Slater and Gordon Ltd v Sellars

[2020] NSWSC 1793

Supreme Court

New South Wales

Medium Neutral Citation:

Slater & Gordon Ltd v Sellars [2020] NSWSC 1793

Hearing dates:

8 December 2020

Date of orders:

8 December 2020

Decision date:

08 December 2020

Jurisdiction:

Equity

Before:

Rees J

Decision:

Strike out part of defence and cross claim.

Catchwords:

PLEADINGS – strike out – solicitor resigns and establishes new law firm – former employer receives 146 file transfer requests to new firm – solicitor sued for breach of fiduciary duties – employee files cross-claim seeking work injury damages for bullying causing mental illness – workers compensation legislation not complied with – employee not presently entitled to bring cross-claim – whether workers compensation legislation applies to cross-claims – whether equitable set-off – cross-claim struck out.

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 21, 22

Uniform Civil Procedure Rules 2005 (NSW), rr 9.1, 14.2, 14.28(1)

Work Health and Safety Act 2011 (NSW)

Work Health and Safety Regulations 2011 (Cth)

Workers Compensation Act 1987 (NSW), ss 9AA, 150A, 150B, 151H(1)

Workplace Injury Management and Workers Compensation Act 1998 (NSW), ss 4, 250, 254(1), 280A, 312, 313, 315, 316, 317, 318A, 318H

Cases Cited:

Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552

Crabb v Arun District Council [1976] Ch 179

Dillingham Constructions Pty Limited v Steel Mains Pty Limited (1975) 132 CLR 323

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

Grant v NZMC Ltd [1989] 1 NZLR 8

Minister for Lands and Forests v McPherson (1991) 22 NSWLR 687

Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Limited (1997) 42 NSWLR 462

Sydmar Pty Ltd v Statewise Developments Pty Limited (1987) 73 ALR 289

Texts Cited:

Meagher, Gummow & Lehane's Equity: Doctrines and Remedies

The Hon. Mark Leeming, Equity: Ageless in the 'Age of Statutes' (2015) 9 Journal of Equity 108

Taylor P, E Elms E, Justice G Bellew and M Meek, Ritchie's Uniform Civil Procedure NSW (Looseleaf, LexisNexis)

Category:

Principal judgment

Parties:

Slater & Gordon Ltd (Plaintiff/Cross-defendant)
Erin Sellars (First defendant/Cross-claimant)
Justice4All Pty Ltd trading as Don Cameron & Associates (Second defendant)
Donald Cameron (Third defendant)

Representation:

Counsel:
Mr S Prince SC (Plaintiff/Cross-defendant)
Mr G O’Shea (First Defendant/Cross-claimant)
Mr B Lloyd (Second and Third Defendants)

Solicitors:
Arnold Bloch Leibler (Plaintiff)
PJ Ellis & Co (First Defendant)
Rural Law (Second Defendant)
Mark O’Brien Legal (Third Defendant)

File Number(s):

2020/248634

ex tempore Judgment

1. HER HONOUR: This is an application to strike out portions of a cross-claim and defence pursuant to rule 14.28(1) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) as being an abuse of process or failing to disclose a reasonable cause of action. The plaintiff, Slater & Gordon Ltd, relied on an affidavit by its solicitor, Bridget Little, and an affidavit by Helen Vines, special counsel at Slater & Gordon.

Substantive proceedings

2. The substantive claim is brought by Slater & Gordon against a former employee, Erin Sellars, a solicitor who was primarily engaged in police officers workers compensation claims, total and permanent disability and workplace injury and damages claims.

3. It is said that Ms Sellars, in breach of her fiduciary duties and contractual obligations, undertook the following activities shortly before tendering her resignation:

1. Ms Sellars is said to have downloaded details of the 774 matters at the firm for which she had primary responsibility. According to the cross-claim, this occurred on the same day that Ms Sellars was placed on a performance management plan.

2. Ms Sellars is said to have communicated with another employee about setting up a new business.

3. Ms Sellars is said to have created a new law firm partnership (the second defendant) with another former employee of the law firm (the third defendant).

4. After tendering her resignation, Ms Sellars is said to have enticed an employee and a large number of the plaintiff’s clients to her new law firm. So far, Slater & Gordon has received 146 file transfer requests from clients whose files were managed by Ms Sellars. Slater & Gordon is suing Ms Sellars for damages and an account of profits.

5. In her defence, Ms Sellars pleads inter alia that it was an implied term of her employment contract that Slater & Gordon was obliged to take reasonable care for her safety and to avoid foreseeable risks of injury, including by reason of workplace bullying. This term is said to have been breached, causing Ms Sellars to suffer personal injury, including emotional distress, anxiety, mental health injuries and consequential economic loss and damages. Further, paragraph 45 of the defence pleads:

In further answer to the whole of the plaintiff’s claim, the first defendant is entitled to set off her entitlement to damages and payments … pursuant to the Cross-Claim.

6. Ms Sellars’ contentions are expanded upon in a cross-claim. In particular, it is alleged that Slater & Gordon failed to comply with the requirements of the Work Health and Safety Act 2011 (NSW) and the Work Health and Safety Regulations 2011 (Cth). General damages for personal injury are sought, together with out-of-pocket medical expenses, loss of earnings and loss of earning capacity.

Principles

7. The principles in respect of a strike-out are not in dispute. The power to dismiss claims at this stage of proceedings is only to be exercised where the claim is so clearly deficient that it would be inappropriate to allow the proceedings to continue, described by Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129-130 as follows:

The test to be applied has been variously expressed; "so obviously untenable that it cannot possibly succeed"; "manifestly groundless"; so manifestly faulty that it does not admit of argument"; discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them" (the pleadings) "to stand would involve useless expense".

8. In Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at 576, Gleeson CJ described the test as follows: (citations omitted)

The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.

9. The parties were also agreed as to the law governing a claim for work injury damages. Ms Sellars’ claim meets the statutory definition of a claim for “workplace injury damages”. Section 4 of the Workplace Injury Management and Workers Compensation Act 1998 (NSW) (1998 Act) defines “work injury damages” as “has the same meaning as in Chapter 7 (New claims procedures)”. Section 250, contained in Chapter 7 of the 1998 Act, defines “work injury damages” as follows:

work injury damages means damages recoverable from a worker's employer in respect of-

(a)   an injury to the worker caused by the negligence or other tort of the employer, …

whether the damages are recoverable in an action for tort or breach of contract or in any other action …

10. Division 1 of Part 5 of the Workers Compensation Act 1987 (NSW) (1987 Act) governs the substantive law applying to a claim for work injury damages. Section 150A and 150B of the 1987 Act provides that the substantive law of a claim for work injury damages is the workers compensation scheme under which compensation is payable. Ms Sellars is bound by the New South Wales workers compensation scheme because, under section 4 of the 1987 Act, compensation is payable for a disease injury for which employment was the main contributing factor. Further, under section 9AA of the 1987 Act, the employment was connected with New South Wales by reason of Ms Sellars being employed in Slater & Gordon’s Penrith office.

11. Division 3 of Part 5 of the 1987 Act significantly modified the common law in respect of quantum of work injury damages. Section 151H(1) provides: (emphasis added)

No damages may be awarded unless the injury results … in a degree of permanent impairment of the injured worker that is at least 15%.

12. Further, Part 2 of Chapter 7 of the 1998 Act set out the procedure governing the making of a claim for work injury damages. Section 254(1) provides: (emphasis added)

254    Notice of injury must be given to employer

(1)    Neither compensation nor work injury damages are recoverable by an injured worker unless notice of the injury is given to the employer as soon as possible after the injury happened and before the worker has voluntarily left the employment in which the worker was at the time of the injury.

13. Section 280A provides: (emphasis added)

280A Claim for lump sum compensation a pre-condition to damages claim

A claim for work injury damages in respect of an injury cannot be made unless a claim for lump sum compensation in respect of the injury is made before or at the same time as the claim for work injury damages.

14. Part 6 of Chapter 7 of the 1998 Act sets out further procedures for making a work injury damages claim. Section 312 provides:

312 Forum for court proceedings

Proceedings in respect of a claim for work injury damages may be taken in any court of competent jurisdiction, subject to this Part.

15. Section 313 provides: (emphasis added)

313 Threshold dispute prevents service of pre-filing statement and commencement of court proceedings

If there is a dispute as to whether the degree of permanent impairment of the injured worker resulting from an injury is sufficient for an award of damages, the claimant cannot commence court proceedings for the recovery of work injury damages and cannot serve a pre-filing statement under Division 3 unless the degree of permanent impairment has been assessed by an approved medical specialist under Part 7.

16. Section 315 states: (emphasis added)

315 Requirement for pre-filing statement before commencing court proceedings

(1) Before a claimant can commence court proceedings for the recovery of work injury damages, the claimant must serve on the defendant a "pre-filing statement" setting out such particulars of the claim and the evidence that the claimant will rely on to establish or in support of the claim as the Rules may require.

Note: Section 314 prevents a pre-filing statement being served if there is a dispute as to whether the degree of permanent impairment is sufficient for an award of damages.

17. As the note to section 315 states, a plaintiff cannot serve a pre-filing statement if there is a dispute about the extent of whole person impairment. In the event of a dispute, the dispute must first be resolved using the procedure provided in Part 7 of Chapter 7 of the 1998 Act. Sections 316, 317 and 318 of the 1998 Act provide for a pre-filing response, the consequences of a defective pre-filing statement and limiting the evidence the parties may adduce in evidence without leave. Sections 318A to 318H of the 1998 Act provide for compulsory mediation of a work injury damages claim before the commencement of proceedings. Section 318A provides: (emphasis added)

318A Mediation of claim before commencement of court proceedings

(1) A claimant must refer a claim for work injury damages for mediation under this Division before the claimant can commence court proceedings for recovery of those work injury damages. The claim cannot be referred for mediation until at least 28 days after the pre-filing statement has been served on the defendant under Division 3.

18. In this manner, the 1987 Act and 1998 Act prescribe the substantive law concerning the commencement and conduct of claims for workplace injury damages. It is not in dispute that Ms Sellars has not given Slater & Gordon a notice of injury pursuant to section 254(1) of the 1998 Act, notification of whole person impairment, notice of mediation pursuant to section 318A of the 1998 Act or a pre-filing statement pursuant to section 315(1) of the 1998 Act.

Submissions

19. Slater & Gordon submitted that the portions of the defence and cross-claim described at [5]-[6] contain a cause of action commenced contrary to law and are an abuse of process. Alternatively, as Ms Sellars has brought a claim for work injury damages without meeting the threshold of 15% whole person impairment or complying with the procedures which are an essential prerequisite for a claim for work injury damages, the pleading discloses no reasonable cause of action. It was submitted that the paragraphs of the defence and cross-claim should be struck out with costs.

20. Ms Sellars submitted that the workers compensation legislation affected claims but not defences or “defensive cross-claims”. Ms Sellars had not commenced proceedings, but was defending proceedings brought against her by her former employer. Nothing in the workers compensation legislation denied a defence of equitable set-off in a breach of contract claim or precluded the bringing of a defensive cross-claim for the purpose of giving effect to that set-off. Reliance was placed on sections 21 and 22 of the Civil Procedure Act 2005 (NSW). It was submitted that the purpose of the workers compensation legislation was to regulate the management of workplace personal injury claims, not to deprive litigants of a defence in employment contract claims, including a defence of set-off: Explanatory Note to the Workers Compensation Legislation Amendment Bill 1998 (NSW), page 1. A court in equity should not deny a defendant employee the right to use breaches of both implied terms and negligence by the employer plaintiff in their defence and cross-claim. The cause of action was said not to be novel.

21. Such a construction of the workers compensation legislation was said to be consonant with the objects of the statute, as described by Kirby P in Minister for Lands and Forests v McPherson (1991) 22 NSWLR 687 at 698-700:

It is the presumption of our legal system that Acts of Parliament are
intended to operate justly. Where, then, a statute is silent as to procedures
which are to be followed or basic rights observed, the assumption is made, and enforced by the courts, that the statute was intended to operate alongside and in harmony with the common law.

…

Does a similar principle apply in relation to basic principles of equity, where those principles have been developed over the centuries to safeguard the achievement of justice in particular cases where the assertion of legal rights, according to their letter, would be unconscionable?

In principle, there would seem to be no reason why a similar approach should not be taken to basic rules of equity. The justice of equity may equally supply the omission of the legislature, filling the silences of the statute.

See also Crabb v Arun District Council [1976] Ch 179 at 187; Meagher, Gummow & Lehane's Equity: Doctrines and Remedies; The Hon. Mark Leeming, Equity: Ageless in the 'Age of Statutes (2015) 9 Journal of Equity 108 at 125.

22. Ms Sellars submitted that a court in equity should not be restrained in considering her rights, despite the workers compensation legislation, to set-off work injury damages. It was said that to deny her this right would be unconscionable. Further, it was submitted that Ms Sellars has an equitable set-off, as it would be unjust or inequitable for the plaintiff to proceed with its claims without allowing her to assert a right of set­off: Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Limited (1997) 42 NSWLR 462 at 481.

23. In reply, Slater & Gordon submitted that Ms Sellars does not have a ‘set off’ as the workers compensation legislation prevents her from initiating or maintaining the claim, whether in tort or in contract, for work injury damages unless and until she complies with the pre-conditions mandated by Parliament, including demonstrating that Ms Sellars meets the minimum threshold for the award of work injury damages of 15% whole person impairment. Further, it was doubted whether the term “defensive cross-claim” had any legal application but was a self-selected label which did not change the statutory prohibition of the claim advanced. If the character of the cross- claim and/or defence was to seek damages from an employer for personal injury for which the employer was liable in tort or contract, the cross-claimant/defendant is caught by the workers compensation legislation. It was the character of the remedy that determines whether the workers compensation legislation applies, not the identity of the claimant, be it a plaintiff, cross-claimant or defendant, nor the source of the liability, be it tort or contract. Ms Sellars’ right to seek a remedy from her employer for work injury was not denied but her claim must adhere to the procedure and thresholds provided by Parliament in the workers compensation legislation.

24. Further, Ms Sellars’ claim for work injury damages was said not to meet the criteria of an equitable set-off. The liabilities were not closely connected. Ms Sellars’ claim was for compensation by her employer for work injury. Slater & Gordon’s claim was an equitable claim for declarations, an account of profits and equitable compensation. The two claims were not interdependent. Ms Sellars’ alleged breaches of contract in the disclosure and misuse of confidential information and the solicitation of clients and employees of Slater & Gordon could not reasonably be said to be interdependent with workplace mental health injuries alleged to have been suffered whilst an employee. This did not mean Ms Sellars could not seek compensation for work injury against Slater & Gordon in separate proceedings if she wished. However, it was not unconscionable to strike out the alleged set-off in the defence and cross-claim, as there was nothing preventing Ms Sellars from seeking compensation for work injury independently of these proceedings.

Consideration

25. Ms Sellars has not complied with the procedures prescribed by the workers compensation legislation before filing the cross-claim seeking work injury damages. The workers compensation legislation is in mandatory terms which make clear that, before an employee can bring such a claim, various tasks must first be attended to.

26. The language of the legislation does not permit a construction that its procedures may be ignored where a worker brings their claim for injury by way of cross-claim and defence, rather than being the principal plaintiff. The definition of “work injury damages”, set out at [9], refers to a worker and employer in generic terms rather than their status as a plaintiff or defendant, cross-claimant or cross-defendant, applicant or respondent. Rather, the definition focuses on the remedy sought, being a tortious claim for damages “whether the damages are recoverable in an action for tort or breach of contract or in any other action”. In any event, once a cross-claim is commenced in the Court, a cross-claimant is effectively the plaintiff on that cross-claim. Rule 9.1(3) of the Uniform Civil Procedure Rules 2005 (NSW) provides that the rules apply to cross-claims in the same way as they apply to statements of claim.

27. As to Ms Sellars’ right to bring a cross-claim, section 22(1) of the Civil Procedure Act 2005 (NSW) provides: (emphasis added)

22   Defendant’s right to cross-claim

(1)   … the court may grant to the defendant in any proceedings (the first proceedings) such relief against any person (whether or not a plaintiff in the proceedings) as the court might grant against that person in separate proceedings commenced by the defendant for that purpose.

28. The section is procedural only and the substantive right to claim the relief sought must exist independently: Dillingham Constructions Pty Limited v Steel Mains Pty Limited (1975) 132 CLR 323. The question, therefore, is whether the Court may grant Ms Sellars the relief sought in the cross-claim as commenced, in circumstances where she has not complied with the requirements of the workers compensation legislation before commencing that claim. As matters presently stand, given the clear language of the legislation as already canvassed, the answer must be no.

28. That, of course, does not prevent Ms Sellars, after complying with the relevant procedures, from bringing a claim for work injury damages. Whilst such a claim would ordinarily be brought in the Workers Compensation Commission or the District Court of New South Wales, it may be convenient to bring her claim for work injury damages in this Court so that all issues between the parties can be resolved in one proceeding. That will be for another judge to decide in due course.

29. Turning then to set-off, section 21 of the Civil Procedure Act 2005 (NSW) provides:

21 Defendant’s right to set-off

(1) If there are mutual debts between a plaintiff and a defendant in any proceedings, the defendant may, by way of defence, set off against the plaintiff’s claim any debt that is owed by the plaintiff to the defendant and that was due and payable at the time the defence of set-off was filed, whether or not the mutual debts are different in nature.

…

(4) This section does not affect any other rights or obligations of a debtor or creditor in respect of mutual debts, whether arising in equity or otherwise.

…

(6) In this section, debt means any liquidated claim.

31. As the learned authors of Taylor P, E Elms E, Justice G Bellew and M Meek, Ritchie's Uniform Civil Procedure NSW (Looseleaf, LexisNexis) note at [s 21.5], the statutory right of set off is restricted to “mutual” debts involving liquidated claims that are due and payable when the defence is filed. Because of these restrictions, section 21(4) of the Civil Procedure Act is expressed not to affect any other rights of set off and does not affect any equitable rights of set off. Ms Sellar’s cross-claim cannot be said to be a liquidated claim, and thus section 21(4) is the relevant sub-section here.

32. The right of set-off in equity depends on the proposition that the contrary liabilities are sufficiently closely connected that it would be inequitable for the plaintiff to be permitted to proceed with its claim without making allowance for the defendant's claim against it. It was explained in Roadshow Entertainment by Gleeson CJ, Handley JA and Brownie A-JA at 481:

Equitable set-off is a substantive defence: see S R Derham, Set-Off, 2nd ed (1996) at 56-65. As Goff LJ said in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] QB 927 at 982, a defence of equitable set-off may be set up “not merely as a means of preventing … judgment, or, at any rate, execution, but also as an immediate answer to … liability to pay”. This must be correct because an equitable set-off impeaches the title of the other party to the legal demand against which it is asserted. When “the circumstances which support an equitable set-off exist, it is unconscionable for the creditor to regard the debtor as being indebted”: Derham (at 60). The debtor can therefore claim that the payment demanded was never due: see Tomlinson v Cut Price Deli Pty Ltd (1992) 38 FCR 490 at 494-495, per Drummond J and the cases there cited.

33. The defence is also available where the two claims are interdependent, such as where one party’s default contributed to the other party’s liability: Grant v NZMC Ltd [1989] 1 NZLR 8 at 12-13, where Somers J delivered judgment for the Court of Appeal:

The defendant may set-off a cross claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand.

34. The circumstances to be taken into account in respect of equitable set-off are the nature of the claims, the nature of the connection between them and the conduct of the parties: Sydmar Pty Ltd v Statewise Developments Pty Limited (1987) 11 ACLR 616; (1987) 73 ALR 289 per Smart J.

35. As to whether there is an equitable set off here, Ms Sellars’ cross-claim is for tortious damages. Ms Sellars is not presently entitled to bring the cross-claim without first complying with the workers compensation legislation. In circumstances where the Parliament has seen fit to prescribe a detailed legislative scheme, equity follows the law and does not recognise a set-off which at present, cannot be maintained. Whether any obligation on Ms Sellars’ to account for profits might be considered to be sufficiently connected with any liability by Slater & Gordon for work injury damages such that it would be inequitable for Slater & Gordon to proceed with its claim without making allowance for Ms Sellars’ claim will be for another judge to decide in due course. But at the moment, Ms Sellars is not presently entitled to bring such a claim at all.

36. The portions of the defence and the cross-claim identified by Slater & Gordon cannot presently stand and should be struck out.

37. For these reasons, I make the following directions and orders:

1. Pursuant to rule 14.2 of the Uniform Civil Procedure Rules 2005 (NSW), strike out:

1. paragraphs [5] to [7] of the Cross Claim dated 12 October 2020; and

2. “the breaches of the Employment …. on 14 August 2020” in paragraph 38 of first defendant’s Defence dated 12 October 2020.

2. Order the first defendant to pay the plaintiff’s costs of its motion filed on 2 November 2020.

3. Direct the plaintiff to file and serve a defence to the Cross Claim by 4.00 pm on 22 December 2020.

4. In respect of the plaintiff’s motion filed on 2 December 2020:

1. Direct the first defendant to file and serve any evidence by 9.00 am on 11 December 2020.

2. Stand the motion over to the Callover List on 15 December 2020 with a view to allocating a hearing, preferably before the end of Court term.

**********

Decision last updated: 11 December 2020