BlackRock Asset Management Australia Services Limited v Waked

REASONS FOR JUDGMENT 1 The respondents apply for orders which would separate the issue of quantum from that of liability pursuant to Order 29 rule 2 of the Federal Court Rules, and for the expedition of the liability part of the trial. On the application, an affidavit of Mr Morry Waked, the first respondent, was read and he was cross-examined by leave in relation to one matter. In addition, a number of documents were tendered. I make the following findings. The proceedings were commenced on 31 January 2011. The applicants are members of a group of companies involved in asset management, which group is the largest asset manager in the world. I shall the group as a whole BlackRock. 2 The individual respondents are all former senior employees of the BlackRock Group. They are now employees of the corporate respondent, VinvA Services Pty Limited (VinvA). It appears that Messrs Waked and Burt are directors of VinvA, but Mr Jackson is not. In any event, Messrs Waked and Burt commenced working for VinvA on 1 July 2010 and Mr Jackson on about 20 September 2010. The evidence suggests that VinvA is a small firm which started practical operations at about the same time. It has a staff of 10 and one office in Sydney. Its business is also that of asset management. It commenced managing external funds at the end of January this year. 3 It would appear that commencement may have been what provoked BlackRock into instituting the present proceedings. By its statement of claim it makes a number of allegations against Messrs Waked and Burt, VinvA and also against Mr Jackson. The claims against Messrs Waked and Burt are different to those which are made against Mr Jackson. Each of the individual respondents had been senior employees working in a division of the BlackRock Group travelling under the title of the "Scientifically-driven Active Equity Business". The evidence did not disclose from which of the sciences this business derived, but I take from it that it was an important aspect of the business conducted. 4 BlackRock alleges that the contracts of employment it had with Messrs Waked and Burt contained non-solicitation clauses which, so it alleges, operate to prevent them poaching BlackRock's clients or staff at any time prior to a date 12 months after the termination of their employment with BlackRock. For Mr Waked, that date is 26 March 2011 and for Mr Burt it is 8 January 2011. BlackRock says that Messrs Waked and Burt breached these clauses by poaching staff and employees and it claims damages for breach of contract. For their part, Messrs Waked and Burt argue that their employment contracts did not contain the non-solicitation clauses alleged and that, in any event, the relevant contracts are governed by Californian law which, so they say, does not permit the valid operation of such clauses. 5 BlackRock also complains that Mr Waked breached statutory duties owed to it under s 183(1) of the Corporations Act 2001 (Cth), together with certain fiduciary duties which, compendiously, required him not to act so as to harm it or to gain an advantage for himself from his position. It says Mr Waked breached these obligations by setting up VinvA while still working for BlackRock. VinvA itself is said to be liable to the applicants for interfering with the contractual relations between it, Mr Waked and Mr Burt. As against Mr Waked, BlackRock seeks damages for the cost of additional employee recruitment, loss of business, loss of opportunities in relation to clients who might be interested in the Scientifically-driven Active Equities Business, an indemnity for loss and damage and/or an account of profits. As against Mr Burt and VinvA, damages are sought largely on the same basis but without a claim for an account of profits. 6 The claim against Mr Jackson is different. In his case it was said that his contract, speaking generally, required him to be loyal and that accordingly, when he negotiated his new role at BlackRock as Head of Investments in the Scientifically-driven Active Equities Business, it was misleading of him not to tell BlackRock that he was, putting it loosely, contemplating leaving to work at VinvA. It seeks damages for lost opportunities, sums paid to Mr Jackson and/or an account of profits. 7 On the application, BlackRock submitted that there should be no hiving off of the question of quantum from liability. The ultimate issue for the Court in such a situation is to determine whether or not the making of an order under O 29 r 2 is, in the circumstances, just and convenient: Arnold v Attorney-General (Vic) [1995] FCA 727; Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 55 [168] per Kirby and Callinan JJ; Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317 at 362 [142] per Hayne and Callinan JJ. 8 The first to third respondents submit that the separation should occur for a number of reasons: first, that the separate determination of the questions would be likely to contribute to the saving of time and cost by substantially narrowing the issues for trial; secondly, that a split hearing would enable the applicants to elect whether to seek equitable compensation or an account of profits; thirdly, that the difficulty in leading evidence as to quantum by virtue of the myriad of remedies sought, the number of parties in the proceedings and the lack of particularisation of loss in the statement of claim justify the separate hearing of questions of liability and quantum; and, fourthly, that there is unlikely to be any significant degree of overlapping evidence on questions of liability and quantum. 9 BlackRock, for its part, does not accept those submissions. It points particularly to a well known passage in Tepko Pty Ltd v Water Board in which Kirby and Callinan JJ said (at [168]): The appeal should be allowed. However, we should not leave this case without making four comments. Both Mason P (Tepko Pty Ltd [1999] Aust Torts Reports ¶81-525 at 66,317 [5]) and Fitzgerald JA (Tepko Pty Ltd [1999] Aust Torts Reports ¶81-525 at 66,325 [37]) were critical of the course of limiting the issues to be tried that the primary judge adopted. In Perre v Apand Pty Ltd ((1999) 198 CLR 180) attention was drawn to difficulties that can be caused when that course is adopted. In light of the experience in this case, what was there said should be restated with emphasis. The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap. 10 BlackRock particularly notes the possibility of witnesses being called more than once, the possibility of inconsistent factual findings and the possibility that if adverse findings as to credit are made, this may raise issues of judicial disqualification from the second hearing. It also submits that on the application the respondents bear the onus of proof and that that onus has not been discharged. 11 If the question of separation were to be viewed entirely in isolation then, in my opinion, there would be considerable substance to the submissions which were put on BlackRock's behalf by Mr Moses SC. In this kind of case, the risks which would attend the hiving off of quantum from liability, although not great, are not insignificant and if this were an ordinary case travelling in the docket in the usual way, it would be not a risk that I would countenance putting the parties to. However, the evidence of Mr Waked in this case suggests, and I accept for the purposes of this application, that the existence of these proceedings is itself an independent factor. It is an independent factor because that evidence suggests that the litigation itself is stifling the business of VinvA. 12 Mr Waked gave evidence that VinvA retained its first client on Friday 28 January 2011, and at that time received an investment in the vicinity of $75 million. Following that investment, Mr Waked and other persons employed by VinvA had been in contact with a number of consultants and other industry contacts to discuss the status of the present proceedings. A number of conversations have ensued as a result of that. I will not set out the nature of all of those conversations. It suffices for present purposes simply to refer to one in which Mr Waked was involved. He gave evidence that during a conversation with an unnamed client, the following was said: As part of being a fiduciary we want to inform you that BlackRock has commenced proceedings against me, Nick Burt, Andrew Jackson and Vinva Services. BlackRock alleges, amongst other things, that we solicited clients and employees. We deny the allegations. 13 Mr Waked gave evidence that the client involved indicated, subsequent to that discussion, that until things on a litigation front had, to put it colloquially, calmed down, they were not proposing to place any business with VinvA. Evidence along similar lines was also given in relation to a number of other clients. 14 Cross-examination by Mr Moses SC showed that on at least two occasions potential clients were also shown an advice from VinvA's lawyers which confirmed that the suit posed no threat to any investments which might be placed with VinvA. I accept that this showed that Mr Waked's account of what occurred was not a complete account but I do not think that it was material which ought to have been included in his affidavit. I do not regard, therefore, its omission from the affidavit as something which counts against Mr Waked's credit. 15 Indeed, I am inclined to accept Mr Jackman SC's submission that the evidence elicited under cross-examination further demonstrated the reality of VinvA's problem, that is, even after clients were assured that there was no exposure for them in terms of risk to their assets, nevertheless they continued to be unwilling to trade with VinvA. 16 I accept that if the issues of liability and quantum are split there may be an overlap of witnesses and that that is undesirable. Indeed, I accept that the separation of the issues may give rise to a number of problems which are familiar. However, I do not think that those problems are an inevitable consequence of splitting the issues, nor even especially likely. The situation, therefore, is one of imperfection. One is required to weigh, on the one hand, the risk that the problems which are well known to follow from trials on split issues may occur against, on the other hand, the risk of prejudice to the respondents if the trial is not heard within a fairly short period of time. In that regard, I should record that I do not think that it would be feasible to expedite the entire subject matter of this trial to bring it for rapid hearing. 17 Mr Moses SC submitted that there was no evidence that if the trial was not expedited the corporate respondent, VinvA, would become insolvent, would suffer a major financial difficulty, nor, so he submitted, was there any evidence that the personal respondents would not be able to put food on their tables if the case did not proceed in an expedited manner. I accept that, of course. However, in terms of obtaining an order for expedition, I do not think that the respondents are required to go so far as to prove utter penury or total ruin before they are entitled to obtain such an order. 18 Plainly, these proceedings are affecting the respondents' business activities in a way which is not trivial. In doing the best that one can in what is clearly a far from ideal situation, it seems to me that the interests of justice favour expedition over yielding to the potential difficulties which may arise from the separation of the issues. For that reason, in my opinion, the matter should be expedited and there should be a separation of the issue of liability from quantum. I will simply stand the matter over for directions to facilitate the making of appropriate orders. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.