One Stop Warehouse Pty Ltd v Reed [No 2] - [2023] WASC 422

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   ONE STOP WAREHOUSE PTY LTD -v- REED [No 2] [2023] WASC 422
CORAM:   SEAWARD J
HEARD:   17 OCTOBER 2023
DELIVERED          :   6 NOVEMBER 2023
FILE NO/S:   CIV 1441 of 2023
BETWEEN:   ONE STOP WAREHOUSE PTY LTD
Plaintiff
AND
ROBERT REED
First Defendant
GO SOLAR GROUP PTY LTD
Second Defendant

Catchwords:

Procedure - Pleadings - Application to strike out defence and counterclaim - Whether the matters pleaded disclose a reasonable defence - Whether the matters pleaded may prejudice, embarrass or delay fair trial of the action - Whether the matters pleaded are scandalous, frivolous or vexatious - Whether the matters pleaded are an abuse of process - Relevant principles - Turns on own facts

Legislation:

Nil

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff	:	F Stanton
First Defendant	:	A Musikanth SC and ND Ellery
Second Defendant	:	A Musikanth SC and ND Ellery

Solicitors:

Plaintiff	:	Minter Ellison
First Defendant	:	Hall & Wilcox (Perth)
Second Defendant	:	Hall & Wilcox (Perth)

Cases referred to in decision:

DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97
English v Vantage Holdings Group Pty Ltd [2021] WASCA 47
Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201
Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398

SEAWARD J:

Introduction

The plaintiff, One Stop Warehouse Pty Ltd (OSW), carries on business as a wholesaler of solar panels and related equipment. OSW's customers are companies engaged in the retail sale of those products, including electricians.
The first defendant, Mr Reed, was employed at OSW since 17 July 2018. On 27 January 2023, Mr Reed tendered his resignation from OSW and the last day of his employment was 24 February 2023. As at the date of his resignation Mr Reed was the Lead Account manager and responsible for all sales in Western Australia and for the management of the Western Australian sales team.
On or about 2 March 2023, Mr Reed commenced working for the second defendant, Go Solar Group Pty Ltd (Go Solar). Like OSW, Go Solar is a wholesaler of solar panels and related equipment and is therefore a competitor of OSW.
By writ dated 3 May 2023, OSW commenced an action against Mr Reed and Go Solar seeking to enforce what it says are the contractual restraint of trade clauses to which Mr Reed is subject.
There have been a number of iterations of the statement of claim, the latest being 10 August 2023 (statement of claim).
There have also been a number of iterations of the defence. In response to the amended defence and counterclaim dated 23 August 2023, OSW, by way of chamber summons dated 25 August 2023, applies to strike out certain paragraphs of that pleading.
For the reasons I will now detail, I will allow the chamber summons (as amended during the hearing).

Pleadings

The strike out application concerns five sub-paragraphs of the defence. Those paragraphs address matters concerning causation and loss only. Accordingly, for the purposes of these reasons, it not necessary to set out in the detail all of the pleadings.
By way of overview, in the statement of claim OSW pleads:
(a)From January 2013, OSW has carried on business as an importer and wholesaler of solar panels and related hardware and electrical equipment;[1]
[1] Statement of claim [2].
(b)From about 2016, Go Solar has also carried on business as an importer and wholesaler of solar panels and related hardware and electrical equipment and is a competitor of OSW;[2]
[2] Statement of claim [5] - [6].
(c)Mr Reed has been employed with OSW since 17 July 2018 in a number of different sales positions and as at 17 January 2022, Mr Reed was employed in the position of Lead Account Manager;[3]
[3] Statement of claim [7] - [13].
(d)It was a term of Mr Reed's contract of employment, that Mr Reed (amongst other matters):
(i)would faithfully serve OSW; act in OSW's best interests and not use his position for an improper purpose or for private benefit; and not allow a potential or actual conflict of interest to continue;[4]
[4] Statement of claim [11.3].
(ii)was required to keep certain information confidential, both during the period of his employment with OSW and after termination of that employment;[5]
[5] Statement of claim [11.4].
(ii)for the longest enforceable period of 3, 6 or 12 months after the termination of his employment with OSW, and for the largest enforceable geographical area of Perth, Western Australia or Australia, Mr Reed agreed:
1.that he would not, without the prior written consent of OSW, undertake, carry on, be employed or engaged in, whether directly or indirectly, any business or activity that is the same or similar to the part(s) of OSW's business in which he worked during the 12 months prior to his employment ending;[6]
2. that he would not, without the written consent of OSW, solicit, canvass, approach or accept any approach from any person or organisation who was at any time during the 12 months prior to his employment ending, a client or customer of OSW;[7]
(e)On 27 January 2023, Mr Reed gave OSW written notice of his intention to resign.[8]
(f)Mr Reed has breached the terms of his contract of employment by:
(i)encouraging, assisting and/or facilitating an OSW employee to resign from her employment with OSW and to commence employment with Go Solar;[9]
(ii)commencing employment with Go Solar on or about 1 March 2023 and continuing to be employed by Go Solar;[10]
(iii)soliciting, canvassing and/or approaching persons associated with organisations (particulars of which have been provided to the defendants), that were customers of OSW during the period of 12 months ending on 24 February 2023 to buy solar panels and related hardware and electrical equipment from Go Solar;[11] and
(iv)accepting approaches from persons associated with those same organisations that were customers of OSW during the period of 12 months ending on 24 February 2023 to buy solar panels and related hardware and electrical equipment from Go Solar.[12]
[6] Statement of claim [11.5].
[7] Statement of claim [11.6].
[8] Statement of claim [15] - [16].
[9] Statement of claim [22].
[10] Statement of claim [23].
[11] Statement of claim [24.1].
[12] Statement of claim [24.2].
OSW also pleads a claim as against Go Solar of tortious interference with OSW's contractual rights.[13]
[13] Statement of claim [27] - [35].
The key paragraphs of the statement of claim which are relevant to this application are par 25 and par 26, which provide as follows:
25. Mr Reed's breaches of the Contract pleaded at [22], [23] and/or [24] above have caused OSW to suffer a loss of custom as a result of the diversion of the custom of some of its customers located in Western Australia to Go Solar.
26. As a result of the loss of custom referred to in [25] above, OSW has suffered and will continue to suffer loss and damage by reason of a reduction in revenue derived from sales to customers located in Western Australia, and a consequent loss of profits, full particulars of which will be provided prior to trial.
OSW then claims against Mr Reed an injunction and damages for breach of contract, and claims damages as against Go Solar.
At the time of OSW's chamber summons, the current version of the defence and counterclaim was the amended defence and counterclaim, dated 23 August 2023. However, following the receipt of OSW's submissions in relation to the strike out application, the defendants filed a minute of further amended defence and counterclaim dated 6 October 2023 (defence and counterclaim) and seek leave to file this document. The reason for the leave application is the existence of programming orders requiring the parties to seek leave before filing any amended pleadings. These programming orders were made when the matter was being programmed to an expedited hearing. That expedited hearing is no longer taking place. There is no objection from OSW to the minute dated 6 October 2023, save in relation to the paragraphs the subject of the strike out application.
As a result of the amendments that are sought to be made to the defence and counterclaim, the paragraph numbers the subject of the strike out application have changed and the content of these paragraphs has been amended in some cases. The result is that OSW now seeks to strike out par 25.5.5A; 25.5.8; 25.5.9 and 26.3 of the defence and counterclaim.
Again, it is not necessary for the purposes of this application to detail the entirety of the defendants' case as pleaded in their defence and counterclaim. By way of overview, the defendants:
(a)accept that OSW and Go Solar are both wholesale businesses who conduct business in the solar industry, but plead that the businesses are, in material respects, different;[14]
[14] Defence and counterclaim [6].
(b)admits the length of time Mr Reed had been employed with OSW and the various positions he was employed in;[15]
[15] Defence and counterclaim [8], [9], [13].
(c)in relation to Mr Reed's contract of employment:
(i)say that the confidentiality clause in the contract is wholly unenforceable, or in the alternative, in part unenforceable, by reason that it is an unlawful restraint of trade;[16]
(ii)denies that the non-compete clause is valid, binding or enforceable either in whole or in part, for a number of reasons including that it is an unlawful restraint of trade;[17]
(iii)says that the non-solicitation clause is wholly unenforceable, or in the alternative, in part unenforceable, by reason of that it is an unlawful restraint of trade;[18]
(d)says that as a result of a series of conversations between Mr Reed and Mr Mohammed Risham of OSW in January 2020 and January 2023, Mr Reed assumed that there would be no impediment to Mr Reed being employed by any competitor of OSW and OSW would not take any adverse steps against Mr Reed (including commencing legal proceedings) if Mr Reed was to commence employment with a competitor of OSW. Further, that Mr Reed relied on this assumption when accepting the offer from Go Solar and accordingly OSW is now estopped from relying on the non-compete clause in Mr Reed's contract;[19]
(e)admits that on 27 January 2023, Mr Reed gave OSW written notice of his intention to resign;[20]
(f)denies that Mr Reed has breached the terms of his contract of employment as alleged;[21]
(g)denies that Go Solar has interfered with OSW's contractual rights;[22] and
(h)Denies that OSW is entitled to the relief claimed or any relief at all.[23]
[16] Defence and counterclaim [11.4].
[17] Defence and counterclaim [11.5].
[18] Defence and counterclaim [11.6].
[19] Defence and counterclaim [11.4].
[20] Statement of claim [15].
[21] Defence and counterclaim [22] - [24].
[22] Defence and counterclaim [27] - [33].
[23] Defence and counterclaim [36.1].
The paragraphs of the defence and counterclaim which are the subject of the chamber summons are each directed towards responding to par 25 and/or par 26 of the statement of claim.
In response to par 25 of the statement of claim, the defendants plead a number of matters. In addition to repeating their pleadings that the various clauses are unenforceable, the defendants also plead further or in the alternative that the alleged breaches were not causative of any loss of custom; or that any alleged loss of custom was caused by other factors independent of Mr Reed's alleged breaches of contract.
The sub paragraphs of par 25 of the defence and counterclaim that are challenged as part of the strike out application provide as follows:
25. The Defendants deny the allegations at paragraph 25 of the Statement of Claim and further say that:
…
25.5. further, or in the alternative, any loss of custom was caused by one or more of the following acts, omissions or factors affecting OSW:
…
25.5.5A. remuneration structures for OSW's sales staff were at all material times inadequate to incentivise such staff sufficiently to attract new customers or pursue additional custom from, or maintain, existing levels of custom with, OSW's then existing customers;
Particulars
25.5.5A.1. At all material times:
25.5.5A.1.1 OSW's management team measured the sales performance of its sales staff at both national and state level;
25.5.5A.1.2 if OSW's national sales targets were not achieved, or projected not to be achieved, OSW increased its state sales targets in states with strong financial performance to account for the shortfall of its national sales target;
25.5.5A.1.3 OSW's bonus plans and other employee incentive schemes which its sales staff were eligible to receive were assessed and calculated by OSW by reference to the sales targets set for each state; and
25.5.5A.1.4 sales staff situated in states with relatively strong financial performance, including Western Australia, may have been ineligible for OSW's bonus plans and other employee incentive schemes, or the remuneration sales staff receive pursuant to such plans and schemes is decreased, due to OSW increasing its sales target for such states in an attempt to meet its national sales target;
25.5.5A.2. further, the decision of OSW's management to purchase products which were unappealing and difficult to sell and market to OSW's customers, as pleaded in paragraph 25.5.5B. below:
25.5A.5.2.1 necessitated OSW's sales staff selling such products for a low price and profit margin (if any) in order to sell same; and
25.5A.5.2.1 by reason of the foregoing, decreased the remuneration such staff would be eligible to receive pursuant to bonus plans and incentive schemes based upon the achievement of profit KPIs;
25.5.5A.3. by reason of the foregoing, it is reasonable to infer that OSW's sales staff were inadequately incentivised to attract new customers or pursue additional custom from, or maintain existing levels of custom with, OSW's then existing customers; and
25.5.5A.4. further particulars may be provided after completion of discovery and inspection, and before trial;
25.5.5B. an inventory and product range which at all material times included solar panels and inverters which were unappealing and difficult to sell and market to OSW's customers by reason of them being more expensive than alternative products sold by OSW's competitors that were of equivalent (or substantially equivalent) quality and functionality;
Particulars
25.5.5B.1. OSW's inventory and product range included inverters manufactured by Goodwe and Solplanet, and solar panels manufactured by Astronergy, LG, Aleo Solar and AESolar;
25.5.5B.2. the price set by OSW for the products referred to in the preceding paragraph exceeded the sale prices of alternative products sold by OSW's competitors that were of equivalent (or substantially equivalent) quality and functionality;
25.5.5B.3. by reason of the forgoing, the products were unsatisfactory or unappealing and therefore difficult to market and sell to OSW's customers, and it is reasonable to infer that this led OSW's customers to purchase alternative products from its competitors, rather than OSW; and
25.5.5B.4. further particulars may be provided after completion of discovery, inspection and expert evidence, and before trial.
…
25.5.8staff dissatisfaction and disillusionment by sales staff which was apt to lead to such staff lacking motivation and/or willingness to attract new customers or pursue additional custom from, or maintain existing levels of custom with, OSW's then existing customers;
Particulars
25.5.8.6. OSW's sales staff were dissatisfied and disillusioned by reason of the matters pleaded in paragraphs 25.5.1, 25.5.2, 25.5.3, 25.5.5A, 25.5.5B and 25.5.6 above; and
25.5.8.7. further particulars may be provided after completion of discovery and inspection, and before trial.
25.5.9. significant employee turnover, resignations and redundancies, including amongst experienced and key staff (which was not the result of any breach(es) of the Contract by Reed, which is/are denied in any event), from which circumstances it may reasonably be inferred, OSW's ability to pursue, attract and maintain customers, or prevent their departure in favour of competitors, was likely to have been negatively affected for one or more of the following reasons:
25.5.9.1A. no, or insufficient, staff to service customers and meet their needs;
25.5.9.1B. no, or insufficient, staff to offer support services to sales staff (such as back office administration staff, warehouse staff), which are needed to allow sales staff to fulfil their function and service customers and meet their needs;
25.5.9.1C. no, or insufficient, staff to actively pursue customers and drive sales;
25.5.9.1D. risk of loss of corporate and/or product knowledge necessary to sell to customers, and which customers expect from sales people;
25.5.9.1E. a potential need to replace lost staff and to re-train replacements, taking resources and focus away from sales efforts;
25.5.9.1F. a potential need to re-allocate work of former staff in other states either temporarily or permanently;
25.5.9.1G. sales staff (including account managers) in other states make sales in other states, including in Western Australia, leading to a downturn in sales in Western Australia and other states, when they depart the employ of OSW;
25.5.9.1H. loss of staff in states other than Western Australia negatively affects the ability to cross-sell to OSW customers who have national operations; and
25.5.9.1I. risk of diminution or loss of customer connection or relationship having been fostered or developed by former staff;
Particulars
25.5.9.1. The following resignations and/or redundancies in Western Australia that are presently known to the Defendants (and in respect of which they reserve the right to supplement after completion of discovery and inspection, and before trial) are as follows:
[25.5.9.1.1 - 25.5.9.1.5 - list 5 Western Australian individuals]
25.5.9.2. the following other resignations and/or redundancies that are presently known to the Defendants (and in respect of which they reserve the right to supplement after completion of discovery and inspection, and before trial) are as follows:
[25.5.9.2.1 - 25.5.9.2.16 - list 16 interstate individuals]
25.5.9.3. further particulars of further staff departures and turnover may be provided after completion of discovery and inspection, and before trial.
In response to par 26 of the statement of claim, the defendants plead a number of matters. In addition to repeating their pleadings that the various clauses are unenforceable, the defendants also plead that any loss of profit was caused and/or contributed to by other factors. The sub paragraphs of par 26 of the defence and counterclaim that are challenged as part of the strike out application provide as follows:
26. The Defendants deny the allegations at paragraph 26 of the Statement of Claim and without derogating from this denial:
…
26.3. say that any such loss of profit was caused and/or contributed to by factors independent of any act or omission of Reed, namely:
26.3.1. a general decline in OSW's overall profits and/or profitability (ie. nationwide);
Particulars
26.3.1.1. The Defendants rely, without derogation, on the fact that according to OSW's Annual Financial Report for the financial year ending 31 December 2022 (AFR):
26.3.1.1.1. OSW recorded a loss of $3,229,692.00 for the period 1 January 2022 to 31 December 2022;
26.3.1.1.2. the Group (as that term is defined on page 3 of the AFR) gross profit decreased from $41,771,727 as at December 2021 to $31,848,612 in December 2022;
26.3.1.1.3. the Group sustained an operating loss of $8,728,291 as at December 2022, compared to an operating profit of $14,532,110 as at December 2021;
26.3.1.1.4. the Group incurred a $10,730,435 net loss after tax as at December 2022;
26.3.1.1.5. the Group has issued shares to generate income in the amount of $24,413,616;
26.3.1.1.6. the Group incurred $3,000,000 in repayments on borrowings in 2022, and $0 in 2021;
26.3.1.1.7. accounts receivable increased from $22,091,712 as at December 2021 to $35,168,635 showing a decreasing conversion of sales into cash;
26.3.1.1.8. 'Total Current Inventories' decreased from $112,834,649 as at December 2021 to $80,856,570 as at December 2022;
26.3.1.1.9. inventory decreased from $77,897,284 at December 2021 to $67,655,644 as at December 2022;
26.3.1.1.10. cost of goods sold increased from $238,482,795 as at December 2021 to $401,469,632 as at December 2022;
26.3.1.1.11. profit (before income tax) decreased from a profit of $13,851,958 as at December 2021 to a loss (before income tax) of $10,367,024 as at December 2022 (i.e. a $23m 'swing');
26.3.1.1.12. net tax liability increased from $2,313,441 as at December 2021 to $2,761,424 as at December 2022;
26.3.1.1.13. provision for stock obsolescence increased from $82,608 as at December 2021 to $248,635 as at December 2022;
26.3.1.1.14. 'Administration Expenses' increased from $15,325,616 as at December 2021 to $20,743,694 as at December 2022;
26.3.1.1.15. 'Other Operating Expenses' increased from $8,135,615 as at December 2021 to $16,980,216 as at December 2022;
26.3.1.2. further particulars may be provided after completion of discovery, inspection, and expert reports, and before trial.
26.3.2. increases in the cost price of Solar Panels; and
Particulars
26.3.2.1. The Defendants rely, without derogation, on the fact that the cost of goods sold of the Group increased from $238,482,795 as at December 2021 to $401,469,632 as at December 2022 according to the AFR; and
26.3.2.2. further particulars may be provided after completion of discovery, inspection and expert reports, and before trial.
26.3.3. an inability to increase sales prices to account for increases in cost of goods.

Finally, the defendants counterclaim against OSW that in the course of conversations between Mr Reed and Mr Risham, OSW made a number of representations as to future matters falling within s 4 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL) and has engaged in conduct which is misleading or deceptive, or likely to mislead or deceive. The defendants' counterclaim is that Mr Reed relied on the representations in accepting Go Solar's offer of employment and has suffered, or is likely to suffer, loss or damage if OSW is not estopped from relying on the non-compete clause. The defendants then claim damages against OSW.[24]
[24] Defence and counterclaim [37] - [45].

Legal principles

The legal principles governing strike out applications are well established. They were summarised by Smith J in Vantage Holdings Group Pty Ltd v Donnelly [No 4][25] and approved by the Court of Appeal in English v Vantage Holdings Group Pty Ltd[26] and DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd:[27]
[25] Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 [60(a)] - [60(j)].
[26] English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [56].
[27] DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97 [226].
(a) the essential functions of a pleading are to define and limit the issues for decision, to provide the basis for determining discovery and the admissibility of evidence for trial, and to ensure a fair trial by putting the other side on notice of the case it must meet;
(b) a statement of claim must not plead allegations at too high a level of generality. A pleading must be sufficiently particular to conform with one of the primary objects of pleadings, to inform the opposing party of the case that it must meet;
(c) a statement of claim must state specifically the relief or remedy claimed;
(d) the court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action. While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial;
(e) in alleging no reasonable cause of action:
(i) the question to be decided is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action. Rather, the question is whether it would be open to the party (on its pleadings) to prove facts at the trial which would constitute a cause of action; and
(ii) 'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable;
(f)the mere fact that a case appears weak is not of itself sufficient to strike out the action;
(g) in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;
(h) provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleading rules that evolved in, and derive from, a very different case management environment;
(i) pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general; and
(j)irrelevant or unnecessary pleas in a statement of claim will be struck out on the grounds that they will prejudice, embarrass or delay the fair trial of the action where the defendant must traverse the allegations and, thereby, raise false issues.
(footnotes omitted)

Overview of parties' positions

OSW

OSW applies to strike out all paragraphs in dispute primarily on the basis that each reveals no reasonable defence pursuant to O 20 r 19(1)(a) of the Rules of the Supreme Court 1971 (WA) (RSC). However, OSW also says that all of the paragraphs should also be struck out pursuant to O 20 r 19(1)(b) on the basis that each is scandalous, frivolous or vexatious, and pursuant to O 20 r 19(1)(c) on the basis that each may prejudice, embarrass or delay the fair trial of the action. In relation to par 25.5.9 of the amended defence and counterclaim, OSW also says that these paragraphs should be struck out pursuant to O 20 r 19(1)(d) as being an abuse of process.
The foundation of OSW's case in relation to O 20 r 19(1)(a) of the RSC is essentially the same for each paragraph in dispute, being that OSW says that in par 25 of the statement of claim it pleads that the breaches by Mr Reed caused OSW to suffer a very specific loss of custom, being the diversion of the custom of some of its Western Australian customers to Go Solar. In par 26, OSW says that it pleads that as a result of the loss of custom pleaded in par 25, it has suffered loss and damage in the form of a reduction in revenue from sales to customers located in Western Australia, and the associated loss of profits.
OSW submits that in light of these paragraphs, it has the onus of proving first the diversion of Western Australian customers away from OSW to Go Solar, and secondly its loss of profit from that diversion. OSW accepts that if it cannot prove that causal link, then it cannot succeed.
OSW submits that each of the paragraphs in dispute do not respond to OSW's case as pleaded in par 25 and par 26 of the statement of claim. Rather, each pleads alternative causes of a loss of custom unrelated to the pleaded diversion of Western Australian customers from OSW to Go Solar; or each pleads alternative causes of a loss of profits of OSW generally, and not as a result of the pleaded loss of custom. That is, the paragraphs are concerned with loss of custom generally and loss of profits generally, and do not engage with OSW's pleaded case and therefore do not disclosure an arguable defence.
OSW submits that any counterfactual pleading by the defendants can only go to the matters pleaded by OSW and which OSW has to prove. For example, to the extent the defendants plead in par 25.3A that the loss of custom from OSW to Go Solar would have occurred in any event as it was based on an independent decision made by Go Solar customers, then that is unobjectionable. Further, to the extent that par 25.5.5B pleads that OSW ceased selling stock that was wanted by customers, and customers moved to Go Solar to obtain the stock they wanted, then that would be unobjectionable.
In relation to the specific paragraphs, OSW says that par 25.5.5A of the amended defence and counterclaim is concerned with the remuneration structures and incentives for OSW staff generally. OSW says that there is nothing pleaded which links the OSW remuneration and incentives with the movement of Western Australian custom from OSW to Go Solar. OSW also says that there is nothing pleaded which links the decisions of Western Australian customers to move from OSW to Go Solar to the remuneration and incentive structures which are only known to and apply to individual sales personnel.
In relation to par 25.5.5B of the amended defence and counterclaim, OSW submits that again there is no causal link pleaded between the inventory and product range and the decision by OSW customers to move to Go Solar. Rather, the paragraphs are concerned with the effect of the inventory and product range on the actions OSW's sales staff and those staff being disincentivised to sell and those products being difficult to sell generally.
Par 25.5.8 was amended by the defendants significantly in the amended defence and counterclaim. I understand OSW's position in relation to the amended version of this paragraph, for the purposes of O 20 r 19(1)(a) to be the same as for par 25.5.5B.
In relation to par 25.5.9, OSW submits that this paragraph does not contain any material facts that, if proven, would establish that the alleged significant employee turnover has caused OSW's Western Australian customers to divert their custom to Go Solar. OSW submits that this is particularly the case in relation to the interstate employees (par 25.5.9.2) but is also the case in relation to the Western Australian employees (par 25.5.9.1).
OSW submits that par 26.3 does not respond to the very specific loss of profits pleaded, and instead seeks to plead that the loss suffered is as a result of matters regarding the general overall financial performance of OSW as a whole (including interstate profits), the increases in cost prices of products generally, and an inability to increase sales prices. OSW submits that the pleading is therefore not linked to this specific loss of custom referred to in par 25 and the associated loss of profits pleaded in par 26, and to that extent it is irrelevant to the case pleaded by OSW and discloses no reasonable defence.
OSW also submits that because of this lack of any pleaded causal link between the very specific loss of custom and loss of profits pleaded in par 25 and par 26 of the statement of claim, each of the paragraphs in dispute are also scandalous, frivolous or vexatious. OSW says that given this lack of a causal link, responding to each of the paragraphs in dispute will result in OSW being unnecessarily and oppressively burdened and harassed by having to go to the trouble and expense of disproving allegations made about its general sales and its general financial status and stability which are not relevant to the matters pleaded in par 25 and par 26 of the statement of claim. Further, OSW is relying on the disputed paragraphs as a basis for seeking detailed discovery of OSW's overall sales and financial performance (including sales in every division throughout Australia). OSW says that this will result in Go Solar being able to unnecessarily gain access to commercially sensitive information about a competitor.
Finally, OSW says that this lack of causal link will prejudice, embarrass or delay the fair trial of the action by making it impossible for OSW to deal with the allegations and should therefore be struck out pursuant to O 20 r 19(1)(c) of the RSC.
In relation to par 25.5.9, OSW also submits that these paragraphs are frivolous and vexatious and constitute an abuse of process for the purposes of O 20 r 19(1)(b) and O 20 r 19(1)(d) of the RSC. OSW submits that there is no factual foundation for these pleadings and therefore each constitutes an abuse of process. In support of this submission, OSW relies on the following affidavits:
(a)Affidavit of Rebecca Marsh, affirmed 10 August 2023;
(b)Affidavit of Rebecca Marsh, affirmed 15 May 2023;
(c)Affidavit of Mohamed Risham, affirmed 19 May 2023;
(d)Affidavit of Mohamed Risham, affirmed 11 August 2023; and
(e)Affidavit of Mohamed Risham, affirmed 9 May 2023.

Defendants

The defendants submit that OSW's chamber summons proceeds on the basis of a fundamental misconception that so far as causation is concerned, all that matters is what caused the movement of custom or the loss of custom from OSW to Go Solar. The defendants submit that OSW is attempting to 'shoehorn' the defendants into a situation where all they are permitted to do by way of raising alternative causation scenarios is to respond to that question.
The defendants submit that OSW has pleaded its claim at a relatively high and conceptual level. By way of examples, the defendants submit that Mr Reed breached the non-solicitation restraint by soliciting, canvassing, approaching or accepting approaches for 141 customers, but not specific instances of such conduct are pleaded. Further, the defendants submit that OSW does not identify what specific custom it has allegedly lost and the pleading is instead that it has suffered a loss of custom of some or all of the identified customers. Further, that the statement of claim pleads that OSW has suffered a loss of revenue and profit caused by this alleged diversion of custom to Go Solar, but does not plead the nature and extent of the loss.
In relation to par 25 of the statement of claim, the defendants submit that they have understood the allegation in this paragraph to be that OSW has suffered a loss of custom, meaning a loss or reduction in sales. The defendants submit that the paragraph is not as narrow as the plaintiff submit and is not simply about customers moving from OSW to Go Solar.
In relation to par 26 of the statement of claim, the defendants submit that OSW's pleaded case is for a loss of profits for OSW as a whole, with that loss of profits being caused by a loss of custom from Western Australia.
The defendants submit that faced with this level of generality, they are entitled to raise by way of defence other factors which they say may have caused or contributed to any loss of custom and/or profit, provided they have a reasonable and proper basis for doing so. In this regard, the defendants refer to the decision of Griffiths & Beerens Pty Ltd v Duggan[28] by way of an example.
[28] Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201.
The defendants submit that the various paragraphs pleaded in response to par 25 of the statement of claim are directed not to showing why customers left OSW, but rather why there was a reduction or fewer sales.
In relation to par 25.5.5A, par 25.5.5B, par 25.5.8 and par 25.5.9, the defendants submit that these paragraphs plead alternative causes for the alleged loss of custom, and therefore do not offend O 20 r 19(1) of the RSC. The defendants submit that it is not necessary to show or plead how there was a causal link between (taking par 25.5.5A as an example) inadequate incentivisation and customers leaving, because that is not how they understand par 25 of the statement of claim. The defendants submit that par 25 of the statement of claim contains an allegation that there was a loss of custom (being a loss or reduction in sales) and the defendants plead that a potential cause of that loss of custom was the fact that staff were being inadequately incentivised and therefore not motivated to attract new custom. The defendant makes, in essence, the same submission for each paragraph, adapted to address the matter pleaded in each paragraph.
In relation to par 26 of the statement of claim, the defendants submit that what is pleaded here is a loss of profits for the company as a whole, and that the defendants are entitled to posit alternative causation scenarios. In relation to par 26.3 of the defence and counterclaim, the defendants submit that the effect of this pleading is to plead that any loss of profit was caused independently of any act or omission of Mr Reed, being that the alleged loss of custom occurred by a reason independent to any acts of the defendants, namely a general deterioration in OSW's financial position. The defendants submit and this is self-evidently a reasonably arguable defence and therefore does not fall within any of the grounds for a strike out contained in O 20 r 19(1) of the RSC.
The defendants submit that these disputed paragraphs will not result in unnecessary discovery of documents concerning the financial position of OSW and/or human resources documents, as this discovery would have been required in any event. The defendants submit that discovery of documents regarding the financial position of OSW as a whole was always required given the pleading of a loss of profits. This would always, the defendants submit, be required as an analysis of the counterfactual will require a consideration of the sales and profit OSW would have made but for the defendants' alleged conduct. In this regard it would always have been necessary to consider OSW's national finance records to compare with the position in Western Australia. In terms of human resources records, the defendants submit that the scope of what is required can be the subject of further submissions and narrowing. Finally, the defendants submit that any concerns in relation to confidential business information (relating to profits or human resources any other matters) can be addressed in the form of confidentiality orders.
In relation to the submission that par 25.5.9 constitutes an abuse of process, the defendants object to several of the paragraphs of the affidavits relied upon by OSW in support of this submission. During the hearing, the parties addressed me on the question of the objections, and I admitted the evidence provisionally, with my ruling to follow. The defendants also submit that the question of whether resignation or redundancy of the staff members is or is not significant, and the effect of those resignations/redundancies on the alleged reduction in custom is a triable issue for the trial itself.

Disposition

Resolution of OSW's chamber summons turns on the proper construction of par 25 and 26 of the statement of claim. The precise scope of these paragraphs is central to resolving the extent to whether the defendant's pleadings plead a reasonable defence and/or should otherwise be struck out pursuant to O 20 r 19(1) of the RSC.
I do not accept the defendants' construction of these paragraphs. Whilst I accept that the reference to 'custom' in par 25 can be read as a reference to 'sales', the plain and ordinary meaning of the text of par 25 is that the alleged loss of custom suffered is not a loss of custom (or a reduction in sales) at OSW at large, or even within Western Australia. Rather, what is pleaded is the more limited loss of custom (or reduction sales) in the form of the diversion of the custom of some of OSW's Western Australian customers to Go Solar.
In relation to par 26 of the statement of claim, I do not accept the defendants' submission that what is pleaded is a loss of profits generally. The plain and ordinary meaning of the text in par 26 is that the reduction in revenue, and consequent loss of profits, is limited to the loss of profits as a result of the specific and limited loss of custom as pleaded in par 25. It does not extend to a general loss of profit in OSW.
The defendants are entitled to plead alternative causes of this specific alleged loss of custom and profits. However, to the extent the defendants plead alternatives which are directed towards a loss of custom at OSW generally, they are irrelevant as they do not respond to OSW's pleaded case. For example, even if the defendants were able to establish a general loss of custom across OSW's sales Australia wide caused by some other reason, that would not be a defence to OSW's claim that over a specific period of time Mr Reed's alleged breaches of the contract resulted in a diversion of custom from OSW's Western Australian customers to Go Solar specifically. Of course, underpinning this analysis is the requirement that it is for OSW to establish this diversion of custom from OSW's Western Australian customers to Go Solar, and that that this diversion was caused by Mr Reed's alleged breaches. If OSW cannot establish each of these matters, its claim will fail. This is accepted by OSW.
The position is the same in relation to the loss of profits. The defendants are also entitled to plead alternative causes of the loss of the profits suffered as a result of the diversion of custom from OSW's Western Australian customers to Go Solar. However, to the extent that the alternative causes of the loss of the profits relate to a loss of profits at OSW generally, and not to the more limited loss of custom pleaded in par 25, those alternatives would not be a defence to OSW's claims.

The defendants do not dispute that par 25.5.5A and 25.5.5B of the amended defence and counterclaim do not plead an alternative cause for the diversion of custom from OSW to Go Solar. Rather, these paragraphs are directed to an alternative cause for the loss of custom (or reduction in sales) at OSW generally. In these circumstances, I am of the view that these paragraphs should be struck out pursuant to O 20 r 19(1)(a) on the basis that each does not disclose a reasonable defence. These paragraphs should also be struck pursuant to O 20 r 19(1)(c) on the basis that each raise matters which, given they do not respond to par 25 of the statement of claim, will prejudice, embarrass or delay the fair trial of the action.
Par 25.5.8, like par 25.5.5A and par 25.5.5B, does not plead an alternative cause for the diversion of custom of OSW to Go Solar and is instead directed to an alternative cause for the loss of custom (or reduction in sales) at OSW generally. This paragraph is concerned with the actions of sales staff generally, and not with the diversion of custom from OSW to Go Solar specifically. In these circumstances, I am of the view that this paragraph should be struck out pursuant to O 20 r 19(1)(a) on the basis that it does not disclose a reasonable defence. This paragraph should also be struck pursuant to O 20 r 19(1)(c) on the basis that it raises matters which, given they do not respond to par 25 of the statement of claim, will prejudice, embarrass or delay the fair trial of the action.
Par 25.5.9 pleads that significant employee turnover, resignations and redundancies are an alternative cause of the loss of custom, because it may be inferred that such turnover (amongst other matters) lead to no or insufficient staff to service customers, offer support services to sales staff, to pursue customers and drive sales, risk loss of corporate knowledge and risk of diminution or loss of customer connection or relationship having been fostered or developed by former staff. However, again, par 25.5.9 is not specifically directed to the loss of custom from OSW to Go Solar, and rather is directed towards a loss of custom from OSW generally, and (in part) to competitors of OSW generally. Accordingly, I am of the view that this paragraph should be struck out pursuant to O 20 r 19(1)(a) on the basis that it does not disclose a reasonable defence. This paragraph should also be struck pursuant to O 20 r 19(1)(c) on the basis that it raises matters which, given they do not respond to par 25 of the statement of claim, will prejudice, embarrass or delay the fair trial of the action.
In relation to par 26.3, the alternative causes pleaded do not address a loss of profits caused by the diversion of custom from OSW to Go Solar. Rather, the causes pleaded are directed to the loss of profits at OSW generally. In these circumstances, I am of the view that these paragraphs should be struck out pursuant to O 20 r 19(1)(a) on the basis that each does not disclose a reasonable defence. Even if the defendants are able to establish a reduction in profits at OSW generally, this is not a defence to a loss of profits as a result of the specific diversion of custom from OSW to Go Solar. These paragraphs should also be struck pursuant to O 20 r 19(1)(c) on the basis that each raise matters which, given they do not respond to par 26 of the statement of claim, will prejudice, embarrass or delay the fair trial of the action.
In light of my conclusions regarding O 20 r 19(1)(a) and (c), it is not necessary for me to consider the remaining grounds of OSW's chamber summons. However, I will make the following brief comments. It is not necessary for me to resolve the outstanding objections to the affidavit evidence sought to be relied on by OSW, because even if I were to admit the evidence, and taking that evidence at its highest, I do not consider it establishes that par 25.5.9 (or any other paragraph) constitutes an abuse of process. At best, the affidavits reveal evidence which OSW would lead to defend the allegations made in those paragraphs. That evidence cannot be described as so conclusive or clear so as to establish that there is no factual basis for the pleaded allegations and therefore that they constitute an abuse of process. Resolution of the issues raised in these paragraphs (if they were not otherwise struck out) is appropriate for the trial and not at this interlocutory stage and when all of the evidence is before the court.

Conclusion

For the above reasons, I will grant OSW's chamber summons and strike out pars 25.5.5A, 25.5.5B, 25.5.8, 25.5.9 and 26.3 of the defence and counterclaim. I will hear further from the parties as to appropriate orders.
The final question is whether, in light of my conclusion that these paragraphs should be struck out, leave to re-plead should be granted to the defendants. OSW submits that it should not, as this is not the first attempt at pleading these issues and finalisation of the pleadings has already taken some time and costs. OSW also submits that the paragraphs in question (variously) do not have any legitimate purpose or are irrelevant. I do not consider the matters raised in this application to be such that the defendants should be denied the opportunity to re-plead if they wish to. Any amended pleading would need to address the diversion of custom from OSW to Go Solar (and associated loss of profits). However, I accept that the finalisation of the pleadings in this matter is taking some time, and therefore I will also hear from the parties as to appropriate programming orders to facilitate the prompt finalisation of the pleadings and the progress of this matter.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AA
Associate to the Honourable Justice Seaward
6 NOVEMBER 2023