Australia: Damages for use of client list to solicit business

Last Updated: 3 March 2012
Article by Emma Reilly

Commercial & Accounting Services (Camden) Pty Ltd v Cummins

The defendant is a chartered accountant. He sold his practice to the plaintiff, Commercial & Accounting Services (Camden) Pty Ltd, on 1 April 2002 for $120,000 plus $10,000 per annum payable on 30 June for at least eight years. The defendant became an employee of Commercial & Accounting Services and was to create a minimum of 17 hours per week of chargeable time. The practice then had 1,942 clients.

The agreement for sale contained an undertaking by Mr Cummins that he would refrain from a business of accounting services or tax preparation for a period of at least three years within a radius of 10 kilometres of the business address of the practice.

Vanessa Ann Pollett was the principal of Commercial & Accounting Services. She worked three days a week in the practice, which made a profit after she received a working wage. The client base was relatively stable year by year.

The defendant obtained a franchise to operate as a licensed financial planner under the name RetireInvest. He conducted this business in partnership and then on his own from premises close to Commercial & Accounting Services' practice. Mr Cummins worked in the practice on Mondays and Fridays and worked from his RetireInvest premises for the balance of the week. He did spend additional time at the practice in an endeavour to make up the agreed 17 hours of chargeable time.

In early 2009, Mr Cummins told Ms Pollett he probably would not stay on after the end of his term on 30 June 2010. Mr Cummins had determined that he would then commence an accountancy practice from his RetireInvest premises. It was ultimately agreed that he would cease as at 30 June 2009. Mr Cummins was asked to provide a list of the 'clingy clients' that would want to move with him, and his family members.

Ms Pollett wrote to the defendant on 2 April 2009, stating that:

  • As agreed you will only approach 6 clients and family members, all of which are current clients of Commercial & Accounting Services (Camden) Pty Ltd. The list of these agreed upon clients will be supplied to us prior to termination
  • All other clients, including files, lists working papers etc will remain the property of Commercial & Accounting Services (Camden) Pty Ltd.

The defendant said he never received that letter. However, the described list was requested from him. Before he left he wrote up a list of six clients and family members.

On 1 July 2009, the defendant wrote to clients, advising of his termination. The letter included a statement that:

'Many people have expressed their wish to continue having their accounting and tax needs met by myself, for which I am grateful. This has necessitated my return to my own accounting and tax practice trading as Denis Cummins Public Accountant & Tax Agent.'

Contact details for the practice were provided, along with a letter that the client could complete and send to Ms Pollett to arrange for their files to be transferred.

The evidence was held to be unsatisfactory as to how many people received the letter, however, the defendant made lists of approximately 400 people, including clients with a personal connection outside Best Practice; clients related to RetireInvest either by family or friends or on inquiry for RetireInvest services; people known to him whose address he obtained from the White Pages; people in regular contact through his involvement in Rotary; and people who had contacted him by email over the course of the year for tax or financial advice.

In the first half of 2009 RetireInvest had about 250 clients. As at August 2010 Mr Cummins had 1,093 clients, 876 of whom were former clients of Best Practice and 550 of them were clients of Best Practice when it was purchased from Mr Cummins in 2002.

Given the significant increase in the client base, it was accepted that the defendant used a client list from the plaintiff that had previously been provided in respect of seminars, for the purpose of his mail out.

Gzell J found that the defendant used the confidential information of the plaintiff to their detriment, so damages were payable.

Expert evidence was tendered in respect of the change in goodwill of the business as a result of the breach of confidence. Different methods of calculating the damage to the plaintiff were examined.

Gzell J ultimately adopted the 'future maintainable earnings' methodology in determining the value of loss of goodwill. This led to an award of damages in the sum of $117,995. Commercial & Accounting Services was also entitled to declaratory and injunctive relief.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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