Broker penalised for contract violation

by Miklos Bolza20 Nov 2017
A Sydney-based mortgage broker has been ordered to pay damages after the NSW Supreme Court found he had breached his post-termination restraints after moving to a rival brokerage.

From August 2012 to November 2016, Nassif (Norman) Isaac was an independent contractor for Dargan Financial under director Otto Dargan. In December 2016, Isaac started working at RAMS Financial Services.

The court found Isaac had written eight loans through clients gained through his time at Dargan Financial and ordered him to repay the upfront and trail commission associated with these loans.

Judge John Sackar found that Isaac had violated his original sub-origination agreement which stipulated that for 24 months after termination, he was forbidden from working with clients, referrers or business partners of Dargan Financial.

“In my view, the evidence also shows that but for the defendant’s conduct, all of the lost borrowers … would have obtained their loans through the plaintiff. On these grounds I am satisfied an award of damages is appropriate to account for the loss of opportunity,” Sackar said in his final judgment.

Even though the post-termination agreement was discussed during the termination meeting, disagreement between the parties eventually stemmed from the definition of the terms ‘clients’ and ‘confidential information’.

Because of the commercial interests of the employer, clients that Isaac gained through his time at Dargan were no longer his once he left the firm, Athena Koelmeyer, principal and director of Workplace Law, told Australian Broker.

“It’s a weird argument to say that the client is not actually the client of the employer. It’s pretty well-established.”

What brokers could do is negotiate at the outset of employment that any clients they bring into the firm will remain their clients when they leave, she said.

“You need to be aware on the way in of things that you want to protect if you are a broker in respect to your client base.”

Isaac also claimed that the client data was public information, accessible through social media such as Facebook. However, Sackar stated that certain details such as financial status would only be available through Dargan.

“I do not accept the information loses its necessary quality of confidence by reason of certain clients being identified on [Isaac’s] or [Dargan’s] Facebook page as clients of the [Isaac],” he said.

So that brokers don’t fall afoul of post-termination restraints after leaving a company, Koelmeyer said it was important to be aware of the terms and conditions of the contract when starting employment.

“Once you sign up and you’ve agreed to those terms, the employer may decide that they’ve got money to burn and have their lawyers drag you up to the Supreme Court equity division to try and get that injunction to stop you working for the broking house next door.”

There was also the matter of ‘reasonableness’ in which certain restrictions such as non-poaching and non-solicitation clauses were enforceable while forbidding a broker from working across the entire country for an extended period of time were not, she said.

Even if the contract says nothing about these types of restraints, the Corporations Act still means it is unlawful for an individual to use information they obtained while working at a firm to gain personal advantage to the detriment of your old employer.

“It’s a breach of the corporations law to steal a client list or take confidential information and use it later on in an effort to make money for yourself.”

The case mentioned here has been filed under Dargan Financial Pty Ltd ATF the Dargan Financial Discretionary Trust (trading under Home Loan Experts) v Nassif Isaac [2017] NSWSC 1077 (16 August 2017) for the Supreme Court of NSW.

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