ACN 656 077 020 Pty Ltd v Li (No 2)

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FEDERAL COURT OF AUSTRALIA

ACN 656 077 020 Pty Ltd v Li (No 2) [2024] FCA 964

File number(s): VID 313 of 2024
Judgment of: DOWLING J
Date of judgment: 23 August 2024
Catchwords: PRACTICE AND PROCEDURE – application for interlocutory relief – whether serious question of a breach of s 183 of the Corporations Act 2001 (Cth) – whether serious question of a breach of fiduciary duties – whether serious question of a breach of a contract of employment – whether serious question that the company knowingly received and assisted in the breach of fiduciary duties – whether serious question that the company is accessorily liable under s 79 of the Corporations Act 2001 (Cth) – whether balance of convenience favoured interlocutory relief – interlocutory relief granted
Legislation: Corporations Act 2001 (Cth) ss 79, 183
Cases cited:

Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57

Australian Securities and Investments Commission v iSignthis Limited [2024] FCA 669

BCI Finances Pty Limited (in liq) v Binetter [2018] FCAFC 189; (2018) 362 ALR 597

Boardman v Phipps [1967] 2 AC 46

Bullock v Federated Furnishing Trades Society of Australasia (No 1) [1985] FCA 258; (1985) 5 FCR 464

Commissioner for Corporate Affairs v Green [1978] VR 505

Courtenay Polymers Pty Ltd v Deang [2005] VSC 318

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89

Ferguson v Wilson (1866) LR 2 Ch App 77

Forkserve Pty Ltd v Jack [2000] NSWSC 1064; (2001) 19 ACLC 299

Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296

Huang v Wang [2015] NSWSC 510

Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201; (2021) 288 FCR 104

Mills v Mills (1938) 60 CLR 150

O’Brien v Dawson [1942] HCA 8, (1942) 66 CLR 18

Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2016] FCAFC 78; (2016) 250 FCR 136

R v Byrnes (1995) 183 CLR 503

Samsung Electronics Co Ltd v Apple Inc [2011] FCAFC 156; (2011) 217 FCR 238

Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2009] FCA 595; (2009) 81 IPR 339

Smart EV Solutions Pty Ltd v Guy [2023] FCA 1580

Southern Real Estate Pty Ltd v Dellow [2003] SASC 318; (2003) 87 SASR 1

von Bernstorff v Balamara Resources Limited [2023] FCA 757; (2023) 168 ACSR 260

Yorke v Lucas (1985) 158 CLR 661
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 67
Date of hearing: 31 July 2024
Counsel for the Applicants J Hooper
Solicitors for the Applicants TLM Law
Solicitors for the Respondents Cogent Legal

ORDERS

VID 313 of 2024
BETWEEN:

A.C.N. 656 077 020 PTY LTD

First Applicant

OAKWOOD PARTNERS PTY LTD (ACN 656 405 284)

Second Applicant
AND:

MANLIN LI

First Respondent

MLI ACCOUNTING AND TAXATION SERVICES PTY LTD…

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Details
Case
[2024] FCA 964
Decision Date

CaseChat Overview and Summary

ACN 656 077 020 Pty Ltd, trading as ACN 656 077 020, brought an application against Ms Li and MLI, alleging breaches of statutory, fiduciary and contractual duties. The applicants sought interlocutory relief in the form of injunctive orders to prevent the respondents from contacting clients of the applicants, using confidential information, and from keeping accounts of their business dealings with the applicants' clients. The court was required to determine whether there was a serious question to be tried that Ms Li had breached her statutory, fiduciary and contractual duties, and whether MLI had knowingly received information and assisted in Ms Li's fiduciary breach. The court also needed to consider if the balance of convenience favoured the grant of interlocutory relief.

The court found that there was a serious question to be tried that Ms Li had breached s 183 of the Corporations Act 2001 (Cth) by using confidential information to compete with the applicants. The court was also satisfied that there was a serious question that MLI had the requisite knowledge to be found accessorily liable for Ms Li's statutory breach under s 79 of the Corporations Act. Furthermore, the court found that there was a serious question that Ms Li had breached her fiduciary and contractual duties owed to the applicants. The applicants demonstrated that damages may not be an adequate remedy, and that Ms Li's conduct may cause the applicants to lose long-term relationships with their clients. The court was also satisfied that Ms Li's attitude and financial circumstances weighed in favour of the grant of interlocutory relief.

The court granted the interlocutory orders sought by the applicants. The respondents were restrained from soliciting or dealing with, or assisting another person to solicit or deal with, any client listed in Annexure A. The respondents were also restrained from using or disclosing to any person the confidential information listed in Annexure B, other than for the purpose of complying with these orders. The respondents were required to keep written accounts of all accounting related business conducted by them since 1 February 2024 involving the clients listed in Annexure A. Costs were reserved.

Orders

Orders of the court

1. The respondents be restrained until the hearing and determination of this proceeding or until further order, from soliciting or dealing with, or assisting another person to solicit or deal with, any client listed in Annexure A.

2. The respondents be restrained until the hearing and determination of this proceeding or until further order, from using or disclosing to any person the confidential information listed in Annexure B, other than for the purpose of complying with these orders.

3. Until the hearing and determination of this proceeding or until further order, the respondents keep written accounts, of all accounting related business conducted by the respondents since 1 February 2024 involving the clients listed in Annexure A.

4. Costs reserved.

Note:

Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

List of Restricted Clients

1. Peter Korsak;

2. Grant Fraser;

3. John Natisoulas;

4. Michael Pastore;

5. Harry Spatiotis;

6. Maria Martino;

7. Megan Walton;

8. Sergio Llancafilo;

9. Alisha Gaye Binaisse;

10. A Binaisse & S Llancafilo;

11. Anatoliy Tsymay;

12. Ganna Tsmay;

13. Tsymay Superfund;

14. A Tsymay & G Ysymay Pty Ltd;

15. Kalliope Moutafis;

16. George Moutafis;

17. Theodoros Paboukis;

18. Konstantina Paboukis;

19. Big Spartan Family Trust;

20. Big Spartan Pty Ltd;

21. Krisa Paboukis;

22. Georgia Paboukis;

23. Julia Paboukis;

24. Christos Paboukis;

25. Nevro Family Trust;

26. Nevro Family Pty Ltd;

27. Apostolos Paboukis;

28. Tolis Enterprise Pty Ltd;

29. Tolis Enterprise Family Trust;

30. Meat Me Souvlakeri Unit Trust;

31. The Paboukis Investment Trust;

32. The Broadwalk Investment Trust;

33. Paboukis Brothers Superannuation fund;

34. Gemma Martino;

35. Benevento Trust;

36. Joseph Martino;

37. Martino & Pinto Pty Ltd;

38. Mitcham Paving Co Pty Ltd Superannuation Fund;

39. J & M Martino;

40. Chandler Export Grants and Marketing Pty Ltd;

41. Russell Chandler;

42. Julie Chandler;

43. Design A Decore Pty Ltd Super Fund;

44. Bolabek Family Trust;

45. Julie Hodson Family Trust;

46. M & M Motorsports Pty Ltd;

47. Samuntachida Spatios;

48. Evive Palm Beach Trust;

49. Evive Hope Island Pty Ltd;

50. Evive Burleigh Waters Trust;

51. Harry’s Kouzina Pty Ltd;

52. Dubadouba Pty Ltd;

53. Evive Surfers Paradise Trust;

54. Yanni Spatiotis;

55. Violeta Loayza;

56. M & V Pastore Trust;

57. P G Pacific Group Trust;

58. P G Pacific Group No 2 Trust; and

59. Inline Support Australia.

ANNEXURE B

Confidential information

Confidential information means information acquired by Ms Li from 15 December 2021 until 29 January 2024 including:

(a) ACN 656 077 020 Pty Ltd’s client list, names and contact details;

(b) requests from ACN 656 077 020 Pty Ltd’s clients for accounting services;

(c) quotes regarding the price of ACN 656 077 020 Pty Ltd providing such services to ACN 656 077 020 Pty Ltd’s clients; and

(d) accounting services provided to the ACN 656 077 020 Pty Ltd’s clients.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

The assessment of the adequacy of damages as a remedy is to be considered as part of the Court’s assessment of the balance of convenience: See Samsung at [63].THE EVIDENCE The applicants rely on five affidavits to support the interlocutory orders they seek. Those affidavits were admitted into evidence without objection. The relevant parts of those affidavits are summarised below. Messrs George and Peter Delis Mr George Delis, director of ACN 656 077 020, and Mr Peter Delis, the sole director of Oakwood, a service company for ACN 656 077 020, each swore an affidavit dated 12 April 2024. They relevantly deposed:(a)That Ms Li was a director of ACN 656 077 020 from 15 December 2021 to 19 February 2024;(b)On 7 January 2022, Ms Li entered into an employment agreement with Oakwood. Ms Li was employed as a senior accountant;(c)On 29 January 2024:(i)Ms Li sent Mr Delis an email advising that she was resigning as a director of, and supervised tax agent for, ACN 656 077 020;(ii)Ms Li emailed Mr Peter Delis providing four weeks’ notice of her resignation of her employment with Oakwood;(iii)Ms Li registered MLI as a company;(d)On 18 or 19 February 2024, Mr Peter Delis provided Ms Li with a notice of immediate termination and instructed Ms Li not to return to work; and (e)On 19 February 2024, Ms Li sent Mr Delis a further email advising she was resigning as director of ACN 656 077 020.(f)During her employment with Oakwood and her directorship of ACN 656 077 020, Ms Li performed work for the clients of ACN 656 077 020 and was privy to sensitive commercial information including pricing information, strategic information and customer information;(g)Mr Peter Delis gave evidence he was contacted by clients of ACN 656 077 020 advising him that they had been contacted by Ms Li. That evidence was that:(i)On or about 22 February 2024, Mr Peter Korsak telephoned Mr Delis and said Ms Li:(A)Asked him to engage her to prepare his tax return;(B)Stated that she would do it for half price; and(C)Stated that she would do a better job than ACN 656 077 020;(ii)On or about 23 February 2024, Mr Grant Fraser telephoned Mr Delis and said Ms Li asked him to engage her as his accountant and that she sent him a photo of a business card for MLI;(iii)On or about 4 March 2024, Mr John Natisoulas telephoned Mr Delis and said that Ms Li offered to provide accounting services to him and that she sent him a photo of a business card for MLI;(iv)On or about 5 April 2024, Mr Harry Spatiotis telephoned Mr Delis and said that Ms Li offered to provide accounting services to him and provided him a photo of a business card for MLI; (v)On 9 April 2024, Mr Michael Pastore telephoned Mr Delis and said that Ms Li had offered to provide accounting services to him;(vi)On 10 April 2024, Ms Maria Martino telephoned Mr Delis and said that Ms Li had contacted her and offered to provide accounting services to her; and(vii)On 10 April 2024, Ms Megan Walton telephoned Mr Delis and said Ms Li had contacted her and offered to provide accounting services to her.(h)Mr Peter Delis also gave evidence that he has ongoing concerns about Ms Li contacting clients of ACN 656 077 020 to attempt to solicit work. Mr Peter Delis deposed that Ms Li only obtained the identities, contact details, accounting requirements and the type and price of services supplied to them from her role as a director of ACN 656 077 020 and as an employee of Oakwood. Messrs Tsapepas, Fraser and Spatiotis

Decision

Reasons for decision

I am satisfied that there is a serious question that Ms Li breached s 183 of the Corporations Act. That is, I am satisfied that there is a serious question that Ms Li was a director, that she acquired the confidential information by virtue of that position and that she used that information to advantage herself or MLI, or to cause detriment to ACN 656 077 020. Where that conduct was engaged in by Ms Li on her own behalf and on behalf of MLI, I am satisfied, for the purposes of a serious question, that MLI had the requisite knowledge for the purposes of s 79 of the Corporations Act. Conclusions on serious questions In all of those circumstances I am satisfied that there is a serious question that Ms Li breached the above statutory, fiduciary and contractual duties owed by her to the applicants. I am also satisfied that there is a serious question that MLI knowingly received information and knowingly assisted in Ms Li’s fiduciary breach, and was accessorily liable for Ms Li’s statutory breach. I will now consider the balance of convenience.BALANCE OF CONVENIENCE The applicants identify four matters they say result in the balance of convenience favouring the making of the interlocutory orders. First, the applicants say that damages may not be an adequate remedy. They state that Ms Li’s conduct may cause the applicants to lose long-term relationships between the applicants and their clients. They say if clients where to cease using ACN 656 077 020, it would be difficult to establish that the conduct of Ms Li caused the loss and so the applicants may never be in a position know what they have lost. Second, they say that it is hard to quantify the value of the loss of the long-term relationships, including relationships that have existed for decades. The respondents submit that these relationships could not have existed for decades given that ACN 656 077 020 was only established in 2021. While that is true, there is evidence that some clients have had a relationship with Messrs George and Peter Delis for decades, although this may have been with different but predecessor corporate entities. Third, the applicants say that Ms Li has expressed the view that the clients of ACN 656 077 020 are her intellectual property and has indicated that she may continue contacting those clients. The applicants say accordingly Ms Li’s attitude weighs in favour of granting the interlocutory orders. Fourth, the applicants say that even if they are successful in bringing a claim against the respondents, they may struggle to recover their loss. Ms Li has given evidence in this proceeding that she is in difficult financial circumstances. Ms Li’s evidence about her financial position suggests there is a risk that she is unable to satisfy an order of damages against her. I am satisfied that the first, third and fourth matters weigh the balance in favour of the applicants. The respondents only submission regarding balance of convenience was that the orders would prevent Ms Li from promoting her business to people she knows and has worked with previously. Given I have found that there is a serious question to be tried about whether Ms Li is able to lawfully contact those persons, this is not a factor that weighs the balance in favour of Ms Li.

Ratio Decidendi

Legal Principle Established

The statutory breach alleged by the applicants is a breach of s 183(1) of the Corporations Act 2001 (Cth). The applicants allege that Ms Li was under an obligation not to use information she obtained as a director of ACN 656 077 020, to improperly gain advantage for herself or MLI or to cause detriment to ACN 656 077 020. The applicants allege that Ms Li used information that included: ACN 656 077 020’s client list; requests from clients to ACN 656 077 020 to perform services; the fees charged by ACN 656 077 020; the details of the services provided by ACN 656 077 020; and ACN 656 077 020’s professional relationships with clients (the confidential information). The applicants allege that Ms Li used the confidential information to compete with ACN 656 077 020. The fiduciary breach alleged by the applicants arises as the result of Ms Li having been a director of ACN 656 077 020. The applicants allege that Ms Li was in a position that gave her a special opportunity to exercise her powers or discretions and use knowledge gained by virtue of that directorship to the detriment of ACN 656 077 020. They allege that Ms Li used the confidential information in breach of her fiduciary duty. The contractual breach alleged by the applicants is a breach of an employment contract entered into between Ms Li and Oakwood. That contract is said to include a term that Ms Li would not use confidential information for any purpose other than the benefit of Ms Li’s employer. The applicants allege that Ms Li used the confidential information in breach of that contractual term. The matter was before me for a case management hearing on 14 June 2024. Ms Li was given leave to represent MLI at that hearing only. At that case management hearing the matter was referred for urgent mediation. That mediation took place on 24 June 2024 and was unsuccessful. On 16 July 2024 I handed down judgment with respect to Ms Li’s application to further represent MLI. I refused that application. The applicants then sought the hearing of their application for interlocutory orders on a date not before 30 July 2024. I heard that application on 31 July 2024. For the reasons set out below I make interlocutory orders in favour of the applicants.PRINCIPLES The applicants must demonstrate that there is a serious question to be tried that they are entitled to relief and that the balance of convenience favours the grant of an injunction: Australian Broadcasting Corporation v O’Neill [2006] HCA 46; (2006) 227 CLR 57 at [65]-[72] per Gummow and Hayne JJ (with whom Gleeson CJ and Crennan J agreed at [19]). The applicants must establish that their case has a sufficient likelihood of success to justify the preservation of the status quo pending the trial. The strength of that likelihood depends upon the nature of the rights asserted and the practical consequences likely to flow from the order sought: O’Neill at [65]. When considering the grant of an interlocutory injunction, the issue of whether the applicants have made out a serious question and whether the balance of convenience favours the grant of an injunction are related inquiries. The question of whether there is a serious question should not be considered in isolation from the balance of convenience: Samsung Electronics Co Ltd v Apple Inc [2011] FCAFC 156; (2011) 217 FCR 238 at [67] (Dowsett, Foster and Yates JJ), citing, with approval Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2009] FCA 595; (2009) 81 IPR 339 at [15] (Sundberg J). See also Bullock v Federated Furnishing Trades Society of Australasia (No 1) [1985] FCA 258; (1985) 5 FCR 464 at 472 per Woodward J (with whom Smithers and Sweeney JJ agreed).