01/03/2012

In, Commercial & Accounting Services (Camden) Pty Ltd v Cummins [2011] NSWSC 843, the Court allowed the claim for the loss of goodwill of the business when a former owner and employee of the business breached his obligations to the business and set up a competing business and approached his former clients.

The facts of the case:

• Mr Cummins sold the practice in 2002 and stayed on in the practice as an employee.
• The agreement for sale contained an undertaking that Mr Cummins would refrain from a business of accounting services or tax preparation for a period of 3 years within a 10km radius.
• In 2009 Mr Cummins left the practice and wrote to inform a number of his former clients.
• Following receipt of the letter a large number of clients left the practice and moved their business to Mr Cummins new business.

The Court held that using confidential information and contacting clients was a breach of the obligations owed by Mr Cummins to the practice and therefore the practice suffered a loss.

The question for the Court was the quantification of the loss of goodwill of the business.  The parties engaged independent experts who used two different methods to calculate the loss.  One expert used the "future maintainable earnings method" whilst the other used the “cents in the dollar gross fees method”.

The Court held:

"In my opinion I should adopt the future maintainable earnings methodology in determining the value of goodwill."

"In the robust approach to damages it was submitted that I should attribute 75% of the loss of goodwill to the solicitations of Best Practice’s clients by Mr Cummins as the 776 clients of Best Practice who I have found were solicited is approximately 75% of the number of clients lost by Best Practice.  75% of $157,327 [total goodwill value] is $117,995 and I will enter judgment for Commercial & Accounting Services in that amount."

Vendors of businesses and former employees should seek advice about the obligations created by a restraint of trade to limit claims as made above and ensure that any contemplated conduct does not breach the obligations imposed.

If you would like assistance in regard to the obligations under a restraint of trade, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.