Grimmond & Hartin
[2021] FedCFamC1F 107
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Grimmond & Hartin [2021] FedCFamC1F 107
File number(s): DNC 234 of 2021 Judgment of: BERMAN J Date of judgment: 7 October 2021 Catchwords: FAMILY LAW – INJUNCTIONS – Preservation of property – Where the applicant seeks various injunctions against the respondents - Where the applicant and first respondent are directors and shareholders of a successful company – Where the second respondent no longer works for the company – Where the second respondent set up a business in the same industry – Where the applicant is concerned the first and second respondents are acting in concert with conduct which would reduce the value of the company – Consideration of whether a common law restraint might apply to the second respondent – Where it is reasonable to make orders to preserve the integrity of the business – Orders.
FAMILY LAW – PROPERTY – Sole use and occupation – Where the applicant seeks sole use and occupation of the former matrimonial home – Where the first respondent resides on the property but in self-contained accommodation – Where there is insufficient evidence for the making of an order.
FAMILY LAW – PRACTICE AND PROCEDURE - Discovery – Where the applicant seeks that the respondents provide discovery of certain documents in relation to the second respondent’s business – Where the respondents are parties to the proceedings – Where full and frank disclosure is required – Orders.
Legislation: Family Law Act 1975 (Cth) ss 114(2A), 114(3) Cases cited: Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724
Farr & Farr (1976) FLC 90-133
Forkserve Pty Ltd v Pacchiarotta (2000) 50 IPR 74
G & T (2004) FLC 93-176
Ormonoid Roofing & Asphalts Ltd v Bitumenoids Ltd (1930) 31 SR (NSW) 347
Printers and Finishers Ltd v Holloway [1965] 1 WLR 1
Norton & Lock (2013) FLC 39-567
Sieling & Sieling (1979) FLC 90-627
Heydon, John Dyson, The Restraint of Trade Doctrine (Butterworths, 2nd edition, 1999)
Division: Division 1 First Instance Number of paragraphs: 107 Date of hearing: 20 and 28 July 2021 and 25 August 2021 Place: Heard in Darwin and Adelaide, delivered in Adelaide Counsel for the Applicant: Ms Giacomo Solicitor for the Applicant: Ward Keller Lawyers Counsel for the First Respondent: Ms Morgan Solicitor for the First Respondent: Cozens Johansen Lawyers Counsel for the Second and Third Respondents: Mr Casey Solicitor for the Second and Third Respondents: Withnalls Lawyers ORDERS
DNC 234 OF 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS GRIMMOND
Applicant
AND: MR HARTIN
First Respondent
MR X HARTIN
Second Respondent
B PTY LTD ACN …
Third Respondent
ORDER MADE BY:
BERMAN J
DATE OF ORDER:
7 OCTOBER 2021
THE COURT ORDERS:
1.That the first respondent is restrained from selling, encumbering or disposing of any property of C Pty Ltd (“CPL”) without the written consent of the applicant or order of the Court save and except as may be necessary in the ordinary course of business and for the normal business operations of CPL.
2.That the applicant and the first respondent be restrained from providing any financial documents (including but not limited to financial returns, creditors, aged receivables, profit and loss statements, balance sheets and history of Australian Taxation Office (“ATO”) lodgements) or other information relating to the financial position of CPL to any other person or entity without the express consent of the applicant and the first respondent or order of the Court save and except for the following:
(a)For the provision of such records to the accountants of the company CPL for taxation and other business purposes; and/or
(b)For the provision to a valuation or other expert for the purpose of family law proceedings or mediation or arbitration.
3.That the first respondent be restrained from:
(a)Using, copying or extracting any of the information described in or derived from the CPL client list or CPL database (“company information”) or producing, marketing or selling any item which could not have been used, produced or created without the use of the company information;
(b)Doing any act or thing to invite, persuade or otherwise suggest to any existing clients of CPL that they trade with any other person or entity including B Pty Ltd (“B Pty Ltd”);
(c)Doing any act or thing to offer or supply any existing clients of CPL any identical good to CPL at a price that is less than CPL sells the items for in the ordinary course of business.
4.That the applicant and the first respondent be restrained from setting up any company, business or trading in competition with CPL in the Northern Territory.
5.That the applicant and the first respondent be restrained from accessing any credit loan account that they may each have with CPL other than with the consent of the parties or as may be ordered by this Court.
6.That the second and third respondents are restrained from:
(a)Providing any financial documents (including but not limited to financial returns, creditors, aged receivable, profit and loss statements, balance sheets and history of ATO lodgements) or other information relating to the financial position of the CPL to any other person or entity without the express consent of the applicant or order of the Court.
(b)Using, copying or extracting any of the information described in or derived from the CPL client list or CPL database (“company information”) or producing, marketing or selling any item which could not have been used, produced or created without the use of the company information;
7.That the applicant, first, second and third respondents do make discovery of all documents relevant to any issue in the proceedings on or before sixty (60) days of the date of these orders.
8.That within thirty (30) days of the date of these orders the second and third respondents provide to the applicant and first respondent the following:
(a)All documents evidencing any contracts entered into by B Pty Ltd (including but not limited to leases) from its incorporation to the date of production;
(b)All documents belonging to CPL and to destroy any electronic copies of any documents belonging to CPL.
9.That the applicant and first respondent be restrained from changing the current location of CPL.
10.That the balance of the orders sought in the interim proceedings be dismissed.
11.That the Initiating Application be referred to the list of matters awaiting trial allocation and is adjourned for trial directions to a date to be advised by the Court.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Hartin & Grimmond has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BERMAN J
INTRODUCTION
Ms Grimmond (“the applicant”) and Mr Hartin (“the first respondent”) commenced a de facto relationship in 1988 and finally separated on 15 June 2020.
Following the breakdown of the relationship, the applicant commenced proceedings for property settlement by filing an Initiating Application on 21 May 2021. The parties have two adult children, namely Mr Y Hartin and Mr X Hartin.
The applicant and the first respondent are directors and equal shareholders of a business operating in Darwin, known as C Pty Ltd (“CPL”).
It is uncontroversial that CPL has been a successful enterprise and was able to provide the parties with significant taxable income.
By reference to the applicant’s affidavit filed 20 May 2021 she considers that CPL would have a value in excess of 1.5 million dollars.
Whilst there is no agreement between the parties as to the value of the property pool it is likely that the net assets are significant as is the total superannuation entitlements of the parties.
Mr X Hartin (“the second respondent”) was an employee of CPL and it is likely that his involvement with CPL was important to the day to day technical operation of the business.
In 2020 the first and second respondents incorporated B Pty Ltd (“B Pty Ltd”).
The applicant was concerned that B Pty Ltd would be in direct competition to CPL and she instructed her solicitors to forward correspondence to the first respondent’s solicitors raising a concern that his conduct may well be considered as a breach of his fiduciary and director’s duties to CPL. Whilst the applicant’s assertion was denied by the first respondent’s solicitors, he was removed as a director and shareholder of B Pty Ltd in or about late February/early March 2021, leaving the second respondent as the sole director and shareholder.
The applicant remained concerned that the first respondent may assist the second respondent to more successfully compete for work by providing the second respondent with customer information and intellectual property of CPL.
The parties were unable to resolve their differences. It is likely but not a certainty that the applicant’s rejection of a request to transfer her shares in CPL, either in whole or in part, to the second respondent was the catalyst for the incorporation of B Pty Ltd.
In those circumstances the applicant filed an Amended Initiating Application on 22 June 2021 which joined Mr X Hartin as the second respondent and B Pty Ltd as the third respondent.
The final orders sought by the applicant provide for a division of the interests of the parties in real property, a lump sum superannuation splitting order and upon the payment of a settlement sum the applicant would transfer her interest and title in CPL to the first respondent. There are no final orders sought against the second and third respondents. The first respondent filed a Response to the Initiating Application on 14 July 2021. The first respondent sought orders that the real property held by the parties be placed on the market for sale with the net proceeds to be divided equally between the parties.
In addition, the first respondent’s stated position is that he does wish to retain CPL and seeks various orders as to the method and manner by which CPL should be marketed for sale.
The first respondent does not seek any final orders against the second and third respondents.
For the present purposes of the interim proceedings, the focus of the parties is the fate and therefore the value to be attributed to CPL.
It appears that the applicant does not wish to retain and operate CPL but is fearful that given the circumstances of the second respondent setting up B Pty Ltd in potential competition to CPL, the effective value of CPL will be adversely affected by customers of CPL transferring their business to B Pty Ltd. It is immediately apparent that the most beneficial outcome for the parties would be for the applicant and the first and second respondents to reach agreement and accord to avoid any potential for a damaging commercial contest between CPL and B Pty Ltd.
At present the conflict between the parties is high and an interim agreement is unlikely. The circumstances of the applicant and the first respondent are adversely impacted by reasonably serious health conditions.
INTERIM ORDERS SOUGHT
The interim orders sought by the applicant as set out in the Amended Initiating Application are replicated in her Application in a Case filed 22 June 2021. The applicant seeks to restrain the first respondent, his agents and servants from the following:
(1)Selling, encumbering or disposing of any property of CPL without the consent of the applicant or the Court;
(2)Providing any financial documents and records relevant to the financial position of CPL to any other person or entity without the consent of the applicant or order of the Court;
(3)Using, copying or extracting any of the information described in or derived from the CPL client list or database or producing, marketing or selling any item which could not have been used, produced or created without the use of the company information;
(4)Inviting, persuading or otherwise suggesting to any existing CPL clients that they trade with any other person including B Pty Ltd;
(5)Doing any act or thing to offer or supply to any existing clients of CPL any identical goods to CPL at a price that is less than CPL sells the items for in the ordinary course of business;
(6)Removing the operation of CPL from the premises located at D Street, Suburb E to any other premise;
(7)Setting up any company, business or trading in competition with CPL in the Northern Territory; and
(8)Accessing any credit loan account that he may have with CPL.
In addition the applicant seeks to restrain the second and third respondents, their agents or servants from:
(1)Providing any financial documents or other information relating to the financial position of CPL to any other person or entity without the express consent of the applicant or order of the Court;
(2)Recommending to any existing CPL client that they transfer their business to any other person or entity including B Pty Ltd;
(3)Using, copying or extracting any of the information described in or derived from the CPL client list or CPL database or producing, marketing or selling any item which could not have been used, produced or created without the use of the company information; and
(4)Setting up any company, business or trading in competition with CPL in the Northern Territory.
The applicant also seeks that the third respondent account for all profits received by B Pty Ltd from:
(1)The use of company information; and
(2)Any client of CPL who has transferred their business to B Pty Ltd.
The applicant seeks that the respondents provide substantial discovery of documents that are relevant to the current operation and commercial trading of B Pty Ltd. The applicant also seeks that the first respondent provide information of any monies received by him or withdrawn from the trading account of CPL.
Proposed orders 7 and 8 seek the appointment of a third director to CPL for the purpose of avoiding a lacuna in the ability of the parties to properly manage the operation of CPL on an ongoing basis.
At present, the applicant and first respondent reside at the property located at F Street, Suburb G (“the Suburb G property”) although of more recent date, the applicant lives in separate and self-contained accommodation on the property.
By Response to an Application in a Case filed 14 July 2021, the first respondent agrees to the following orders:
(a)Order 2.1 [of the Application in a Case] save and except as necessary in the ordinary course of business and for the normal business operations of the company [CPL]
(b)Order 2.2 [of the Application in a Case] with respect to both the Applicant and the Respondent (‘parties’) and save and except:
(i)for the provision of such records to the accountants of the company CPL for taxation and other business purposes; and/or
(ii)for the provision to a valuation or other expert for the purpose of Family Law proceedings or mediation or arbitration; and/or
(iii) as agreed between the Applicant and the Respondent; or
(iv) as ordered by this Honourable Court
(c) Order 2.7 [of the Application in a Case] with respect to both parties.
(d)Order 2.8 [of the Application in a Case] with respect to both parties and save and except as follows:
(i)as required for any necessary expenses of the Applicant or Respondent with the parties to provide details of the amount and its expenditure to the other; or
(ii) with the consent of the Applicant and Respondent; or
(iii) as ordered by the Honourable Court.[1]
[1] Response to Application in a Case filed 14 July 2021, page 2.
The concessions made together with the amendments in respect of proposed orders 2.1, 2.2, 2.7 and 2.8 of the Application in a Case have merit and were not the subject of serious opposition by the applicant.
Consideration needs to be given to 2.3, 2.4, 2.5 and 2.6 of the Application in a Case.
The second and third respondents by their Response to an Application in a Case filed 19 August 2021 seeks that orders 2 to 5 be dismissed and that the applicant pay the second respondent’s costs incidental to the Application in a Case.
Following submissions made upon the interim proceedings on 28 July 2021, the applicant filed a further Application in a Case on 13 August 2021 seeking that within 24 hours of any orders made, the first respondent return $45,000 to the CPL trading account.
The applicant alleges that the first respondent withdrew money from the CPL business account as follows:
(a)On 2 August 2021 in the sum of $10,000;
(b)On 3 August 2021 in the sum of $10,000; and
(c)On 5 August 2021 in the sum of $25,000.
The first respondent has conceded that he withdrew the total sum of $45,000 and in circumstances where there were current proceedings it seems that the first respondent agreed that the money withdrawn should be returned.
The withdrawal of money by the first respondent highlights the difficulty for each of the parties arising from their inability to communicate at any effective level in terms of the day to day management and operation of CPL. The parties do not wish to retain CPL and whilst the first respondent seeks the following order:
9.That pending the sale of CPL the parties will continue to run CPL’s business to the best of their ability and to ensure (subject to any market downturn due to COVID-19 or any other unforeseen circumstances) consistent performance and sales.[2]
the reality is that the conflict between the parties and the departure of the second respondent from CPL will be likely to have a significant adverse financial impact on the business.
[2] Response to Initiating Application filed 14 July 2021, page 11.
The applicant does not wish to retain CPL and is unlikely to have the necessary technical or operational skills to manage the business even in the medium to long term. The first respondent does not wish to do so and would see the business be sold.
The applicant maintains a strong suspicion that the first and second respondents are acting in concert with the intention that a significant number of CPL customers, both current and potential, will transition to B Pty Ltd thereby reducing both the value of CPL and the market ability and therefore price likely to be received upon sale of the business.
The second and third respondents seek that the interim orders sought by the applicant insofar as they are sought against the second and third respondents be dismissed.
It is notable that the applicant does not seek any final orders against the second and third respondents but rather seeks to retain as much of the customer base of CPL as is possible in order that the value of the business either in its current state or upon its sale is preserved.
THE INVOLVEMENT OF THE SECOND RESPONENT IN CPL
CPL was incorporated in 2006. The business was profitable and the parties used income to purchase real estate.
The second respondent was an employee of CPL initially in his capacity as an apprentice but later as a tradesperson. The second respondent was well remunerated with a significant salary and work related entitlements including a motor vehicle and mobile phone.
The parties had agreed to value CPL and on 23 December 2020 an agreed single expert valuer provided a valuation report in the sum of $2,032,234 with Div 7A loans in excess of $500,000.
As discussed, the parties are not agreed as to the catalyst for the second respondent to leave CPL and set up B Pty Ltd which is likely to be in direct competition to CPL.
The applicant asserts that the first and second respondents wanted her to transfer her share in CPL to the second respondent. The applicant refused and she records a purported statement of the second respondent that he and the first respondent had been given advice as to how to take over the business of CPL by setting up a rival entity.
In 2020, the first and second respondents incorporated B Pty Ltd and were listed as the only shareholders and directors.
The applicant contends that in separate discussions and following separation, the first respondent revealed that he planned to go into business with the second respondent.
Solicitors became involved and the applicant sought an undertaking from the first respondent in relation to the future trading of B Pty Ltd. Presumably as a response to the potential conflict that the first respondent found himself in, he was removed as a director and shareholder of B Pty Ltd.
The first respondent considers that the second respondent is the key staff member of CPL and it was his skills and expertise that enabled CPL to prosper.
The first respondent is frank in his assessment of the consequences of the resignation of the second respondent in that it will inevitably devalue CPL and his replacement will be difficult.
The first respondent does not agree that the intention of the second respondent in setting up B Pty Ltd was to be in direct competition with CPL. The idea was that B Pty Ltd would work closely with CPL.
The first respondent acknowledges that he provided assistance to the second respondent in setting up B Pty Ltd and introduced him to a financial provider and the suppliers of trade and other equipment.
Whilst there is no evidence that would allow a determination of the extent to which B Pty Ltd could trade in competition to CPL, the first respondent contends that the business to be undertaken by B Pty Ltd is as to specialist equipment development and installation. CPL would no longer be able to undertake equipment development but would need to focus on the provision and maintenance of other equipment.
The second respondent does not consider that he has any residual obligation to CPL and it is not suggested that there is any contract of employment which sets out the extent to which the second respondent is constrained by any restraint of trade provisions upon his resignation from CPL.
The interrelationship of the parties is toxic and is best exemplified by the following email:
From: Mr X Hartin …
Sent: Saturday, 26 June 2021 12.27pm
To: …@... .com.au
You fucking disgust me. You are nothing more than a maggot festering in the corpse of what you’ve poisoned and destroyed, eating away slowly at the remaining bits of lifeless flesh that still surrounds you.
I have never been more ashamed of anything in my life than I am to have you as a mother.
I’m so embarrassed by you and you should be of yourself. You’re a pathetic, lazy, fat bottom feeding slob with no friends who will stoop to the lowest lows to scam a dollar out of someone. But you’ve been nothing but a scammer your entire life so I shouldn’t be surprised. You’ve got a long history of being a failure at everything you do, then playing the victim to squeeze every dollar out of the situation that you can.
I’ve worked so incredibly hard for years to achieve what I have so far, something that has been unmatched by anyone I know in my industry. You have played no part in nurturing or supporting me as an employer or a mother. You’ve done nothing but exploited me for profits and it has gone on far too long. I will not let you steal, destroy and scam me out of my future.
After how you’ve acted and treated me and the people around you, I only hope that when you die it’s painful, sad, poor and alone because it’s all you deserve. The day you fuck off and die is the day the world can celebrate for getting rid of another oxygen thief.
I will do everything I can to rid myself of the stain you’ve left me and a name that makes me feel so sick. I hope that the Grimmond name and its sour, rotten and spiteful legacy dies with you.
Cunt![3]
[3] Affidavit of the applicant filed 9 July2021, annexure “G-1” page 10.
The applicant’s concerns in respect of the conduct of the first and second respondents were heightened by her belief that the administration assistant of CPL as recently as 29 June 2021 may have been providing CPL information to the second respondent but also assisting in the establishment of B Pty Ltd. Prior to the resignation of the first respondent from B Pty Ltd, the applicant refers to email communication between 25 May 2021 and 7 June 2021 between the second respondent as director of B Pty Ltd and one of CPL’s suppliers.
Following the resignation of the second respondent, on 10 August 2021 a CPL employee opened the second respondent’s computer and discovered an electronic folder titled “B Pty Ltd”. The applicant asserts that the folder contained significant quantity of data involving twenty subfolders which included information relating to CPL in terms of “spreadsheets, template forms, customer lists, suppliers lists and employee information”.[4]
[4] Affidavit of the applicant filed 13 August 2021, paragraph 5.
The applicant’s interpretation of the information in the file is that the second respondent, prior to his resignation, was diverting employees and technical documents to B Pty Ltd.
Amongst the information was a business entitled “B Pty Ltd Business Plan Rev 1”[5] dated May 2001. Part of the document contains the following remarks:
“… B Pty Ltd is in essence CPL, with some critical improvements and without the CPL director restrictions. B Pty Ltd intends to service the same customers as CPL, and is confident that its director, Mr X Hartin will be able to carry over strong client relationships to his new company. B Pty Ltd has already approached many of the highly-skilled CPL staff, who have agreed to transition.”
“CPL is currently the largest customer in the NT of many of its suppliers including H Company (triple the next highest amount), J Company, K Company and L Company. It is anticipated that these suppliers will wish to retain their current large turnover from this business by providing their goods and credit to B Pty Ltd.”
“CPL has quoted and expected to win, or already secured purchase orders for numerous projects. When B Pty Ltd starts operating, CPL will have no ability to fulfil its current contracts, and so it will either need to subcontract the works or forfeit the opportunity. Many of the clients will likely follow the team as it transitions in B PTY LTD due to the strong relationships developed over years.”[6]
(Emphasis in original)
[5] Ibid, paragraph 8.
[6] Ibid, paragraph 10.
Contained within the electronic folder are 33 credit applications made on behalf of B Pty Ltd by the second respondent applying for credit with various suppliers, some of whom are also suppliers of CPL. The credit applications refer to CPL as a trade reference and to other customers of CPL.
In his affidavit filed 19 August 2021, the second respondent denies that he deleted CPL data from his work computer but does concede that he deleted personal information he had accumulated over the seven years of his employment.
The second respondent acknowledges that a folder did exist titled “B Pty Ltd” but denies that there is any sinister connotation that can be attached to the contents of the folder given that the business plan for B Pty Ltd was conceptualised in mid-2020. The second respondent considers that it was a personal folder which he failed to delete in error upon his resignation.
It is acknowledged by the second respondent that he had been planning and initiating steps necessary to start up a new business for a significant period of time prior to his resignation with CPL. Whilst conceding that he was planning the setting up of B Pty Ltd, he denies that he diverted customers.
The second respondent denies that CPL ever produced a single design template and that there is no issue relating to copyright or intellectual property.
It is also conceded by the second respondent that at the very least he was approached by some CPL staff who explored employment with him should B Pty Ltd commence operation.
The second respondent confirms that there were 33 credit applications made on behalf of B Pty Ltd listing the first respondent as a reference and naming the administration assistant of CPL as the accounts contact. The second respondent contends that the administration assistant assisted in the setting up of B Pty Ltd in her personal time in evenings and weekends. Apparently the said employee may have expressed an interest in working with B Pty Ltd.
LEGAL PRINCIPLES
When proceedings are before the Court there is broad power to grant injunctive relief including for the purposes of preserving the property of the parties, and or otherwise regulating the conduct of parties pending final hearing. The principles relevant to an application for injunctive relief is conveniently set out in the decision of O’Reilly J in G & T (2004) FLC 93-176 at 78,989-78,990:
53.The purpose of interlocutory restraining orders in a case such as this is to preserve the status quo until the trial. In order to exercise its discretion the Court is required to find that there is a serious issue to be tried and that the balance of convenience supports the making of an order: Blueseas Investments Pty Ltd v Mitchell and McGillivray (1999) FLC 92-856 (FC) at par 56, citing Yunghanns v Yunghanns (1999) FLC 92-836 at par 109.
54.Plainly, it is also a requirement that the restraints sought be reasonably necessary in the sense that if the restraining orders sought are not made there would be a real risk of the defeat of the applicant’s claimed interests: Waugh and Waugh (2000) FLC 93-052 at pars 32-44.
55.Further, because the wife ultimately is seeking to invoke the favourable exercise of the Court’s discretion under s 79A she must not only show a serious question to be tried to support the injunction, but to meet the higher test of a prima facie case under s 79A. …
Sections 114(2A) and 114(3) of the Family Law Act 1975 (Cth) empowers the Court to make an order in positive as well as negative terms, as in the case of mandatory injunctions where it must be proper to make such and order. The term “proper” means “reasonable and just in the circumstances”.[7]
[7] See Farr & Farr (1976) FLC 90-133
The applicant seeking an injunctive order bears the onus of satisfying the Court that the circumstances justify the making of that order.
By way of summary, the following principles are relevant to the Court’s consideration of the applicant’s application in the matter:
(a)In so far as the purpose of the proposed injunctions is to restrain dealing with property pending the final hearing, the Court must address the question as to whether there is evidence of risk of the disposal of any assets that would defeat any anticipated order in substantive proceedings. However that is but one of a number of factors to be considered.
(b)The applicant seeking such an order must establish a real risk of assets being disposed of prior to a final hearing.
(c)In assessing that risk it is not necessary for the applicant to satisfy the Court as to the probability of success of the applicant’s case. It is sufficient to show that there is a risk of the disposal of assets or the diminution of an asset pool.
In considering the nature of injunctive relief sought by the applicant, it is important to be aware of the general principle that “equity intervenes to the minimum extent necessary to do justice”.[8]
[8] Norton & Lock (2013) FLC 39-567 at [72].
In the context of family law proceedings, in Sieling & Sieling (1979) FLC 90-627 at 78,264 the Full Court said:
The power to grant injunctions is, of course, a discretionary power, not to be exercised lightly. The Court must balance the hardship to each party of granting or refusing an order, and frame its order in such a way as to impose no further restriction that is necessary to achieve the protection of the applicant’s interest. It will not lightly interfere with the rights of an owner of property on the basis of a vague or uncertain claim.
THE EXTENT TO WHICH THE FIRST RESPONDENT SHOULD BE RESTRAINED
Orders 2.3, 2.4 and 2.5 of the applicant’s Application in a Case seek to restrain the first respondent from acting in a manner contrary to the financial interests of the parties in CPL.
Whilst the motive for the orders sought by the applicant are predicated upon a belief that the first respondent is in concert with the second respondent with the purpose of transferring customers of CPL to B Pty Ltd, in the circumstances in which the parties find themselves, the orders sought by the applicant have a proper foundation in attempting to preserve the value of CPL in circumstances where the applicant does not want to retain the business and the first respondent seeks that it be sold.
Whilst in those circumstances it may seem inevitable that the parties will need to focus on what is to happen to CPL, it is reasonable that orders be made that preserve as much as is possible the integrity of the business.
There is evidence that supports the contention that the first respondent was prepared to assist the second respondent in the setting up of B Pty Ltd. The first respondent frankly acknowledges the pivotal importance to CPL arising from the second respondent’s former involvement. The focus of the first respondent should be to explore an appropriate way forward particularly given the significant valuation attached to CPL in 2020.
The position of the first respondent is that he does not intend to assist the second and third respondents to the extent that it would adversely impact upon the business model of CPL.
In those circumstances the orders sought by the applicant seek to preserve the value of CPL and do no more than reinforce the obligation that each of the parties have in their capacity as directors of CPL.
Order 2.6 concerns the removal of the CPL business from premises located at D Street, Suburb E.
CPL operates from Units 5 and 7, D Street, Suburb E. The first respondent asserts that Unit 7 is owned by Ms M and that CPL was asked by the landlord to renew the tenancy for another three years. The first respondent was reluctant to do so taking into account the financial circumstances at the time and forwarded correspondence to Ms M on 26 August 2020 advising that the business was not willing to commit to a long term lease on the premises. Apparently, the landlord found a tenant for the premises and CPL was required to vacate Unit 7.
As I understand matters, Unit 5 is owned by CPL and whilst there may be the need for more space or additional premises suited to the business operation, it is not suggested by the first respondent that CPL should also vacate Unit 5.
In those circumstances, any decision to move the business from its current location should be a matter of joint agreement. Given the need for certainty in the ongoing operations of CPL I propose to make the order as sought by the applicant but on the basis that both parties are subject to the injunction.
THE EXTENT TO WHICH THE SECOND AND THIRD RESPONDENTS SHOULD BE RESTRAINED
The applicant seeks a range of injunctive relief against the second and third respondents with the additional order sought that the third respondent account to CPL for all profits received by B Pty Ltd from:
(a)The use of company information obtained or derived from the CPL client list or database; and
(b)Any clients of CPL who have transferred their business to B Pty Ltd.
It was not argued that the Court does not have power to make an order of injunction directed to a third party but rather that the Court should decline to do so in circumstances where the second respondent was a mere uncontracted employee of CPL.
I consider that I have power to make an order against the second and third respondents pursuant to s 114(2A)(c) and s 114(3) of the Act.
I have also considered whether a common law restraint might apply to information that an employee can access after leaving a business.
If there is no contract or expressed term of confidentiality in an existing contract, a duty of confidentiality may be implied. The Court in Faccenda Chicken Ltd v Fowler [1985] 1 All ER 724 categorised information that an employee may come across in their employment as trivial information, knowhow or trade secrets.
Trivial or well-known information cannot be protected.
It is likely that knowhow can only be protected through a reasonable restrictive covenant that restrains the employee from competing with the employer for a period of time that in all the circumstances is considered reasonable and not onerous.
The question therefore is what information could be considered a trade secret. The test is whether the information can be regarded as part of an “employee’s stock of knowledge” [9] or whether it would be considered property of the employer. Not surprisingly, a trade secret may include information to which a high degree of confidentiality would apply.
[9] Printers and Finishers Ltd v Holloway [1965] 1 WLR 1 at 5.
In the decision of Ormonoid Roofing & Asphalts Ltd v Bitumenoids Ltd (1930) 31 SR (NSW) 347 at 354 Harvey CJ considered the status of an attempt to use a client list of an employer or to entice a customer of the employer to transfer their business to another entity in the following terms:
In my opinion the cases show that where an employee has in the course of his employment and for the purposes of his employment has obtained particular information with regard to his employer’s business such as knowledge of processes, details of management or particulars of customers which have been stored up in his mind as a necessary consequence of the way in which his master employed him, there is no justification in the absence of express contract, for preventing him from making use of that knowledge.
In the more recent decision of Forkserve Pty Ltd v Pacchiarotta (2000) 50 IPR 74 at [20] Young J considered that the proposition of John Dyson Heydon in The Restraint of Trade Doctrine (Butterworths, 2nd edition, 1999) at 80 was correct law:
The employee cannot remove, whether by using paper or using memory, a material or part of the former employer’s business records; but the employee can approach a particular customer or client whom that employee can recall without a list or deliberate memorisation.
The second respondent denies that it was his intention or plan to make use of confidential information including client lists, company processes and trade secrets.
The evidence relied upon by the applicant presents an arguable case that the second respondent initially with the assistance of the first respondent but then apparently on his own, utilised information with an employee’s assistance to set up B Pty Ltd, obtain credit and indicate a position that B Pty Ltd was to be in direct competition to the business of CPL either in whole or in part.
The communication passing between the second respondent and the applicant demonstrates a clear mindset that he holds her in low regard and would be unconcerned if her interest in CPL was significantly diminished in value.
Irrespective of what ultimately may be determined as to the motivation of the second respondent, a summary of his evidence is that he did not need to utilise CPL information or trade secrets because the intention is that B Pty Ltd will trade upon the knowledge of the second respondent in respect of the design and development of specialist switchboards.
No prejudice is caused to the second and third respondents by the orders of restraint comprised in orders 3.1, 3.3, 4.1 and 4.3 of the Application in a Case.
I consider that it would be an unreasonable restraint on the ability of the second and third respondents to restrain them from approaching existing clients of CPL given the potential clients were memorised by the second respondent and not obtained from client lists, client documents or personal files. Such information would be covered by the orders sought in respect of 3.1 and 3.3 of the orders sought.
I do not consider that there is any justification for an order restraining the second and third respondents from setting up any company business or trading in competition with CPL in the Northern Territory.
I suspect that in any event, the horse has bolted and the second respondent and B Pty Ltd are now trading in their own right.
It would be an unnecessary incursion into the financial affairs of B Pty Ltd to require it to account to CPL for profits received by the use of company information and any clients that have transferred their business to CPL.
In any event, it must be remembered that the proceedings as between the parties do not include a cross vested or accrued jurisdiction claim for damages against the second and third respondents. The issue is one of value of CPL, either were it to have been retained by the respondent or, more likely, its value if sold.
I do not ignore the applicant’s belief that the first respondent remains highly supportive of the second respondent and has an allegiance to the second respondent that transcends his loyalty and duties to the applicant and CPL. I am not able to make any determination as to whether there is strength in the applicant’s assertion but on the evidence presented the applicant raises an arguable case.
The issue for the applicant and the first respondent may not be the actions of the second respondent but rather the value of which CPL may be brought to account depending upon the conduct of the parties.
SOLE USE AND OCCUPATION
The applicant seeks that the first respondent vacate the premises at the Suburb G property. Such an application is made pursuant to s 114(2A)(a).
As matters have transpired, the husband seeks to remain on the property but has vacated the main part of the house and now resides in self contained accommodation.
A cautious approach should be adopted before a court should make an order of injunction that forces a party from a property in which they have a legal interest. If whilst the applicant’s argument may have had more force whilst the parties remained in the same residence, I consider there is a diminished basis for an order of sole use and occupation given the changed living arrangements.
There is insufficient evidence that would support the making of an order for sole use and occupation in favour of the applicant and I decline to do so.
DISCOVERY OF DOCUMENTS BY FIRST, SECOND AND THIRD RESPONDENTS
The second and third respondents are parties to the proceedings. The requirement for full and frank disclosure is not diminished merely because at this stage, the applicant does not seek final orders against the second and third respondents.
There may be other reasons for seeking discovery of financial records relating to B Pty Ltd in terms of how they may be relevant to a future valuation of the interests of the applicant and respondent in CPL over and above the general obligation of parties to proceedings to make full and frank disclosure of documents relevant to an issue in the case. I will make an order in terms of paragraph 5.5 and 5.7 of the Application in a Case.
I make orders as appear at the commencement of these reasons.
I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Berman. Associate:
Dated: 7 October 2021
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