Federal Court of Australia

Viridian Financial Group Ltd v Loring (Pleadings Dispute) [2025] FCA 327

ORDERS

THE COURT ORDERS THAT:

1.    Paragraphs [26] – [53], [4(c)], [4(d)] and [5(b)] of the Defence dated 3 March 2025 be struck out.

2.    The applicant have leave to amend the Amended Statement of Claim dated 4 December 2024 consistent with these reasons.

3.    Costs reserved.

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

REASONS FOR JUDGMENT

DOWLING J:

1    The applicant, by its interlocutory application dated 7 March 2025, seeks an order that certain paragraphs of the respondents’ Amended Defence be struck out (applicant’s application).

2    The respondents, by their interlocutory application dated 11 March 2025, seek an order that certain paragraphs of the applicant’s Amended Statement of Claim (ASOC) be struck out (respondents’ application). The respondents contend that if those orders are made the consequence is that orders must additionally be made dismissing the proceeding against the second respondent and striking out a further claim in the amended originating application. Alternatively, the respondents seek an order for summary judgment in respect of the applicant’s claims for damages for breach of contract and for procuring or inducing breach of contract. In the further alternative, the respondents seek orders that the applicant file and serve on the respondents certain particulars of the ASOC.

3    For the reasons that follow, I have determined to:

(a)    strike out paragraphs [26] – [53], and [4(c)], [4(d)] and [5(b)] of the Defence; and

(b)    grant leave for the applicant to amend the ASOC consistent with these reasons.

Background

4    In order to identify the significance of the relevant pleadings with which the applicant and respondents take issue, it is necessary to explain some of the background to the proceeding. In doing so, I shall summarise the substance of the applicant and respondents’ applications.

5    The applicant is a company engaged in the business of providing financial services pursuant to an Australian Financial Services Licence. The first respondent was employed by the applicant as a financial advisor from 26 August 2019 to 15 January 2024. It is not in dispute that the first respondent’s written employment contract contained a number of restraint covenants. The restraint covenants are set out at clause 22 of the employment contract, and relevantly provided that the first respondent must not, without the applicant’s consent:

(a)    approach, contact or solicit, or assist anyone else to approach, contact or solicit, any Client with whom the first respondent had business dealings during the 12-month period prior to the termination of his employment with the applicant with a view to providing the Client with the same or similar services to those provided by the Group;

(b)    deal with or accept any work from, or provide services to, any Client with whom he had business dealings during the 12-month period prior to the termination of his employment with the applicant, with a view to providing that Client with the same or similar services to those provided by the Group;

(c)    encourage any of the Group’s directors, managers, officers, employees, agents or contractors with whom he had direct dealings during the 12-month period prior to the termination of his employment with the applicant to stop working for or providing services to the Group or to commence working for or providing services to another person or entity, including the first respondent;

(d)    carry on, advise, provide services to or be engaged, concerned or interested in or associated with or otherwise involved in any business or activity that is competitive with any business carried on by the applicant, in a capacity reasonably similar to the capacity in which he served the applicant during the 12-month period prior to the termination date.

6    “Client” is defined in the employment contract as any person or company who, during the first respondent’s employment, is or was or proposed to become a client, customer, supplier or agent of the Group. “Group” is defined as the applicant’s “related companies”.

7    Clause 22 of the employment contract additionally contained a statement providing that the applicant and the first respondent agreed that the restraint covenants were reasonable and necessary to protect the applicant’s business interests. However, the ASOC does not otherwise plead that the restraint covenants are reasonable and necessary to protect the legitimate interests of the applicant and are not injurious to the public.

8    Both parties agree that the first respondent resigned from the applicant on 19 December 2023 by providing the applicant with one month’s notice of his resignation. That notice was in accordance with clause 18 of the employment contract. The first respondent’s employment with the applicant ended on 15 January 2024.

9    Between 19 and 20 December 2023, the applicant says it became aware that the first respondent had taken steps to set up a financial advisory business to compete with the applicant, begun notifying clients of his departure and attempting to solicit the transfer of their business to the first respondent’s proposed business, transferred confidential information of the applicant to the first respondent’s mobile phone, and expressly refused to delete confidential information from his mobile phone. The applicant pleaded a number of facts and particulars in support of these allegations, notably including:

(a)    the first respondent twice sent emails to his personal email address containing the applicant’s confidential information while still employed with the applicant.

(b)    the first respondent contacted one of the applicant’s clients while still employed and said words to the effect that he was leaving the applicant to start his own company and the client could go with him.

(c)    several clients informed the applicant that the first respondent contacted them, including two clients that informed the applicant that they had decided to transfer their services to the second respondent after speaking with the first respondent.

(d)    since 21 February 2024, 50 out of 135 clients that had financial services provided by the first respondent have changed their financial services provider.

10    In the ASOC, the applicant did not precisely identify the allegedly confidential information, including the names of clients that the first respondent was said to have contacted.

11    The parties agree that on 10 September 2023, a company called Freestone Investments Pty Ltd was registered with the Australian Securities and Investment Commission with the first respondent as the director and company secretary. Freestone’s principal place of business was the first respondent’s home address. The parties also agree that Freestone was a direct competitor of the applicant. Freestone is the second respondent in this proceeding.

12    The applicant therefore contends that by this conduct, the first responded breached numerous terms of his employment contract, and breached s 183 of the Corporations Act 2001 (Cth) and his fiduciary duties to the applicant. The applicant contends that the second respondent committed the tort of inducing breach of contract.

13    The applicant alleges its loss and damages arising from the first and second respondents’ breaches to be $449,121, being the capital value of the loss as at 4 December 2024 based on a “market-based earnings multiple of revenue loss”. The applicant also states that the revenue referable to clients who left the applicant and are reasonably believed to have transferred to the first and/or second respondent is $149,707.

14    By way of Defence, the respondents relevantly state that:

(a)    the restraint covenants were void and unenforceable unless only to the extent that the applicant can establish that they do no more than afford reasonable protection of the applicant’s legitimate interests.

(b)    during the period of the first respondent’s employment, the first respondent did send emails that contained the names of clients of the applicant. However, the respondents deny that the names of such clients were confidential.

(c)    the applicant, and named employees of the applicant, contravened s 946A and 946C of the Corporations Act by way of conduct allegedly demonstrating a systemic failure to provide statements of advice on a number of occasions, and that these contraventions were known to the first respondent and senior employees of the respondent. The respondents contend that this conduct additionally amounts to a contravention of s 912A(1)(ca) of the Corporations Act by the applicant’s alleged failure to take reasonable steps to ensure that its representatives comply with financial services laws. Moreover, the first respondent contends that the applicant directed its advisors, including the first respondent, to prioritise transferring their clients from one financial adviser platform to another platform that was allegedly more expensive and untested in the market.  The respondents allege that direction put the applicant in contravention of s 961B(1) of the Corporations Act, a number of standards of the Financial Planners and Advisers Code of Ethics 2019 and placed the applicant in breach of a clause of the first respondent’s employment contract. All of the allegations referred to in this sub-paragraph are referred to as the alleged financial services law contraventions. The respondents say that the relevance of the financial services law contraventions is that they, in effect, demonstrate that the first respondent was otherwise entitled to terminate the contract or otherwise demonstrate that restraint covenants are unenforceable since the covenants are not reasonably necessary to protect the interests of the applicant in circumstances where the applicant is conducting its business unlawfully.

15    It is the alleged financial services law contraventions, and the pleaded legal consequences that flow from such contraventions, that the applicant takes issue within its application. The applicant’s primary contention is that alleged financial services law contraventions are irrelevant and pleaded with the intention of embarrassing or annoying the applicant.

16    The applicant further states in its application that the pleadings relating to the financial services law contraventions are made without specificity in breach of r 16.42 of the Federal Court Rules 2011 (Cth); and, further, that  these pleadings do not conform with the strictures applying to pleadings of fraud and similar allegations of misconduct: see Banque Commerciale SA (en liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 285 (Mason CJ and Gaudron J).

17    For those reasons, the applicant states that the alleged financial services contraventions should be struck out. The applicant submits that the respondents should not be granted leave to replead as the allegations are not capable of being properly pleaded.

18    The respondents’ application seeks the striking out of pleadings in the ASOC (or, alternatively, summary judgment) relating to:

(a)    the restraint covenants, because of the applicant’s alleged failure to plead that the restraints are reasonable and therefore enforceable.

(b)    the applicant’s clients and confidential information, because of the alleged failure of the pleadings to precisely identify the clients that the first respondent allegedly contacted, and the confidential information that the first respondent allegedly used.

(c)    causation, because of the alleged failure of the pleadings to plead the material facts which establish the link between each cause of action and the loss that resulted.

(d)    the calculation of quantum, because of the applicant’s alleged failure to plead the necessary facts.

(e)    the cause of action against Freestone, being procuring or inducing breach of contract, because of the alleged failure of the pleadings to plead each element of the tort.

19    The respondents additionally seek summary judgment of the claims for breach of contract and procuring and inducing a breach of contract on the basis that the applicant is a holding company that allegedly cannot establish that it would have received revenue referable to clients who left the applicant.

principles

20    The principles applying to a strike out of pleadings were not in dispute. The starting point is r 16.02(1) - (3) of the Rules, which provides for the requirements for the content of pleadings. Rule 16.02 relevantly states:

(1) A pleading must:

…

(c)    identify the issues that the party wants the Court to resolve; and

(d)    state the material facts on which a party relies that are necessary to give the opposing party fair notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved; and

…

(2) A pleading must not:

(a)    contain any scandalous material; or

(b)    contain any frivolous or vexatious material; or

(c)    be evasive or ambiguous; or

(d)    be likely to cause prejudice, embarrassment or delay in the proceeding; or

(e)    fail to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

(f)    otherwise be an abuse of the process of the Court.

21    Rule 16.41 states the requirement for, and object of, particulars. By r 16.41(1), a pleading must state the necessary particulars of each claim or defence.

22    Rule 16.41(2) provides that the object of particulars is to limit the generality of the pleadings by informing an opposing party of the nature of the case the party has to meet, preventing an opposing party being taken by surprise at the trial, and enabling the opposing party to collect whatever evidence is necessary and available.

23    Rule 16.21(1) provides for the circumstances where a party may apply to strike out pleadings on the grounds that the pleading:

(a)    contains scandalous material; or

(b)    contains frivolous or vexatious material; or

(c)    is evasive or ambiguous; or

(d)    is likely to cause prejudice, embarrassment or delay in the proceeding; or

(e)    fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; or

(f)    is otherwise an abuse of the process of the Court.

24    A number of the general principles relevant to r 16.21 were summarised by Wigney J in KTC v David [2022] FCAFC 60 at [118] – [125] and Feutrill J in Pigozzo v Mineral Resources Ltd [2022] FCA 1166 at [25]. These principles, together with some other additional relevant principles, are as follows:

(1)    Rule 16.21 must be interpreted and applied in light of s 37M of the Federal Court of Australia Act 1976 (Cth), which provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: KTC at [118].

(2)    As to r 16.21(1)(a), material is “scandalous” if it, as well as being irrelevant, is indecent or offensive or consists of allegations made for the purpose of abusing or possibly prejudicing the opposite party: Cashin v Craddock [1876] 3 Ch D 376 at 378 – 379. Scandal may consist of “anything…which charges some person with a crime not necessary to be shown in the cause, to which may be added that any unnecessary (not relevant to the subject) allegation bearing cruelly upon the moral character of an individual”: Hongkong Xinhe International Investment Co Ltd v Bullseye Mining Ltd (No 3) [2021] WASC 260 at [61] citing Legal Practice Board v Said (unreported, WASC, Library No 940003, 12 January 1994) at 3. The relevant question is whether the material, so stated, is extraneous to the issues raised in the proceeding on which evidence could properly be brought forward: Millington v Loring (1880) 6 QBD 190 at 195; 196 – 197. If the scandalous material is extraneous, then, generally speaking, it should be struck out: Re C2C Investments Pty Ltd, Re C2C Investments Pty Ltd v Leigh (No.3) [2012] FCA 680 at [5] (Yates J); see also, for example, Wu v Avin Operations Pty Ltd (No 2) [2006] FCA 792; Kowalski v Mitsubishi Motors Australia Ltd [2009] FCA 1289.

(3)    As to r 16.21(1)(b), “vexatious material” is an “omnibus expression” that includes material which is scandalous, discloses no reasonable cause of action, is oppressive or embarrassing, or the inclusion of which is otherwise an abuse of the processes of the Court: Gallo v Attorney-General (unreported, Full Court of the Supreme Court of Victoria, Starke J, with whom Crockett and Beach JJ agreed at [12], 4 September 1984), referred to with approval in Mathews v Queensland [2015] FCA 1488 at [87]. Material in a pleading would also be considered to be vexatious or frivolous if it was included in the pleading with the intention of annoying or embarrassing, or for a collateral purpose, or if it raises matters that are “obviously untenable or manifestly groundless”: Attorney-General v Wentworth (1988) 14 NSWLR 481 at 491; see also Von Reisner v Commonwealth [2009] FCAFC 97; 177 FCR 531 at [27].

(4)    As to r 16.21(1)(e), a “reasonable cause of action” is a cause of action that has some chance of success having regard to the allegations pleaded: Polar Aviation Pty Ltd v Civil Aviation Safety Authority [2012] FCAFC 97; 203 FCR 325 at [42] – [43]. A cause of action cannot be struck out merely on the basis that it appears to be weak: Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1994) 217 ALR 226 at 236.

(5)    As to r 16.21(1)(f), the High Court has said that what amounts to an abuse of process is “insusceptible of a formulation comprising closed categories” and “the possible varieties of abuse of process are only limited by human ingenuity”: Pigozzo at [25] quoting Batistatos v Roads Traffic Authority (NSW) [2006] HCA 27; 226 CLR 256 at [9]; Sea Culture International Pty Ltd v Scoles (1991) 32 FCR 275 at 279.

(6)    Normally, the power to strike out should be exercised only in plain and obvious cases where no reasonable amendment could cure the alleged defect or deficiency: Allstate at 236. The power is discretionary and should be employed sparingly and only in a clear case “lest one deprive a party of a case which in justice it ought to be able to bring”: Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 52 FCR 164 at 175.

(7)    The Court’s power to strike out pleadings (or parts of pleadings) is discretionary and may be exercised on the basis of any one or any number of the grounds listed in r 16.21(1)(a) – (f). In the end, a decision to strike out a pleading will depend upon whether, in the circumstances of the matter, it is necessary to do so in the interests of justice: see John Holland Pty Ltd v Maritime Union of Australia [2009] FCA 437 at [60] per Graham J.

25    The applicant explicitly relies on r 16.21(1)(a) (scandalous material), (b) (frivolous or vexatious material), (d) (likely to cause prejudice, embarrassment or delay) and (f) (abuse of process) to mount its case that the alleged financial services law contraventions and the legal consequences that flow from such contraventions should be struck out. At the hearing, the applicant stated that they also, in effect, rely on r 16.21(e) (fails to disclose a reasonable cause of action or defence) because the impugned pleadings in the Defence do not mount a new defence or raise anything in themselves that creates a defence to the proceeding.

26    The applicant further relies on r 16.42 to state that the pleadings relating to the alleged financial services law contraventions and their legal consequences, which are, in the applicant’s view, pleadings relating to fraud or serious misconduct, contain wholly unparticularised allegations made without specificity. As will be made clear by my reasons, it was not necessary for me to determine whether r 16.42 was enlivened by the impugned paragraphs of the respondents’ Defence.

27    The applicant acknowledged that ordinarily a litigant against whom relief is granted under r 16.21 of the Rules is afforded an opportunity to re-plead. However, the applicant submits that course should not be adopted in the present case as the Court cannot “discern the germ of a case concealed within inadequately drafted pleadings": Takemoto v Moody's Investors Service Pty Limited [2014] FCA 1081 at [89] (Flick J).

28    The respondents’ application generally sought that the pleadings relating to the issues described at [18] of this decision be struck out. The respondents did not make reference in their written or oral submissions to specific sub-paragraphs of r 16.21.

29    In the alternative to the strike-out, the respondents otherwise sought summary dismissal of the impugned parts of the pleadings mentioned at [18] of this decision.

30    Rule 26.01(1) relevantly provides for the circumstances in which summary judgment may be ordered as where:

(a)    the applicant has no reasonable prospect of successfully prosecuting the proceeding or part of the proceeding; or

(b)    the proceeding is frivolous or vexatious; or

(c)    no reasonable cause of action is disclosed; or

(d)    the proceeding is an abuse of the process of the Court; or

(e)    the respondent has no reasonable prospect of successfully defending the proceeding or part of the proceeding.

31    Justice Collier recently set out a summary of the principles relating to summary judgment in McGrory v Horizon One Recruitment Pty Ltd (No 2) [2025] FCA 153 at [16] – [17]. For the present purposes, these most relevantly include that:

(1)    It is the applicant for summary judgment who bears the onus of persuading the court that the proceedings should be determined summarily: Australian Securities and Investments Commission v Cassimatis [2013] FCA 641; 220 FCR 256 at [45].

(2)    The power to dismiss an action summarily must be exercised with caution and is not to be exercised lightly: Spencer v Commonwealth of Australia [2010] HCA 28; 241 CLR 118 at [24] and [60].

(3)    A practical judgment as to the case at hand is required by reference to the stage the proceedings have reached: Spencer at [25]; Cassimatis at [46].

consideration

Applicant’s interlocutory application

32    The contraventions of financial services law described above are pleaded at [26] – [53] of the Defence. As explained, there are two parts to those allegations. First, an allegation of a “systemic failure to provide statements of advice” said to be in contravention of ss 946A and 946C of the Corporations Act. Those sections require a providing entity, being a financial services licensee or a person acting on behalf of a financial services licensee, in certain circumstances, to give a client a statement of advice within certain time periods. Second, an allegation that a direction to the applicant’s staff to use a particular financial management platform (CFS Edge) was in breach of s 961B of the Corporations Act, certain standards of the Financial Planners and Advisers Code of Ethics 2019, and the first respondent’s employment contract (including a clause of that contract and an implied term). Section 961B of the Corporations Act requires a provider, being an individual who is to provide personal advice to a client as a retail client, to act in the best interests of the client.

33    Paragraphs [26] – [42] of the Defence identify three periods when verbal advice was said to be provided by an employee of the applicant (not the first respondent) and no statement of advice was provided. The periods are: “early 2020”, the “two years” prior to 2021, and “in 2023”.  The pleadings do not identify the clients who did not receive such advice or the particular dates and circumstances of the failure. It is then pleaded that the applicant was obliged, by s 912A(1)(ca), to take reasonable steps to ensure that its representatives complied with the “financial services laws”, that it knew its employee had failed to comply with the obligation to provide written statements of advice, and that it failed to take any reasonable steps to ensure compliance. It is then said to be “inferred” that the relevant employee and the applicant “frequently contravened ss 946A and 946C of the Corporations Act” and that those contraventions are “serious” and “numerous”.

34    Paragraphs [43] – [50] allege, amongst other matters, that the applicant’s chief executive officer directed staff to “prioritise transferring all of their clients from other platforms to CFS Edge”. The first respondent says he “believed (as was the fact) that because the CFS Edge was a more expensive platform and untested in the market, it was not in the [applicant’s] clients’ best interests to transfer to the CFS Edge platform”.  The basis of the belief or fact is not particularised with that allegation. The conduct is said to be in breach of s 961B and certain standards of the Financial Planners and Advisers Code of Ethics 2019.

35    All of those pleadings are then pleaded as relevant in three ways:

(a)    the breaches entitled the first respondent to terminate the contract;

(b)    as a result of the breaches the contract was discharged by frustration; and

(c)    the restraint covenants are unenforceable “since it is not reasonably necessary to protect the interests of [the applicant] in conducting its business at its Burnie office unlawfully.”

36    The applicant complains that the pleadings are: (1) inadequate in that they do not properly put the applicant on notice of the case it must meet; (2) are not relevant to any defence, or are not a defence themselves, given certain admissions; (3) are  “scandalous” within the meaning of r 16.21(1)(a); (4) are likely to cause prejudice or delay within the meaning of r 16.21(1)(d); and (5) are inconsistent with ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth).

37    I accept the submission that the pleadings are inadequate. For example, the respondents do not particularise, with any specificity, the material facts including the occasions, clients, dates and times of each of the so-called 2020, 2021 and 2023 “verbal advice contraventions”. They do not particularise the “numerous” alleged contraventions of ss 946A and 946C. They do not sufficiently put the applicant on notice of the case it has to meet and enable it to collect any necessary and available evidence. With respect to the allegations pertaining to the use of CFS Edge, the respondents plead as to their belief and as a “fact” that CFS Edge was “more expensive” and “untested in the market”. As to the allegations of fact, the respondents do not plead the material facts to establish that the platform is untested and was more expensive at the relevant time (although there is a pleading that it was allegedly more expensive at a later time). Again, those pleadings do not sufficiently put the applicant on notice of the case it has to meet and enable it to collect any necessary and available evidence.

38    As to relevance, the applicant submits that it pleads, and the respondents admit, that the first respondent provided one month’s written notice of his resignation of employment on 19 December 2023. It says there is no dispute that the first respondent’s employment contract came to an end in that way. It says therefore that the entitlement of the first respondent to terminate the contract of employment in some other way (if there was such an entitlement) adds nothing to the Defence. Likewise, it says that if the contract might have been frustrated, that is not relevant where there is no dispute that it came to an end on the first respondent’s resignation. The first respondent says that the breaches of the Corporations Act demonstrate his entitlement to terminate his contract of employment other than by resignation. He relies on Shepherd v Felt and Textiles of Australia (1931) 45 CLR 359 (per Dixon J citing Greer J in Taylor v Oakes Roncoroni & Co (1922) 127 LT at 269) where it was said:

It is a long established rule of law that a contracting party, who after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not.

39    The difficulty for the first respondent is establishing whether, on the facts as pleaded in [26] – [53] of the Defence, he had an entitlement to refuse performance of his contractual obligations. As discussed, those matters at [26] – [42] describe the alleged failure of an employee of the applicant, other than first respondent, to provide statements of advice, and the applicant’s failure to ensure that advice was provided. I am not satisfied those matters as pleaded could give rise to such an entitlement. I am also not satisfied that those matters as pleaded at [43] – [50], concerning the alleged CFS Edge direction, would give rise to such an entitlement. Further, the applicant submits, and I accept, that if there were such an entitlement it would likely arise as a consequence of the breach of a term of trust and confidence (such as that found in the United Kingdom in Malik v Bank of Credit and Commerce International SA (In Compulsory Liquidation) [1998] AC 20; 3 All ER 1) and such a term was found not to exist in Australia by the High Court in Commonwealth Bank of Australia v Barker [2014] HCA 32; 253 CLR 169 at [41] (French CJ, Bell and Keane JJ).

40    In the course of argument, Counsel for the respondents contended that the pleadings at [26] – [42] are relevant to support an argument that where equitable relief is sought against the first respondent, it should only be granted where the applicant comes with clean hands. The first respondent relied upon Geraghty v Minter (1979) 142 CLR 177 at 187 where Gibbs J said, “he who comes to equity must do equity”. The respondents’ proposition, although correct, ignores the approach that “[e]quity will not apply the principle about clean hands unless the depravity, the dirt in question on the hands, has an immediate and necessary relation to the equity sued for”: Moody v Cox & Hatt [1917] 2 Ch 71 at 87-8 (Scrutton LJ); see also R v Deputy Commissioner of Taxation (WA); Ex parte Briggs (No 2) (1987) 14 FCR 249 at 272 (Sheppard J) and Dow Securities Pty Ltd v Manufacturing Investments Ltd (1981) 5 ACLR 501 at 508-9 (Wootten J). The problem with the respondents’ submission is that the conduct complained of at [26] – [42] bears no immediate or necessary relation to the alleged breach of fiduciary duty committed by the first respondent so as to deny the applicant relief against him. It is an allegation that another employee failed to meet their obligations and the applicant failed to ensure the employee’s compliance.

41    Lastly as to relevance, the respondents assert that the paragraphs [26] – [53] are relevant because they support a submission that the restraints are unenforceable “since it is not reasonably necessary to protect the interests of [the applicant] in conducting its business at its Burnie office unlawfully”. The question of public interest in the enforceability of a restraint covenant is ordinarily assessed against the public interest in preventing a person from earning their living and the public interest in denying the public the services of a person prepared to engage in employment: see Buckley v Tutty (1971) 125 CLR 353 at 380. The respondents’ submission is that it is against the public interest to enforce a restraint in favour of an employer in the financial product advice business when the employer has made the employee’s continued employment untenable by numerous and serious contraventions of the financial service law. The respondents did not provide any authority for a consideration of public interest in a restraint covenant in that way. I am not satisfied that the particular alleged conduct of the applicant, as pleaded, properly weighs in the public interest in the way contended for by the respondent.

42    As set out above, scandalous is relevantly defined in the context of r 16.21(a) to mean any unnecessary allegation “bearing cruelly upon the moral character of an individual” and “extraneous to the issues raised in the proceeding”. The matters at [26] – [53] are raised for the first time 10 months after the proceeding was commenced. They plead what they describe as “serious” and “numerous” contraventions without sufficient detail as to the conduct constituting those alleged contraventions. The respondents allege contraventions of civil penalty provisions of the Corporations Act by particular people and by the applicant. They do not, for the reasons set out above, add to the existing defence or establish a discrete defence. I am satisfied that in the circumstances of this case they are scandalous. Further, insofar as “vexatious” material includes scandalous material (see [24(3)] above), it is also vexatious.

43    I am also satisfied that the impugned paragraphs would cause delay. The allegations as they are span the period from early 2020 to, seemingly, at least late 2023. They involve a number of people and allege “numerous” contraventions of the Corporations Act. There can be little doubt that they would significantly delay the resolution of the allegations raised by the ASOC.

44    I am also satisfied that they are inconsistent with ss 37M and 37N of the Federal Court of Australia Act 1979 (Cth). Those sections provide that the overarching purpose of the civil practice and procedure is to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible. For the reasons discussed above, the allegations would cause delay, and cause increased expense and inefficiency.

45    For all of those reasons, separately and cumulatively, the allegations at [26] – [53] of the Defence should be struck out. As a consequence of those paragraphs of the Defence being struck out, it is also appropriate for Defence [4(c)], [4(d)] and [5(b)] to be struck out as they have no work to do without [26] – [53] of the Defence.

46    Where pleadings are struck out, a decision to provide a right to replead will depend on the circumstances of the case: see Fair Work Ombudsman v Eastern Colour Pty Ltd [2011] FCA 803; 209 IR 263 at [94]. In the present circumstances, the paragraphs are struck out not only because of the deficiencies in particulars or material facts. For the reasons explained above, I consider them scandalous, irrelevant to the issues in the case, and likely to cause increased expense, inefficiency and delay. I do not consider it appropriate to provide the respondents with a right to replead.

Respondents’ interlocutory application

47    The respondents’ complaints about the ASOC are divided as follows:

(a)    the adequacy of the pleadings about the reasonableness of the restraint covenants;

(b)    the failure to particularise the alleged confidential information;

(c)    the “causation” complaint, namely the adequacy of the claims for damages;

(d)    the “quantum” complaint, namely the alleged lack of justification for the quantum calculation;

(e)    the claim for summary judgment; and

(f)    the adequacy of the claim against Freestone for procuring or inducing breach.

Each topic is dealt with separately. Whilst there are some shortcomings in the ASOC, and concessions were made by the applicant to that effect, applying the principles set out above I do not consider that any of those shortcomings, separately or together, justify the strike out, dismissal or summary judgment orders sought by the respondent in its application.

Restraint covenants

48    The respondents’ application takes issue with the failure in the ASOC to plead that the restraints are reasonable. The respondents correctly identified that the legal position in respect of restraint covenants is that they are invalid and unenforceable unless they are no more than reasonably necessary to protect the legitimate interests of the covenantee and are not injurious to the public: see Buckley v Tutty (1971) 125 CLR 353 at 376. The respondents also correctly identified that the onus of providing the facts and circumstances to enable the court to conclude that particular restraint covenants are reasonable lies with the covenantee, being the applicant in this case: see Mason v Provident Clothing & Supply Co (1913) AC 724, at 733, 741.

49    The applicant pleaded at paragraph [4(b)] of the ASOC that the applicant and the first respondent “agreed that the [restraint covenants] were reasonable and necessary to protect the business interests of the [applicant] given the nature of the business”. This pleading is particularised by reference to clause 22 of the first respondent’s employment contract, which contains a clause to the effect that the first respondent agrees that the restraint covenants are reasonable and necessary.

50    The respondents contended that it is insufficient that the applicant merely plead that the applicant and first respondent agreed that the restraint covenants were reasonable and necessary. The bare fact that the first respondents’ signed employment contract contains a clause to this effect does not make good the legal test of whether the covenants were reasonable and necessary. A pleading relating to the reasonableness of a restraint covenant should ordinarily plead the material facts on which the applicant relies to state that the covenants are reasonable, such as the covenantee’s role, their salary and seniority.

51    In oral reply, the applicant conceded that the pleadings relating to the reasonableness of the restraint covenants were inadequate and sought the Court’s leave to re-plead these matters. I grant the applicant leave to re-plead to address the reasonableness of the restraint covenants.

Confidential information

52    The respondents’ application took issue with the repeated, unparticularised and undefined references to “confidential information” and “clients” referred to in the ASOC. In particular, the respondents drew the Court’s attention to ASOC paragraphs [6(b)], [6](d)], [19(a)], [22], [23], [27(b)], [29] and [30] and the particulars under [19(c)]. These pleadings and/or particulars refer to “clients” that the first respondent is alleged to have contacted or otherwise solicited or “confidential information” that the first respondent is alleged to have transferred to his personal device and used to the detriment of the applicant. The respondents contend that without further particularisation and/or identification of this information, they will be unable to understand or meet the case against them.

53    In oral submission, the respondents drew the Court’s attention to the following paragraphs of O’Callaghan J’s decision in Fortrend Securities Pty Ltd v Wollermann (No 2) [2025] FCA 96 at [71] – [72]:

Further, it is not at all apparent to me what precise information and statements are being alluded to – and it is not for the court to trawl though exhibits to find what might be meant. In that regard, the cases repeatedly remind plaintiffs in cases such as this that confidential information must be identified with precision. See Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 289 at 360 (Laddie J); Reinforced Plastics Applications (Swansea) Ltd v Swansea Plastics & Engineering Co Ltd [1979] FSR 182 at 182 (Whitford J); and Pioneer Concrete Services Ltd v Galli [1985] VR 675 at 711 (Crockett, Murphy and Ormiston JJ) (“What is important … is that the Court should be able both to define the precise nature of the confidential information which it is sought to protect and to identify with some particularity the disclosure or use which is alleged against the defendants”).

The reasons for that insistence include avoiding the bringing of actions that are merely speculative in character and preventing a former employer from using a generally worded claim to stifle the right of an employee to use his or her accumulated knowledge, skill and experience (or know-how) from which he or she cannot be divorced. …

54    While there was disagreement between the applicant and respondents as to the extent to which the facts in Fortrend were analogous to the present case, both parties agreed that it is important that confidential information be identified with precision in the way identified by O’Callaghan J.

55    The respondents stated in oral submission that the parties had corresponded a number of times in the preceding months as to the identification of the “clients” and “confidential information” in the impugned paragraphs. Notably, the applicant tendered a letter dated 20 December 2024 which was sent from the respondents’ representatives to the applicant’s representatives. The letter relevantly requested that particulars be provided in respect of paragraphs [6], [19] and [22] of the ASOC. The particulars sought in this letter were, relevantly, requests to identify:

(a)    the clients being referred to in the paragraphs [6(b)], [19(a)] and [22].

(b)    the employees of the applicant that are said to have been solicited by the first respondent at paragraph [6(c)] of the ASOC, how and when those employees were attempted to be solicited.

(c)    the confidential information being referred to in paragraphs [6(d)].

(d)    the confidential information referred to in paragraphs [19(b)] and [19(c)], when and how that information was used by the first respondent, and any detriment that the first respondent intended to cause the applicant.

56    The applicant tendered a further letter sent by the applicant’s representatives to the respondents’ representatives dated 13 February 2025. This correspondence:

(a)    stated that the particulars requested in respect of paragraphs [6(b)], [19(a)], [22] will be provided subject to receipt of a Hearne v Street [2008] HCA 36; 235 CLR 125 confidentiality undertaking on the part of the respondents.

(b)    provided some of the particulars requested with respect to [6(c)] of the ASOC.

(c)    stated that the particulars requested with respect to paragraph [6(d)] will not be provided as the relevant confidential information is specified with the necessary detail at paragraph [10] and [11] of the ASOC; and, relatedly, stated that the particulars requested in respect of [19(b)] and [19(c)] of the ASOC will not be provided in so far as they are already defined by way of paragraph [6(d)], [10] and [11] of the ASOC that work to form a cumulative definition of the phrase “confidential information” as it applies in [19(b)] and [19(c)] (hereby referred to as the pleadings that rely on a cumulative definition).

57    At the hearing, counsel for the applicant accepted that the pleadings that rely on a cumulative definition could be more clearly defined. However, they maintained that there is no material deficiency in those pleadings as they stand. I agree with the counsel for the applicant that there is room for improvement in these pleadings such that the confidential information referred to at each of [6(d)], [10], [11], [19(b)] and [19(c)] of the ASOC should be clearly defined. I grant the applicant leave to amend [6(d)], [10], [11], [19(b)] and [19(c)] of the ASOC.

58    I also grant the applicant leave to incorporate the particulars relating to [6(c)] that are drafted in the applicant’s 13 February 2025 letter to the respondents, into particulars below [6(c)] into the ASOC. Though not explicitly complained of by the respondents, for completeness, I also grant the applicant leave to particularise ASOC [6(a)] and [6(e)].

59    Additionally, both parties accepted in the course of the hearing that the applicant will provide the respondents the particulars to paragraphs [6(b)], [19(a)], [19(c)] and [22] subject to a Hearne v Street undertaking. I expect those particulars to be provided as soon as practicable.

Causation

60    The respondents’ application further complains about the lack of particularisation with respect to what it calls “causation”, being the causal nexus between the matters pleaded and the loss allegedly suffered by the applicant. As stated at paragraph [12] of this decision, the causes of action pleaded by the applicant against the first respondent are:

(a)    misuse of confidential information (by way of breach of contract, an equitable obligation and s 183 of the Corporations Act); and

(b)    breach of restraint covenants including non-solicitation and non-compete covenants.

61    These pleaded breaches result from what the respondents describe as “six separate wrongs” allegedly committed by the first respondent, as follows:

(a)    breaches of contract and fiduciary duties during employment, pleaded at ASOC [6] and [9];

(b)    soliciting clients during and after employment, pleaded at ASOC [19(a)] and [21];

(c)    misuse of confidential information during and after employment, pleaded at ASOC [19(b)], [19(c)], [21];

(d)    accepting employment with Freestone, pleaded at ASOC [19(c)], [21];

(e)    providing services to unspecified clients of the applicant, pleaded at ASOC [22]; and

(f)    improper use of confidential information, pleaded at ASOC [10], [11], [19] and [23A].

62    The respondents submitted that ASOC [30] does not properly plead how that loss and damage is referable to each allegation of breach. ASOC [30] states that “as a result of the breaches [by the first respondent] pleaded above, [the applicant] has suffered loss and damage”.

63    Although not explicitly addressed by the respondents in their written or oral submissions, I assume that this complaint applies equally to ASOC [29], which pleads that, “as a result of the breaches by Freestone pleaded above, [the applicant] has suffered loss and damage”. In the respondents’ application, they sought that ASOC [29] be struck out.

64    In addition, the respondents submitted that the applicant’s claim is really for the loss of a commercial opportunity to earn revenue from the clients who would have patronised the applicant. Accordingly, the respondents say that it is necessary for the applicant to plead:

(a)    the loss it has suffered is a loss of a valuable commercial opportunity, identifying that opportunity with some particularity (such as, for example, that particular clients would have retained the applicant for services);

(b)    what the applicant would have done (such as, for example, that it would have rendered the advice and charged and received fees);

(c)    the percentage or proportion of the opportunity that was lost; and

(d)    where the applicant alleges a loss of 100% possibility or the certainty they would have obtained of the expected benefit, identify with some particularity the facts by which that certain outcome would have been achieved.

65    At oral hearing, counsel for the applicant conceded that the pleadings relating to loss of a commercial opportunity need to be better pleaded. I grant the applicant leave to amend ASOC [29] and [30] so that the matters raised at [64] of this decision are addressed in the pleadings.

Quantum

66    The respondents’ application also took issue with the calculation of quantum identified in the particulars below ASOC [30] (which I also take to be a criticism of the particulars below ASOC [29] given that they contain identical language). The particulars provide that:

[The applicant] estimates the capital value of the loss as at the date of the statement of claim and based on market-based earnings of revenue loss is $449,121. The revenue referable to clients who have left [the applicant] and reasonably believed [to have transferred to the first or second respondent] is $149,707 including GST.

Further particulars will be provided after discovery and before trial.

67    The respondents submitted that no facts are alleged to justify the multiplication of the allegedly lost gross revenue (which includes GST) by a factor of three. Further, no principle of assessment of loss by a trading company exists whereby allegedly lost gross revenue is increased by a multiple.

68    In the applicant’s written reply, it submits that any perceived deficiencies can be addressed through further necessary particulars. This sentiment is reflected at the particulars below ASOC [29] and [30], which explicitly provide that “[f]urther particulars will be provided after discovery and before trial”. At oral hearing, the applicant made a different submission as to paragraph [30], stating that the respondents’ complaint as to loss was not a matter for better particularisation, but was instead a matter for evidence.

69    I find that, at this stage of the proceeding and in circumstances where discovery has not yet occurred, the particulars below ASOC [29] and [30] as to the calculation of quantum are sufficient. It may be that further particulars are necessary and should be provided after discovery as the ASOC currently contemplates. I do not find that the respondents’ complaint justifies the striking out of any paragraphs. If it is necessary for further particulars to be ordered, that will be dealt with at a later stage.

Summary judgment

70    The respondents further sought summary dismissal of the claims by the applicant for damages for breach of contract and damages for procuring or inducing a breach of contract by the second respondent. The respondents contended that the applicant has no prospect of successfully prosecuting that part of the proceeding pursuant to r 26.01(1)(a) and is frivolous pursuant to r 26.01(1)(b). The basis for the respondents’ complaint is that the applicant to this proceeding is a holding company which allegedly never invoiced clients. A different company within the group (Viridian Private Wealth Pty Ltd) is alleged to have invoiced clients and received revenue. As such, to the extent that there has been a lost opportunity to earn revenue from clients wrongly solicited, the opportunity is said to be that of Viridian Private Wealth Pty Ltd rather than the applicant. The respondents say that it follows that the applicant has no reasonable prospects of prosecuting its claim for damages for lost revenue and that the claim for damages for breach of contract ought to be summarily dismissed.

71    The respondents’ complaint is largely answered by the terms of the employment contract. The restraint covenants in the employment contract prohibit contacting or approaching “any Client” that the first respondent had business dealings with in the previous 12-month period prior to termination of employment. The employment contract defines “Clients” as those proposed to become a client, customer, supplier or agent of the Group. “Group” is defined as the applicant’s “related companies”. Clearly, the restraint covenants protect clients of the group. The head of the group, being the applicant, may suffer loss as a consequence. The respondents’ complaint does not support summary judgment. An order for summary judgment is refused.

Freestone

72    Next, the respondents complain that the pleadings relating to Freestone inducing the first respondent’s breach of contract are “manifestly defective”. These pleadings are at ASOC [24] – [28], and the consequences of Freestone’s breaches are at [29].

73    The respondents state that these pleadings are defective because:

(a)    the applicant fails to plead that Freestone knew that if the first respondent took employment with Freestone, or solicited or attempted to solicit clients of the applicant, that those particular acts would be a breach of contract; and

(b)    the applicant fails to plead that Freestone intended to induce or procure the first respondent to breach the contract by doing or failing to do a particular act.

74    The respondents cite Daebo Shipping Co Ltd v Ship Go Star [2012] FCAFC 156; 207 FCR 220 at [88] to support their proposition that these permutations of Freestone’s knowledge and intent are essential elements of the tort of inducing breach of contract.

75    The respondents also say that Freestone cannot be held liable for inducing a breach by its own director because:

(a)    the knowledge a director is only imputed to a company if the director has a duty to communicate such knowledge, and knowledge which is confidential to a third party (as is presently the case) is not imputed to the company. In support of this proposition, the respondents cite NRMA v Geeson [2001] NSWCA 343; 40 ASCR 1 at [16]; approving Harkness v Commonwealth Bank of Australia Ltd (1993) 32 NSWLR 543 at 552 (Young J).

(b)    an inducer and inducee cannot be the same person. In support of this proposition, the respondents cite O’Brien v Dawson (1942) 66 CLR 18; Said v Butt [1920] 3 KB 497, 504. While the respondents say that these cases stand for the authority that directors are not liable for producing or inducing their company to breach a contract, the respondents also say that, by “parity of reasoning”, a company’s alter ego cannot be said to induce or procure himself to do anything.

76    The respondents say that the deficiencies in, and untenability of, these pleadings justify striking out and summarily dismissing the claim against Freestone for inducing breach of contract contained within ASOC [24] – [28] and paragraph D of the Amended Originating Application.

77    By way of written reply, the applicant submitted that it has adequately pleaded the elements of the tort of inducing breach of contract, and the cause of action is plain on the face of the pleadings. Additionally, the applicant stated that the respondents’ contention that Freestone cannot be liable for inducing a breach by its own director is flawed, as the courts have recognised that a company can be held liable for the conduct of its directors where it acts as the directing mind behind the breach.

78    In oral submissions, the applicant conceded that, at ASOC [27(c)], it could provide particulars as to how Freestone intentionally and unlawfully induced the first respondent to breach the contract by encouraging or permitting the first respondent to use the applicant’s confidential information. I accept the applicant’s concession, and grant the applicant leave to amend ASOC [27(c)].

79    Otherwise, I find that the elements of the tort of inducing breach of contract are sufficiently pleaded, and that the question of whether Freestone can be held liable for inducing a breach by its own director in the circumstances pleaded is a matter to be resolved at final hearing.

Other matters

80    The respondents’ application also sought that ASOC [17] be struck out. ASOC [17] provides that “Insight is a direct competitor of [the applicant]”. This paragraph is understood in light of ASOC [16], which, in effect, states that the first respondent was licensed by Insight to provide financial services in February 2024. Insight is not a respondent to this proceeding.

81    The applicant stated that the relevance of ASOC [17] is that Insight is a direct competitor of the applicant in Australia. The applicant sought leave at the hearing to amend the pleading to this effect. I grant them that leave.

82    Separately, I note that ASOC [5] contains a typographical error as to the year that the first respondent’s employment ended with the applicant. This matter was raised at oral hearing. I grant the applicant leave to amend ASOC [5] to correct that error.

DISPOSITION

83    As to the Defence, for the reasons and in the circumstances set out above, I consider it appropriate and in the interests of justice that the allegations at [26] – [53] of the Defence are struck out. As a consequence, it is also appropriate for [4(c)], [4(d)] and [5(b)] of the Defence to be struck out as these sub-paragraphs have no work to do without [26] – [53] of the Defence.

84    As to the ASOC, in the circumstances set out above, including the concessions made by the applicant, it is appropriate to grant leave for the applicant to:

(a)    replead the reasonableness of the restraint covenants.

(b)    amend [6(d)], [10], [11], [19(b)] and [19(c)] of the ASOC to clearly define the confidential information that is being referenced in each of those pleadings.

(c)    incorporate the particulars relating to [6(c)] that are drafted in the applicant’s 13 February 2025 letter to the respondents into particulars below [6(c)] into the ASOC.

(d)    provide particulars to ASOC [6(a)] and [6(e)].

(e)    amend ASOC [29] and [30] to address the matters that are required to be pleaded in circumstances where one party alleges loss of a commercial opportunity.

(f)    provide particulars under ASOC [27(c)] to identify how Freestone encouraged or permitted the first respondent to use the applicant’s confidential information.

(g)    amend [17] of the ASOC to identify that Insight is a direct competitor of the applicant “in Australia”.

(h)    amend ASOC [5] to correct the typographical error.

Costs

85    All parties have had a degree of success in this proceeding. I granted the first order sought by the applicant to strike out paragraphs [26] – [53] of the Defence. I also granted much of the fourth order sought by the respondents in their application seeking the applicant provide further and better particulars. Both parties sought that costs be awarded. In all of the circumstances, I consider it appropriate to reserve costs.

Associate:

Dated:    8 April 2025