30 June 2021

An employee poaching tale better than fiction – we all sue each other for judgment day!

There’s nothing like a captivating opening in a legal judgment. 

Lord Denning was famous for dramatic starts.  His judgments opened like the chorus in a Shakespearean play, with characters drawn as they truly were, using their real names (not plaintiff or defendant), couched in short sentences and punchy one-liners. 

Justice Hammerschlag, perhaps inspired by the colourful judicial story-telling of the late Lord Denning,  opened his judgment in the recent TP ICAP Management Services (Australia) Pty Ltd v Bradley Howell; GFI Australia Pty Ltd v Matthew Cotton [2021] NSWSC 656 with a captivating opening scene:

Sydney is a beautiful city which has a vast array of hotels, pubs, and restaurants, some in exquisitely scenic locations. This judgment does not require the Court to resolve any deep question of legal principle. It is essentially about the facts.  But it does contain a travelogue (perhaps even a useful one) of the many Sydney hospitality establishments frequented by the protagonists.’

Background

This case involved employees moving between two rival brokerage firms, ICAP and GFI.

In late - 2017, Brad Howell, then CEO for ICAP’s Australasia operations, and fourteen other brokers were enticed to leave ICAP and move to GFI.  This included John Kalaf, Divisional Director and Desk Head of the Swaps Desk.  Mr Kalaf was heavily involved in the recruitment process – he crucially assumed the role of intermediary between the brokers and ICAP management.  Beyond just encouraging consideration of GFI’s offers. Mr Kalaf also failed to properly relay ICAP’s counteroffers.  Mr Kalaf allegedly made comments such as:

I've got a counter-offer from ICAP, but it's so s**it, it's not even worth discussing.

Don't worry about it. It's way, way lower than what GFI are offering. I'm embarrassed to show you what the offer is.

...

It’s s**t, it’s rubbish.

Six brokers later rescinded their contracts with GFI and returned to ICAP. 

In the aftermath, numerous proceedings ensued:

  • ICAP sued GFI for tortious interference with contractual relations;

  • ICAP also sued Mr Howell and Mr Kalaf for breach of contract and breach of equitable and statutory duties;

  • GFI sued ICAP for tortious interference with contractual relations (in relation to the six returning brokers);

  • GFI sued the six returning brokers for breach of contract;

  • the same six brokers sued GFI claiming their contracts are void; and

  • finally, the six brokers sued Mr Kalaf for misleading them regarding counteroffers made by ICAP.

Much turned on who said what to whom and when.  Questions of employee enticement were raised. 

The decision

After a 17 day hearing, Justice Hammerschlag framed his decision noting that ‘Commercial morality is a commodity which is in short supply on both sides of the divide’.

Mr Howell was found to have breached his contractual obligations to ICAP but not to have caused ICAP any economic damage.  There was no evidence that Mr Howell had provided confidential information to GFI.

Mr Kalaf was found to have breached the contractual, equitable and statutory duties he owed to ICAP.

GFI was not found to have been involved in either Mr Howell’s or Mr Kalaf’s conduct.  His Honor preferred GFI’s evidence that its officer told Mr Kalaf they did not want his assistance in their recruitment efforts, even going so far as telling Mr Kalaf to ‘keep [his] nose clean’.  Given this finding, the claims against GFI and Mr Kalaf by the six returning brokers failed.

Lessons

This decision is an interesting reminder of the age-old adage ‘be careful who you trust’

While ICAP and GFI succeeded against those employees who caused them economic harm, the employees themselves were left without a claim.  Mr Kalaf’s actions were not done at the request of or on behalf of GFI, meaning there is no legal claim against Mr Kalaf or GFI. 

Just because a zealous employee acts to further the companies’ interests does not automatically mean that they are acting on behalf of the company itself.  This limits their own potential exposure.

In industries where clandestine negotiations are common, and large teams of employees may be enticed to move to a new employer, care must be taken to determine who each party is actually acting for.  A failure to pass along accurate or reliable information may not come to light until it is too late.

It is also refreshing that creative judicial writing is not dead.

Authors: Darren Gardner & Jade Bond