnership with Madison Marcus was a reason, but according to Ms Coulter not the primary reason, for Mr Puxty joining Monarch. Ms Coulter did not accept that the context in which she sought to persuade Mr Puxty to join Monarch was the fact of her potentially successful arrangement with Madison Marcus and did not accept that the reference in her messages to “if all this falls over” was a reference to the partnership with Consolidated/Madison Marcus. She said the latter was a reference to the entry into of the employment agreements.

63    On 29 November 2018 Ms Coulter and Mr Puxty exchanged the following text messages:

64    In relation to the exchange set out in the preceding paragraph, Ms Coulter:

(1)    explained that her first message referring to 21 June was a reference to the date she first introduced the idea of Mr Puxty joining Monarch to Consolidated;

(2)    did not accept that the reference to things falling over in her text message of 28 November 2018 was to the Madison Marcus partnership. This was so despite telling Mr Puxty on 29 November 2018 that “last night” she was ripping up the agreement with Consolidated/Madison Marcus. Ms Coulter maintained that in her exchange on 28 November 2018 she was referring to the employment agreements;

(3)    accepted that at the time there was a level of uncertainty as between herself and Mr Puxty which arose because, in turn, there was uncertainty about whether Madison Marcus would come through with referrals and be an ongoing source of referrals; and

(4)    explained that the “time critical clients” were those who remained with AON but who wanted to move to Mr Puxty and about whom there was an issue as to whether they should go directly to Monarch, despite Mr Puxty not having signed his employment agreement, or see Mr Puxty at WiZDOM (and hence become clients of WiZDOM).

65    Ms Coulter recalls that in November or December 2018 she informed Mr Puxty that there were potential issues with referrals from Consolidated/Madison Marcus and that she was contemplating ceasing Monarch’s partnership with it. By late 2018 it was becoming apparent to Ms Coulter that, despite her hopes to the contrary, she was unlikely to be able to work something out with Consolidated going forward.

Monarch employs Messrs Puxty and Coggan

66    Monarch agreed to employ Mr Puxty as a senior financial planner and Mr Coggan as a financial planner. On 5 December 2018 Ms Coulter sent each of Messrs Puxty and Coggan a draft employment agreement. After some amendment to the drafts, on 7 December 2018 each of Messrs Puxty and Coggan entered into their respective employment agreement. I will refer to those agreements respectively as the Puxty Employment Agreement and the Coggan Employment Agreement and together as the Employment Agreements. A Performance Review & Bonus document was prepared and provided to Mr Puxty. It was intended to reflect the Amended Incentive Program.

67    Clause 5 of the Employment Agreements is in identical terms and provides:

5.    Duties and Accountability

5.1.    The Employee shall be responsible for the duties set out at “Appendix A” to the Agreement.

5.2.    The Employee shall report to and be accountable to the Managing Director of the Company.

5.3.    In performing their duties, the Employee must:

(a)    serve the Company faithfully and diligently and exercise all due care;

(b)     act in the best interests of the Company at all times;

(c)    refrain from acting or giving the appearance of acting contrary to the interests of the Company;

(d)     use their best endeavours to protect and promote the Company’s good name and reputation; and

(e)    perform their duties to the best of their ability.

68    Clause 15 of each of the Employment Agreements is in identical terms and is titled “Entire Agreement”. It provides:

15.    Entire Agreement

15.1    The Agreement together with any

(a)    statement of duties; and

(b)    Employee handbook

constitutes the entire agreement between the Company and the Employee in relation to the Employee’s employment with the Company and any representations made or agreements arrived at in relation to the performances by the other party of its respective rights and obligations under the Agreement shall, except to the extent they appear in the Agreement, be deemed for all purposes not to have been made or arrived at.

15.2    The Employee acknowledges that they have received from the company all documents referred to above.

69    Clause 19 of each of the Employment Agreements is, save for a cross-referencing error in the Coggan Employment Agreement, in identical terms and concerns “non-competition after the conclusion of employment” (Restraint Clause). That clause provids:

19.    Non-Competition after conclusion of Employment

Without the Employer’s prior consent, from the Termination Date, the Employee is not to:

(a)    retain, store, copy, utilise or otherwise access the Confidential Information of the Employer, including any client lists, client details, client records, contact details of clients;

(b)    solicit, attempt to solicit, or accept any instructions to perform any work from any Client;

(c)    solicit, attempt to solicit, entice or encourage any Employer Representative to leave their engagement with the Employer;

(d)    encourage, condone or entice any other person or entity, in which the Employee is interested or by which the Employee is engaged, to engage in conduct which, if the engaged in such conduct personally, would cause the Employee to breach this clause 19.

19.2    In this clause 19:

(a)    Restraint Period means:

(i)    Thirty six (36) months if employed for three (3) years or more;

(ii)    Twenty four (24) months if employed for two (2) years or more but less than three (3) years;

(iii)    twelve (12) months if employed for one (1) year or more but less than two (2) years;

(iv)    six (6) months if employed less than one (1) year.

(b)    Client means any person or entity:

(i)    to which the Employer provided services during the employment;

(ii)    with which the Employer had direct dealings during the employment in relation to the provision (or proposed provision) of services by the Employer to the person or entity;

(iii)    which referred business to the Employer during the employment;

(iv)    with which the Employee had direct dealings in the course of, or in connection with, their employment with the Employer,

whether or not the Client was introduced to the Employer by the Employee or otherwise.

(c)    Employer Representative means:

(i)    any director or person involved in the management of the Employer;

(ii)    any employee of the Employer who has knowledge of Confidential Information or who reported to the Employee or who was engaged in sales or marketing activities during the Employment;

(iii)    any employee of the Employer;

(iv)    any independent contractor contracted to the Employer.

19.3    It is acknowledged by the Employee that:

(a)    each of the covenants in clause 19.3 shall be construed and have effect as a number of separate covenants which results from combining each covenant. If any such resulting covenant shall be invalid or unenforceable for any reason, such invalidity or unenforceability shall not prejudice or in any way affect the validity or enforceability of any other such resulting covenants;

(b)    the restrictions in this clause may be “read down” by a Court, Tribunal or authority of competent jurisdiction to ensure that the remaining clause which has been “read down” is valid and enforceable;

(c)    the restrictions in this clause apply to conduct which is either direct or indirect (e.g. done through an agent of any kind) and regardless of whether the conduct is engaged in for the Employee’s own benefit or for the benefit or on behalf of any other person or entity;

(d)    the Employer’s rights under this clause 19 are in addition to, and do not derogate from or affect the Employer’s common law rights;

(e)    the Employer has invested substantial time and expense in developing its business and all associated goodwill and the Employee acknowledges that the Employer will suffer substantial loss and damage if the Employee fails to adhere to the restrictions;

(f)    the business of the Employer is fundamentally built on its relationships with clientele and customers and these restrictions are necessary to protect the goodwill, business, interests and Confidential Information of the Employer

(g)    these restrictions are reasonable and go no further than is necessary to protect the goodwill, business, interests and Confidential Information of the Employer;

(h)    the Employer has agreed to offer the employment to the Employee and remunerate the Employee in accordance with this Agreement in reliance upon the warranties provided by the Employee that it will comply with the restrictions espoused in this clause;

(i)    injunctive relief may be sought by the Employer to enforce these restrictions;

(j)    if any of the above restrictions or parts of them are found not to be enforceable then it is agreed that the remainder of the restriction(s) will apply; and

(k)    the rights and obligations of the Employer and the Employee in this clause 18 survive termination of this Agreement.

70    There is no definition of the term “Confidential Information” in the Employment Agreements. Clause 1(f) of the Employment Agreements provides that:

Unless otherwise indicated by the context, the following interpretational rules are to apply in the interpretation of the deed:

…

(f)     “confidential” has the meaning given to it in Clause 20.1 of the deed;

…

71    However, cl 20 titled “Confidentiality” provides (as written):

The Employee agrees to keep confidential al information of the Company and shall not use such information for her or any other person’s behalf.

72    Ms Coulter gave the following evidence about why the Restraint Clause in each of the Employment Agreements was important to Monarch:

(1)    in their roles Messrs Puxty and Coggan had access to all of Monarch’s referral partners and contacts, which was a database Ms Coulter had spent the previous seven years building. They also had access to the entirety of XPLAN, which is the database Monarch used and which contained all client information including, but not limited to, personal details, contact details, family connections, salaries, advice given, where the client was insured, superannuation details and banking details, all of which was confidential and which could be misused by Messrs Puxty and Coggan in the event they left Monarch;

(2)    in their roles Messrs Puxty and Coggan would have a high level of autonomy. They were based in Newcastle while Ms Coulter was based in Sydney and thus Ms Coulter would not have complete visibility over their conduct and could not monitor their activities. Given this freedom, Ms Coulter wanted to limit the possibility that either Messrs Puxty or Coggan would create a business of their own within Monarch;

(3)    Messrs Puxty’s and Coggan’s role was to bring new business to Monarch. Ms Coulter wanted to make it clear that any business and clients they brought to Monarch was done in their capacity as employees and therefore the business and/or clients belonged to Monarch;

(4)    Messrs Puxty and Coggan both held senior roles and managed the Newcastle office together. They had autonomy over a number of decisions regarding the Newcastle office and operated the office while Ms Coulter was in Sydney. She therefore had little visibility over their day-to-day activities;

(5)    the business of financial planning is about building trust and developing client relationships which are essential to ensure ongoing business. Ms Coulter thus expected that Messrs Puxty and Coggan would develop and maintain relationships with the clients they managed. In the circumstances, it would take a significant amount of time and work to rebuild the client connection once Messrs Puxty and Coggan left, particularly as they were managing clients in Newcastle meaning Ms Coulter did not have a relationship with most of those clients;

(6)    Ms Coulter was aware that, other than Mr Puxty’s shareholding in AON, Messrs Puxty and Coggan had not owned, operated or built a business from scratch as she had. Ms Coulter was concerned that they would not appreciate the hard work, effort and time that went into building client relationships and that this may result in them taking clients if either was to leave. I pause to note that Mr Puxty clarified that he did not have a shareholding in AON as asserted by Ms Coulter but that he did have an equity stake in LIFP; and

(7)    Ms Coulter was investing $100,000 into the business which would be operating off Monarch’s client base and income. She wanted to ensure that there was security for Monarch if Messrs Puxty and Coggan left.

73    The Performance Review & Bonus document for Mr Puxty provided under the heading “Bonus”:

The Employee shall be entitled to a bonus calculated at 40% of any revenue generated and received over the agreed hurdle of two (2) times the employees total remuneration package for that financial year. The revenue generated and received in each financial year, for purposes of calculating the bonus payable, will require that a maximum of 50% of the agreed hurdle be a contribution from existing client recurring revenue, excluding any preexisting recurring revenue that the Employee brings to the company from their previous clients whilst the employee was engaged with AON.

Mr Puxty explained that the bonus clause expressly excluded AON clients because those clients were “being purchased” and would contribute to his ability to acquire equity in Monarch. To that end the Performance Review & Bonus document for Mr Puxty relevantly provided under the heading “AON Clients”:

For every $50,000 worth of recurring revenue that the Employee brings to the company from their previous clients whilst the employee was engaged with AON, the company will pay the employee two (2) times recurring revenue (i.e. $100,000) within three (3) months of the recurring revenue coming across to the company. The company will retain 25% (i.e. $25,000) of any such payment in trust for a period of twenty four (24) months.

...

Upon the successful maintaining of $150,000 in recurring revenue that the Employee brings to the company from their previous clients whilst the employee was engaged with AON, noted above, for a period of twenty four (24) months, the Company will grant the Employee 5% profit shareholding in Monarch Advisory Group (A.C.N. 155 549 705).

74    Messrs Puxty and Coggan commenced their employment with Monarch on 20 December 2018. In so doing, Monarch took on a group of clients who had been brought to the business by Mr Puxty from his past roles with AON and/or WiZDOM (Puxty Clients). At the time there was one other employee of Monarch, Ms Coulter’s sister, Aleksandra Miroshnikoff, a paraplanner working two days per week. After Messrs Puxty and Coggan commenced their employment at Monarch, Ms Miroshnikoff moved to full time and worked to assist them four days per week and to assist Ms Coulter on the remaining day.

Mr Puxty and Mr Coggan work for Monarch

75    Mr Puxty recalls that in January 2019 he had a telephone discussion with Ms Coulter in which she expressed her concern about continuation of the partnership with Consolidated/Madison Marcus and, according to Mr Puxty, informed him that if she was to “walk away from Madison Marcus” she would either “put together a deal together between [them], or you can have your clients back and do your own thing”. Ms Coulter denies she made the representation to Mr Puxty about what might happen to his clients should the partnership with Consolidated/Madison Marcus not continue.

76    On 22 January 2019 Ms Coulter and Mr Puxty exchanged the following text messages:

Ms Coulter accepted that the “these” in the first of her messages was a reference to Madison Marcus and that she seems by her messages to be saying that the Madison Marcus partnership was not going to work.

77    On 29 January 2019 Ms Coulter sent two text messages to Mr Puxty, the second of which was in the following terms:

Ms Coulter accepted that if the agreement with Madison Marcus fell over, she would need to have discussions with Mr Puxty about a new arrangement, if there was going to be one going forward.

78    On 11 February 2019 Ms Coulter sent an email to Messrs Qutami and Bechara at Madison Marcus which included:

After considerable reflection I would like to start proceedings to cease our partnership.

Whilst I appreciate our recent meetings and the spirit in which they have been conducted, I don’t feel that MAG is the right fit for MM going forward. This is not a decision I have reached lightly.

The reasons for entering into an agreement with MM were very clear to me and I believed that we were very aligned for the future aspirations for the business. Our discussions that we had leading up to the signing of our agreement 12 months ago, centred around that MM was going to provide significant lead flow to MAG. The joint goal was to create a business valued at $6million in 5 years’ time to coincide with MM listing. All conversations and projections were around MM providing the leads which would result in approx. $1mil in new business each year for 5 years.

As we both acknowledge, the lead flow has not presented itself and has therefore necessitated a different strategy from MM. …

I think both parties agree that MM does not have the capacity to support the growth of MAG through referrals, as initially agreed to.

…

Despite the clear terms of her email, Ms Coulter suggested in cross-examination that the lack of referrals from Madison Marcus was not the reason why she instigated the separation. She gave evidence, which I reject, that Madison Marcus was not happy with the time it was taking to get income into the Newcastle operation. That reason is not recorded in any document to which I was taken and it is not the reason Ms Coulter put to Messrs Qutami and Bechara for wishing to terminate the partnership and bring to an end Consolidated’s 50% shareholding in Monarch.

79    On 13 February 2019 Ms Coulter and Mr Puxty had a telephone conversation in which Ms Coulter informed Mr Puxty that Monarch’s partnership with Madison Marcus was to be dissolved.

80    On 25 February 2019 Ms Coulter and Mr Puxty exchanged the following text messages:

81    On 20 April 2019 Ms Coulter sent the following text message to Mr Puxty:

Ms Coulter accepted, as is reflected in her text, that, given that the partnership with Madison Marcus had been terminated, she needed to come to a new arrangement with Mr Puxty.

82    The Amended Incentive Program required Mr Puxty to bring in $50,000 in recurring revenue bundles quarterly over 12 months. According to Ms Coulter it became clear during the first period of Mr Puxty’s employment that he was not doing so. As a result, Ms Coulter and Mr Puxty had discussions to renegotiate the Amended Incentive Program. On 8 May 2019 Ms Coulter met with Mr Puxty in Pyrmont. Ms Coulter’s husband was also present. During the meeting they had a conversation to the following effect:

Ms Coulter:    We need to discuss some alternatives for the incentive program.

Mr Puxty:    Okay. I want 50% ownership in Monarch.

Ms Coulter:    I don’t think 50/50 is fair. You are joining an existing business. I have worked to build it. It has an existing process; I have paid the set-up costs and I have developed excellent relationships with the dealer groups. I took on all the risks in starting this business, I seeded $100,000 for the expansion and I have a business loan that I am repaying to help fund the Newcastle part of the business so I cannot now give away 50% of it.

Mr Puxty:    This is two businesses merging together, not me joining Monarch. It should be 50/50. Do you not think I deserve 50%?

Ms Coulter:    It is not two businesses merging together, because we are operating off one P&L/Balance sheet. It has nothing to do with whether or not you deserve it. I cannot compromise myself to give it to you. I will consider a potential 40/60 split, but it needs to be justified by reference to the numbers you bring in and needs to recognise the significant investment I have made into Monarch.

Mr Puxty:    I have brought a lot to the table and have helped Monarch improve their processes.

Ms Coulter:    With all due respect, the processes needed updating because we went from a team of two to a team of four. Prior to you starting, the processes for Aleks and I were working perfectly well.

83    After some consideration Ms Coulter decided that there might be potential for Mr Puxty to become a shareholder in Monarch. On 13 May 2019 Ms Coulter sent Mr Puxty an email in the following terms (as produced in evidence):

OK....

So, as we discussed, I feel there needs to be some sort of ‘value’ placed on the fact that you have joined an established business. From our discussion last week, it feels that you don’t think there needs to be ‘value’ placed on this.

We are stuck between where I think the split is fair at 60 (T)/40 (B) and what you think is fair at 50/50.

You feel 50/50 is the right balance because the book value that we both bring to the table is approximately the same, along with the expertise you bring - technical/ processes etc etc

I feel 60/40 is right because ultimately I am the founder and CEO of MAG, and that you have been able to join an existing business with its infrastructure, utilise its P&L and balance sheet to get the “Newcastle” office up and running. I have had to fund the initial set up of the Newcastle business and whilst we agree that I will have this all paid back to me, this is a significant amount of money, that realistically won’t get paid back to me any time soon. Money that I don’t have. I have been the one who has had the financial risk and financial stress around this business, and I have been the one that has to worry about how we pay salaries each fortnight. I have had to get a loan to make sure there is a buffer, and it has been my personal exertion that funded this initially (in December the business account had $100k in it). Understand that the intention was to have Madison Marcus fund this, and obviously that didn’t work out (we need to park this), but at the same time we had intentions that we would also have Rex to assist funding the Francis part (we need to park this). So we are where we are.

I have calculated the funding as approx. $200k which includes 5 months of salaries and super for you, Francis and half of Aleks + FP fees (Asic & PI. Not Adviser as this doesn’t kick in until next month) + incidentals such as computers + the NAB loan and interest ($62,600 + interest).

*computers

^Repayments $2110 pm @ 36 months

I don’t think it is fair that we both have the same book, but I am negative a huge amount of money and we end up at 50/50. Hence the 60/40. I basically get paid back the deficit when we sell, OR when we start writing a shit load of new business.

The alternative is that you invest in the business and fund half of the deficit ($100k) and we go 50/50. There is not pay back to either of us, this is simply an investment into our business. And going forward, we take profits from the business 50/50..

We will need to have a strategy meeting to properly understand the way forward as far decision making goes as I get the sense that in some areas we will disagree on things and we can both be stubborn (but I assume this is what you were talking about with the three areas - overall management of the business; Advice component etc etc). We will probably have to constitute a Board of some description so make sure that if we cannot agree, there is a way forward etc etc.

84    Mr Puxty agreed that at the time of receipt of Ms Coulter’s email (see preceding paragraph) there was no change to the arrangement he had with Monarch as set out in the Puxty Employment Agreement and the Performance Review & Bonus document, although at the time the fundamental premise of the latter had, from his perspective, gone away. Ms Coulter’s email put forward an alternative to the Amended Incentive Program recorded in the Performance Review & Bonus document.

85    In June 2019 and subsequently Ms Coulter and Mr Puxty discussed potential business arrangements and how they might move forward.

86    On 7 June 2019 Ms Coulter and Mr Puxty had another discussion about Mr Puxty’s employment with Monarch. Ms Coulter recalls that during the discussion she expressed her frustration about Mr Puxty’s financial contributions to Monarch and that he was well short of meeting his target of bringing $200,000 in recurring revenue. Ms Coulter does not recall what she in fact said but recalls telling Mr Puxty that she was frustrated because Monarch had invested so much money into setting up an office in Newcastle for Messrs Puxty and Coggan and they were not meeting their end of the bargain. Ms Coulter recalls that toward the end of their conversation, an exchange to the following effect took place:

Mr Puxty:    Francis and I are contemplating leaving. My friendship with you is too important, and it is being affected by being in business together.

Ms Coulter:    I think it is too soon to jump the gun given we have come this far and I have invested so much time and money.

Mr Puxty:    I will think about it over the weekend.

Mr Puxty says that, insofar as Ms Coulter might be suggesting otherwise, there was no agreement reached about his ongoing involvement in Monarch’s business. According to Mr Puxty, his involvement had always been predicated upon Madison Marcus being a part of the business and, by June 2019, there was no longer any prospect of that.

87    Following the weekend Ms Coulter and Mr Puxty had a further conversation in which Mr Puxty informed Ms Coulter that he and Mr Coggan would stay with Monarch.

88    According to Mr Puxty he met with Ms Coulter on 12 July 2019 at a café in Tuggerah, New South Wales and had a discussion to the following effect:

Ms Coulter:    I’ve decided to agree to the ownership split at 50/50 but no name change, or entity change. We still need to discuss finances moving forward and remember, we can only register the change in ownership after my house finance comes through. Can you provide a loan of $50,000.00 to help with a business tax debt?

Mr Puxty:    I can lend you $30,000.00 which you can repay from [Monarch] cashflow or within a reasonable time if we can’t come to a partnership agreement.

Ms Coulter:    OK, thanks. You know l won’t screw you over.

Ms Coulter denies that she had a conversation in the terms alleged above. She says that she and Mr Puxty never agreed on a 50/50 equity split. I accept Ms Coulter’s evidence. Mr Puxty’s evidence is inconsistent with Ms Coulter’s evidence on this topic and, in particular, with the contemporaneous documentary evidence, namely her email dated 13 May 2019 in which she suggested a 60/40 split in her favour and explained her rationale for doing so (see [83] above).

89    On 15 July 2019 Mr Puxty contacted Ms Coulter. Ms Coulter says that the purpose of the discussion was to discuss a salary increase for Mr Puxty from his current salary of $130,000 plus super, while Mr Puxty says the purpose of the conversation was to discuss the terms and conditions upon which Mr Puxty would consider joining Monarch as a shareholder and thus commit to the business on an ongoing basis. The true purpose of the conversation and what each of Ms Coulter and Mr Puxty recall was said is of little, if any, relevance. The effect of their conversation is best gleaned from the email sent by Ms Coulter to Mr Puxty on 15 July 2019 following their discussion in which Ms Coulter wrote:

Thought I would email you an overview of our discussion this morning.

For us to bring your salary to $150,000 + Super the difference per fortnight will be:

Current
Salary $3528
Super $475
Tax $1472

Proposed
Salary $3999.23
Super $548.08

Tax $1770

Difference per fortnight is $842.

I think we should be able to cover this going forward, and then in the short term (hopefully only this year) we will make up the difference with profit.

Our costs per annum are currently: $580k, this will bring it up to $600k. Obviously this will go up if we ever find you an office space.

However, conservatively, if we assume that my ongoing income is $180k and yours will be around the same, that means $360k pa. If we assume that we both write $150k in new business then there will be approx $60k in profit. I think this is reasonable to expect over this FY, given I usually write between $150 - 180k pa in new business. Last financial year was approx $160k

Any left over profit can go towards the principle debt (your bank loan). I’m not worried about the NAB debt as [Monarch] is paying this back over 3 years.

90    In September 2019 Mr Puxty incorporated Odyssey. At the time of its incorporation all of the shares were owned by Mr Puxty’s family trust. Mr Coggan did not become a director of Odyssey until sometime later.

Messrs Puxty and Coggan have a change of heart

91    On or about 8 November 2019, Mr Puxty informed Ms Coulter that he and Mr Coggan were thinking about leaving Monarch. Following that meeting, Ms Coulter sent Mr Puxty a “spreadsheet” of costs to work through.

92    On 29 November 2019 Ms Coulter and Mr Puxty met. While they do not agree on the content of the discussion which took place it is common ground that the purpose of the meeting was to discuss the terms of Messrs Puxty’s and Coggan’s exit from Monarch.

93    On 17 January 2020 Ms Coulter and Mr Puxty met again. Ms Coulter recalls that at this meeting Mr Puxty informed her that Mr Coggan had bought a book with recurring income of just under $500,000 from a Glenda Chase, an opportunity which he had come across at the RI Newcastle advisors’ dinner held in October 2019 and that he was also leaving Monarch.

94    Ms Coulter understood from her conversation with Mr Puxty on 17 January 2020 that they were “on the same page” in that if Mr Puxty was to leave and take his clients with him, he would be required to compensate Monarch for the costs and expenses it had incurred in employing and supporting him and Mr Coggan. Ms Coulter wanted to maintain her friendship with Mr Puxty and to have him leave on good terms. Following their meeting Ms Coulter prepared and sent a spreadsheet to Mr Puxty which set out the costs. The covering email dated 17 January 2020 included:

Have a look and let me know what you think.

I think I have captured everything. I have a line item of “incidentals” which I have added because I’m sure I have missed something like interest paid to ATO/ one off charges in the set up etc.

Note the Xmas party was Coulter funded, not MAG.

The income figures are to 14/1 which do not include this weeks income (approx $1300) - we can add that in when we do the final ‘wash up’ closer to the 31st.

Let me know if anything doesn’t add up and let’s discuss final steps.

Hopefully your discussion goes well with [Mr Coggan] tomorrow. I’ve given Joseph the heads up on where you and I are at, and the fact that I don’t foresee any issues in signing over all your clients on, or leading up to 31/1. Of course, anything that comes over once your (sic) have left I will send across to you. I have no issue in sharing with you the remuneration report for the first month or until you are confident that everything has moved to you.

95    Mr Puxty denies that there was ever any agreement reached to the effect that he would only be entitled to take his clients upon leaving Monarch in return for paying compensation to Monarch. Rather, Mr Puxty was looking to achieve a resolution that was both commercial and which would increase the prospects of preserving his friendship with Ms Coulter.

Messrs Puxty and Coggan resign from Monarch

96    On 20 January 2020 Ms Coulter received letters of resignation dated 17 January 2020 from each of Messrs Puxty and Coggan giving two weeks’ notice of their intention to resign.

97    Messrs Puxty’s and Coggan’s employment with Monarch ended on 31 January 2020. At the time Monarch had about 220 clients in its Sydney office and 140 clients in its Newcastle office.

98    In late January and February 2020 Ms Coulter and Messrs Puxty and Coggan attempted to resolve the issues that arose between them following Messrs Puxty’s and Coggan’s resignations from Monarch. Ms Coulter sought payment to cover costs incurred in return for release of Mr Puxty’s clients. It is only necessary to set out aspects of two of those exchanges on which Mr Puxty relies.

99    First, on 25 February 2020, in response to an email from Mr Puxty sent on 24 February 2020 seeking to resolve their dispute either by payment by Monarch to Messrs Puxty and Coggan of the amount they claimed was due pursuant to the terms of the Performance Review & Bonus document or transfer of the clients they introduced to Monarch, Ms Coulter sent an email which included:

Thank you for your email below.

As you are aware, the purchase of your clients was a program that was relevant whilst Monarch (MAG) was partnered with Madison Marcus (MM);

…

As you know, the partnership between MM and MAG dissolved on 1/3/2019, and since then you and I have had several discussions around what our ‘partnership’ would look like going forward as purchasing your book of clients was no longer relevant nor feasible for MAG.

…

You sent me a list of Wizdom clients on 19/11/2018 as a prerequisite to MM/MAG finalising the employment agreement.

…

[D]iscussions around the purchase ceased in March 2019, and above all, this agreement was not executed and was made null and void in March 2019,

…

100    Secondly, on 8 March 2020 Ms Coulter sent an email to Peter Ornsby of RI Advice seeking to explain Monarch’s dispute with Mr Puxty which included:

March - July 2019

- MAG ceased their partnership with MM as we were not receiving the anticipated referrals; and therefore the purchase of Brett’s book at 2x recurring revenue was null and void.

…

- Brett maintained until 17 January that he didn’t know what he was going to do and most likely would join Francis. Up until 20 December we were still discussing options on how to stay together, even running new financial forecasts

…

Pete, I know that the restraint route is tricky and messy however I have to recover costs and by keeping him and Francis on restraint it will go some way to recovering these costs.

…

101    Ms Coulter was cross-examined in relation to her emails sent on 25 February 2020 and 8 March 2020. She maintained that to the extent she expressed the view in those emails that the agreement relating to the purchase of Mr Puxty’s book was “null and void” once Monarch ceased its partnership with Consolidated/Madison Marcus, she was referring only to the Amended Incentive Program set out in the Performance Review & Bonus document and not the Puxty Employment Agreement.

102    The negotiations between Ms Coulter and Messrs Puxty and Coggan did not result in a resolution of the dispute.

103    On 26 August 2020 Monarch commenced this proceeding.

Odyssey Advisory Services

104    In about March 2020 Ms Coulter became aware of Odyssey’s earlier incorporation in September 2019.

105    In evidence before me were a series of emails and calendar invitations in the period 3 February 2020 to 18 June 2020 from Messrs Puxty or Coggan to various clients or to Janine Moore, who was an employee of Odyssey. Although this correspondence post dates the termination of their employment with Monarch, at least in the earlier in time correspondence Messrs Puxty and Coggan contacted the clients using their Monarch email addresses. They continued to use those email addresses by agreement with Ms Coulter as Odyssey could not in fact trade at that point because it had not yet been appointed as an authorised representative. It was not in dispute that some of those clients became clients of Odyssey shortly thereafter.

106    By 2 March 2020 Messrs Puxty and Coggan had started operating through Odyssey. There was further evidence that at least Mr Puxty was in contact with clients he and Mr Coggan had provided services to while at Monarch. Some examples follow.

107    On 3 March 2020 Mr Puxty forwarded to Ms Coulter an email he had received from Hope Langman in relation to her and Mr Langman’s TAL insurance policies. Also on 3 March 2020 Ms Coulter sent an email to Ms Langman informing her, among other things, that Messrs Puxty and Coggan were no longer employed by Monarch and asking when a good time would be to discuss options about the policies. In response, Ms Langman sent an email to Ms Coulter in which she wrote:

Thanks Tatiana I will deal with this myself. I no longer require services from Monarch. Thank you very much, Hope

108    On 4 March 2020 Ms Langman forwarded her email to Ms Coulter to Mr Puxty and in the same email informed Mr Puxty that “[w]e would like to have yourself at Odyssey Advisory look after our policies”. Mr Puxty could not recall if he responded to Ms Langman’s email.

109    On 3 March 2020 Ms Coulter sent an email to Jason and Sharon Street informing them, among other things, that Messrs Puxty and Coggan were no longer employed by Monarch and inviting them to contact her. She also informed Mr and Mrs Street that Messrs Puxty and Coggan were subject to “ongoing non-compete obligations”. In response Mr and Mrs Street sent an email to Ms Coulter informing her that they would like Messrs Puxty and Coggan to continue to look after them and asking her to “confirm Brett & Francis have permission from Monarch to continue looking after our needs”. They forwarded their email to Mr Puxty who responded on 4 March 2020 noting that he looked forward to continuing looking after them. Although he cannot recall, Mr Puxty accepted that he probably spoke with Mr and Mrs Street and gave them details of the new business, Odyssey.

110    Also on 3 March 2020 Ms Coulter sent an email to Anthony Munzenberger in substantially the same terms as her email to Mr and Mrs Street. On 4 March 2020 Mr Munzenberger forwarded Ms Coulter’s email to Messrs Puxty and Coggan informing them that in regards to Ms Coulter’s email, “Amanda and I would like to insist that all of our current insurance covers, be managed by Odyssey Advisory Services moving forward.” Mr Puxty responded to Mr Munzenberger two minutes later expressing his appreciation and indicating that they would “be in touch shortly.” Again, although Mr Puxty cannot recall having a discussion with Mr Munzenberger prior to 4 March 2020, he accepted that he spoke with Mr Munzenberger after Mr Munzenberger received Ms Coulter’s email during which discussion Mr Puxty provided his contact details at Odyssey.

111    On 7 April 2020 Ms Coulter became aware that Mr Puxty had been soliciting Monarch’s clients as she had access to them through the XPlan software program. Ms Coulter then undertook further investigations and discovered several instances where Messrs Puxty and Coggan or Odyssey employees had contacted Monarch’s clients.

Monarch sells its business

112    On 21 December 2020 Monarch entered into a business sale agreement with Newlane for sale of its client book. The sale of Monarch’s client book included all of Monarch’s long term clients as well as eight of Mr Puxty’s clients.

113    On 2 February 2021 the sale agreement settled. A “total book value” (TBV) figure was used to calculate the different components of the sale price. Ms Coulter explains that the TBV was calculated as follows:

(1)    Monarch’s gross annual trail commission (also referred to as insurance recurring revenue) multiplied by 2.7; plus

(2)    Monarch’s gross current advice fees (also referred to as advice fee revenue) multiplied by 2.

The gross annual trail commission and gross current advice fees are, in the balance of these reasons, collectively referred to as recurring revenue.

114    Monarch’s recurring revenue was calculated pursuant to a report which is Sch 4 to the sale agreement from which Ms Coulter excluded clients that Mr Puxty said were his other than Louise Goodwin, Ian Goodwin, Bradley Stephenson, Steven Muraro, Emilia Muraro, Paul Taylor, Joanna Taylor and Lynee McNab (Monarch Clients). Ms Coulter proceeded this way because, by the time Monarch entered into the sale agreement, Messrs Puxty and Coggan had taken a large number of the Puxty Clients and she was not sure which other clients they would try to take. Ms Coulter did not want Newlane to pay a figure which included these clients only for them to leave, which would impact the deferred purchase price and incentive payment payable pursuant to the sale agreement. The reason the Monarch Clients remained in the trail book is because they had remained with Monarch.

115    As at the date of the sale agreement Monarch’s recurring revenue was $272,423 comprising:

(1)    $252,274 in insurance recurring revenue; and

(2)    $20,149.35 in advice fees.

116    The recurring revenue was multiplied by 2.7, totalling $681,139.80.

117    As to the advice fees, Monarch and Newlane agreed a figure of $18,000 due to various adjustments between the date of the sale agreement and settlement. The agreed figure of $18,000 was multiplied by 2 in accordance with the sale agreement, totalling $36,000.

118    The purchase price was made up of the two amounts set out in the two preceding paragraphs, $717,139.80 and by agreement rounded up to $720,000. The purchase price was paid in two instalments: an initial payment of $504,000 (inclusive of a $5,000 holding deposit) being 70% of TBV; and a deferred amount of $216,000 payable 15 months from the date of the sale agreement, being 30% of TBV.

119    The sale agreement also provided for an incentive payment in addition to the purchase price calculated as 5% of the TBV and only paid if, as of May 2022, the number of Monarch’s clients was the same as or more than the number of Monarch’s clients as at February 2021. This payment, in the sum of $36,000, was made in about May 2022.

THE PLEADED CLAIMS

Monarch’s claim against Messrs Puxty and Coggan

120    Given the abandonment of most of its pleaded claims, Monarch’s case is now limited to the Restraint Clause and Monarch’s allegation that Messrs Puxty and Coggan each breached that clause of their respective Employment Agreements. No claim is now made nor relief sought against Odyssey.

121    As against Messrs Puxty and Coggan, Monarch contends that in breach of the Restraint Clause, following termination of their employment on 31 January 2020, Messrs Puxty and Coggan:

(1)    solicited, attempted to solicit and accepted instructions to perform work for a number of clients in their own capacity and also in their respective capacity as a director, representative and/or employee of Odyssey;

(2)    utilised and otherwise accessed Monarch’s “Confidential Information”, including client lists and client details in their own capacity and also in their respective capacity as a director, representative and/or employee of Odyssey; and

(3)    encouraged, condoned and enticed each other to engage in conduct in breach of the Restraint Clause.

122    Monarch alleges that by reason of the breaches by Messrs Puxty and Coggan of their respective Employment Agreements, it has suffered loss and damage, the particulars of which are:

(1)    loss of profits between 31 January 2020 and completion of the sale of the business on 2 February 2021;

(2)    loss of valuable opportunity to inter alia sell the business at a higher price than the purchase price because of those breaches; and

(3)    other loss and damage arising as a result of breaches of the Restraint Clauses, including as a result of clawbacks.

123    In their defence the respondents:

(1)    in the case of the alleged breach by Mr Puxty of the Puxty Employment Agreement, deny that they breached that agreement as alleged and say that, in the event that the partnership with Consolidated/Madison Marcus did not proceed, Monarch consented to Mr Puxty performing work for the clients he had brought into the business operated by Monarch in or about late 2018 and during 2019 ( i.e. the Puxty Clients) after termination of his employment. Put another way, the respondents say that Monarch gave its consent in relation to those clients for the purpose of the Restraint Clause if the arrangement with Consolidated/Madison Marcus did not eventuate;

(2)    in the case of the alleged breach by Mr Coggan of the Coggan Employment Agreement, deny that he breached that agreement; and

(3)    deny that Monarch is entitled to damages as claimed.

Mr Puxty’s and Odyssey’s cross-claim

124    In the Amended CC Mr Puxty and Odyssey contend that:

(1)    Monarch has delayed and/or failed to return to Mr Puxty and Odyssey the Puxty Clients in circumstances where:

(a)    Mr Puxty’s agreement to join Monarch (including bringing to Monarch the Puxty Clients) was predicated on the arrangement between Monarch and Consolidated/Madison Marcus being and remaining in place and in particular that Consolidated/Madison Marcus would refer clients to Monarch for the provision of advisory services;

(b)    if the arrangement between Monarch and Consolidated/Madison Marcus ceased and/or failed to provide sufficient referrals to Monarch, Ms Coulter and Mr Puxty had agreed that Mr Puxty would be entitled to take back the Puxty Clients and conduct business on his own account; and

(c)    despite the cessation of the arrangement between Monarch and Consolidated/Madison Marcus, Ms Coulter has delayed and/or failed to return to Mr Puxty and Odyssey the Puxty Clients thereby causing loss in the form of lost revenue; and

(2)    Monarch owes a debt to Mr Puxty in the amount of $30,000, or alternatively Monarch is liable to Mr Puxty for damages in that amount, arising from a loan that Mr Puxty made available to Monarch at the request of Ms Coulter in or about July 2019.

125    Monarch filed a defence to the Amended CC. However, given its position in relation to the Amended CC (see [6] above) it is not necessary to set it out. In any event, it is apparent that should Mr Puxty establish that there was an agreement in relation to the Puxty Clients after termination of his employment, as he alleges in his defence to the ASoC, then the first aspect of the Amended CC is established. Monarch accepts that if it is successful in establishing breach of the Restraint Clause then the amount of $30,000 paid by Mr Puxty to it should be deducted from any damages awarded to it.

CONSIDERATION

126    Three questions arise for consideration:

(1)    did Monarch consent to Mr Puxty breaching the Restraint Clause in the Puxty Employment Agreement?

(2)    if not, is the Restraint Clause enforceable?

(3)    if there has been a breach of the Restraint Clause by either Mr Puxty and/or Mr Coggan, what damages should be awarded to Monarch?

127    Mr Coggan does not advance a defence that he was entitled to breach the Restraint Clause. However, to the extent that the alleged breach of the Restraint Clause only concerns the Puxty Clients, it seems to me that, should Mr Puxty be successful on question 1 set out in the preceding paragraph, that conclusion will be a compete answer to the case against Mr Coggan. Further, contrary to Monarch’s submission the question of enforceability of the Restraint Clause applies equally to the Coggan Employment Agreement as it does to the Puxty Employment Agreement.

The first question – did Monarch consent to Mr Puxty breaching the Restraint Clause?

128    The respondents submit that Monarch gave its prior consent for the purpose of the Restraint Clause in that it permitted him to take his clients with him in the event the partnership with Consolidated/Madison Marcus did not proceed and he left Monarch’s employ. The principal text message on which they rely in support of that submission and to establish the defence is that sent by Ms Coulter on 28 November 2018 (see [60(3)] above) and, in particular the final part of that exchange where Ms Coulter asked Mr Puxty if he would “move those clients that are at risk of not moving” and the messages that followed. However, the respondents do not rely solely on that exchange. The respondents also rely on the text messages from Ms Coulter to Mr Puxty sent on 7 and 8 November 2018 (see [42] and [48] above).

129    The respondents also refer to examples of Ms Coulter’s evidence where, in cross-examination, she suggested that propositions put to her involved matters taken out of context and adopted the practice of identifying that propositions put to her were only partially correct which, while occasionally not inappropriate, largely reflected an evasiveness and unwillingness on her part to accept the accuracy of simple propositions put to her.

130    Ultimately the respondents rely on the contemporaneous documents and Ms Coulter’s admissions which they say identify the relevant context and provide corroboration of the literal meaning of the 7 November 2018 and 28 November 2018 text messages.

131    Based on the facts before me I am of the view that Monarch did not give its prior consent for the purpose of the Restraint Clause. It did not consent to Mr Puxty breaching that clause should the partnership with Consolidated/Madison Marcus not proceed and Mr Puxty then leave Monarch. My reasons follow.

132    As set out above, the respondents’ case principally relies on the text message exchange on 28 November 2018 (see [60] above) and, for context, the text message exchange on 7 November 2018 (see [42] above) as well as evidence given by Ms Coulter in cross-examination to establish that Monarch, through Ms Coulter, gave its prior consent for the purpose of the Restraint Clause.

133    However, as both parties accept, it is necessary to have regard to the entire text message exchange between Ms Coulter and Mr Puxty and the surrounding circumstances. When that is done the following facts are established:

(1)    on or about 6 September 2018 Ms Coulter and Mr Puxty met with Mr Kardum of Consolidated/Madison Marcus to discuss Mr Puxty’s potential involvement with Monarch. At about that time Ms Coulter, on behalf of Mr Kardum, requested a copy of Mr Puxty’s employment agreement with WiZDOM (see [40] above);

(2)    on 7 November 2018 Ms Coulter and Mr Puxty exchanged text messages (see [42] above). That exchange included a message from Ms Coulter in which she said “claw back on the book we buy from you within a certain time frame if you leave/take clients”. Mr Puxty relies on this email for context and as an unequivocal statement by Ms Coulter on behalf of Monarch as to what would happen if Mr Puxty was to leave. However, this statement is to be viewed as part of the chronology of events. Ms Coulter made the statement at a time when she had not seen Mr Puxty’s employment agreement with WiZDOM after which the negotiations further developed as described below;

(3)    Mr Puxty did not immediately provide his WiZDOM employment agreement and on 8 November 2018 Ms Coulter sent a text message asking him to do so. Mr Puxty responded by email providing a copy on the same date (see [45] above);

(4)    after receipt of the WiZDOM employment agreement, Ms Coulter sent a text message to Mr Puxty in which she said:

“Spoke to Mario – he may call you to clarify. Their concern is that it is not in the contract that your clients a carved out of the restraint period. Etc etc

We will work through it – they are just concerned that you may not be able to TFR $50k day one”

(5)    as Monarch submits, at this point there was a concern about Mr Puxty’s ability to solicit clients he had serviced at WiZDOM which was likely to impact on the terms of his agreement with Monarch;

(6)    on 8 November 2018 at 1.31 pm Ms Coulter sent a further text to Mr Puxty in which she noted, among other things, that she had sent “your and asked for your contract ASAP. HR are writing it up” (see [48] above);

(7)    on 11 November 2018 Mr Puxty and Ms Coulter had a conversation in which Ms Coulter conveyed the board’s concern about the restraint in the WiZDOM contract and the feeling that Mr Puxty had lied to them about it. Mr Puxty indicated that he had emailed Mr Ducat and had received a response to the effect that as long as a client had been on the books with WiZDOM for 12 months Mr Puxty could take them at the expiry of his restraint period (see [50] above);

(8)    on the morning of 14 November 2018 Ms Coulter sent a text message to Mr Puxty suggesting that he get a “negative consent” position with WiZDOM in relation to those clients with which he wished to deal. Later that day Mr Puxty noted that “the majority of the $50k came across Nov/Dec/Jan” and thus he had almost reached the 12 month mark such that he would be able to solicit them soon (see [51] above);

(9)    on 14 November 2018 at 8.20 pm Mr Puxty forwarded his email exchange with Mr Ducat to Ms Coulter (see [52] above);

(10)    on 19 November 2018 Ms Coulter sent the text message to Mr Puxty set out at [56] above;

(11)    on 23 November 2018 in response to a light-hearted text message from Ms Coulter about employment with Monarch Mr Puxty responded “haven’t seen the contract yet so don’t know what you are talking about”. Mr Puxty accepted that he was somewhat frustrated by this state of affairs (see [58] above);

(12)    on 26 November 2018 Ms Coulter sent the text message to Mr Puxty set out at [59] above;

(13)    on 28 November 2018 Ms Coulter and Mr Puxty exchanged text messages (see [60] above). They included:

(a)    at 4.03 pm a message from Ms Coulter to Mr Puxty in which she stated “how much $$ is family and friends on the list?”;

(b)    at 6.39 pm Ms Coulter sent the following message:

I’m going to resend the spreadsheet with realistic numbers vs conservative. $10K from Brett? $4k from Francis

I’ll also send out a case study just to get you on board as critical saying we can hold off on Rex till March/April.

And in response Mr Puxty said:

Sounds good. Let me know if I can fuck it up any further.

In cross-examination Mr Puxty accepted that his communication was to convey the message that he had “messed up” the deal because he had “failed to deal with the restraint issue before entering into negotiations”;

(c)    Ms Coulter responded stating that she was “going to have a very frank conversation with Mario [Kardum] tomorrow and tell them they are not treating this like a partnership and I’m having second thoughts. Then you and I can figure something out”. The evidence given by Mr Puxty in cross examination about this text message is set out at [61] above. His view was that at the time Ms Coulter was concerned about the lack of progress on the employment agreements for him and Mr Coggan; and

(d)    the text exchange continued as set out at [60(3)] above. Mr Puxty relies on the final part of the exchange namely:

Ms Coulter:    Can you move those clients that are at risk of not moving to me? As a temporary measure?

It can still be mag Newcastle advisor code but I can send them my fsg.

Mr Puxty:     We’ll see

Ms Coulter:     You know I wouldn’t fuck you over – ie if this all falls over you can transfer them back. This will work – its just taking much longer than expected … clearly

And I will put that in writing!

Mr Puxty:     I trust you.

(14)    however, as Monarch submits that part of the text exchange cannot be taken in isolation. When the entire exchange which took place on 28 November 2018 is considered the reference to “if this falls over” must in my view be a reference to Monarch’s proposed employment of Messrs Puxty and Coggan. That is because:

(a)    earlier in the conversation, Mr Puxty had thought he had “messed up the deal” because he had “failed to deal with this restraint issue before entering into negotiations”;

(b)    Mr Puxty acknowledged in evidence that Ms Coulter’s “second thoughts” concerned his prospective employment. While he tried to resile from that evidence his understanding was ultimately clarified in the following exchange with counsel for Monarch:

Mr Mahendra:    You understood, and looking at page 54 [of Exhibit D], you understood, based on the discussions you were having with Ms Coulter at this time, that the representation that was made to you was, if you transfer those clients prior to the commencement of your employment and it falls over, in the sense you don’t commence employment, Ms Coulter would transfer them back to you. You understood that, didn’t you?

Mr Puxty:    Understood she would send them back.

(c)    the only concern that had been expressed throughout the exchange was about Mr Puxty’s employment with Monarch as opposed to any issue with Madison Marcus at the time; and

(15)    relevantly following the text message exchange on 28 November 2018:

(a)    Mr Puxty negotiated and entered into the Puxty Employment Agreement;

(b)    despite Mr Puxty seeking amendments to the Puxty Employment Agreement, he did not seek and it did not contain any term consistent with his contention or recording Monarch’s consent to the effect that if the Madison Marcus partnership fell over, he could take his clients with him. Although not determinative, I also observe that Mr Puxty acknowledged that his failure to obtain in writing a similar carve out in his employment agreement with WiZDOM was an issue in relation to his onboarding with Monarch such that the issue of restraint clauses and appropriate documentation of any agreed variation thereof would reasonably have been at the fore of Mr Puxty’s mind;

(c)    to the contrary, the Puxty Employment Agreement included the Restraint Clause which had no carve outs to record Monarch’s alleged consent. Similarly, no such consent was recorded in any other document at the time of execution of the Employment Agreements; and

(d)    the Puxty Employment Agreement contained as cl 15 an entire agreement clause in the terms set out at [68] above.

134    In relation to the latter, the respondents submit that cl 15 does not assist Monarch because the provision of consent in accordance with the Restraint Clause is not inconsistent with, or a variation of, the Employment Agreements, but a potential step expressly contemplated by the Restraint Clause which fell within the power of Monarch to take or not take. The difficulty with this submission is that the respondents have not established that Monarch gave its consent to Mr Puxty to deal with his clients after termination of his employment and contrary to the Restraint Clause. Accordingly, it is not necessary to address the submission any further.

135    The respondents also seek to rely on post contractual conduct, that is the exchanges between Ms Coulter and Mr Puxty in the period after Messrs Puxty and Coggan entered into the Employment Agreements and Ms Coulter terminated the partnership with Consolidated/Madison Marcus.

136    In Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 Basten JA (with whom Gleeson JA agreed) in considering the question of the ability to rely on evidence of post contractual conduct to construe the terms of a contract said at [120]-[122]:

120    There are difficulties attending the use of post-contractual statements to construe the terms of a contract. It is an accepted principle that anything which the parties said or did after a contract was made cannot be used “as an aid in the construction of” the contract: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at [35] (Gummow, Hayne and Kiefel JJ), referring to the statement of Lord Reid in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603. That principle derives from the “objective” theory of contract, which provides that the legal obligations of the parties to the contract do not depend upon their subjective beliefs but upon the view of the reasonable bystander informed as to the surrounding context and circumstances, which in practice means the view of the court based on the evidence before it: Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749 at 775 (Lord Hoffmann); Wilson v Anderson [2002] HCA 29; 213 CLR 401 at [8] (Gleeson CJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 WLR 1988 at [16] (Lord Hoffmann, PC); and see Lewison and Hughes, The Interpretation of Contracts in Australia (Law Book Co, 2012) at [2.04]-[2.05].

121    On the other hand, where it provides evidence of facts, the assertion of which is against the interests of one party, it may be admissible as an admission by that party. However, to the extent that the evidence reveals an opinion as to a question of law rather than fact, the admission may be irrelevant or valueless. (The relevant authorities were collected by Campbell JA in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 and in Lym International Pty Ltd v Marcolongo [2011] NSWCA 303.) Alternatively, the evidence may establish contextual facts in existence at the time the contract was executed.

122    These principles apply to the determination of the meaning of a written document. However, in this case, as succinctly stated by Spigelman CJ in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [7]:

“The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?”

137    Here, the respondents rely on Ms Coulter’s post contractual conduct as evidence of the facts or as evidence of a relevant surrounding circumstance known to both contracting parties at the time they entered into the contract: see Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd (2014) 47 WAR 522 at [50]. That is, as evidence that both Monarch and Mr Puxty proceeded on the basis that Monarch gave its consent to Mr Puxty taking his clients if the partnership with Consolidated/Madison Marcus did not proceed and he then left Monarch’s employment.

138    The principal post contractual discussions relied on by the respondents are set out above. They do not assist Mr Puxty. They concern negotiations about how Mr Puxty might take an equity share in Monarch given the termination of the partnership with Consolidated/Madison Marcus. In other words, they concern the Performance Review & Bonus document and not the terms of the Puxty Employment Agreement. It was the former which Ms Coulter on behalf of Monarch was prepared to renegotiate but otherwise the Puxty Employment Agreement remained in place.

139    It follows from the above that Monarch did not give its consent for the purposes of the Restraint Clause. The respondents have not made out that part of their defence. It also follows by reason of that conclusion that Mr Puxty and Odyssey have not made out their contention in the Amended CC that Monarch has delayed and/or failed to return to Mr Puxty and Odyssey the Puxty Clients.

The second question: is the Restraint Clause enforceable?

140    It is not in dispute that the Restraint Clause constitutes a restraint of trade pursuant to s 4 of the Restraints of Trade Act 1976 (NSW) (RoT Act) which provides that 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”: s 4(1) RoT Act. Section 4(3) of the RoT Act provides:

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 restrain is not against public policy) as the Court thinks fit and any such order shall, notwithstanding subsection (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.

141    In Stacks Taree v Marshall [No.2] [2010] NSWSC 77 McDougall J adopted the following summary of principles, subject to some minor modifications which it is not necessary to set out, in relation to restraints under the common law and the RoT Act at [44]:

The principles relevant to the validity of restraint of trade clauses are as follows:

(a)    At common law, a restraint of trade is contrary to public policy and void, unless it can be shown that the restraint is, in the circumstances of the particular case, reasonable: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] 1 AC 535 at 565; Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Co Pty Ltd (1973) 133 CLR 288 at 315.

(b)    In New South Wales, it is not strictly correct that a restraint is prima facie void; a restraint is valid to the extent to which it is not against public policy, even if not in severable terms: Restraints of Trade Act (NSW), section 4(1): see Koops Martin v Reeves [2006] NSWSC 449 at [27] per Brereton J.

(c)    The onus at common law of showing that the restraint goes no further than is reasonably necessary to protect the interests of the person in whose favour the restraint operates, lies on the party seeking to support the restraint as reasonable: Adamson v New South Wales Rugby League Limited (1981) 27 FCR 535 at 554 per Hill J and North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461 at 470 per Viscount Haldane LC.

(d)    The onus of establishing that a contract in restraint of trade is injurious to the public interest lies on the party alleging that this is so: see for example Attorney General of Australia v Adelaide Steamship Co Ltd [1913] AC 781 at 797.

(e)    The Court gives considerable weight to what parties have negotiated and embodied in their contracts, but a contractual concensus cannot be regarded as conclusive, even where there is a contractual admission as to reasonableness: see Woolworths Ltd v Olson [2004] NSWCA 372 at [39].

(f)    The validity of the restraint is to be tested at the time of entering into the contract and by reference to what the restraint entitled or required the parties to do rather than what they intend to do or have actually done: see Woolworths Ltd v Olson [2004] NSWCA 372 at [40].

(g)    The test of reasonableness is measured by reference to the interests of the parties concerned and the interests of the public: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535. The requirement that the restraint be reasonable in the interests of the parties means that the restraint must afford no more than adequate protection to the party in whose favour it is imposed: Herbert Morris Ltd v Saxelby [1916] 1 AC 688 at 707; Buckley v Tutty (1971) 125 CLR 353 at 376; Linwar Securities Pty Ltd v Christopher Savage [2006] NSWSC 786 at [25] and [26] per Nicholas J; and Koops v Martin v Reeves [2006] NSWSC 449 at [28] per Brereton J.

(h)    An employer is not entitled to require protection against mere competition: Dewes v Fitch (1920) 2 Ch 159 at 181; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329 per Gleeson CJ. Covenants that restrain competition are invalid unless they are reasonably necessary to protect legitimate business interests: see for example Harlow Property Consultants Pty Ltd v Byford [2005] NSWSC 658 at [24] and [25] per White J.

(i)    An employer is entitled to protection against the use by the employee of knowledge obtained by him of his employer’s affairs in the ordinary course of trade: Dewes v Fitch (1920) 2 Ch 159 at 181. A restraint clause will be invalid unless it is necessary to prevent disclosure of trade secrets or use of a connexion built up by the employee with customers: JD Heydon, The Restraint of Trade Doctrine (Butterworths, 2nd edition, 1999) at 66; Aussie Home Loans v X Inc Services [2005] NSWSC 285 at [14] per White J.

(j)    The relevant knowledge must be more than simply the skill and knowledge necessary to equip the employee as a possible competitor in the trade, but the obtaining of personal knowledge of and influence over the customers of his employer, or such an acquaintance with his employer’s trade secrets as would enable him to take advantage of his employer’s trade connection or utilise information confidentially obtained: Dewes v Fitch (1920) 2 Ch 159 at 181.

(k)    An employer’s customer connection is an interest which can support a reasonable restraint of trade, but only if the employee has become, vis-a-vis the client, the human face of the business, namely the person who represents the business to the customer: see for example Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9 at [25] per Brereton J; and Kearney v Crepaldi & Ors [2006] NSWSC 23 at [51] to [53] per McDougall J.

(l)    The effect of the Restraints of Trade Act 1976 (NSW) is to allow the restraint to be read down so as to be valid to the extent necessary only to capture the conduct of the defendant, if that extent would have been valid. However, the Act does not allow the Court to remake the contract or a covenant in the contract: Orton v Melman (1981) 1 NSWLR 583; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 at 329; Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 (NSW Court of Appeal) at 43,833. Whilst the Court is permitted to read down the clause if the clause is so capable, it cannot be re-drafted: Kone Elevators Pty Ltd v McNay (1997) ATPR 41-564 (NSW Court of Appeal) at 43,833; Woolworths v Olson [2004] NSWCA 372.

142    In Woolworths Ltd v Olson [2004] NSWCA 372 the New South Wales Court of Appeal (Mason P, McColl and Bryson JJA) said in relation to the application of s 4 of the RoT Act at [42]:

This provision was authoritatively expounded by McClelland J in Orton v Melman [1981] 1 NSWLR 583. First, the court determines whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed. Next, the court determines whether the restraint, so far as it applies to that breach, is against public policy. If it is not, the restraint is valid, subject to any order which may be made under s 4(3).

143    As Monarch submits, the breaches by Messrs Puxty and Coggan infringe the Restraint Clause where, within the Restraint Period, they solicited, attempted to solicit or accepted instructions to perform any work from clients of Monarch. Examples of such conduct were in evidence before me some of which is summarised at [107]-[111] above. In circumstances where I have found that Monarch did not give its consent to Mr Puxty taking with him the Puxty Clients at the end of his employ with Monarch for the purposes of the Restraint Clause, I am satisfied that the alleged breaches infringe the terms of the Restraint Clause properly construed.

144    The respondents do not contend that the Restraint Clause is against public policy.

145    Accordingly, the Restraint Clause is valid subject to any order which may be made under s 4(3) of the RoT Act.

146    The respondents contend that Monarch has failed to establish, by reference to relevant evidence, that a restraint period of not less than 12 months is reasonably necessary to protect its legitimate interests.

147    Monarch submits that, as explained by Ms Coulter (see [72] above), the Restraint Clause is reasonable and reasonably necessary for the legitimate protection of its business because:

(1)    Messrs Puxty and Coggan had access to all of Monarch’s referral partners, a database Ms Coulter spent the previous seven years establishing, and to the entirety of XPLAN which included all of Monarch’s client’s contact details. This information constitutes knowledge obtained by Messrs Puxty and Coggan in the ordinary course of trade which would have allowed them to take advantage of their trade connection and to use information confidentially obtained;

(2)    Messrs Puxty and Coggan had a high level of autonomy in their roles and would be operating in Newcastle whilst Ms Coulter was based in Sydney. They were both senior employees within the business, operated the Newcastle office together and had autonomy over various matters involving the Newcastle office. In circumstances where Messrs Puxty and Coggan were operating the Newcastle office alone, they became its face such that they represented Monarch in Newcastle;

(3)    as employees, Messrs Puxty and Coggan were to bring in new business and clients to Monarch. The business of financial planning is about building trust and developing client relationships which would constitute a customer connection that Monarch would need to re-establish, develop and foster at the conclusion of Messrs Puxty’s and Coggan’s employment;

(4)    Messrs Puxty and Coggan had not operated their own business previously and would not appreciate the hard work, effort and time that went into building the business; and

(5)    Ms Coulter was investing $100,000 into the business to open the Newcastle office, from where Messrs Puxty and Coggan would operate.

148    The respondents submit that a short period of restraint would permit steps to be taken to secure the loyalty of clients and it does not follow that a longer period is justifiable. They say that the restraint must go no further than is reasonably necessary. The respondents refer to cl 19.2(a) of the Employment Agreements (see [69] above) which provides for a “Restraint Period” of six months for persons employed less than one year and submit that Messrs Puxty and Coggan were employed for barely over one year.

149    In relation to an assessment of the reasonableness of the duration of the restraint Monarch refers to the analysis undertaken in Extraman (NT) Pty Ltd v Blenkinship (2008) 23 NTLR 77 at
[69]-[81] as applicable to the analysis I am to undertake in this case.

150    In Extraman the first defendant, Mr Blenkenship, was a shareholder in some of the plaintiff companies. Those companies, which carried on a labour hire business for the mining, resources and engineering and offshore marine industries in Western Australia, the Northern Territory and Queensland, were sold to Skilled Group Ltd pursuant to a share sale agreement which, among other things, provided that Mr Blenkinship would not compete with or carry on the same or a substantially similar business as that of Extragroup Pty Ltd and its subsidiaries in specified areas including the Northern Territory for up to five years from 4 July 2005. The relevant clause extended to procuring that the second defendant would not do so. At the time of the sale Mr Blenkinship also entered into another agreement with Extraman (NT) Pty Ltd pursuant to the terms of which he was employed as a branch manager. That agreement provided that Mr Blenkinship would not compete with Skilled Group Ltd and its subsidiaries in specified areas including the Northern Territory for up to two years from the termination of his employment.

151    In July 2007 Mr Blenkinship’s position as branch manager in Darwin with Extraman (NT) changed and he was thereafter employed as regional manager for the Northern Territory with Skilled Group Ltd. Mr Blenkinship was offered a new employment agreement which he did not sign. However, it was common ground that he accepted the new position in accordance with the terms of that document, cl 9.3 of which provided that the earlier employment contract with Extraman (NT) was terminated by mutual agreement without affecting ongoing obligations under it including the restraint clause.

152    After receiving his final instalment of the purchase price pursuant to the share sale agreement, Mr Blenkinship resigned his employment with Skilled Group Ltd effective 24 November 2007. Thereafter he announced his intention to re-enter the Northern Territory labour hire market and compete with the plaintiffs.

153    The defendants argued that cl 11 of the share sale agreement was not enforceable including relevantly that it was unenforceable for being an unreasonable restraint of Mr Blenkinship’s trade. In that regard one of the questions considered was the reasonableness of duration of the restraint in relation to which Angel J said at [69]:

There are a number of cases to the effect that the reasonableness of duration depends upon how long it will take for the covenantor’s customer connection to fade away or for the covenantee to secure a firm connection with customers: See the cases discussed in Heydon: The Restraint of Trade Doctrine 2nd ed (1999) at 164–166. IRAF Pty Ltd v Graham [1982] 1 NSWLR 419 at 429 and Brown v Brown [1980] 1 NZLR 484 have proved influential in this regard; and see Lloyds Ships Holdings Pty Ltd v Davros Pty Ltd & Ors (1987) 17 FCR 505 at 524; Cream v Bushcolt Pty Ltd [2004] ATPR 42–004; [2004] WASCA 82; Fadu Pty Ltd v ACN 008 112 196 Pty Ltd (supra) at [83]. A purchaser, however, is entitled to protect not only the connection with existing customers of the business but also to profit from its established reputation: Brown v Brown [1980] 1 NZLR 484 at 490. See also Trebilcock: The Common Law of Restraint of Trade (1986) Carswell at 241–242.

154    Thereafter much of his Honour’s analysis concerns the enforceability of a restraint in the context of a sale of business and thus the protection of goodwill. Contrary to Monarch’s submission I do not find this analysis to be of any particular relevance to the task before me. At [76] Angel J recognised the demarcation that the law draws between restraints in respect of a sale of business and those in relation to employment contracts noting that the latter “concern protection limited to trade connection and trade secrets”, referring to Herbert Morris v Saxelby [1916] 1 AC 688.

155    In OAMPS Insurance Brokers Ltd v Peter Hanna [2010] NSWSC 781 the defendant, Mr Hanna, had been employed by the plaintiff, OAMPS, as an insurance broker from 1990 to 2010 when he resigned, having accepted an offer to work for one of OAMPS’ competitors, Strathearn Insurance Brokers. His resignation took effect on 28 May 2010 and his employment with Strathearn commenced on 7 June 2010. Mr Hanna’s employment contract with OAMPS incorporated a Post Employment Restraint Deed which relevantly included:

1.    To reasonably protect the goodwill and the legitimate business interests of the Company, during the Restraint Period and within the Restraint Area (referred to below), you will not, without prior written consent of the Company, directly or indirectly:

(a)    …

(b)    Canvass, solicit or deal with, or counsel, procure or assist another person to canvass, solicit or deal with any client of the Company with whom you have had dealings during the two year period prior to your employment ending.

2.    Restraint period means, from the date of termination of your employment:

(a)    15 months;

(b)    13 months;

(c)    12 months.

156    Among other things, OAMPS sought an order restraining Mr Hanna, up to and including 28 August 2011, alternatively 28 June 2011, alternatively 28 May 2011, without its prior written consent, from directly or indirectly canvassing, soliciting or dealing, or counselling, procuring or assisting another person to canvass, solicit or deal with particular clients, reflecting cl 1(b) of the Restraint Deed. Mr Hanna sought to impeach cl 1(b) of the Restraint Deed on two bases including relevantly that it is void as going beyond what is reasonably necessary to protect OAMPS’ legitimate protectable interest.

157    On that question, after referring to the relevant facts, Hammerschlag J recorded the parties’ respective submissions at [78]-[79]:

78    OAMPS submitted that given that every policy will be renewable within 12 months from the defendant’s departure, 15 months restraint is the minimum period to ensure OAMPS an untrammelled opportunity of not less than three months across the portfolio to protect its customer connection by establishing a rapport with, and demonstrating competence to, the clients.

79    The defendant seemed only mildly (if at all) to contest that 12 months was the minimum period required by OAMPS to secure its customer connection. He submitted instead that this was the wrong criterion for assessing reasonableness of the period. He put that the correct criterion (indeed the only criterion) is the time needed to sever the relationship between the defendant and the OAMPS clients he serviced (and who presumably would patronise OAMPS after his departure). He put that OAMPS failed to establish reasonableness because it did not lead evidence of what time would be taken to effect such severance.

158    At [80] his Honour observed that in “this jurisdiction both criteria have been identified as appropriate” and after referring to the authorities reasoned at [91]-[94]:

91    The Restraint Deed is aimed at protecting OAMPS’ interest in its customer connections by preventing the defendant from using his personal knowledge and influence over the clients built up during the course of his employment with OAMPS. The question is whether, on the whole of the evidence, OAMPS has proved circumstances from which reasonableness can be inferred.

92    As earlier mentioned, the critical point in time for OAMPS in securing its business connection (or for that matter for bringing about severance of the defendant’s relationship with the client) is the policy renewal date. The renewal dates of the portfolio are spread throughout the year.

93    At a minimum therefore, protection for 12 months is reasonable. This is the minimum necessary to give OAMPS one opportunity to cement its connection or for the defendant’s connection to be severed across the portfolio.

94    Twelve months also ensures an untrammelled opportunity during the crucial three month renewal period in respect of policies renewed during the nine months commencing three months after the defendant’s departure.

159    An appeal from OAMPS was dismissed: see Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267 (Hanna Appeal). In Hanna Appeal Allsop P (with whom Hodgson JA and Handley AJA agreed) considered the test adopted by Hammerschlag J in determining reasonable protection of the connection of clients. At [41]-[45] his Honour relevantly said:

41    The approach of the primary judge to the reasonable protection of the connection of the clients to OAMPS was to identify a period (12 months) which would substantially ensure that OAMPS was able to undertake renewal of all the insurance policies of the relevant clients, without the competition of Mr Hanna in his new employment. At [81]-[83] the primary judge set out a description of two “tests” used by Brereton J in Koops and by McDougall J in Stacks Taree v Marshall [No 2] [2010] NSWSC 77 as follows:

…

42    The appellant said that the primary judge erred by not adopting the test in Stacks and by not concluding that there was inadequate evidence led to form any conclusion as to how long it would take for the connection to lapse. Thus, it was said, OAMPS had not discharged the burden of proof.

43    I disagree. There is no legally required test in these circumstances. The use of one test or another depends on the facts and the evaluation of the approach that is reasonable. The judge is required to evaluate the evidence about connection and adopt an appropriate approach to assessing what is required to protect reasonably the connection of the former employer. The proper approach was described in Stenhouse Australia Ltd v Phillips [1974] AC 391 at 400 set out by Hodgson JA in Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25 at [36]-[37], as follows:

“[36] In my opinion, there is no precise rule on the basis of which the period for which an employer is legitimately entitled to protection can be determined. I would not endorse the statement by Young J in DalySmith [Corporation (Aust) Pty Ltd v Cray Personnel Pty Ltd (Supreme Court of NSW, Young J, 14 April 1997, unreported)] at 13 that ‘a restraint that enures after the time taken for a reasonably competent new employee to master the job and be able to demonstrate to the customer that he or she is effective and efficient will be too long”.

[37] I would respectfully adopt the general statement of principle by the Privy Council in Stenhouse at 400:

The accepted proposition that an employer is not entitled to protection from mere competition by a former employee means that the employee is entitled to use to the full any personal skill or experience even if this has been acquired in the service of his employer: it is this freedom to use to the full a man’s improving ability and talents which lies at the root of the policy of the law regarding this type of restraint. Leaving aside the case of misuse of trade secrets or confidential information (which is separately dealt with by clause 3 of the agreement and which does not arise here), the employer’s claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee may have contributed to its creation. For while it may be true that an employee is entitled – and is to be encouraged – to build up his own qualities of skill and experience, it is equally his duty to develop and improve his employer’s business for the benefit of his employer. These two obligations interlock during his employment: after its termination they diverge and mark the boundary between what the employee may take with him and what he may legitimately be asked to leave behind to his employers.”

44    Hodgson JA also said at [41] in that case, that minds may differ about what is a reasonable protection and about the balance between the connection that properly belongs to the former employer and the right to practise a trade or profession of the former employee.

45    Regard should also be had to what the Privy Council said in Stenhouse at 402:

“… The question is not how long the employee could be expected to enjoy, by virtue of his employment a competitive edge over others seeking the clients’ business. It is, rather, what is a reasonable time during which the employer is entitled to protection against solicitation of clients with whom the employee had contact and influence during employment and who were not bound to the employer by contract or by stability of association. This question … their Lordships do not consider can advantageously form the subject of direct evidence. It is for the judge, after informing himself as fully as he can of the facts and circumstances relating to the employer’s business, the nature of the employer’s interest to be protected, and the likely effect on this of solicitation, to decide whether the contractual period is reasonable or not. An opinion as to the reasonableness of elements of it, particularly of the time during which it is to run, can seldom be precise, and can only be formed on a broad and common sense view.”

160    In Hanna Appeal Allsop P said at [46] that once it was accepted, “as on the evidence the primary judge was entitled to do, that renewal was a critical time for each client, 12 months is difficult to criticise” as a reasonable period.

161    Monarch relies on Ms Coulter’s evidence as to the need for the Restraint Clause to establish the reasonableness of its duration. As set out above, she explains that the business of financial planning necessarily involves the building of relationships of trust and personal connection. Most of Monarch’s business was one of wealth protection and most of its clients were insurance, rather than superannuation, clients, with Monarch advising on and brokering insurance coverage for its clients. Monarch relies on evidence given by Mr Puxty about the renewal process for policies:

Mr Mahendra:    Can I just – a couple of things I want to understand about this process. This type of policy renewal occurs every 12 months?

Mr Puxty:    Correct.

Mr Mahendra:    And so when it comes to that renewal period, it’s that – as far as financial advisers are concerned, is an opportunity to reconnect with the client and re-establish that rapport. Correct?

Mr Puxty:    Unless you’ve done it previously, yes.

Mr Mahendra:    And a lot of the clients that you’re dealing with are clients where they have this annual cycle where you will then approach them or they will approach you on that 12-month mark in order for you to then look at what insurance policies and the like are appropriate for the coming year. Correct?

Mr Puxty:    Not always at the anniversary date, but some of them do, yes.

162    Further, although not conclusive, Messrs Puxty and Coggan in signing their respective Employment Agreement acknowledged that Monarch’s business “is fundamentally built on its relationships with clientele and customers and these restrictions are necessary to protect” Monarch’s “goodwill, business, interests and Confidential Information” and that the restrictions in the Restraint Clause “are reasonable and go no further than is necessary to protect the goodwill, business, interests and Confidential Information of” Monarch.

163    The reasonableness of the Restraint Clause is to be assessed at the time of the entry into of the Employment Agreements. As was the case in OAMPS, the Restraint Clause is concerned with protecting Monarch’s interest in its customer connections by preventing Messrs Puxty and Coggan from using their knowledge of and influence over the clients built up during the course of their employment with Monarch. Similarly, the question is whether, on the whole of the evidence, Monarch has proved circumstances from which reasonableness can be inferred.

164    The evidence before me is that policies are renewed every 12 months. In those circumstances it seems that a period of 12 months is reasonable to permit Monarch an opportunity to deal with the client and “cement its connection” or to sever Messrs Puxty’s and Coggan’s connection. That is a reasonable period to protect Monarch against solicitation of clients with whom Messrs Puxty and Coggan had contact during their employment and who were not bound to Monarch by contract or stability of association.

165    Messrs Puxty and Coggan point to the fact that their employment in fact was for a period just over 12 months. That is, they commenced their employment on 7 December 2018, gave notice of their intention to resign on 17 January 2020 (although they had informally notified Ms Coulter of that intention in early November 2019) and their employment ceased at the end of January 2020. However, the question of reasonableness of the Restraint Clause is to be assessed at the time of entry into the Employment Agreements and not at its termination, making these facts irrelevant.

166    The Restraint Clause, imposing as it does in this case a restraint period of 12 months, is therefore reasonable, valid and enforceable.

The third question: what damages should be awarded to Monarch?

167    Monarch seeks damages in two categories: loss of profits between 31 January 2020 and completion of the sale of its business on 2 February 2021 (claim 1); and loss of valuable opportunity to sell its business at a higher price than the purchase price arising from the breaches of the Employment Agreements (claim 2). It relies on evidence given by Mr Potter in relation to the quantification of damages for each of claim 1 and claim 2.

168    The respondents rely on evidence given by Mr Minett. Mr Minett responds to Mr Potter’s report.

169    I address each of claim 1 and claim 2 in turn.

Legal principles

170    In Ennis Paint Australia Holding Pty Ltd & Anor v Jimmy Poh Wing Lei & Ors [2015] NSWSC 1933 Sackar J considered the calculation of damages in circumstances where the defendants admitted liability including the first defendant admitting that he breached a restraint imposed on him following sale of a business and a share sale agreement. In undertaking the task of assessing damages, Sackar J first set out the relevant legal principles. Under the heading “Loss of opportunity” his Honour referred to the following authorities at [68]-[70]:

68    The plaintiffs cite a number of cases where claims were made for lost profits as a consequence of a defendant’s breach of restrictive covenants on the basis of the principles articulated in Malec v JC Hutton Pty Ltd (1990) 159 CLR 638 and Poseidon Ltd & Sellars v Adelaide Petroleum [1994] HCA 4; (1994) 179 CLR 332, including Orica Investments Pty Ltd v McCartney [2010] NSWSC 488 at [18] and [26]-[38] (Orica). At [26] of that case, Ball J said:

The parties agree that this issue is to be determined in accordance with the principles set out in cases such as Malec v JC Hutton Pty Ltd (1990) 159 CLR 638 and Poseidon Ltd & Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 –that is, the parties accept that the Plaintiff’s damages are to be reduced to the extent that there was a chance that the Clos Distributorship would have been terminated irrespective of the Defendants’ breaches. It is relevant to observe that in applying this principle the question is not whether there were causes other than the Defendants’ breaches of Clos’s decision to terminate the Distributorship Agreement. The fact that there were other causes of Clos’s decision to terminate that agreement is not a reason for reducing the damages payable by the Defendants flowing from that event: Heskell v Continental Express Ltd [1950 1 All ER 1033 at 1048 per Devlin J; Simonius Vischer & Co v Holt & Thompson [1979] 2 NSWLR 322 at 346 per Samuels JA with whom Moffitt P and Reynolds JA agreed on the point; Wylie v The ANI Corporation Limited [2002] 1 Qd R 320 at [27] per McMurdo P and at [48] per Thomas JA. Rather, the question is, assuming that the Defendants were not in breach of their obligations, what was the risk that Clos would terminate the Distributorship Agreement following the acquisition of Bronson & Jacobs by Orica Investments?

69    Orica was reversed on appeal, but no issue was taken concerning Ball J’s statement of the applicable law: McCartney v Orica Investments Pty Ltd [2011] NSWCA 387.

70    In Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, Handley JA (with whom Mason P and Beazley JA, as her Honour then was, agreed) said at 59:

In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party “whose actions have made an accurate determination so problematic”: see LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508.

171    In Orica Investments Pty Ltd v McCartney [2010] NSWSC 488 Ball J said at [39]:

Lastly, I think that the principle derived from Armory v Delamirie (1722) 1 Stra 505; [1722] EWHC KB J94; 93 ER 664 is relevant in this context. That principle was stated in these terms by Handley JA (with whom Mason P and Beazley JA agreed) in Houghton v Immer (1997) 44 NSWLR 46 at 59:

[T]he Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party “whose actions have made an accurate determination so problematic.” (quoting Hodgson J in Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 499 at 508)

I do not think that I should readily infer that it was likely that Clos would have left Bronson & Jacobs in the absence of the Defendants’ conduct when that conduct was directed at achieving that very goal. One might well ask why the Defendants did what they did if they thought that Clos would have changed distributors in any event. Mr Sullivan’s answer to that question was to say that their conduct should be seen as an example of abundant caution. But it is clear that they went to considerable lengths to attract Clos away from Bronson & Jacobs. As a consequence of their conduct, it is impossible to know now with any certainty what Clos would have done. That uncertainty should not be allowed to operate in the Defendants’ favour.

172    As noted in Ennis Paint at [69], Orica was reversed on appeal, but no issue was taken concerning Ball J’s statement of the applicable law: McCartney v Orica Investments Pty Ltd [2011] NSWCA 387.

173    Monarch submits that these principles should apply to the assessment of damages in this case.

Claim 1: loss of profits

174    Mr Potter assessed the loss of profit during the Restraint Period, being 1 February 2020 to 31 January 2021, as follows:

(1)    the revenue that would have been earned by Monarch from the clients lost to Odyssey during the Restraint Period (referred to as Clients under Restraint); less

(2)    the cost that would have been incurred by Monarch to generate the lost revenue. Mr Potter was instructed that there would not have been any additional expenses incurred to service the Clients under Restraint.

175    On that basis, Mr Potter calculated the loss of profit during the Restraint Period as result of the claimed employment contract breaches to be $132,682. Mr Potter was cross-examined but not in relation to his calculation of claim 1.

176    In the joint report Messrs Potter and Minett agreed in relation to claim 1:

(1)    Mr Potter’s calculation of the loss of profit during the Restraint Period was mathematically accurate, provided the assumptions Mr Potter was instructed to accept are accurate;

(2)    on use of the Monarch revenue report for the pre-Restraint Period and the Restraint Period to identify the Clients under Restraint; and

(3)    on use of the Odyssey revenue report obtained from Odyssey to calculate the revenue earned from servicing the Clients under Restraint.

177    Mr Minett took issue in his report with some of the assumptions given to Mr Potter to carry out his calculation for claim 1. But, as Monarch points out, they are not a matter for Mr Minett. Rather the assumptions are to be established by evidence led by Monarch or undermined by evidence relied on by the respondents. To the extent Mr Minett challenges the assumptions I address them below.

178    First, Mr Minett expresses the view that the remaining employees at Monarch may not have had the expertise and experience to provide the type of financial advice given by Odyssey. Mr Puxty gives evidence to the effect that Monarch’s clients had relatively simple needs i.e. basic insurance and/or superannuation requirements and Ms Coulter’s ability to service clients was and is limited to personal insurance and basic superannuation services. On the other hand, the Puxty Clients principally required more than simple personal insurance or basic superannuation services.

179    Contrary to Mr Puxty’s evidence, the evidence before me establishes that Ms Coulter has had a more than 20 year career in financial services. Her experience is summarised at [9(1)] above. While she specialises in insurance she is and has been licensed to provide complete financial advice. By way of example, she explains that she has:

(1)    serviced a number of clients who are retirees or pensioners in relation to their estate planning and retirement needs;

(2)    advised a number of clients about transitioning to retirement;

(3)    had business insurance clients which requires understanding the financials and structure of the business and advising on their wealth protection plan via buy/sell and keyperson insurance;

(4)    assisted clients set up their self-managed super funds including helping them understand their obligations as trustees of the fund, and helping them manage their cashflow with regards to future property purchases in the fund and ensuring there is adequate protection in the fund by way of insurance; and

(5)    set up tax effective investments for clients who wish to invest for their children’s private education, university fees or home deposit.

180    I am satisfied that Monarch has established its ability, via Ms Coulter, to service the Clients under Restraint.

181    Secondly, Mr Minett says that there is an issue as to whether Mr Puxty actively pursued the Clients under Restraint or whether those clients contacted Mr Puxty themselves. As Monarch points out, that is not a relevant consideration given the terms of the Restraint Clause (at cl 19(b)) which prohibits Messrs Puxty and Coggan from, soliciting, attempting to solicit, or accepting any instructions to perform work from inter alia any client for whom they provided services during their employment at Monarch.

182    Mr Minett challenges the assumptions that Monarch would not have required additional resources to service the Clients under Restraint and that it would have earned the same income as Odyssey did during the Restraint Period. However, that ignores Ms Coulter’s unchallenged evidence that after Messrs Puxty and Coggan left Monarch, Ms Miroshnikoff remained as a full time employee and her view that Monarch would not have nave required additional staff to manage those clients as most of them were “review” clients which meant that she would undertake a review of their file and policies yearly (which would take about 30 to 45 minutes), send the relevant information to Ms Miroshnokoff who would prepare a quote and send it back to Ms Coulter to send to the client and, upon sending the quote to the client, Ms Coulter and the client would have a brief discussion about it. Ms Coulter explained that the more extensive work is in new business as it involves more upfront work and most of the administration is done at that time.

183    Mr Minett also expresses the view that “sensitivities or contingencies” should be applied to some aspects of Mr Potter’s calculation of claim 1, for example advice fee revenue or to the proposition that Monarch would have achieved 100% retention of the Clients under Restraint during the Restraint Period. As to the latter Monarch submits that a 20% reduction should be applied to the overall amounts it claims in relation to claim 1 (and claim 2). This is because it accepts that it is unlikely that “family and friends” of Messrs Puxty and Coggan would have remained with Monarch.

184    Given the evidence before me and having regard to the concession about “family and friends”, I am satisfied that Monarch has established that it is entitled to damages for claim 1 in the sum of $106,145.60, being the amount calculated for claim 1 by Mr Potter reduced by 20%.

Claim 2: loss of opportunity to sell Monarch business at a higher price

185    Mr Potter calculated the reduction to the purchase price for the Monarch business by applying the reduction in recurring revenue earned from Clients under Restraint during the Restraint Period to the multiples that were used to arrive at the purchase price pursuant to the sale agreement with Newlane. Although Mr Potter was instructed to perform his calculation on a gross basis (incl of GST), because this was the way the purchase price was calculated pursuant to the sale agreement, he presented his calculations on both a GST inclusive and GST exclusive basis. As a result, he assessed the following amounts as the reduction to the purchase price in the sale agreement:

(1)    gross basis - $356,493 (GST incl); and

(2)    net basis - $324,080 (GST excl).

186    In their joint report, Messrs Potter and Minett agreed the following matters:

(1)    the mathematical accuracy of the calculation of claim 2 in Mr Potter’s report, provided the assumptions given to Mr Potter, which Mr Potter was instructed to accept and thus are implicit in the calculation, are accurate and correct. Mr Minett has difficulty in accepting the assumptions;

(2)    the use of the “Trail Book”, being Sch 4 to the sale agreement, that details the clients by identification number and the revenues attributed as at the date of the sale agreement, as a basis for calculating the reduction to the purchase price;

(3)    the application of the multiples used in the sale agreement in determining any reduction in the purchase price; and

(4)    the adjustment made to the fees charged (in particular, the fees on superannuation and investments only and the fees received for management of superannuation and/or investments) (Advice Fees Revenue) is likely to be a discrete adjustment and not applicable to the whole client portfolio. Messrs Potter and Minett agreed to disregard the adjustment in the calculation of the Advice Fees Revenue amount included in claim 2.

187    Mr Potter was cross-examined, principally in relation to some of the assumptions he was instructed to adopt in relation to his calculation of damages for claim 2.

188    Mr Potter was instructed to undertake the calculation on a GST inclusive basis. Notwithstanding that, as set out above, he undertook the calculation on both a GST inclusive and GST exclusive basis. He accepted that the recipient of a payment that is GST inclusive is under an obligation to remit the GST to the Deputy Commissioner of Taxation for an invoiced sale. Mr Potter had the following exchange with Mr Bedrossian SC:

Mr Bedrossian:    You’ve been instructed to assume the GST is part of this transaction; correct?

Mr Potter:    That’s correct.

Mr Bedrossian:    And so if – and I will just pick round numbers – if the payment required under the contract was $11 inclusive of GST, then the GST component is $1; correct?

Mr Potter:    That’s correct.

Mr Bedrossian:    And the recipient of that $1 – that is, the recipient of the $11, which included the $1 – has to remit that $1 to the ATO if it is GST; correct?

Mr Potter:    If it – that – that would be correct, but there’s an alternate position. I can’t tell you either way which way it is, but there’s an alternate possibility that, for whatever reason, the parties agreed the price would be for a – in respect of a $100 commission from a client, the price paid would be $110 – not meant to be a GST amount, just the way that the price of the transaction was arrived at. … I can’t tell you if that’s the case. I just see it’s a possibility.

Mr Bedrossian:    But what that means is, on that – those numbers that you have identified it by way of example, what that means is the agreed price was $110 with no GST?

Mr Potter:    Correct.

Mr Bedrossian:    But if there is GST, it’s not a loss because it’s remitted to the Commissioner of Taxation?

Mr Potter:    If – if there’s a GST amount in the transaction, that’s correct. Yes.

189    Mr Potter was instructed for the purpose of his report that the transaction for sale of the Monarch business completed and settled on 2 February 2021 and that the purchase price of $720,000 was calculated as at that date. However, the sale agreement provided for a “Deferred Assessment Date” which was the date 15 months after Completion and a “Deferred Purchase Price” which was the amount to be calculated in accordance with the formula at item 10 of Sch 3. Mr Potter accepted that the deferral was a contingent deferral and was calculated based on the number of clients that remained with the business 15 months after its sale i.e. as at 1 May 2022. Mr Potter also accepted that, given his instructions, he did not review the sale agreement for the likelihood of the Deferred Purchase Price component being paid.

190    In undertaking his calculation for claim 2 Mr Potter accepted that he was not asked to, and thus did not, give any consideration to the risk that some or all of the Clients under Restraint would have been lost by Monarch/Newlane prior to 1 May 2022, the date on which the Deferred Purchase Price was to be paid. That is Mr Potter did not factor into his calculation for claim 2 the risk that some of the Clients under Restraint may not remain with Newlane as at 1 May 2022. He accepted that to undertake the analysis of assessing the risk of those clients remaining or leaving would require a combination of industry specific evidence about client retention and direct evidence in relation to specific clients and expressed the view that it would be a difficult exercise.

191    Ultimately on this topic Mr Bedrossian SC and Mr Potter had the following exchange:

Mr Bedrossian:    And what I’m putting to you is that, shouldn’t you equally feel uncomfortable, at least now, having taken at face value your instructions to assume that all of the clients came across, isn’t – aren’t you at least equally uncomfortable with that process?

Mr Potter:    I’m uncomfortable in the sense that you – you would assume as the starting point in a calculation, they do come across. But what I’m comfortable – uncomfortable with is, as you’ve raised, the risk or the potential risk that under the specific Newlane sale agreement there might have been an adjustment for those which ultimately left Monarch. But that – that risk is a difficult calculation, if you have that break in the period where Puxty has contact with the – the clients.

Mr Bedrossian:    Well, whether or not it is difficult, and we’ve already identified in my questions and your answers that there are certain evidentiary references that one would need in order to undertake that analysis?

Mr Potter:    Yes.

Mr Bedrossian:    But whether or not it is difficult you accept, do you not, that that would be – that is, the risk, assessing the risk, would be an essential component to a proper calculation of damages?

Mr Potter:    Yes, I do.

192    Mr Potter was instructed for the purpose of his calculation of claim 2 that the calculation of the purchase price pursuant to the sale agreement did not include new business revenue.

193    Mr Potter accepted that that the information that was included in the Odyssey Revenue Report (being the report produced by Odyssey that details the revenue earned by Odyssey during the Restraint Period) was the same type of information as in the Monarch revenue report and assumed that they were produced from the same systems. However, in calculating the loss of profit for claim 2 he included new business that was included in the Odyssey Revenue Report. Mr Bedrossian SC and Mr Potter had the following exchange:

Mr Bedrossian:    So, you used the totality of these numbers at paragraph 59, including new business, to calculate the amount under the claim 2 calculation; correct?

Mr Potter:    That’s correct.

Mr Bedrossian:    Including the new business amount?

Mr Potter:    Yes. I – well, I – I assumed the new business in the agreement that should be excluded from the sale – that description of new business – to be a different item to the new business that I included in the New Business column here. And if I could take you to the instructions, you will see how I was asked to assume certain types of commissions, even though there – they appear in – as one column that – in the data set that describes them as new business. In another column, they’re described as a particular type of commission, which means they’re ongoing, recurring revenue. So, it’s a different – it’s not the new business exclusion. My understanding is it’s not the new business that’s to be excluded under the agreement; it’s a type of new business that should be included, based on the instructions I was given on how to read the data, if that makes sense.

…

Mr Bedrossian:    You assumed it because you were told to assume it?

Mr Potter:    Yes

Mr Bedrossian:    You were told, “There are items in these revenue reports that say “new business” but don’t treat them as new business”; correct?

Mr Potter:    That’s correct.

194    Mr Potter was instructed to apply a number of assumptions to the Odyssey Revenue Report including:

d.    Column M is a further category of revenue received within the “main type of revenue”. The categories are as follows:

…

iii.    “INS1–Initial Comms” refers to upfront commissions received for new business insurance.

iv.    “REN–Renewal Comm” refers to ongoing revenue received by the recipient each year a policy is in place.

195    In cross examination Mr Potter said that he was not told that initial commissions are calculated at a higher rate than renewal commissions, although he noted that Mr Minett raised the issue in the joint report. Mr Potter also accepted that he was not instructed that initial commissions are upfront fees that need to be reimbursed if the client cancels the insurance policy and he was not told that even with a recurring insurance policy, if the premium increased year to year, the amount of the increase is treated as subject to initial commissions, as opposed to renewal commission rates, and this component is treated as new business.

196    Mr Potter accepted that if the instruction that items identified as new business in the Odyssey Revenue Report should not be treated as new business and that instruction is wrong, that fundamentally affects his calculation of the claim 2 amount. At the conclusion of the cross-examination Mr Bedrossian SC and Mr Potter had the following exchange:

Mr Bedrossian:    And you – do you accept now – and, you know, after the course of some questions – that the instructions that you were given were so tight and confined that you really had no scope, nor did you consider matters that – I withdraw the question, your Honour. I apologise. Do you accept that at least some of the assumptions that you were instructed to make now appear to you to be incorrect?

Mr Potter:    I – I don’t know how to – to respond to that. It – it – I – when I prepared the report it appeared to me that, because it was driven by assumptions, a lot would depend upon whether – the extent to which those assumptions are proven, and – and I couldn’t tell you what has happened there.

Mr Bedrossian:    But on this similar theme, but can I just ask you: do you agree that – weighing all those matters up, that your report does not provide a fair or reasonable assessment of the loss, if any, that’s – that might have been suffered in respect of the sale price of this business sale agreement?

Mr Potter:    If there was risk of clients leaving, then you’re correct, yes.

197    As is apparent Mr Potter was instructed to calculate damages for claim 2 based on a narrow set of assumptions which Monarch has not established on the evidence. In particular, Mr Potter was not given any assumption about the risk of clients leaving the Monarch business or accurate instructions about “initial commissions” and “renewal commissions” (see [32] and [195] above as to the way in which these commission work). These matters infected his calculation of damages for claim 2 such that its reliability has, to an extent, been undermined to establish quantum for claim 2.

198    Monarch submits that the respondents’ attack on Mr Potter’s calculation are of no effect having regard to the assumption against wrongdoers. In that regard Monarch relies on Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 where Handley JA (with whom Mason P and Beazley JA agreed) said at 59:

In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party “whose actions have made an accurate determination so problematic”: see LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508.

199    In Houghton the appellants (referred to as the defendants) were proprietors in partnership of lots 2 to 5 in a strata plan entitling them to 80% of the aggregate unit entitlement. The first respondent (referred to as the plaintiff) was the proprietor of lot 1 with 20% of the aggregate unit entitlement. The second respondent was the body corporate and did not take an active role in the proceeding. The relevant premises were a five storey building used for commercial purposes which had a flat roof which was common property. The following occurred:

(1)    in 1993 the body corporate passed a resolution permitting the defendants to construct new penthouses in lot 5 and in some of the common property on the roof;

(2)    in 1995 the body corporate passed a by law which conferred certain privileges on the owners of lot 5 to construct the penthouses and retain the improvements made; and

(3)    in 1996 the body corporate passed a special resolution to authorise the subdivision of lot 5 and the common property on the roof into two penthouses and to authorise the body corporate to transfer its interests in the former common property now in the penthouse lots to the partnership for $1.

200    At first instance, the court found that the 1996 resolution was a fraud on the minority and was voidable in equity. Although the proceeding was commenced in July 1996 before work had finished, the plaintiff did not seek interlocutory relief and thus the defendants were able to complete the construction and register the plan: Houghton at 55. The New South Wales Court of Appeal therefore assessed damages based on the improved value of the space in the lots derived from common property. There was expert evidence relied on by the parties in relation to that assessment.

201    Having come to that view Handley JA said at 59:

The defendants are entitled to a set-off for the actual cost of the improvements, but there was no evidence of this cost. The accounting issue would normally be referred to a master but the trial was not conducted on this basis. The defendants would have great difficulty in such an inquiry, since no attempt appears to have been made to keep separate records of the cost of constructing the improvements on the common property.

And:

At this stage the Court should only remit the matter to a master as a last resort, if no other course is fairly open. The defendants, having improved common property without lawful authority, and attempted to effect a fraud on the minority, are wrongdoers, and their failure to keep and produce proper accounts of their actual expenditure on the common property has made it difficult to assess the compensation due to the plaintiff: compare Armory v D Delamirie (1722) 1 Stra 505; 93 ER 664. In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party “whose actions have made an accurate determination so problematic”: see LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508.

202    This case is different. The respondents are not seeking a set off nor have they stood in the way of Monarch providing an accurate determination of the damages it seeks for the purposes of claim 2. The respondents are “wrongdoers” to the extent that they have been found to have breached the Restraint Clause. However, they cooperated in providing the necessary evidence to calculate damages for the purposes of that breach. The relevant evidence as to attrition of clients and which underpins the assumptions relied on by Mr Potter was in the control of Monarch. As to the former, Mr Potter’s evidence was that the relevant evidence for assessing the risk of clients leaving Monarch was a combination of industry knowledge about client retention and direct evidence in relation to specific clients. As to the latter, so much is evident from Ms Coulter’s evidence in cross-examination (see [32] above). In those circumstances it is not appropriate for me to take up Monarch’s invitation to resolve “doubtful question(s)” against the respondents in relation to claim 2.

203    That said, I accept that here the problem is absence of reliable proof of the quantum of damages not the fact of loss. In other words, breach of the Restraint Clause having been established it follows that Monarch suffered loss in that at the time of calculation of the sale price, the revenue from the Clients under Restraint was not included. In Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64, an action for damages for breach of contract, the only question before the High Court was the assessment of damages. In their joint judgment Mason CJ and Dawson J said (at 83) that the settled rule is that “mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can”: see too Brennan J at 102, Toohey J at 135 and Gaudron J at 153.

204    I am satisfied that this is a case where I am able to undertake a reasonable assessment of the quantification of loss for claim 2 and not one which might require me to “resort to irrational bases for making adjustments”: see Zonia Holdings Pty Ltd v Commonwealth Bank of Australia Limited [2025] FCAFC 63 at [614] (Murphy, Moshinsky and Button JJ). While the reliability of the quantum for claim 2 calculated by Mr Potter has been undermined insofar as it purports to provide absolute certainty of that claim, it provides a starting point.

205    Mr Potter has calculated the damages for claim 2, being the reduction in purchase price occasioned by the respondents’ breach, as $324,080 exclusive of GST. In my view the GST exclusive calculation is to be preferred over the GST inclusive calculation given that, as Mr Potter accepted, any amount payable for GST is not an amount for damages but is to be remitted to the Deputy Commissioner for Taxation.

206    I also observe that Mr Potter was not instructed to, and thus he did not, undertake any calculation in relation to the incentive payment under the sale agreement that was paid because, as of May 2022, the number of Monarch’s clients was the same as or more than the number of Monarch’s clients as at February 2021 (see [119] above). Although this issue was briefly ventilated in cross-examination of Mr Potter (see [189] above), neither party made any submission about that payment and whether it would have any impact on the assessment of damages.

207    The respondents having cast doubt on some of the integers in Mr Potter’s calculation do not assist the Court by providing an alternative quantification. Their expert Mr Minett does not do so, nor does he provide a percentage by which the calculation of claim 2 might be reduced in light of the uncertainties. Monarch proffered that a reduction of 20% should be applied for “friends and family” who would in any event have left Monarch following Messrs Puxty’s and Coggan’s departure. In addition, having regard to the undermining of some of the assumptions given to Mr Potter and the fact that the assessment does not factor in the possibility of attrition in the Clients under Restraint by their departure from Monarch in the ordinary course of business I would reduce Mr Potter’s calculation by a further 20%. Thus, the damages for claim 2 are assessed as $194,448.

CONCLUSION

208    Monarch is entitled to judgment in the sum of $270,593.6‬0 being the amount of its damages for claim 1 and claim 2 less $30,000 (being that component of the Amended CC which Monarch did not oppose) and interest on that amount pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth).

209    Given the way in which Monarch ultimately conducted its case, in particular its late abandonment of most of its pleaded claims, and its approach to the Amended CC, and the extent of its success, I will reserve on the question of costs.

210    The parties should provide my Associate with draft orders giving effect to these reasons and, if agreement can be reached, on the question of costs within 14 days of their publication. If they cannot agree, including in relation to the date from which interest should run and the question of costs, they should provide their competing orders by that date together with submissions, not exceeding three pages, addressing the areas of disagreement. The proceeding will thereafter be listed for case management hearing to resolve any differences and make final orders.

211    I will make orders accordingly.

Associate:

Dated:    23 May 2025

SCHEDULE OF PARTIES