Supreme Court of the ACT|2014-05-01

Financial Integrity Group Pty Limited v Scott Farmer and Bravium Pty Ltd (No 3) [2014] ACTSC 75 (1 May 2014)

FINANCIAL INTEGRITY GROUP PTY LIMITED v SCOTT FARMER AND ANOR (NO 3)

[2014] ACTSC 75 (1 May 2014)

Lawbook Co, Injunctions: Law and Practice (Update 14)

Daniells' Chancery Practice (6th ed, 1884, Steven & Sons: London) vol 2

Seton's Judgments and Orders (6th ed, 1901, Steven & Sons: London) vol 1

Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249

Attorney-General v Albany Hotel Company [1896] 2 Ch 696

Blue Seas Investments Pty Ltd v Mitchell [1999] FamCA 745; (1999) 25 Fam LR 65

Cheltenham and Gloucester Building Society (formerly Portsmouth Building Society) v Ricketts [1993] 1 WLR 1545

Commercial Bank of Australia Ltd v Insurance Brokers Association of Australia (1977) 16 ALR 161

Commonwealth v Amman Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Commonwealth v John Fairfax & Sons Ltd [1980] HCA 44; (1980) 147 CLR 39

East Molesey Local Board v Lambeth Waterworks Company [1892] 3 Ch 289

European Bank Ltd v Evans [2010] HCA 6; (2010) 240 CLR 432

Ex parte Hall; Re Wood (1883) 23 Ch D 644

Fenner v Wilson [1893] 2 Ch 656

F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295

Financial Integrity Group Pty Ltd v Farmer [2009] ACTSC 143

Financial Integrity Group Pty Limited v Farmer (No 2) [2013] ACTSC 166

Frigo v Culhaci [1998] NSWCA 88

Golf Lynx v Golf Scene Pty Ltd (t/a Custom Golf Club Co) (1984) 59 ALR 343

Inetstore Corporation Pty Ltd (in liq) v Southern Matrix International Pty Ltd [2005] NSWSC 883; (2005) 221 ALR 179

Kerridge v Foley (1968) 70 SR (NSW) 251

Kirklees Metropolitan Borough Council v Wickes Building Supplies Ltd [1993] AC 227

Malec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638

McCleary v Director of Public Prosecutions (Commonwealth) (1998) 20 WAR 288

Meijer (as executors of the estate of the late Van Leeuwen (dec'd) v Zabrisky [2014] QCA 40

National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386

National Trust of Australia v Minister for Lands, Planning and Environment [1997] NTSC 177; (1997) 142 FLR 125

Optus Networks Pty Ltd v City of Boroondara [1996] 2 VR 318

Permanent Trustee Co (Canberra) Ltd v Stocks and Holdings (Canberra) Pty Ltd (1976) 15 ACTR 45

Re Hailstone; Hopkinson v Carter (1910) 102 LT 877

Ross v State Rail Authority of New South Wales (1987) 70 LGRA 91

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Sensis Pty Ltd v McMaster-Fay [2005] NSWCA 163

Soil Conservation Authority v Read [1979] VicRp 55; [1979] VR 557

Southern Tableland Insurance Brokers Pty Ltd (in liq) v Schomberg (1986) 11 ACLR 337 Specsavers Pty Ltd v Optical Superstore Pty Ltd (No 3) [2012] FCA 504

Storey & Keers Pty Ltd v Johnstone (1987) 9 NSWLR 446

Szentessy v Woo Ran (Australia) Pty Ltd (1985) 64 ACTR 98

Victorian Onion and Potato Growers' Association v Finnigan (No 2) [1922] VicLawRp 92; [1922] VLR 819

Warner Bros Pictures Inc v Ingolia [1965] NSWR 988

Wickey v The Queen (No 2) [2012] ACTCA 51; (2012) 269 FLR 289

1. The plaintiff pay to the defendants the sum of $5,756.36 as damages due under the undertaking as to damages given on 28 August 2007.

3. Within seven days, the plaintiff amend the order made on 28 August 2007 to reflect the fact that the usual undertaking as to damages was given by the plaintiff by its counsel.

1. These proceedings have their genesis in the employment of the first defendant, Scott Farmer (Mr Farmer), as a financial planner by the plaintiff, Financial Integrity Group Pty Limited (Financial Integrity).

2. The litigation came about because Mr Farmer left the employ of Financial Integrity on 25 April 2007 to become employed by a company he had established and operated, Bravium Pty Limited (Bravium), the second defendant.

3. Mr Farmer's departure led to a dispute about whether Mr Farmer had, when he joined Bravium, misused confidential information he had acquired during the course of his employment with Financial Integrity.

4. The parties could not resolve that dispute themselves, always a preferable result, and so proceedings were commenced.

5. The proceedings were commenced by Originating Claim issued out of this Court on 27 August 2007.

6. Initially, Financial Integrity, sought an interlocutory injunction to restrain Mr Farmer from further using the confidential information and other orders.

7. On 28 August 2007, Connolly J made orders, including giving Financial Integrity injunctive relief. Curiously, the form of the injunction then made appeared to be final in form though clearly in the context of the proceedings it was interlocutory.

8. The proceedings continued and the application for final relief was heard on 20 March 2008, when the orders, including the interlocutory injunction, made on 28 August 2007, were discharged and judgment delivered on 27 October 2009, when certain paragraphs of the Statement of Claim were struck out. See Financial Integrity Group Pty Ltd v Farmer [2009] ACTSC 143.

9. Financial Integrity was permitted to amend the Statement of Claim within a prescribed period of time, failing which the balance of the Statement of Claim was to be struck out and the defendants entitled to enter judgment with costs.

10. No amended Statement of Claim was filed and, by force of the Court's order, the Statement of Claim has been struck out.

11. No judgment seems to have been formally entered under those orders.

12. Nevertheless, it seems to me that this situation is sufficient to show that the injunction had been wrongly obtained. See Newby v Harrison [1861] EngR 850; (1861) De GF & J 287; 45 ER 889; Ex parte Hall; Re Wood (1883) 23 Ch D 644; Victorian Onion and Potato Growers' Association v Finnigan (No 2) [1922] VicLawRp 92; [1922] VLR 819.

13. The defendants then sought to have quantified and to recover the damages they claim to have suffered as a result of the granting of the injunction on 27 August 2007.

14. That application was heard on 16 July 2012. Regrettably, the pressure of business of the court meant that judgment could not be delivered immediately. On 16 August 2013, I delivered a judgment in which I raised the question of whether an undertaking as to damages had actually been given and accepted on 27 August 2007. I invited submissions. See Financial Integrity Group Pty Limited v Farmer (No 2) [2013] ACTSC 166.

15. Submissions have now been received by both parties.

Was an undertaking as to damages given in this case?

16. I set out the law as to undertakings as to damages in Financial Integrity Group Pty Limited v Farmer (No 2). It may be summarised as follows:

(i) An undertaking as to damages will almost invariably be required before a court will grant an interlocutory injunction; it is, in effect, the price of the injunction: Southern Tableland Insurance Brokers Pty Ltd (in liq) v Schomberg (1986) 11 ACLR 337 at 340-1; Kerridge v Foley (1968) 70 SR (NSW) 251 at 255. It is an important, if not essential, means of preventing injustice before the rights of the parties are determined: Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [1981] HCA 75; (1981) 146 CLR 249 at 311 (Air Express).

(ii) The resources of the party offering the injunction must be sufficient and available to meet any damages awarded as a result, or security may be required: Warner Bros Pictures Inc v Ingolia [1965] NSWR 988 at 990; Golf Lynx v Golf Scene Pty Ltd (t/a Custom Golf Club Co) (1984) 59 ALR 343 at 353.

(iii) While the requirement that an undertaking as to damages be given is always discretionary, the exceptions to requiring it to be given as a condition of the grant of the injunction are rare and exceptional: Southern Tableland Insurance Brokers Pty Ltd (in liq) v Schomberg at 341; Frigo v Culhaci [1998] NSWCA 88 at p 12; Inetstore Corporation Pty Ltd (in liq) v Southern Matrix International Pty Ltd [2005] NSWSC 883; (2005) 221 ALR 179 at 184; [27].

(iv) Exceptions that have been recognised, however, include

(a) where the poverty of the plaintiff would unjustly prevent an injunction being granted: Szentessy v Woo Ran (Australia) Pty Ltd (1985) 64 ACTR 98 at 104;

(b) where the plaintiff is a charitable institution and the injunction is for a very short duration: National Trust of Australia v Minister for Lands, Planning and Environment [1997] NTSC 177; (1997) 142 FLR 125 at 135-6;

(c) in family law proceedings where the defendant controls the plaintiff's wealth: Blue Seas Investments Pty Ltd v Mitchell [1999] FamCA 745; (1999) 25 Fam LR 65 at 75;

(d) where there is a strong public interest in the proceedings, especially where there is a strong prima facie case: Ross v State Rail Authority of New South Wales (1987) 70 LGRA 91 at 100-1;

(e) more controversially, where the interlocutory injunction is sought by the Attorney-General or another officer of the Crown, especially when seeking to protect public rights or law enforcement: Attorney-General v Albany Hotel Company [1896] 2 Ch 696 at 703, 704; Soil Conservation Authority v Read [1979] VicRp 55; [1979] VR 557 at 561; Kirklees Metropolitan Borough Council v Wickes Building Supplies Ltd [1993] AC 227; Optus Networks Pty Ltd v City of Boroondara [1996] 2 VR 318 at 321-2, 340; Commonwealth v John Fairfax & Sons Ltd [1980] HCA 44; (1980) 147 CLR 39 at 59 (though not when the Commonwealth is seeking to protect a proprietary or private right);

(f) in certain miscellaneous situations, such as where, in an action for an alleged infringement of a patent, an injunction obtained by the defendant restraining the plaintiff from advertising a threat of legal proceedings, no undertaking was required (Fenner v Wilson [1893] 2 Ch 656), where there is an unarguable case of fraud (Ingram v Stiff (1859) Johns 218n; 70 ER 404n) or under particular legislation (Commercial Bank of Australia Ltd v Insurance Brokers Association of Australia (1977) 16 ALR 161);

(v) The undertaking must be given expressly and will not be implied from the granting of the injunction: Kerridge v Foley at 256; National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] VicRp 31; [1991] 1 VR 386 at 560.

(vi) Counsel should remind a judge of the need for an undertaking or at least the consideration of the issue: Frigo v Culhaci at p 12; National Australia Bank Ltd v Bond Brewing Holdings Ltd at 560.

17. It has been said that the undertaking should be given personally. In Lawbook Co, Injunctions: Law and Practice (Update 14), the learned authors say at r-1062; [1.240]

The undertaking must be given to the court by the applicant personally, unless the applicant is out of the jurisdiction, in which case the undertaking should be given by the applicant's solicitor or other responsible person: Golf Lynx v Golf Scene Pty Ltd (1984) 59 ALR 343; [1984] AIPC 90-140.

18. If that is intended to suggest that the plaintiff must orally articulate the undertaking in person to the judge, I do not agree. In the decision cited as authority itself, I can find no such statement. Indeed, in the decision itself, Legoe J says at 354

... the injunctions ... were granted upon the undertaking of the plaintiff by its solicitor to abide any order of the court as to damages ...

19. This clearly accords with long authority that a legal practitioner, most often counsel, can give the undertaking on behalf of the plaintiff. In Daniells' Chancery Practice (6th ed, 1884, Steven & Sons: London) vol 2 at 1611 the learned authors note

The undertaking is, ordinarily, given through counsel; and forms part of the order; but, where the order is made without the attendance of counsel, the undertaking is inserted in the Registrar's book, and signed by the plaintiff, or his solicitor.

20. Indeed, this is the form of order in Seton's Judgments and Orders (6th ed, 1901, Stevens & Sons: London) vol 1 at 518. This accords with authority: East Molesey Local Board v Lambeth Waterworks Company [1892] 3 Ch 289 at 300. This is also common practice. See, for example, Meijer (as executors of the estate of the late Van Leeuwen (dec'd) v Zabrisky [2014] QCA 40 at [7].

21. It may be that what was intended to be suggested was that the plaintiff should be the person bound by the undertaking. That is, of course, the usual situation although, as Legoe J also noted in Golf Lynx v Golf Scene Pty Ltd (t/a Custom Golf Club Co) at 353, where the plaintiff is out of the jurisdiction, some other person within the jurisdiction should give the undertaking, no doubt again through counsel.

22. In this case, there were only two references to the issue of an undertaking as to damages. I referred to them in Financial Integrity Group Pty Ltd v Farmer (No 2) at [33], [37] as follows:

The transcript, however, records two (and only two) references to an undertaking as to damages. The first is the following exchange between counsel for Financial Integrity and his Honour:

HIS HONOUR: Yes. Yes. It seems to me that on an interim basis you'd be entitled on its face and subject to the obvious undertaking ---

MR PURNELL: Of course, your Honour.

HIS HONOUR: --- given the difficulty with the nature of the contract, but no doubt you'll be telling me that, even though it may not have been a registered AWA, and that may have certain consequences, in terms of enforcement and AWA rights and legislative provisions ---

...

His Honour then spoke directly to Mr Farmer and explained what had occurred. During this explanation, his Honour said:

So the plaintiff on its face is entitled to interim relief stopping you from taking their clients. And they allege that you had a computer, you were using a laptop computer in your employments that that had in your ordinary duties and your former employer you had access to client lists. They want orders which I've granted saying you can't use that client list and you've got to surrender that client list back, or otherwise reply to what's happened to it. I've made those orders on an interim basis restraining you from doing that on Mr Purnell's undertaking as to damages. That means at the end of the day, after I hear your side of the argument, I'm persuaded that no relief should have been granted, in fact, you may get some damages if you were prohibited for a day or a week from otherwise dealing with clients.

23. I also noted (at [13]) that the sealed order did not show that Financial Integrity had given an undertaking as to damages. The sealed order of the court is conclusive, as Tindal CJ made clear in Macgrath v Hardy [1838] EngR 748; (1838) 4 Bing NC 782 at 796. See also Permanent Trustee Co (Canberra) Ltd v Stocks and Holdings (Canberra) Pty Ltd (1976) 15 ACTR 45 at 47-8.

24. Nevertheless, where the order, even after it is perfected, does not state correctly what the court decided and intended, the slip rule, r 6906 of the Court Procedures Rules 2006 (ACT), permits amendment. The test is usually given as articulated by McHugh J in Storey & Keers Pty Ltd v Johnstone (1987) 9 NSWLR 446 at 453

if the matter had been drawn to the court's attention, would correction at once have been made.

25. See also Wickey v The Queen (No 2) [2012] ACTCA 51; (2012) 269 FLR 289.

26. Clearly the order should accurately reflect what the Court did, including whether it accepted an undertaking as to damages and, if so, from whom it was accepted.

27. I further noted (at [30]-[31]) that none of the affidavits that the plaintiff filed, and on which it relied, deposed that the plaintiff was prepared to give the required undertaking. To include such in the supporting affidavit is clearly good practice. It means that it is clear that the plaintiff has had his, her or its attention drawn to the need for such an undertaking and has agreed to provide it; it confirms counsel's authority to provide it; and it draws the court's attention to the matter, as is counsel's duty, which I noted above (at [16](vi)); all matters which are desirable to avoid disputes later.

28. Applying the principles I have set out to the facts as I have found them, was an undertaking as to damages actually given?

29. The defendants submitted that I should so find, that the two transcript references permit a conclusion to that effect to be drawn.

30. The plaintiff submitted to the contrary. Unfortunately, the plaintiff's submissions contain assertions of fact for which there is no evidence. No application for leave to adduce such evidence was sought or granted and the assertions are not made on affidavit. Despite submissions that weight should be given to the assertions of fact made, I reject them in the absence of evidence appropriately adduced by leave or with the consent of the other parties, which has neither been sought nor given.

31. The question is not an easy one. I accept, as I indicated in Financial Integrity Group Pty Ltd v Farmer (No 2) at [23], that it is desirable that the undertaking be "expressly and unambiguously given". That, however, does not require a formalised approach to the matter. It is not necessary for counsel to say in terms that "the [relevant party, usually the plaintiff] hereby gives the usual undertaking as to damages". It would, for instance, be sufficient for counsel to say "Yes" to a question from the court, "Does the [relevant party] give the usual undertaking as to damages?"

32. It seems to me, though I so find with some hesitation, that I should find that the first reference in the transcript amounts to that kind of offering of the usual undertaking as to damages.

33. I make this finding for the following reasons. Counsel for the plaintiff was a very experienced counsel and expressly aware of the need, indeed the inevitable need as the words "of course" clearly indicate, that the undertaking was required and would be given.

34. While the giving of the undertakings in that way and at that time was somewhat informal and less than "expressly and unambiguously given", it was nevertheless effective.

35. Clearly, Connolly J had accepted that statement as the giving of the undertaking. That is the only reasonable inference to be drawn from the second extract from the transcript.

36. Given that his Honour made such an express inference to the issue shown by the extract, it would have been unimaginable that experienced counsel, as was the plaintiff's counsel in the proceedings, not to have raised the matter if it was not the intention to give the undertaking in the form it appears to have been given, especially in the light of counsel's duty, which I am not prepared to find in this case was a duty of which the plaintiff's counsel would not have been aware.

37. Finally, at no stage until I raised it, has the plaintiff sought to suggest that no undertaking was given. That includes the period after the application by the plaintiff for an assessment of damages was issued on 12 July 2010 and then served on the defendants, when the proceedings were adjourned on many occasions and orders made for the filing and service of evidence and then at the hearing of the application where, again, the plaintiff was represented by experienced, but different, counsel.

38. Indeed, at the hearing of the application for summary judgment on 23 March 2008, then counsel for the plaintiff, who had appeared on the application for the interlocutory injunction, asserted that the undertaking as to damages had been given. I directed the plaintiff to amend the order to reflect that, but that was never done.

39. Accordingly, I am satisfied that the damages sustained by the defendants as a result of the granting of the injunction must be assessed. The original order should also be amended to reflect the position and so the record of the Court is correct.

40. The principal evidence as to damages came from the first defendant, Scott Farmer. He made an affidavit and also gave oral evidence and was cross-examined.

41. The context is set by the chronology, which is as follows.

42. Mr Farmer commenced work as a licensed financial planner in about 2000. In July 2003 to November 2004 he was employed by ABN Amro Morgan in that capacity where he met clients, prepared financial advice for them and then implemented the client's instructions after they had considered his advice.

43. He was then employed by Financial Integrity in the same capacity from 29 November 2004 to 24 April 2007.

44. During that time, he had access to a number of financial reports in respect of Financial Integrity's clients. These included the monthly breakdown of fees paid by all but one of the clients referred to below for the provision of superannuation services by the providers.

45. He said that he had provided advice for a large number of clients in his time as a financial planner. He said that, in the years from 2007 to 2012, it would have been about ninety people.

46. After he left Financial Integrity, he explained that he sought a financial planner's licence and it was granted on 5 July 2007. Prior to that date, it was, of course, not possible for him to provide financial planning advice, though this did not appear to stop him with client contacts as I shall mention below (at [84]).

47. He said that while he was employed by Financial Integrity, he dealt with a number of providers of superannuation services, including all that provided the services to six of the seven clients (counting in two cases husband and wife as one client) to which reference is made below.

48. He also occasionally saw the monthly breakdown of the commissions paid to Financial Integrity by insurance companies which insured a number of those clients.

49. He then commenced with Bravium, his company, which provided financial advice to clients in the areas of superannuation, estate planning, business succession planning, wealth creation, retirement and Centrelink planning and personal risk insurance. He is a Certified Financial Planner and member of the Financial Planning Association.

50. Until May 2010 Bravium charged clients a commission of one percent for funds under management and received commission for investment work such as insurance, typically at about thirty percent of the annual premium.

51. Mr Farmer deposed that the injunction had caused him two kinds of loss - delay loss and opportunity loss. This, he said, was loss caused either by the delay that the injunction caused to clients, who later became his clients, becoming clients and the loss of clients whom he could reasonably have expected to become clients not joining him as clients after the injunction was granted and then dissolved. It is also worth noting that, despite it being suggested at the earlier hearing, he had contacted a number of clients after leaving Financial Integrity (Financial Integrity Group Pty Limited v Farmer at [34]) only evidence of two clients making contact with Mr Farmer prior to the grant of the injunction was actually adduced.

52. He asserted that there were two clients who had been clients of Financial Integrity but who became clients of Bravium after the injunction was dissolved. He submitted that these clients would have become clients earlier had the injunction not prevented it. In the circumstances, I shall refer to them by letter to preserve their privacy.

53. The first client was AB, whose portfolio he had managed at Financial Integrity for about twelve to eighteen months prior to 24 April 2007. He had no immediate contact with her after the injunction was discharged on 28 March 2008. She became a client shortly after he contacted her and soon after that she transferred her portfolio to Bravium.

54. Mr Farmer did not meet with AB until about 5 June 2008, some five months after the injunction had been lifted. He offered no explanation for that delay. His evidence was

Now, after the injunction was discharged in March of 2008, it did not take you very long to set up a meeting with [AB], did it? --- Correct.

And it would seem that as soon as you set up a meeting with her, she became a client of your firm there and then, correct? --- Correct.

So the fact that she didn't become a client of your firm before the injunction was imposed had nothing to do with the injunction, did it? --- No.

55. Mr Farmer's evidence was that AB's superannuation fund stood at $35,000 when transferred to Bravium's care and that shortly after she added a further $12,000 to it.

56. It appears, however, from the documents tendered that the investment portfolio of AB to 31 March 2008 was $45,302.69. By 18 August 2008, it appears that had grown to $46,881.22. AB also had insurance arranged through Bravium with MLC. It was said that the premiums at the relevant time were $213.44 per annum.

57. The second client was CD, whose portfolio Mr Farmer had also managed at Financial Integrity for about twelve to eighteen months prior to 24 April 2007. He had no contact with CD until after the injunction was dissolved and first met her only on 13 January 2009, after telephone contact in December 2008.

58. On 30 June 2009, he provided CD with a Statement of Advice and then transferred her portfolio from Financial Integrity to Bravium.

59. Mr Farmer agreed that there was unusual delay in contacting CD and that there was unusual delay in providing her with a Statement of Advice, stating that "[t]ypically, it would be about six weeks" rather than the more than five months it actually took.

60. He agreed that the total delay in effecting a transfer of CD's portfolio was twenty-six months. He did not offer any explanation for the delay.

61. He also agreed that his failure to contact CD had nothing to do with the injunction. He agreed that nineteen of the twenty-six months' delay had nothing to do with the injunction.

62. CD had organised her superannuation affairs so that a company, of which she was the sole director, was the trustee of her superannuation fund.

63. Mr Farmer was unable to say when the company was incorporated and whether it had been a client of Financial Integrity.

64. It appears that the value of CD's superannuation portfolio as at 30 June 2009 was $292,061.00. It had, by 12 August 2009, grown to $307, 876.75.

65. Mr Farmer then deposed that after his departure from Financial Integrity on 24 April 2007 and prior to the grant of the injunction on 27 August 2007, he had contacted five clients of Financial Integrity with a view to encouraging them to become clients of Bravium. He was, of course, unable to contact them after the grant of the injunction. When the injunction was dissolved, however, he again contacted them but, in the case of those clients, all told him that they had decided to remain as clients of Financial Integrity.

66. He expressed the belief that he had "a reasonable opportunity at successfully retaining these clients" but that "the injunction allowed [Financial Integrity] to build its relationship with [the respective clients] to the detriment of Bravium and that but for the injunction [he] had a reasonable opportunity of retaining their portfolio". I am not sure that "retaining" is the correct word as each were, at the time of the relevant discussions, clients of Financial Integrity and in all but two cases had not actually decided to make or effect a transfer of business to Bravium.

67. In the affidavit, he made calculations as to the opportunity loss based on a minimum of three years' service provision.

68. Mr Farmer deposed that this was consistent with the basis of valuation of a financial planning business. This, he elaborated on in subsequent oral evidence, was when such businesses are valued for sale purposes. The basis of such a valuation is three years of recurring revenue. The method, he said, had been used for "[d]ecades".

69. The first of these clients were EF and his wife GF. Mr Farmer had managed their portfolio for twelve to eighteen months prior to 25 April 2007. EF and GF were referred to him by a firm of accountants. The referral was personal to Mr Farmer.

70. He deposed that, because of the injunction, no meetings were arranged until 11 November 2008. He did not explain, however, why it took so long after the injunction had been discharged to make that arrangement. At that meeting, contemporaneous notes recorded that EF and GF were "unhappy with the service" they were then receiving from Financial Integrity and "were looking for [Mr Farmer] to take them over again as clients". Mr Farmer then prepared detailed advice for them, a document which was provided to them on 20 November 2008.

71. The diary note recorded details of EF's business and GF's employment as well as their income and assets. I do not have to detail those matters. Details also were provided of their insurance arrangements. Again, I do not have to detail them.

72. In the weeks following, further contact was made, until in one conversation GF said, "We wish to remain clients of [Financial Integrity]".

73. In cross-examination, Mr Farmer was unable to say whether EF and GF were unhappy with the service that Financial Integrity was providing to them as at May 2007 or as at March 2008.

74. The second client was HI whose financial affairs Mr Farmer discussed with him on 12 July 2007 and who, on that day, signed an authority for Bravium to obtain information from third parties in order to provide the necessary financial advice.

75. It became clear that HI was a client of Financial Integrity and so further contact was prohibited during the period until the injunction was dissolved. Afterwards, Mr Farmer contacted HI, who told him that he no longer wanted him to provide any advice. Mr Farmer deposed that, so far as he was aware, HI remained a client of Financial Integrity.

76. The third client was JK and his wife LK. Mr Farmer had managed their portfolio for eighteen to twenty-four months prior to 25 April 2007. They had followed him to Financial Integrity from ABN Amro Morgan.

77. Due to the injunction, Mr Farmer did not contact JK and LK until August 2008. After several calls, LK told him that they were "happy to remain where [they were] at the moment".

78. The fourth client was MN, whose portfolio Mr Farmer managed for about twelve to eighteen months prior to 25 April 2007. In addition to MN, her daughter, ON, was also a client of Mr Farmer.

79. Mr Farmer said that he believed that he first met MN in early 2006. He met her with her daughter, ON. They met for about an hour. He said that there was another initial meeting also of about an hour and a number of review meetings after that. He thought that he would have had meetings with her on a minimum of four occasions, for about forty-five minutes each. He said it was clear that MN relied on her daughter for an understanding of the advice he provided and the issues arising from it. He said he also had some telephone conversations with both MN and ON about MN's portfolio, discussing the investments generally.

80. Mr Farmer said that MN had been referred by an accountant at a local accounting firm, who referred clients to him from time to time. This occurred by telephone or email when some background information would be supplied.

81. In cross-examination, Mr Farmer agreed that the accountant was, at the date Mr Farmer joined Financial Integrity, a pre-existing referrer of work to that company. He had no relationship with the accountant when he joined the company, but was put in charge of building the relationship with him. He explained, in re-examination, that this required him to develop a personal relationship with the accountant, which included attending his office and joining him at the gym after hours on a regular basis. There was also a fee sharing arrangement between the accountant and Financial Integrity.

82. In circumstances about which there was no direct evidence before me, MN did not become a client of Bravium though Mr Farmer was told by ON in April 2008 that MN was "happy to continue with things as they are" and, so far as Mr Farmer was aware, MN remains a client of Financial Integrity.

83. The fifth client in this group is PQ, whose portfolio Mr Farmer managed for twelve to eighteen months prior to 25 April 2007. He could not recall how PQ became a client.

84. He spoke to her in about June 2007, when she said "I want you to continue providing me with financial advice", but she was too busy to arrange a meeting at that time. When further contact was made after 28 August 2007, and Mr Farmer explained that he could not provide her advice at that time because of the injunction, she said

I need advice straight away. I can't wait until the injunction is possibly listed, I think I will have to remain with [Financial Integrity].

85. Although no affidavit evidence was adduced about him, a further witness, RS gave oral evidence. It was not clear the basis on which the evidence of this witness was adduced; he did not seem to fit into either of the above categories.

86. He said that he had become a client of Financial Integrity and Mr Farmer provided him with financial planning advice. He had been referred to Financial Integrity by his accountant and Mr Farmer was assigned as his planner. He met with Mr Farmer about once or twice a year.

87. RS also found out that one of his personal friends worked at Financial Integrity also. He did not get any financial advice from his friend.

88. RS said that, in 2007, his friend called him from overseas and told him that Mr Farmer had left Financial Integrity and suggested that he move his business to Mr Farmer and his new firm. He did so. He did not think that he told anyone at Financial Integrity of his decision.

89. I had no information about the size of RS's portfolio or its components, nor what, if any, effect the injunction had on the transfer of his business to Mr Farmer and, I assume Bravium.

Approach to damages payable under an undertaking as to damages

90. The law on this issue has now been authoritatively set out by the High Court in European Bank Ltd v Evans [2010] HCA 6; (2010) 240 CLR 432. The Court held at 438-9; [14]-[18] as follows:

Reliance upon the rule in Hadley v Baxendale in an application such as that before Gzell J must be only by way of analogy. The point made by Farwell LJ in Re Hailstone; Hopkinson v Carter and repeated by Cussen J in Victorian Onion and Potato Growers' Association v Finnigan (No 2) and by Neill LJ in Cheltenham & Gloucester Building Society v Ricketts is important here. It is that the undertaking as to damages is given to the court, for enforcement by the court; it is not a contract between parties or some other cause of action upon which one party can sue the other. It is worth repeating the obvious proposition that such an undertaking is not lightly to be given.
The undertaking as to damages and its origins in equity practice of the 19th century, if not earlier, were explained by Aickin J in Air Express and by Gleeson CJ, Gummow, Kirby, Hayne and Crennan JJ in Mansfield v Director of Public Prosecutions (WA). The authorities discussed in Mansfield included Russell v Farley, where Bradley J had explained the requirement of the undertaking as a response to the anxiety entertained by the court that otherwise its interlocutory order might lead to damage for which there could be no redress except by an order for costs.
In Air Express, Mason J said that there was little to be gained from an examination of the authorities dealing with causation of damage in contract, tort and other situations; the Court was better advised to look to the purpose which the undertaking as to damages is to serve and to identify the causal connection or standard of causal connection which is most appropriate to that purpose.
A party seeking an equitable remedy is required to "do equity" and this is the origin of the requirement that the party giving an undertaking as to damages submit to such order for payment of compensation as the court may consider to be just. Given its origin and application to varied circumstances in particular cases, the process of assessment of compensation cannot be constrained by a rigid formulation.
These considerations, bearing upon the interests of justice in the particular circumstances of the litigation, support the following statement by Aickin J in Air Express, made with respect to interlocutory injunctions, but applicable to the interlocutory order made by the Court of Appeal against European Bank. His Honour said:

In a proceeding of an equitable nature it is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case.

The phrase 'could have been foreseen' should be noted.

(Footnotes omitted)

91. The Court then summarised the questions to be asked in its conclusion at 442-3; [29] as follows

On the inquiry before Gzell J the first question was 'What is the loss that is now alleged?', the second 'Did that loss flow directly from the order of 18 May 2004?' and the third 'Could the loss sustained have been foreseen at the time of that order?' The inquiry presented by the third question is an inquiry as to whether a loss of the kind actually sustained could have been foreseen. Contrary to the submission by the respondent, Mr Evans, the inquiry is not as to whether the actual loss suffered was foreseen at the time the undertaking was given. In the present case there was a finding by the primary judge, as indicated above, that the loss directly flowed from the order and his Honour further found that the loss could have been foreseen. That result should not have been disturbed.

92. I note, too, that the discretion, the wide discretion, of the court in the assessment of the damages includes a discretion not to enforce the undertaking at all, if special circumstances exist. See McCleary v Director of Public Prosecutions (Commonwealth) (1998) 20 WAR 288 at 309. This may be a result of disentitling conduct on the part of the party otherwise entitled to seek the damages in order, as put in Lindsay Petroleum Co v Hurd (1874) LR5PC 221 at 229, to ensure that the order of the court is not "practically injust".

93. I also note the important distinction made in Air Express at 268 as follows:

It is important in all cases, and particularly in the present case, to bear in mind the distinction adverted to in many of the cases ... between damages flowing from the injunction and damages flowing from the litigation itself. There may not in every case be any difference between the two but, where there is a difference, it is essential that the damage flowing from the litigation should not be confused with the damage flowing from the interlocutory injunction. This is necessary required by the form of the undertaking itself. (Footnotes omitted).

94. This approach was unanimously upheld on appeal: see at 313 per Gibbs J, at 320 per Stephen J and at 324 per Mason J.

95. The basal information for the determination of the loss is not in dispute. It has two components: the superannuation corpus and the insurance policies. The evidence was that an appropriate fee, which Mr Farmer would have charged, is one percent per annum for the superannuation corpus. The insurers would pay a commission in respect of the insurance policies based on the premiums.

96. A calculation was prepared for Mr Farmer. So far as the delay loss was concerned, it claimed $453 in respect of AB and $3,712 in respect of CD.

97. So far as the opportunity loss was concerned, it claimed as follows

98. This latter calculation was, of course, subject to any deduction to take account of the fact that the loss was only the loss of a chance to gain that income.

99. It is convenient to consider each of those heads of loss separately and I will do so.

100. The second and third questions posed in the passage extracted at [91] are as to causation and foreseeability. The critical issue in these proceedings was causation.

101. There was no real issue as to foreseeability. I accept that the terms of the injunction meant that it must have been obvious to Financial Integrity that the injunction, which prevented the defendants from having contact with potential clients of the defendants, would risk causing loss of the income that such potential clients would otherwise produce for them. No submission was made to the contrary.

102. So far as causation was concerned, however, the evidence of the defendants was quite thin.

103. In Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 and 355, Mason CJ, Dawson, Toohey and Gaudron JJ said in relation to this issue

... the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage.

104. In respect of delay loss, the two clients were AB and CD, both of whom became clients of Bravium.

105. The evidence as to AB was that she was contacted on 5 June 2008. There was no contact between 25 April 2007 (when Mr Farmer left the employ of Financial Integrity) and 28 August 2008, when the injunction was granted.

106. The only explanation for this was that Mr Farmer did not gain the necessary financial planner's licence until 5 July 2007.

107. There are a number of problems with this explanation. In the first place, Mr Farmer gave evidence that he was contacted by PQ in June 2007, before he had the licence and she sought some advice. The evidence was that Mr Farmer did not say that he could not provide it at that time because he did not have a licence at that time; the advice could not then be given because PQ was "fairly busy" at the time. This weakens the suggestion that Mr Farmer could not have made contact and had discussions with these potential clients. There was no evidence, but his lack of a licence may simply have meant that he could not have charged fees to the clients or not have been able to provide actual advice.

108. The second problem is that there was no contact between 5 July 2007 and 28 August 2007. There may have been some explanation for this; for example, Mr Farmer may have been extremely busy establishing Bravium; he may have been concerned with the correspondence between his solicitors and those for Financial Integrity (see Financial Integrity Group Pty Ltd v Farmer at [35]). This remains a problem, however, for there was simply no evidence about this. All these possible explanations are entirely speculative.

109. The third problem was that there was no explanation as to why, after the injunction was dissolved on 20 March 2008, there was still no contact made with AB until 5 June 2008, some two months later. Again, there may be some speculation about why this may have been, but there was no evidence.

110. Mr Farmer did depose in his affidavit that he was "unable to arrange a meeting with [AB] because the injunction was granted before a meeting could be arranged". That would have been some evidence of causation, save that he also deposed that he "had made no contact with [AB] prior to the injunction".

111. Mr I Neil SC, counsel for the defendants, submitted that I should proceed on the basis the injunction acted "as a stay for so long as it endured". That is, of course, obvious, but it does not address the issue of causation. Mr Farmer did not even depose that he would have tried to contact AB during the period when the injunction was in force, though he may have assumed I would infer that from his bald statement quoted above (at [110]). That is not, however, an inference that clearly or obviously comes from his evidence.

112. Certainly there was no evidence of a plan as to how and when to contact various clients or other evidence of any actual interference from the injunction with his actual likelihood of or proposals for such contact. The actual delay in contact, both before the injunction was granted and after it was discharged leads to an inference that he may well not have contacted AB in any event until after the period during which the injunction was in force.

113. I am not satisfied on the balance of probabilities that the imposition of the injunction caused any or any appreciable delay in AB becoming a client of Bravium.

114. The position of CD is even more clear. She was not contacted until December 2008 and did not become a client until January 2009. The position prior to and during the period when the injunction was in force was the same as with AB; Mr Farmer made no contact prior to when the injunction was granted and he made the same bland statement that he "was unable to arrange a meeting with CD because the injunction was granted before a meeting could be arranged".

115. Again, there was no explanation in the evidence and only counsel's speculation in submissions as to why these delays occurred.

116. I am not satisfied on the balance of probabilities that the defendants suffered any loss in relation to CD as a result of the grant of the injunction.

117. While the general principles are the same for the opportunity loss, there are some relevant and significant differences. In particular, none of the persons in this category became clients of Bravium or Mr Farmer. What the defendants say they lost was a fair chance to attract them as clients and which the injunction prevented.

118. As the New South Wales Court of Appeal put it in Sensis Pty Ltd v McMaster-Fay [2005] NSWCA 163 at [37]

In order for the respondent to succeed in his case that he had lost an opportunity to acquire new initial patients by reason of the appellant's breaches, the primary judge had to be satisfied, on the balance of probabilities, that he had in fact lost 'an opportunity of real value'.

119. The Court referred to what Mason CJ, Dawson, Toohey and Gaudron JJ said in Sellars v Adelaide Petroleum NL at 355 as follows

... the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. (emphasis in original)

and what, in the same case, Brennan J said at 367-8

Unless it can be predicated of an hypothesis in favour of causation of a loss that is more probable than competing hypotheses denying causation, it cannot be said that the plaintiff has satisfied the court that the conduct of the defendant caused the loss. Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities. A constant standard of proof applies to the finding that a loss has been suffered and to the finding that the loss was caused by the defendant's conduct, whether those findings depend on evidence of historical facts or on evidence giving rise to competing hypotheses. In any event, the standard is proof on the balance of probabilities.

Financial Integrity Group Pty Limited v Scott Farmer and Bravium Pty Ltd

At a glance

Court

Decision date

Source

Judgment (255 paragraphs)

Financial Integrity Group Pty Limited v Scott Farmer and Bravium Pty Ltd (No 3) [2014] ACTSC 75 (1 May 2014)

Parties

Legislation Cited (4)

Cases Cited (15)