Monarch Advisory Group Pty Ltd v Puxty (No 2)

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FEDERAL COURT OF AUSTRALIA

Monarch Advisory Group Pty Ltd v Puxty (No 2) [2021] FCA 801

File number: NSD 951 of 2020
Judgment of: MARKOVIC J
Date of judgment: 16 July 2021
Catchwords: PRACTICE AND PROCEDURE – application to restrain solicitors from acting for the applicant – whether there is a real and sensible possibility of the misuse of confidential information – whether the proper administration of justice requires the solicitors to be restrained from acting – where no evidence that solicitors acted for respondents – where unclear whether information was provided to solicitors – where information lacks necessary character of confidence even if provided to solicitors – application dismissed
Legislation:

Competition and Consumer Act 2010 (Cth) Sch 2 (Australian Consumer Law) ss 18 31

Corporations Act 2001 (Cth) ss 182, 183
Cases cited:

Dyer v Chrysanthou (No 2) (Injunction) [2021] FCA 641

Jing Li v Jin Lian Group Pty Ltd [2018] NSWSC 479

Monarch Advisory Group Pty Ltd v Puxty [2021] FCA 341

Mumbin v Northern Territory of Australia (No 1) [2020] FCA 475

Nash v Timbercorp Finance Pty Ltd (2019) 137 ACSR 189

Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 72
Date of hearing: 25 February 2021, 29 March 2021
Counsel for the Applicant: Mr D Mahendra
Solicitor for the Applicant: Madison Marcus Law Firm
Counsel for the Respondents: Mr M Luitingh
Solicitor for the Respondents: Edge Legal Group

ORDERS

NSD 951 of 2020
BETWEEN:

MONARCH ADVISORY GROUP PTY LTD

Applicant
AND:

MR BRETT JAMES PUXTY

First Respondent

MR FRANCIS COGGAN

Second Respondent

ODYSSEY ADVISORY SERVICES ACN 155 549 705

Third Respondent

ORDER MADE BY:

MARKOVIC J

DATE OF ORDER:

16 JULY 2021

THE COURT ORDERS THAT:

1.The respondents’ interlocutory application filed on 8 December 2020 (Interlocutory Application) is dismissed.

2.The applicant is to file its submissions on the question of the costs of the Interlocutory Application, not exceeding three pages in length, by 30 July 2021.

3.The respondents are to file their submissions on the question of the costs of the Interlocutory Application, not exceeding three pages in length, by 13 August 2021.

4.Unless either party requests an oral hearing, the question of costs of the Interlocutory Application will be dealt with on the papers. 

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


REASONS FOR JUDGMENT

MARKOVIC J:

  1. This is an application made by Brett James Puxty, Francis Coggan and Odyssey Advisory Services Pty Ltd, the respondents in this proceeding, against the applicant, Monarch Advisory Group Pty Ltd, for an order “removing and or barring” Monarch’s lawyers, Madison Marcus Law Firm Pty Ltd, from acting for it in this proceeding. 

  2. The grounds for the application appear to be first, the risk of misuse of confidential information said to be provided by Mr Puxty to Madison Marcus when that firm was retained…

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Details
Case
[2021] FCA 801
Decision Date

CaseChat Overview and Summary

Monarch Advisory Group Pty Ltd v Puxty (No 2) involved an application by the respondents to restrain Madison Marcus, the solicitors for the applicant, from acting for the applicant. The dispute arose from an alleged breach of confidentiality and fiduciary duties by the respondents, who were former employees of the applicant company. The Federal Court was tasked with determining whether there was a real and sensible possibility of the misuse of confidential information and whether the proper administration of justice required the solicitors to be restrained from acting.

The court examined the nature of the relationship between Madison Marcus and the respondents, the information allegedly provided to Madison Marcus, and the potential for misuse of this information. It was noted that there was no evidence that Madison Marcus had acted for the respondents or that the information provided was of a confidential nature. Even if the information had been provided to Madison Marcus, it lacked the necessary character of confidence to warrant restraint. The court concluded that a fair-minded reasonably informed member of the public would not find that the administration of justice required the court to exercise its inherent jurisdiction to restrain Madison Marcus from acting for the applicant.

The interlocutory application was dismissed, and the court ordered the parties to file submissions on the costs of the application. Unless an oral hearing was requested, the court would determine the issue of costs on the papers. This decision underscores the importance of demonstrating a real and sensible possibility of misuse of confidential information and the necessity for the proper administration of justice to justify restraining legal representatives from acting.

Orders

Orders of the court

1. The respondents’ interlocutory application filed on 8 December 2020 (Interlocutory Application) is dismissed.

2. The applicant is to file its submissions on the question of the costs of the Interlocutory Application, not exceeding three pages in length, by 30 July 2021.

3. The respondents are to file their submissions on the question of the costs of the Interlocutory Application, not exceeding three pages in length, by 13 August 2021.

4. Unless either party requests an oral hearing, the question of costs of the Interlocutory Application will be dealt with on the papers.

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

Background

Background to the litigation

The grounds for the application appear to be first, the risk of misuse of confidential information said to be provided by Mr Puxty to Madison Marcus when that firm was retained to act for him and Monarch; and secondly, to protect the due administration of justice in the interests of preserving the integrity of the judicial process in circumstances where it is alleged that Madison Marcus acted for Mr Puxty and that it owes Mr Puxty an obligation of loyalty.BACKGROUND These reasons should be read together with Monarch Advisory Group Pty Ltd v Puxty [2021] FCA 341 (Monarch (No 1)) at [2]-[10] where part of the background to the proceeding and this application is set out. Consolidated Corporate Pty Ltd becomes a shareholder in Monarch Tatiana Coulter is the sole director of Monarch which operates a financial planning business. Prior to 13 March 2018, and currently, Ms Coulter was and is Monarch’s sole shareholder. As set out at [4] of Monarch (No 1), between 13 March 2018 and 4 April 2019, Consolidated Corporate Pty Ltd was a 50% shareholder of Monarch. Consolidated is the parent company of Madison Marcus. Consolidated was registered on 2 March 2011. As at 2018 its directors were Ramy Qutami, Bechara Shamieh, Denis John Hall and Therese Armstrong. Madison Marcus was registered on 26 June 2013. As at 2018 its directors were Messrs Qutami, Shamieh and Hall and Ms Armstrong. Ms Coulter was introduced to Mr Shamieh, managing director of Madison Marcus, in about early 2017 through a mutual connection. Thereafter, Ms Coulter and Mr Shamieh met on numerous occasions to discuss business opportunities between Monarch and Madison Marcus. In about early 2018 Ms Coulter had discussions with Messrs Shamieh and Qutami and Mario Kardum, group general manager at Madison Marcus, about a potential purchase of shares by Consolidated in Monarch. Monarch and Consolidated joined in partnership by Consolidated becoming a 50% shareholder in Monarch with the intention of creating a cross-referral process for clients of Madison Marcus to be offered financial services by Monarch. While Consolidated had a 50% shareholding, the day to day running of Monarch’s business was undertaken by Ms Coulter as its sole director.Negotiations with Mr Puxty It is not in dispute that in or about December 2018, Mr Puxty entered into an employment agreement with Monarch (Puxty Employment Agreement). Prior to that time Mr Puxty was employed by WiZDOM Advisory as a senior financial advisor and, before that, by AON ‍Hewitt Australia and Mr Coggan was employed by WiZDOM as a senior paraplanner. The available evidence in relation to the events leading up to the entry into of the Puxty Employment Agreement is set out below. In about mid 2018 Ms Coulter and Mr Puxty discussed opening a Monarch branch in Newcastle and expanding the business. Ms Coulter recalls that at the time she informed Mr Puxty that she had recently joined up with Madison Marcus and would need to consult with it first. Mr Puxty informed Ms Coulter that he had a number of clients from AON with recurring revenue of approximately $200,000 of which he had taken approximately $50,000 over with him to WiZDOM (AON Clients) and that he did not have a restraint with WiZDOM over the AON Clients. Shortly thereafter Ms Coulter informed Messrs Kardum, Shamieh and Qutami that she was looking at investing in a secondary branch for Monarch in Newcastle and bringing Messrs Puxty and Coggan on board. She informed Mr Kardum about Mr Puxty’s revenue stream and Mr Kardum, in turn, said that he would like to understand the benefit Messrs Puxty and Coggan could bring to Monarch.

Evidence

Evidence Before The Court

Mr Puxty says that as a result of the negotiations which he has identified he provided Madison ‍Marcus with private and confidential information in commercial negotiations which he would not have provided if he thought that the information was going to be used for purposes other than a commercial negotiation. Other evidence of the relationship between Madison Marcus and Monarch Ms Coulter says that Madison Marcus only ever consulted with Mr Puxty in relation to his suitability to be an employee of Monarch; Madison Marcus never represented or acted for Mr Puxty and that at all times Madison Marcus represented Monarch in its dealings with Mr Puxty; Madison Marcus was never intended to be a partner of a newly formed business venture; discussions were limited to the potential for Mr Puxty to obtain equity in Monarch on meeting various targets as set out in the Puxty Employment Agreement; and Mr Puxty never met Messrs Qutami or Hall or Ms Armstrong and only met Mr Shamieh on one occasion in passing at the offices of Madison Marcus when attending a meeting. The only person Mr Puxty ever engaged with from Madison Marcus was Mr Kardum who is no longer employed by Madison Marcus. Based on information given to him by Messrs Shamieh and Qutami and Ms Coulter, John De La Hoyde, a solicitor in the employ of Madison Marcus with the day to day carriage of this matter on behalf of Monarch under the supervision of Mr Shamieh, deposes to the following matters: (1)in about early 2018 Mr Kardum, at the time general manager of Madison Marcus, and Messrs Shamieh and Qutami of Consolidated held preliminary discussions with Ms Coulter about a potential acquisition of shares in Monarch by Consolidated; (2)following those discussions Consolidated acquired 50% of the shares in Monarch. It held those shares between 13 March 2018 and 4 April 2019;(3)in about June 2018 Ms Coulter informed Mr Kardum that she was interested in hiring two financial planners to work for Monarch, being Messrs Puxty and Coggan;(4)Mr Kardum was involved in discussions with Ms Coulter and Mr Puxty on behalf of Consolidated in relation to Messrs Puxty’s and Coggan’s suitability as employees of Monarch. Messrs Qutami and Shamieh were not involved in any direct discussions with Messrs Puxty or Coggan; (5)Mr Kardum ceased employment with Madison Marcus in or about December 2019. He is not a practising lawyer and has never held a practising certificate; (6)Mr Shamieh met Mr Puxty once and only in passing. Mr Qutami has never met Mr Puxty. Neither Mr Shamieh nor Mr Qutami were ever engaged in discussions with Mr Puxty and neither of the other two directors of Madison Marcus at the time, Mr Hall and Ms Armstrong, ever met or corresponded with Mr Puxty;(7)Madison Marcus has never acted for Messrs Puxty or Coggan or any of their related entities;(8)insofar as Mr Puxty alleges that he disclosed potential revenue streams and cost structures to Mr Kardum, that information was provided for Monarch and Consolidated to assess the suitability of employing Messrs Puxty and Coggan and is unrelated to the issues in dispute between the parties in this proceeding;(9)in about December 2018 Madison Marcus was engaged by Monarch to prepare employment agreements for Messrs Puxty and Coggan in anticipation of the commencement of their employment with Monarch. This is irrelevant in the context of the proceeding generally and particularly in circumstances where the respondents allege that the employment agreements were superseded by other agreements; and (10)Mr Puxty’s employment agreement identifies Mr Shamieh as a director of Monarch which is a drafting error. Mr Shamieh was not and has never been a director of Monarch and did not sign the employment agreement on behalf of Monarch.THE PLEADED CASE

Decision

Reasons for decision

In light of those conclusions, in my opinion, a fair-minded reasonably informed member of the public would not conclude that the administration of justice required the Court to exercise its inherent jurisdiction to restrain Madison Marcus from acting for Monarch in this case.CONCLUSION For those reasons the interlocutory application filed by the respondents on 8 December 2020 should be dismissed. While costs would ordinarily follow the event, the parties requested that I reserve on the question of costs of the interlocutory application. Accordingly, I will make orders requiring the parties to file submissions on costs and, in the absence of any party requesting an oral hearing, will determine that issue on the papers. I will make orders accordingly.

Ratio Decidendi

Legal Principle Established

The nature of Monarch’s claim against the respondents is set out at [12]-[13] of Monarch (No 1). In summary, Monarch alleges that Messrs Puxty and Coggan breached various terms of their respective employment agreements, including in relation to restraint of trade and confidentiality, and their fiduciary duties owed to Monarch and that they contravened s 182(1) and s 183(1) of the Corporations Act 2001 (Cth) (Corporations Act). Monarch alleges that Odyssey was involved in the alleged breaches by Messrs Puxty and Coggan of their fiduciary duties and of the Corporations Act. Monarch also claims that the respondents made representations to its clients in contravention of s 18 of the Australian Consumer Law being Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL) and that they engaged in conduct which amounted to passing off. In effect, the respondents each deny the allegations made against them. Mr Puxty alone has filed a cross-claim against Monarch. Among other things, he alleges that:(1)in December 2018 he and Monarch concluded a joint venture agreement (JVA) in relation to which Mr Kardum and Ms Coulter, as authorised representatives, represented Monarch and Mr Puxty represented himself;(2)Monarch failed to comply with its obligations under the JVA in that it failed to make payments of the recurring revenue as agreed in the JVA and the performance review and bonus document (PRB) and failed to maintain the trust payments as agreed under the PRB;(3)on or about 20 April 2019 the Puxty Employment Agreement was terminated by mutual written consent between Monarch and Mr Puxty or, alternatively, by the entry into of a new joint venture agreement (2019 JVA) that superseded and was incompatible with the Puxty Employment Agreement;(4)on or about 20 April 2019 Mr Puxty, representing himself, and Ms Coulter, representing Monarch, entered into the 2019 JVA which was partly in writing and partly oral;(5)on or about 31 January 2020 Mr Puxty and Ms Coulter agreed that the 2019 JVA and the Puxty Employment Agreement would be terminated (2020 Termination Agreement). The 2020 Termination Agreement was partly in writing and partly oral; (6)on or about 26 July 2020 Mr Puxty paid $30,000 to Monarch (Loan Amount) at Monarch’s special insistence and request;(7)the Loan Amount was repayable on demand or alternatively within a reasonable time;(8)notwithstanding demand and/or lapse of a reasonable time, Monarch has failed and/or neglected to repay the Loan Amount or any part thereof to Mr Puxty; (9)as a result of Monarch’s breaches of the 2020 Termination Agreement Mr Puxty has suffered loss and damage;(10)in the event that the Court finds that the Puxty Employment Agreement has not been terminated, Mr Puxty alleges that in negotiating the Puxty Employment Agreement Monarch, represented by Mr Kardum and Ms Coulter, made a number of representations to him. Those representations were made in trade or commerce, were not true and/or were deceptive and/or likely to mislead within the meaning of s 31 of the ACL and, as a result of Monarch’s misleading and deceptive conduct, Mr Puxty suffered damage; and(11)Monarch also made representations in trade or commerce to Mr Puxty about the JVA, the 2019 JVA and the 2020 Termination Agreement. In making the representations Monarch engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the ACL and Mr Puxty relied on the representations which were not true and as a result of relying on the representations, Mr Puxty has suffered loss.LEGAL PRINCIPLES