News & Insights

The New South Wales Supreme Court has ordered an independent contractor (mortgage broker) to pay potentially substantial damages to his former principal after he downloaded a list of client details before leaving to commence employment with a rival business.

The mortgage broker, Nassif Isaac (Isaac), claimed that the client list – which he took to his new employer (RAMS) – did not constitute ‘confidential information’ because his former principal (Dargan) had posted some of the client names on Facebook.  He argued that the client list had been made public because some of the clients had been ‘friended’ by Dargan, which published their names on Dargan’s Facebook page.

This argument was rejected by the Court.

Background

Isaac was engaged as a mortgage broker by Dargan from 8 August 2012 to 30 November 2016.  In December 2016, Isaac commenced employment as a broker with Dargan’s competitor, RAMS.

Before leaving Dargan in November 2016, it was estimated that Isaac was directly managing customers comprising almost 25% of Dargan’s total loan book.  Isaac admitted to downloading details of over 100 of Dargan’s clients before he left to join RAMS.

Dargan issued proceedings in March 2017, claiming Isaac had breached:

• the terms of the contract between him and Dargan (Contract); and
• his equitable duty of confidence, which Isaac breached by retaining and using Dargan’s client list whilst employed by RAMS.

At the commencement of the proceedings in March, interlocutory orders were made, which required Isaac to destroy any client list in his possession and keep their contents confidential.

Contractual Terms

Relevant terms of the Contract included:

• a definition of ‘Intellectual Property’ as the copyright in all software, stationery, websites, documents, manuals, brochures and know-how concerning Dargan’s business;
• an obligation on Isaac to return or destroy all of Dargan’s Intellectual Property in his possession upon termination of the Contract;
• a restraint clause preventing Isaac from sharing Dargan’s confidential information for 10 years and a non-compete and non-solicit provision prohibiting him from engaging in similar business activities for 18 months after termination of the Contract (Restraints); and
• an agreement that the customer database and confidential information used by Isaac concerning Dargan’s business and client contact information was the property of Dargan.

Decision

Unsurprisingly, the Court held that Isaac breached his Contract with Dargan when he took the list of its client’s details and shared it with RAMS.  Isaac had also breached his equitable duty of confidence to Dargan and the Restraints when he accepted approaches from eight of Dargan’s clients while working with RAMS (Lost Clients).

Justice Sackar held that:

details beyond the names of the clients cannot necessarily be derived from a mere Facebook post…[therefore] I am satisfied details of the clients, including the client list, have not entered the public domain so as to be stripped of the necessary quality of confidence that would otherwise attach to such information.

The Court granted injunctions preventing Isaac from committing further breaches and ordered the parties to agree on the amount of damages Isaac must pay to compensate Dargan for its loss of opportunity (i.e. upfront and trailing commissions) relating to the Lost Clients.

Lessons for Employers

This decision shows the importance of:

• carefully drafted clauses defining your intellectual property;
• taking steps to identify and keep confidential information, confidential;
• well-drafted restraint of trade clauses; and
• taking swift action if your former employees are in breach of their post-employment obligations.

This article was written by George Haros, Principal Lawyer – Employment, Safety and Migration.