Practice and procedure - Application to strike out - Whether reasonable defence disclosed - Defendant's plea that repudiation by employer relieves the employee of restraint of trade obligations - Defendant's plea held to be arguable - Application to strike out dismissed

DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423

General Billposting Company Ltd v Atkinson [1909] AC 118

Heyman v Darwins Ltd [1942] AC 356

Kaufman v McGillicuddy [1914] HCA 63; (1914) 19 CLR 1

McKenna Freight Lines Pty Ltd v Toll Holdings Ltd [2005] WASC 57

Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827

Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17

Rock Refrigeration Ltd v Jones & Seawood Refrigeration [1996] EWCA Civ 694; [1996] IRLR 675

Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620

Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR(NSW) 632

Briggs v Oates [1991] 1 All ER 407

General Billposting & Measures Brothers Ltd v Measures [1910] 2 Ch 248

Independent Corporate Services Ltd v Stevens [2002] WASC 280

Lindner v Murdock's Garage [1950] HCA 48; (1950) 83 CLR 628

Living Design (Home Improvements) Ltd v Davidson [1994] IRLR 69

Meyers v Casey [1913] HCA 50; (1913) 17 CLR 90

PR Consultants Scotland v Mann [1996] IRLR 188

Satellite Terrestrial Distributors Pty Ltd v Jonsa Ellies (Aust) Pty Ltd & Ors [2005] WASC 3

Shanahan v Fitzgerald [1982] 2 NSWLR 513

St Frances Xavier Cabrini Hospital Governing Board Inc v Micallef & Anor [1999] VSC 292

1 The plaintiff in these proceedings is an accountancy business that employed the defendant to assist in the provision of financial advice and other related services to clients of the firm. The plaintiff alleges in its statement of claim that pursuant to an employment agreement dated 22 January 2003 it was agreed that the defendant would not, during the period of employment or within 2 years after ceasing employment, contract or enter into arrangements with the plaintiff's current, former or prospective clients or provide accountancy or related services to such clients. The defendant has ceased employment with the plaintiff and certain questions have arisen concerning the plaintiff's capacity to enforce the former contract of employment.

2 I have before me a chamber summons dated 24 March 2005 whereby the plaintiff seeks to obtain an interim injunction restraining the defendant from contacting or soliciting persons or entities who were the plaintiff's clients as at 4 June 2004, being the date on which the defendant is said to have ceased employment with the plaintiff. An order is sought also that pars 10 to 16 of the statement of defence filed and served by the defendant on 15 October 2004 be struck out on the grounds that the passages in question disclose no reasonable defence, or are scandalous, or are otherwise an abuse of process. It will be useful to begin by looking briefly at the procedural history of the matter.

3 On 2 July 2004, shortly after the employment ceased, the plaintiff commenced proceedings against the defendant by way of an originating summons. It seems that the plaintiff proceeded in that manner in the belief that the matter in issue between the parties was confined to a point of law that turned upon the proper interpretation of the employment agreement. However, it soon became apparent that issues of fact would have to be determined. This led to a statement of claim dated 24 September 2004 being filed on behalf of the plaintiff and a statement of defence dated 15 October 2004 being filed by the defendant. In due course, as I have indicated, the plaintiff applied for interim relief by way of an injunction. Various affidavits have been filed and served by the parties. However, there is no need for me to traverse the contents of those affidavits in full. It will be sufficient for present purposes to rely principally upon the pleadings filed on behalf of the parties.

4 I note in passing that the affidavits filed on behalf of the plaintiff were sworn by Carol Cavill who is a director and secretary of the plaintiff company.

5 The plaintiff pleads in its statement of claim that in late January 2002 the plaintiff employed the defendant to provide accountancy related services to its clients pursuant to the employment agreement mentioned earlier. On 4 June 2004 the defendant ceased employment with the plaintiff. Soon afterwards, the defendant commenced employment with PM Financial Services Pty Ltd and/or McKinley Plowman & Associates and its/their associated entities who operated from premises at 109 Grand Boulevard, Joondalup and provided services and advice in competition with the plaintiffs. For ease of reference, I will refer to the entity or entities that employed the defendant after 4 June 2004 as the "rival firm".

6 The plaintiff alleges in pars 4 and 5 of the claim that under and by virtue of the employment agreement, the defendant would not, during the period of employment or within 2 years after ceasing employment with the plaintiff, contract or enter into arrangements with the plaintiff's current, former or prospective clients. It was allegedly an implied term of the employment agreement that the defendant would not make improper use of information regarding the plaintiff's business or entice the plaintiff's clients away to the rival firm.

7 It is said in pars 6 to 8 of the claim that the defendant acted in breach of the employment agreement in a manner that caused loss and damage to the plaintiff. The plaintiff claims relief by way of a restraining order and damages.

8 By his statement of defence the defendant admits that the plaintiff carries on an accounting business and provides financial and other related services. He admits also that he was employed by the plaintiff as alleged and that he commenced employment with the rival firm as alleged. However, the defendant denies that he is liable to the plaintiff as alleged or at all. He refers also to certain other matters which are said to bear upon the validity of the plaintiff's claim.

9 For present purposes, there is no need for me to look at certain of the matters raised in the statement of defence. However, I note that by par 8 of the statement of defence it is pleaded that the terms of the employment agreement are unreasonable and unenforceable in that the restraints are said to be over broad and injurious to the public interest.

10 Paragraphs 10 to 16 of the statement of defence are pleaded in these terms:

"10. It was a term of the employment agreement that the plaintiff's business would be conducted in accordance with good accounting practice and requirements.

11. The term referred to in paragraph 10 is to be implied:

(a) as a matter of law;

(b) because it is reasonable, obvious and necessary to give business efficacy to the employment agreement.

12. In breach of the term of the employment agreement referred to in paragraph 10 the plaintiff during the period it employed the defendant paid certain monies being client refunds from the Australian Taxation Office into a private bank account in the name of 'Carol Cavill Accountant' and failed to pay such monies into a trust account in the name of the plaintiff.

13. The plaintiff continued so to treat the banking of such monies notwithstanding objection thereto by the defendant.

14. The plaintiff by reason of the facts referred to in paragraphs 10, 11, 12 and 13 repudiated the employment agreement.

15. The defendant accepted the plaintiff's said repudiation and terminated the employment agreement with effect from 4 June 2004.

16. By reason of the facts referred to in paragraphs 10, 11, 12, 13 and 14 the plaintiff is precluded from relying on the terms of the employment agreement pleaded in paragraphs 4 and 5 of the statement of claim."

11 The plaintiff's application for an interim injunction and for orders striking out pars 10 to 16 of the statement of defence came on for hearing in chambers before me on 8 June 2005. Shortly after the hearing commenced it became apparent that the defendant was willing to provide undertakings in a form that removed the need for restraining orders. As to that aspect of the matter, orders were made in these terms:

"1. Subject to paragraph 2 of the undertaking, until 4 June 2006 or until further order, the defendant undertakes not to solicit work from persons or entities referred to in exhibit CC1 of the affidavit of Carol Cavill sworn 26 May 2005.

2. The undertaking in paragraph 1 will not apply to any person or entity who:

a) is currently a client of the defendant or of McKinley Plowman and Associates, Malaga, or

b) who initiates contact with McKinley Plowman and Associates, Malaga with a view to becoming a client.

3. The plaintiff's application for an injunction is to be adjourned sine die.

4. The costs of the application are reserved."

12 It followed from this that a ruling was only required in respect of the defendant's application to strike out pars 10 to 16 of the statement of defence.

13 It will be readily appreciated that the affidavits filed on behalf of the respective parties were directed principally to facts and matters bearing upon the application for an interim injunction. Accordingly, as that application was not proceeded with, there is no need for me to refer to the contents of the affidavits in detail.

14 The contents of the affidavits might also be thought to have a bearing upon the reasonableness of the restraint of trade clause. However, as the efficacy of that clause has not been brought into issue by the application before me, I need not dwell upon the evidentiary materials in that regard. It is sufficient to note, having regard to the legal principles mentioned below, that there appears to be an arguable case on both sides concerning the validity and enforceability of the clause in question. It was certainly not put to me at the hearing that, in seeking to resolve the striking out issue concerning pars 10 to 16 of the statement of defence, I should find that the employment agreement was contrary to public policy and unenforceable. The defendant sought to justify the stance reflected in pars 10 to 16 of the statement of defence upon entirely different grounds.

15 Nonetheless, certain passages of the affidavits had a bearing upon the disputed passages of the statement of defence; that is, pars 10 to 16.

16 In his affidavit sworn 26 April 2005 the defendant said at par 11 that he became concerned at the manner in which Carol Cavill was conducting the subject business. He referred to an alleged failure to submit BAS statements to the ATO on time. He said also that she directed the ATO to pay refunds into a banking account in the name of "Carol Cavill Accountant" and not into an account in the name of the plaintiff. He alleged that she used that account for direct debits for personal expenses and the mortgage on her private residence and some of the plaintiff's business expenses. He alleged that at times clients could not be paid their refunds and in such cases he was told by Carol Cavill to tell the clients that the refunds had not yet been received from the ATO.

17 The defendant alleged at par 12 that he voiced his concerns to Carol Cavill in or about April 2004 and this led to the opening of a separate bank account in the name of the plaintiff for the processing of tax refunds. However, for various reasons this did not alleviate his concerns with the result that he became stressed and by letter dated 4 June 2004 wrote a letter to the plaintiff. In that letter he outlined his belief that the plaintiff had repudiated his contract of employment and said that he was accepting that repudiation and terminating his employment with immediate effect.

18 The letter dated 4 June 2004 refers to various matters, including the matter just mentioned. Towards the end of the letter the defendant makes an assertion in these terms:

"As your conduct has destroyed the necessary trust and confidence which must exist between employer and employee, I have no alternative but to advise you that I consider you have repudiated my employment contract. I will not be returning to work and ask that you pay my outstanding entitlements including pro rata salary up to today and payment in lieu of annual leave by direct debit."

19 By her affidavit sworn 26 May 2005 Carol Cavill, on behalf of the plaintiff, addressed various matters bearing upon the applications before me. More particularly, she expressly denied that there had been any failure to submit or delay in submitting BAS statements to the ATO. She denied that a common account had been maintained into which she paid tax refunds and from which she paid her personal or the plaintiff's business expenses. She denied there were occasions when she had utilized tax refunds to pay her personal or the plaintiff's business expenses and/or failed to promptly or duly pay client's their tax refunds. She denied telling the defendant to tell the clients that the refunds had not yet been received from the ATO when this was not the case. She denied that the defendant ever raised with her the issue of a separate bank account for tax refunds or that she told him that she would open a separate bank account.

20 Carol Cavill went on to say in her affidavit that at all times she maintained an account separate from her personal and business account into which only the tax refunds were credited. She admitted receiving a letter dated 4 June 2004 from the defendant. She did not respond to the letter as it was nearing the end of the financial year which was an extremely busy period for accountants. The defendant's sudden departure left her with a heavier workload than she had expected to carry at that time. Also, she was to a large extent relieved that he was leaving as she was quite dissatisfied with his work ethics and performance.

21 I must now turn to certain legal principles bearing upon the subject application.

22 Order 20 rule 19 of the Rules of the Supreme Court 1971 (WA) provides that the Court may at any stage of the proceedings order to be struck out any pleading on the ground that it discloses no reasonable defence or it is scandalous or it is otherwise an abuse of the process of the Court.

23 It emerges from Seaman, "Civil Procedure" at par 20.19.6 that the rule concerning striking out for disclosure of no reasonable defence is intended to apply only to cases which are really not arguable. On the application, not only must all the facts alleged in the statement of claim be accepted as true, but it must be taken for granted that on all other points the pleading is unassailable. Great care must be exercised to ensure that the plaintiff is not improperly deprived of his or her opportunity for the trial of his or her case by the appointed tribunal.

24 The learned author observes also that the rule should not be reserved for those cases where argument is unnecessary to show the futility of the plaintiff's claim. Argument, even extensive argument, may be necessary to demonstrate that the pleading is untenable and cannot succeed. A court at first instance should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause of action will lie. No evidence is admissible on this ground but the Court may refer to documents mentioned in the pleading.

25 The learned author observes at par 20.19.8 that the mere allegation of a scandalous fact does not render the pleading liable to be struck out as scandalous, for material which is degrading and therefore scandalous will not be struck out unless it is also irrelevant. Scandal consists in the allegation of anything which is unbecoming to the dignity of the Court to hear or is contrary to good manners or 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 purely upon the moral character of an individual is also scandalous.

26 As to abuse of process, the learned author observes at par 20.19.12 that the abuse need not be manifest from the pleadings and the application may be supported by affidavit evidence to show that there is such a complete legal bar to the action that it must fail. However, although a plaintiff may bring evidence to establish that a defence is a sham and therefore an abuse, he or she may not bring evidence that the allegations in it are generally untrue and the Court will not ascertain facts over which there may be a bona fide dispute. The jurisdiction to strike out proceedings as an abuse must be exercised with great circumspection, but although it is a grave step to exercise the jurisdiction, if the factual and legal basis for doing so is made out the Court has a duty to intervene.

27 At common law a contract or term of a contract which is in unreasonable restraint of trade is, prima facie, unenforceable as it offends against public policy. Whether a restraint is reasonable is a question of law, not of fact. "Reasonable" means reasonable both in relation to each party and in relation to the public interest. The onus is on the restraining party to prove that the restraint is reasonable as between the parties, but the party restrained has the onus of proving that the restraint injures the public interests.

28 A restraint is reasonable in relation to the restraining party if it is necessary for the adequate protection of that party and reasonable in relation to the party restrained if it preserves the fullest liberty of action consistent with that protection. In other words, a restraint must be no wider than is necessary to protect a recognised interest. Interests of that kind include the interest of an employer in exclusivity of service during the employment, in the protect of trade secrets, and in preventing solicitation by employees of the employer's clients or customers: Cheshire & Fifoot, "Law of Contract" (8th Aust ed) par 18.29 to 18.31.

29 It is against the background of these general rules that I must now turn to decided cases bearing upon the circumstances of the present case and the application to strike out before me.

30 It is apparent from the disputed passages of the statement of defence that, in essence, the defendant alleges that the plaintiff was in breach of an implied term of the employment agreement to conduct the business in accordance with good accounting practice and that by this breach the plaintiff repudiated the employment agreement. It is said that the defendant accepted the repudiation and terminated the agreement with the result that the plaintiff is precluded from relying upon the subject restraint provisions of the agreement.

31 A repudiation occurs when a party manifests unwillingness or inability to perform a contract at all or in some essential respect. The focus is on the conduct or attitude of the contract-breaker. A contract is repudiated when the party evinces an intention no longer to be bound by it, or to fulfil it only in a manner substantially inconsistent with his or her obligations, or if and when it suits. An actual intention to repudiate is not necessary: the issue is resolved objectively: Cheshire & Fifoot, "Law of Contract" (supra) at par 21.11.

32 Breach of an essential term may indicate that the party in breach is renouncing its obligations under the contract or is unable to perform it. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the contract, as the case may be, and that this ought to have been apparent to the promisor: Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR(NSW) 632 at 641; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 430.

33 Repeated failure to perform is not in itself enough to establish repudiation. Thus, consistently late payment of the rent by a lessee plainly endeavouring to meet his obligations was held not to be repudiatory in Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620. However, on the other hand, in Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17, the lessee was not merely late in paying rent, but asserted the right to withhold it, and committed other breaches of the lease; these factors added up to repudiation.

34 I pause here to observe (without purporting to decide the issue) that the manner in which an accountancy practice is conducted, prima facie, would appear to be a matter of importance to a professional employee. It seems to me that if the matters relied on by the defendant in his pleading are accepted as true he has prospects of establishing that there was an implied term to this effect and that the term can be characterised as an essential term. A breach of such a term by the employer, without any or any sufficient attempt being made to rectify the default, could arguably be characterised as a repudiation of the employment agreement.

35 In General Billposting Company Ltd v Atkinson [1909] AC 118 the House of Lords held that where an employer repudiates a contract of employment and that repudiation is accepted by the employee, the employee is thereupon released from all restraint trade covenants. Such covenants are not enforceable against the employee thereafter, even if expressed to be operative after determination of the contract of employment.

36 This principle was endorsed by the High Court in Kaufman v McGillicuddy [1914] HCA 63; (1914) 19 CLR 1. In that case a dentist contracted not to practice within a specified area for a specified number of years from the date of the termination of the agreement. Whilst the defendant was serving under the agreement one of the partners assaulted him without provocation whereupon the defendant gave notice to the firm, purporting to terminate the agreement forthwith, and left the service of the firm. The firm was reconstituted and then brought an action for an injunction to restrain the defendant from practising elsewhere.

37 The High Court held that the stipulation formed part of the contract, and that the defendant had ceased to be bound thereby, either because the contract was rescinded by the plaintiffs adopting or assenting to the defendant's determination of it, or because the plaintiffs had, by dissolving the partnership, rendered themselves unable to specifically perform their part of the contract, and that therefore the plaintiffs were not entitled to an injunction.

38 Barton J observed at 10 that in regard to a case of this kind the true question is whether the acts and conduct of the party evince an intention no longer to be bound by the contract. He said further at 11 that the case of General Billposting Company Ltd v Atkinson (supra) showed that the maintenance by injunction of such a restrictive clause as that in question was hopeless in face of a breach of the stipulations by the employer which was the employee's consideration for agreeing to the restriction, and which the contracting partnership could no longer perform on its part, since it had been dissolved.

39 More recently, such an approach was followed by Commissioner Siopis SC in McKenna Freight Lines Pty Ltd v Toll Holdings Ltd [2005] WASC 57. In that case McKenna and his company agreed to sell a transport business to the defendants but when payments due under the sale agreement dried up McKenna left the purchaser firm and set up another transport business. There were many issues in the case. However, at par 119 Commissioner Siopis found that after September 2001 the second defendant did not perform its obligation under the sale agreement. The learned Commissioner then made these observations:

"I find that as a consequence of these acts of the second defendant, the plaintiff was relieved of the obligation not to solicit customers of the business it had transferred to the second defendant. The obligation not to solicit customers for any competitive business to be started by the plaintiff or Mr McKenna was an obligation that depended upon the continuing willingness to perform, and the performance of, the corresponding obligation on the part of the second defendant to pay the plaintiff for the sale of the business. Once the second defendant repudiated the agreement and determined that it would no longer make any payments to the plaintiff for the business, the plaintiff was likewise released from any further obligation to abide by the terms of the sale agreement which were premised on the fact that the plaintiff would be paid for the business: General Billposting Company Ltd (supra), Kaufman (supra). Such a term would include the implied term not to solicit the customers of the business that had been transferred. The very reason the term is implied is that it is founded on the premise that the seller will not take both the money and the customers - but this rationale is destroyed if the buyer is not willing to, and refuses to, pay the money."

40 There are, of course, some problems with the rule in General Billposting Company Ltd v Atkinson (supra) in that the law in relation to the discharge of contractual obligations by acceptance of a repudiation has been developed and clarified since that case was decided.

41 In Heyman v Darwins Ltd [1942] AC 356 Lord Porter observed at 399 that, strictly speaking, it is incorrect to say that on the acceptance of a renunciation of a contract the contract is rescinded. In that case the House of Lords held that an arbitration clause remained binding after the acceptance of a repudiation upon the basis that the contract is not put out of existence by acceptance of a repudiation, though all further performance of the obligations undertaken by each party in favour of the other may cease. The contract survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.

42 The notion that a contract is abrogated upon acceptance of a repudiation, or a fundamental breach, was finally laid to rest by the decision of the House of Lords in Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2; [1980] AC 827 where Lord Diplock summarised the effect of accepting a repudiation at 849 in this way. He said that there is substituted by implication of law for the primary obligations of the party in default which remain unperformed a secondary obligation to pay monetary compensation to the other party for the loss sustained by him in consequence of their non-performance in the future. The unperformed obligations of the other party are discharged.

43 Difficult questions may arise in applying this line of reasoning to the negative obligations that are placed on an employee by a restrictive covenant in relation to the period after his employment has ceased. See discussion in Rock Refrigeration Ltd v Jones & Seawood Refrigeration [1996] EWCA Civ 694; [1996] IRLR 675. Nonetheless, even if it be held that a contract has been brought to an end by repudiation and acceptance, the reasoning of Lord Diplock leaves open the possibility that a negative stipulation can still be enforced on the grounds that it should be characterised as a secondary obligation; that is, like an arbitration clause it was intended to survive the termination of the contract.

44 It will be immediately obvious that in resisting the application to strike out on the ground that no reasonable defence was disclosed, the defendant gave weight to the reasoning in General Billposting Company Ltd v Atkinson (supra) and McKenna Freight Lines Pty Ltd v Toll Holdings Ltd (supra). Counsel for the defendant contended that upon the assumption that the facts and matters underlying the disputed passages of the statement of defence could be made out at the trial of the action, there was an arguable line of defence to the effect that prior to the cessation of the employment the plaintiff was in breach of an essential term. On the defendant's case (as pleaded) the plaintiff was not minded to rectify the matters of default complained of and thereby evinced an intention no longer to be bound by the contract, being a stance which amounted to a repudiation. The defendant accepted the repudiation with the result that he was no longer obliged to comply with the restraint of trade components of the contract.

45 The plaintiff sought to answer this by placing reliance upon the reasoning reflected in Heyman v Darwins Ltd (supra) and Photo Production Ltd v Securicor Transport Ltd (supra) as summarised by me in earlier discussion. Counsel for the plaintiff questioned whether the breach complained of could be characterised as the breach of an essential term. Further, and in any event, he sought to distinguish General Billposting Company Ltd v Atkinson (supra), Kaufman v McGillicuddy (supra) and McKenna Freight Lines Pty Ltd v Toll Holdings Ltd (supra) upon the basis that in those cases the breach complained of was substantial with the result that after a putative repudiation and acceptance it was arguably unfair for the other party to be bound by a restraint of trade provision. However, in the present case, consistently with the reasoning of Lord Diplock in Photo Production Ltd v Securicor Transport Ltd (supra), even if the breach was sufficient to excuse the parties from performance of the primary obligations of employment and service pursuant to the employment agreement, the secondary obligations, including the restraint of trade provisions, should be regarded as running onwards.

46 In the end, in respect of the application to strike out before me, I am of the view that it is not necessary to resolve the finer points of the controversy at this stage. I recognise that on the evidence presented at trial it might emerge, as suggested by Carol Cavill in her affidavit, that the defendant's allegations concerning the manner in which the subject accountancy practice was conducted lack substance. If such a finding is made then, of course, it would be difficult to hold that the plaintiff had repudiated the employment agreement as alleged by failing to respond to the defendant's complaints (if indeed any such complaints were made). In that event, the defendant would not be in a position to rely upon General Billposting Company Ltd v Atkinson (supra) and the line of reasoning reflected in the related cases.

47 However, for the time being, in dealing with the application to strike out, I am required to proceed from the premise that the facts and matters put up by the defendant in his statement of defence can be made out on the evidence. When the matter is looked at in that light I consider that I am compelled to hold, having regard to General Billposting Company Ltd v Atkinson (supra) and the other cases mentioned earlier such as Kaufman v McGillicuddy (supra) and McKenna Freight Lines Pty Ltd v Toll Holdings Ltd (supra), that the defendant has an arguable line of defence in terms of the disputed passages of his pleading. I recognise that the reasoning of Lord Diplock in Photo Production Ltd v Securicor Transport Ltd (supra) weighs against the defendant's stance but in regard to an employment agreement of the present kind, I am not prepared to hold that it should be treated as sufficiently decisive to override or negate the cases relied on by the defendant. The outcome will depend upon the evidence. I am of the view that the matters in issue should properly be resolved at the trial of the action.

48 It follows from this view of the matter that I am not prepared to strike out the disputed passages of the statement of defence on the basis that such passages do not disclose a reasonable defence.

49 I must take account of this conclusion when I turn to the question of whether the pleadings should be struck out as being scandalous or an abuse of process. It emerges from earlier discussion that the defendant cannot be said to be raising a line of argument which is devoid of merit. I am conscious that the allegations of malpractice reflected in the statement of defence are very serious allegations indeed and should not be advanced lightly unless they are underpinned by a body of evidence to be presented at trial. However, when the statement of defence is considered as a whole, I am not persuaded that the allegations in question can be regarded as gratuitous or irrelevant to the case that the defendant intends to present. One has to accept that the manner in which funds are dealt with in an accountancy practice lies at the core of the business and concerns about any shortcomings in that regard could give rise to significant areas of disagreement between those associated with the practice. All of this will be a matter for evidence at the trial. However, at this stage, I am not persuaded that the statement of defence should be struck out as scandalous.

50 Similar observations apply when I come to the question of whether the matters adverted to in the statement of defence can be characterised as an abuse of process.

51 I noted in earlier discussion that as to this aspect of the matter I am entitled to take account of evidence of affidavit bearing upon the matters in contention. If there were a complete absence of evidence in support of the defendant's line of defence then the plaintiff would be better placed to persuade the Court that the disputed passages should be struck out. However, the defendant has put up an affidavit which purports to substantiate his allegations. Accordingly, having regard to this affidavit and to my earlier observations, I am not persuaded that the statement of defence should be struck out on this ground. On an application of this kind the Court will generally not endeavour to ascertain facts over which there may be a bona fide dispute on the basis of affidavit evidence.

52 The plaintiff's application to strike out pars 10 to 16 of the statement of defence dated 15 October 2004 will be dismissed. I will hear from the parties as to whether any further orders are required and as to costs.