LiveBetter Services Ltd v Quarmby

Supreme Court of NSW|2020-01-10|Before: Robb J

The parties

The plaintiff is LiveBetter Services Ltd (LiveBetter), which is a registered National Disability Insurance Scheme (NDIS) provider of a diverse range of services including disability support services, aged care, respite care, childcare, home and community care and clinical services.
LiveBetter is a not-for-profit company limited by guarantee under the Corporations Act 2001 (Cth) and is also a registered charity with the Australian Charities and Not-for-Profits Commission.
The evidence is that LiveBetter employs approximately 1700 employees in about 60 sites across Australia, predominantly in New South Wales. LiveBetter's head office is located in Orange, New South Wales.
LiveBetter's activities in the southern region of New South Wales commenced in 2016 by way of mergers with other businesses in the disability sector. The head office for LiveBetter's activities in the southern region of New South Wales is located at Wagga Wagga.
LiveBetter controls a number of disability support service houses in the southern region of New South Wales, which it uses for the purpose of providing disability support services to its clients.
The first defendant, Mr Ryan Quarmby, commenced employment with LiveBetter on 16 January 2017 as LiveBetter's Regional Manager Disability in Murrumbidgee. On 27 May 2019, Mr Quarmby was promoted to the position of Head of Disability NSW South.
The second defendant is New Directions Disability Services Ltd (New Directions). Mr Quarmby is one of three directors of New Directions. It appears that one of the other directors is Mr Quarmby's wife. Mr Quarmby and his wife own the shares in New Directions. It appears from the current company extract issued by ASIC for New Directions on 23 December 2019 that the 1,000,000 issued ordinary shares in the company were issued for no consideration.
On 9 May 2019, Mr Quarmby signed an acceptance of a proposal for an audit of New Directions for the purpose of registration with the NDIS.

The proceedings

These proceedings were commenced by summons filed by LiveBetter in court on 31 December 2019.
No interlocutory relief was expressly sought by LiveBetter in the summons. The seeking of interlocutory relief is, unusually, stated only in order 5 made by Davies J on 31 December 2019. The interlocutory relief sought is as follows: On 10 January 2020 the Plaintiff may move the Court for Orders that: a. Until further order, and upon the Plaintiff's counsel giving on behalf of the Plaintiff the usual undertaking as to damages, the Defendants be restrained from providing any disability services to any person who was or is a client of the Plaintiff between January 2017 and 13 December 2019, including but not limited to the following clients or their families: i. Michelle Hocking; ii. Kristen Michael; iii. Kellie Parker; iv. Tracey French; v. Maria Burgess; vi. Emily Lucena; vii. Nicole Brown; and viii. Ann Munro. b. The First Defendant must keep the Plaintiff's Confidential Information confidential and must not delete or destroy any electronic copies of Confidential Information contained on any device in his possession, including without limitation any device in his possession on which he has accessed emails sent to the email address [Mr Quarmby's email address] For the purpose of this order "Confidential Information" means: i. Personal Information about clients, carers, staff and volunteers of the Plaintiff; ii. Business techniques, systems, policies, processes and methods; iii. Business plans, marketing plans, strategies, techniques, and information; iv Financial information; v. Information or material which the employee knows or reasonably ought to know is actually or potentially of commercial value to the Plaintiff; vi. Information imparted in confidence to the First Defendant by the Plaintiff; vii. Any evaluation, including all minutes, notes, papers, communication capable and other records of being reproduced by or on behalf of the First Defendant. viii. All information marked "Confidential" by the Plaintiff. c. The Defendants are restrained from engaging in any conduct in contravention of the First Defendant's ongoing obligations under clause 13 of the written employment agreement between the Plaintiff and the First Defendant, dated 27 May 2019. The Defendants must not: i. induce, solicit, canvas or approach any customers of the Plaintiff on behalf of any other business; or ii. solicit or approach the Plaintiff's clients and/or families to move providers; or iii. encourage the Plaintiff's clients and/or families to select another service provider.
LiveBetter seeks final relief in its summons that is consistent with the interlocutory relief identified in order 5 made by Davies J.
Prayers 8 and 9 of the summons seek an indefinite restraint against the two defendants from providing any disability services to any person who was a client of LiveBetter between January 2017 and 13 December 2019 or their families, including the individuals listed above in respect of the interlocutory relief.
Prayers 10 to 12 seek injunctions against both defendants from using or disclosing the Confidential Information of LiveBetter.
Prayers 13 and 14 seek injunctions against both defendants restraining them from engaging in conduct which would involve a breach of clause 13 of Mr Quarmby's contract of employment.
LiveBetter seeks an order that both defendants pay damages to it in prayer 15.
Prayers 6, 7 and 16 to 19 seek relief for alleged contraventions by the defendant of ss 181(1), 182(1) and 183(1) of the Corporations Act.
LiveBetter informed the Court that it did not rely upon contraventions of these statutory provisions to support its application for interlocutory relief.

The interlocutory application

LiveBetter's application for interlocutory relief was heard in the vacation on 10 January 2020, which was the first return date for the summons.
LiveBetter relied on an affidavit of Ms Janis Redford, the Acting Chief Executive Officer of LiveBetter, affirmed on 30 December 2019. The affidavit was admitted into evidence without objection.
The defendants did not tender any evidence. That is of some significance in this case because, as will be seen, the events that LiveBetter primarily seeks to prevent will not happen until dates in February 2020, as the clients of LiveBetter apparently had to give notice to LiveBetter before they changed their service provider to New Directions. The defendants would have been given time to put on evidence in response to LiveBetter's evidence if they had sought to do so.
The fact that the parties elected to contest LiveBetter's claim for interlocutory relief on the first return date of the summons was not entirely convenient from the perspective of the Court. Not only did the defendants not put any evidence before the Court, but LiveBetter did not obtain any evidence from the defendants by the use of notices to produce, or from LiveBetter's clients or their guardians, or from the two former employees of LiveBetter, who will be mentioned below, by the use of subpoenas. Consequently, the Court has been required to decide the application upon evidence that is not always substantial or conclusive, even accepting that the application is an interlocutory one.

Mr Quarmby's terms of employment

As stated above, Mr Quarmby commenced employment with LiveBetter on 16 January 2017. He signed what is called a "Deed of Confidentiality" on 5 January 2017. He acknowledged that during his employment with what is described as "CareWest" he would have access to information and documentation belonging to CareWest that was Confidential Information, and he agreed "not to communicate, publish or release Confidential Information to a third party unless authorised to do so by CareWest". The evidence does not explain the relationship, if any, between LiveBetter and CareWest. It is possible that CareWest is either a former name of LiveBetter or the name of a business that has emerged with LiveBetter. The definition of "Confidential Information" is substantially the same as in order 5b of the orders made by Davies J on 31 December 2019.
On 7 June 2019, Mr Quarmby signed a letter addressed to him by LiveBetter dated 27 May 2019 which contained the terms of his contract of employment. The employment became effective from 27 May 2019. By clause 3, Mr Quarmby was engaged as Head of Services Disability NSW South on a permanent full-time basis of 76 nominal hours per fortnight plus any reasonable additional hours. Clause 6 of the contract of employment stated: "Normal office hours vary across locations but are generally between 8:30am and 5pm".
Mr Quarmby's duties, as stated in clause 3, included: … use your best endeavours to promote and enhance the interests, welfare, business, growth and reputation of LiveBetter; and not intentionally do anything which is or may be harmful to LiveBetter.
Clause 13 was in the following terms: 13. Confidentiality You must not disclose, or allow access to, any confidential information, to any person except in the proper course of your duties, or as permitted by LiveBetter, either during or after the course of your employment. Confidential Information is defined as any information relating to LiveBetter employees and clients, which is not lawfully available to the general public. Further, as an employee of LiveBetter you will have access to "Know-How", and have a detailed knowledge of LiveBetter's clients and business' clients. You will have the opportunity to build professional relationships with those clients, employees and others engaged in LiveBetter's Business (goodwill). It is reasonable for LiveBetter to protect the goodwill of the business and as such, you must not during or post employment with LiveBetter, induce, solicit, canvas or approach any customers of LiveBetter on behalf of any other business. This includes, but is not limited to soliciting or approaching LiveBetter clients/and or families to move providers, or encouraging LiveBetter clients/and or families to select another service provider on the basis of your employment with that provider. In addition, you must not during or post employment with LiveBetter, do or say anything that may be harmful to the reputation of LiveBetter in any forum, or that may lead a person to cease, curtail or alter their dealings with LiveBetter.
Also on 7 June 2019, Mr Quarmby signed a Position Description in respect of his employment. The chapeau to the statement of Mr Quarmby's responsibilities stated: The primary objective of this position is to manage Disability Services delivered within the region of responsibility. This includes accountability for programs and daily operations, service budgets, management and support of all service managers and teams, external relationships, image and reputation.
The 21 "core responsibilities for this position" which are set out in bullet point form paint a picture of Mr Quarmby's role as being one of management and not the personal provision of services to clients of LiveBetter. The responsibilities that touch upon service delivery include: "Ensuring quality in service delivery to customers utilising person-centred approaches", and "Recruiting, motivating and leading a team that supports the culture, values, and business objectives of LiveBetter".
Two important observations may be made about the terms of Mr Quarmby's employment and his role as Head of Disability NSW South. First, the restraint against post-employment inducement, solicitation, canvassing or approaching any customers of LiveBetter in the middle paragraph of clause 13 of the employment agreement is indefinite as to time or location.
Secondly, although that paragraph states that, as a result of his employment, Mr Quarmby would have the opportunity to build professional relationships with LiveBetter's "clients and business' clients", the terms of Mr Quarmby's Position Description suggest that this statement may well have been true in relation to the relationship between Mr Quarmby and LiveBetter's clients at the management level, but it is not clear that Mr Quarmby would have built up a personal connection with LiveBetter's disability service clients or their guardians.

Other relevant employees of LiveBetter

It is necessary to mention the involvement of two other persons who were employees of LiveBetter.
First, Melissa Crowe commenced employment with LiveBetter on 14 November 2016, although that was a result of an amalgamation with another service provider with whom Ms Crowe had started employment on 3 September 2013. Ms Crowe is employed in the position of Disability Program Coordinator. Ms Crowe's employment was suspended on 24 December 2019 because of her involvement in the activities that have led to these proceedings. There is evidence that Ms Crowe's Facebook page stated as at 27 December 2019 that she was employed as "House Manager at Family Link… former Disability Coordinator at LiveBetter". There is no evidence of any connection between Family Link and New Directions.
Ms Redford said in her affidavit that during her employment Ms Crowe worked directly under the supervision of Mr Quarmby.
Secondly, Ms Kim Halhead signed a letter of employment on 8 June 2018.
According to Ms Redford, Ms Halhead was employed in the position of "Support Co-ordinator" and "worked closely with Mr Quarmby ".
Ms Halhead ceased to be an employee of LiveBetter on 28 September 2019. According to Ms Redford, Ms Halhead has established her own business called "Supports 2-U", and, that since that time, "a number of clients have transferred from LiveBetter's in-house Support Co-ordinator to Supports 2-U".

Conduct complained of by LiveBetter

Ms Redford asserted in par 47 of her affidavit that in August 2019 Mr Quarmby made arrangements for a house to be upgraded in order to accommodate the provision of disability services, and that the house in question appeared to be owned by Ms Crowe. Ms Redford did not identify the source of this information. She referred to an email from a certain person dated 23 August 2009 to Mr Quarmby's LiveBetter email address that suggested that Mr Quarmby "have a look at the Crowe's house and that block next door at Cootamundra Bvde".
At par 49 of her affidavit, Ms Redford asserted that, in September 2019, Mr Quarmby engaged the services of an architects firm in relation to a proposed residence.
The evidence includes a letter from a firm of architects dated 23 September 2019 addressed to Mr Quarmby at LiveBetter for the provision of services in respect of a "proposed new residence" at a particular address in Wagga Wagga. The letter refers to proposed new requirements of the NDIA. An email from Mr Quarmby to the architect noted that "the property is already at 70% completion phase…"
In an email dated 25 September 2019 sent from Mr Quarmby's LiveBetter email account, in which he discussed with the architect the proposed fee, Mr Quarmby stated that he would "have another 2 for you as well coming up over the next 6 months if interested".
On 9 October 2019, a third party sent to Mr Quarmby at his LiveBetter email address a proposal for a house in Gabbagombalin. Mr Quarmby replied on 10 October 2019: I'm just discussing it with the team and I'll get back to you with some feedback… But let me run it past my team that know the clients we have in mind, and their individual needs and I'll come back to you.
The terms of this email are significant, in that they suggest that Mr Quarmby was being assisted by a number of other persons who knew the proposed clients and were aware of their needs.
Ms Redford said in par 51 of her affidavit that, in November 2019, Mr Quarmby "appears to have openly recruited employees for New Direction from LiveBetter's workforce". She relied upon an email exchange between Mr Quarmby and Ms Narelle Longfellow. Ms Longfellow referred to learning that Mr Quarmby was leaving LiveBetter and said: "I would definitely be interested if there is a position working with and alongside yourself". Mr Quarmby replied using his LiveBetter email: "Awe thanks Narelle! Likewise with you. Hahaha, I am working on my future plans, so come and have a chat to me".
On 6 December 2019, Ms Crowe sent an email from her LiveBetter account to Ms Kasey Pengilley, to Ms Halhead at her Supports-2U email address, and to Mr Quarmby at his LiveBetter email address, which included the statement: Could you please attend a meeting at [address] on Friday the 13th of December at 4:00pm? Please confirm that you are able to attend this meeting.
According to par 31 of Ms Redford's affidavit, the address stated in the email is a property maintained by LiveBetter that currently has two residents, being Ms Burgess and Ms French.
Ms Pengilley and Ms Halhead accepted the invitation by email on the same date. There does not appear to be evidence that Mr Quarmby accepted the invitation.
On 1 December 2019, Ms Alicia Clancy, who is apparently an employee of LiveBetter, sent an email from her LiveBetter email account to Mr Quarmby at his LiveBetter email account, which included: Hey Ryan how are you? I've been thinking about what we spoke about Monday & this is what I've been thinking if you can offer me somewhere around 20-25 hours a week I think I'd like to leave LiveBetter & just work for you. I think I would rather put all my time into your company then divide it between the two…
On 4 December 2019, Ms Crowe sent an email from her LiveBetter email account to Mr Quarmby at his LiveBetter email account which attached a plan from the architect containing comments about the layout of the house referred to in the earlier proposal made by the architect.
A title search appears to show that the property is owned by Ms Crowe and a person who is probably her husband.
On 18 December 2019, Ms Halhead sent an email to Mr Quarmby and Ms Crowe concerning Ann Munro. The email stated: Hi Ryan and Mel I have attached the Withdrawal letter of SIL to LiveBetter Change of circumstance to NDIS I can send on Friday as per the end date, any changes or issues please let me know Ryan if you could provide me with a suggestion on which LiveBetter email to send through to please I will send you both a copy of my email once I send off Chat soon.
The attachments to this email in relation to Ms Munro include an NDIS Change of circumstances form which contains the following information concerning the nature of the proposed change: Permanent change - 20/12/2019 notice given to LiveBetter (current SIL) provider that SIL will cease with LiveBetter on 14th February 2020 and going to a new provider, New Directions Disability Services Start date: 14 February 2020 20/12/2019, 8 weeks notice given to LiveBetter to cease the Supported Independent Living (SIL) arrangement with them as client moving to a new provider. Current SIL will end on 14th February 2020 and move over to new provider, New Directions Disability Services
Ms Redford gave evidence of receiving a series of notices of withdrawal of services in December 2019.
The first notices were received on 19 December 2019 from Ms Halhead on behalf of Supports 2U. Although the first notices were received by LiveBetter on 18 December 2019 they were dated 20 December 2019. Ms Halhead stated in her covering email that she had attached three withdrawal of service letters to give LiveBetter notice of the cancellation of the Supported Independent Living currently being provided by LiveBetter for Ms Munro, Ms Brown and Ms Lucena who were then currently residing at a particular LiveBetter residence in Wagga Wagga.
It is significant that the termination notices were signed by the guardians of the residents. Eight weeks' notice terminating on 14 February 2020 was given. No indication was included concerning the new residence of the clients.
Ms Redford received a second group of three withdrawal of services letters sent by Ms Halhead on 20 December 2019. The letters related to Ms Hocking, Ms Michael and Ms Parker who resided in one property maintained by LiveBetter in Wagga Wagga and Ms French and Ms Burgess who resided in another property. The notices provide for termination on either 9 or 14 February 2020, and do not state who will replace LiveBetter.
Some of these notices were signed by the clients and others were signed by the clients' guardians.
In par 32 of her affidavit, Ms Redford gave the following evidence concerning the consequence of these events: The impact of these 8 clients terminating their services with LiveBetter will be significant. LiveBetter will need to restructure the Business including direct service workers and administrative staff, motor vehicle leases, head office support staff and the cost implications of early termination of leases for rental properties. Job losses and redundancies would be unavoidable and would have significant impact on the Business.
In pars 33 to 38 of her affidavit, Ms Redford gave evidence of conversations that she had on 23 and 24 December 2019 with the guardians of Ms Michael, Ms Lucena, Ms Munro, Ms Brown, Ms Parker and Ms Hocking. I will set out the most material parts of the responses of the guardians deposed to by Ms Redford. In each case Ms Redford asked the reason why the services of LiveBetter were being terminated: Ms Michael. Ryan [Quarmby] came to see us about a month ago and advised that he was setting up his own company… Ryan told me that the majority of staff from the LiveBetter Wagga Wagga office were also transferring to his new business. We have decided to go with Ryan as he will have a local company. Ms Lucena. Mel [Crowe] told us she was leaving LiveBetter, Mel asked me to sign the withdrawal letter. There is nothing wrong with the services provided by LiveBetter but we want to stay with Mel. Mel advised us we should leave LiveBetter. Ms Munro. Mel told us she was leaving LiveBetter, [Melissa Crowe] and she asked me to sign the withdrawal letter. Ms Brown. I did not know that I cancelled the LiveBetter services agreement? I have Parkinson's Disease and do not read. Kim asked me to sign it and did not tell me what was going on or what I was signing. I do not know what is going on. Ms Parker. The service from LiveBetter is lovely and we are very happy with the service. We are just going along with the owners of the house (the owners are the parents of client Kirsten Michael). Ryan came to the house last Tuesday and met with all the families. Kim was also there and we signed the paperwork on Kim's iPad. Ms Hocking. We are just going along with everyone else.
Ms Redford gave evidence in par 56 of her affidavit concerning Mr Quarmby's access to LiveBetter's confidential information, that it included but was not limited to: a) Details of clients of LiveBetter (including contact details, and the names of family members) along with information relating to their care requirements, preferences and NDIS care plans and other confidential health information; b) Pricing information relating to the provision of LiveBetter Services; c) Wage rates of all LiveBetter employees employed in the Business; d) Contact details of all LiveBetter employees employed in the Business; e) Cost of provision of the services in the Business; f) The strategic plan and strategic priorities of LiveBetter; g) The relevant budgeting information; and h) The margins of the Business.
Finally, Ms Redford gave the following evidence concerning the ongoing damage that LiveBetter claims it will suffer as a result of the defendants' conduct: 62. As a result of his knowledge of LiveBetter's confidential information and business systems, and as a result of the contact that Mr Quarmby has had with LiveBetter's clients, providers, suppliers, contractors, I consider that Mr Quarmby's conduct will cause significant damage and reputation of the LiveBetter business, particularly in the Wagga Wagga region. 63. If the 8 clients identified so far are lost, the estimated loss in revenue is more than $3m. Additional losses will be suffered relating to the vacancies, the loss of employees to Mr Quarmby's new business, loss of reputation in the local community. 64. As part of the ongoing investigations into Mr Quarmby's conduct I expect that LiveBetter will be able to quantify the extent to which the loss suffered by Mr Quarmby's conduct as an employee and after termination has and will continue to impact LiveBetter. The current estimate is $3m to $4m per annum in ongoing revenue.
LiveBetter tendered its solicitor's letter of demand to Mr Quarmby dated 24 December 2019 and correspondence between the parties' solicitors in the period up to 27 December 2019. On 27 December 2019 the defendants offered an undertaking to LiveBetter on certain terms,, including that they would not until 24 January 2020 provide any disability services to any persons known to be a client of LiveBetter in the period 27 May 2019 to 13 December 2019, including in respect of the eight clients listed in order 5a made by Davies J. The stated purpose of the undertaking was to enable the parties to attempt to resolve LiveBetter's claim, and if the dispute was not resolved LiveBetter would be free to seek relief after 24 January 2020. The defendants' offer was rejected, and no further undertaking was offered by the defendants at the recent hearing.

Relevant legal principles

I take the principles governing the nature and the strength of the case that LiveBetter must demonstrate in order to be entitled to interlocutory relief to be as stated by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46, as follows (citations omitted): [65] The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued: "The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted." By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referrering to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal: "How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks." … [70] When Beecham and American Cyanamid are read with an understanding of the issues for determination and an appreciation of the similarity in outcome, much of the assumed disparity in principle between them loses its force. There is then no objection to the use of the phrase "serious question" if it is understood as conveying the notion that the seriousness of the question, like the strength of the probability referred to in Beecham, depends upon the considerations emphasised in Beecham. [71] However, a difference between this Court in Beecham and the House of Lords in American Cyanamid lies in the apparent statement by Lord Diplock that, provided the court is satisfied that the plaintiff's claim is not frivolous or vexatious, then there will be a serious question to be tried and this will be sufficient. The critical statement by his Lordship is "[t]he court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried". That was followed by a proposition which appears to reverse matters of onus: "So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought." (emphasis added) Those statements do not accord with the doctrine in this Court as established by Beecham and should not be followed. They obscure the governing consideration that the requisite strength of the probability of ultimate success depends upon the nature of the rights asserted and the practical consequences likely to flow from the interlocutory order sought. [72] The second of these matters, the reference to practical consequences, is illustrated by the particular considerations which arise where the grant or refusal of an interlocutory injunction in effect would dispose of the action finally in favour of whichever party succeeded on that application. The first consideration mentioned in Beecham, the nature of the rights asserted by the plaintiff, redirects attention to the present appeal.
The defendants put that LiveBetter had not established "that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief" as set out in the extract quoted by Gummow and Hayne JJ at [65], because at the interlocutory hearing LiveBetter had relied upon hearsay evidence that would not be admissible at the final hearing. I understand that the defendants were referring in particular to the evidence given by Ms Redford of the discussions that she had with the guardians of the clients after the termination of service notices were received, which has been summarised above.
I do not accept the defendants' submission. If the requirements of s 75 of the Evidence Act 1995 (NSW) are satisfied, hearsay evidence may be led in support of an interlocutory application, and indeed interlocutory relief may be granted when all of the evidence is hearsay. It does not follow from the fact that some of the evidence is hearsay that the question of whether there is a probability that at the trial of the action the plaintiff will be entitled to the relief sought on an interlocutory basis must be decided by ignoring the hearsay evidence. In my view, a proper understanding of the requirement is that there must be a probability that at the trial the plaintiff will succeed in obtaining final relief by being able to prove the facts that have been established on an interlocutory basis, with the less strict rules of evidence that must be satisfied.

Is there a prima facie case or serious question to be tried?

I am satisfied that, on the basis of the interlocutory evidence now before the Court, the following interlocutory findings are justified.
Mr Quarmby and his wife caused New Directions to be incorporated for the purpose of establishing a competing business with LiveBetter, and commenced the process of establishing the resources necessary to enable New Directions to carry on that business during the course of Mr Quarmby's employment by LiveBetter.
At least some of the conduct engaged in by Mr Quarmby in establishing New Directions' business used LiveBetter's email account and was undertaken during the normal hours of business in which Mr Quarmby was obliged by his contract of employment to devote himself to LiveBetter's business. The following is a list of the emails sent by Mr Quarmby, and the page references are to the annexure to Ms Redford's affidavit: 26 August 2019 at 10:35 AM (page 73), 23 August 2019 at 2:14 PM (page 74), 23 September 2019 at 3:28 PM (page 85), 23 September 2019 at 3:19 PM (page 86), 27 September 2019 at 10:13 AM (page 98A), 25 September 2019 at 4:42 PM (page 98B), 23 September 2019 at 3:19 PM (page 98C), 10 October 2019 at 11:26 AM (page 99A), and 27 November 2019 at 5:30 PM (page 101).
Mr Quarmby utilised the services of Ms Crowe while she was an employee of LiveBetter in taking various steps for the establishment of New Directions' competing business, including in relation to the preparation of a property owned by Ms Crowe and her husband and in inducing a number of the eight clients who have terminated their Supported Independent Living arrangements with LiveBetter to do so.
The role of Ms Halhead, who ceased to be employed by LiveBetter on 28 September 2019, is less clear. Ms Halhead appears to have participated in a meeting with clients and their guardians on 13 December 2019, and was involved in procuring the termination notices and sending them to LiveBetter.
Whether Mr Quarmby approached the eight clients or their guardians directly, or through Ms Crowe or Ms Halhead, the contact could only have been made by the use of names and contact details, particularly in respect of the guardians, which I am prepared to infer was confidential information of LiveBetter.
It is not clear whether Mr Quarmby attended a meeting with LiveBetter's clients and their guardians on 13 December 2019, and if he did, whether the meeting took place before or after Mr Quarmby's resignation from his employment on that date took effect. The evidence concerning the dates and times of contacts made by Mr Quarmby, or Ms Crowe or Ms Halhead on his behalf, with clients and their guardians is unclear, but it can be inferred positively that meetings took place during which the clients or their guardians were persuaded to terminate their Supported Independent Living agreements with LiveBetter.
Although there is little evidence concerning the residential facilities established by New Directions to house the eight clients of LiveBetter, the NDIS forms in relation to Ms Munro state that Ms Munro will move to premises provided by New Directions. It is probable that those premises will be able to houses a number of clients. While it has not been established whether New Directions will be able to houses all eight clients of LiveBetter, it is probable that New Directions has the necessary facilities, as it is unlikely that Mr Quarmby would have procured all eight clients to terminate their arrangements with LiveBetter if New Directions was not able to provide alternative accommodation for those clients.
I consider that the evidence is sufficient at this stage of the proceedings to establish that Mr Quarmby, during the course of his employment by LiveBetter, in devoting some of his time to setting up the competing business of New Directions, in causing some of LiveBetter's other employees to assist him in acting in his interests and contrary to LiveBetter's interests, in utilising LiveBetter's confidential information in relation to contacts with clients and their guardians, and I would infer the special and particular needs of each of the clients, and in acting to persuade the clients or their guardians to terminate the services provided by LiveBetter, in order to enable New Directions to provide equivalent services after the termination of Mr Quarmby's employment, constituted a breach by Mr Quarmby of his duty of good faith or fidelity to LiveBetter that arose out of the express and implied terms of his employment: see Robb v Green [1895] 2 QB 315; Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 IPR 315 at 328; X v Commonwealth of Australia (1999) 200 CLR 177; [1999] HCA 63 at [31]; and Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 165 IR 148 at [32], [76]-[77]. As Mr Quarmby was a director of New Directions, and appears from the evidence to have been at least one of the guiding minds of New Directions, a finding is justified that from the time of its incorporation New Directions was a knowing party to Mr Quarmby's breaches of duty.
The same result follows based upon the application of the second paragraph of clause 13 of Mr Quarmby's employment contract in relation to his conduct during the course of his employment, as Mr Quarmby was prohibited from inducing, soliciting, canvassing or approaching any customers of LiveBetter on behalf of any other business.
The position is somewhat less clear in relation to any conduct of Mr Quarmby after he ceased employment by LiveBetter, in so far as he continued his conduct in inducing etc LiveBetter's clients and their guardians to switch their service provider from LiveBetter to New Directions. As the restraint contained in clause 13 of the contract of employment has no time or territorial limitation, it is almost certain that the restraint will be found at a final hearing to be contrary to public policy, as being not reasonable in the interests of the public and not reasonably necessary for the protection of the parties and hence void: Isaac v Dargan Financial Pty Ltd (2018) 98 NSWLR 343; [2018] NSWCA 163 ("Dargan") at [59]. In circumstances such as the present, it could hardly be reasonable to impose an unconfined restraint on Mr Quarmby both as to territory and as to time.
Nonetheless, it may be that the restraint concerning the particular apparent breaches established by the evidence on an interlocutory basis, will be preserved by the operation of s 4 of the Restraints of Trade Act 1976 (NSW): see Dargan at [60]-[62]. At least the eight clients who have been identified were clients at the time of the termination of Mr Quarmby's employment, and the breach of clause 13 was confined to Wagga Wagga or its environs, and occurred in the period immediately after the termination.
The difficulty with this aspect of LiveBetter's claim is that it did not make any real attempt to prove the nature of the client connection that Mr Quarmby was able to establish with clients and their guardians, given Mr Quarmby's elevated management role. Further, there was no attempt to establish a time limit to a period which would justify maintaining the restraint of Mr Quarmby's soliciting LiveBetter's clients or their guardians by reference to the time necessary for LiveBetter's other employees to establish a new client connection.
A significant consequence of this lacuna in the evidence is that it would be difficult for the Court to justify issuing an interlocutory injunction against the defendants that restrained them from soliciting LiveBetter's clients and their guardians for a specified period into the future.
However, a restraint that is based upon the solicitation of clients and their guardians that has taken place during the period of Mr Quarmby's employment, and which extends to solicitation after the termination of the employment that requires the use of LiveBetter's confidential information concerning client and guardian contact details (and other matters such as the care needs of the clients) is another matter. In principle, LiveBetter has established a prima facie case or serious question to be tried that would justify the imposition of a restraint on the defendants in continuing such solicitation or in availing themselves of the benefits of such solicitation as has already occurred.
In this regard, I do not find that the evidence has established that the defendants have misused, or are likely to misuse, all of the categories of information that fall within the definition of "Confidential Information" as set out in the Deed of Confidentiality and recorded in order 5b made by Davies J. It is likely that some of the categories are descriptions of information that the law would not necessarily recognise as being confidential. It is not necessary to explore that issue further in these reasons. It is sufficient to record that, at this stage, LiveBetter has only established to the interlocutory standard the misuse of confidential information concerning the contact details for the clients and their guardians and matters connected with the care plans for the clients sufficient to enable the defendants to provide alternative accommodation and other services to those clients.

Does the balance of convenience favour an injunction?

The defendants submitted that, even if the Court found that LiveBetter had established a prima facie case or serious question to be tried in respect of the making of an interlocutory restraint, such an order should not be made because the balance of convenience favoured that outcome.
One reason given by the defendants in support of that submission was their argument that, in the present case, damages will be an adequate remedy for LiveBetter.
The present case is unusual as the plaintiff is a not-for-profit disability service provider. That suggests that, on an overall basis, LiveBetter's business operations are not directed towards making a profit. It does not follow that LiveBetter will not attempt to make a profit on some of its operations in order to enable it to subsidise the conduct of other operations. LiveBetter has not given evidence that the defendants' conduct will cause it to lose any profit that it would otherwise have earned in relation to the provision of services to LiveBetter's clients as a result of the termination by those clients of the service agreements following from the defendants' conduct
Enterprises of the nature of LiveBetter perform an important public role and they are capable of suffering loss notwithstanding the fact that their commercial objective is not to make a profit. The viable operation of LiveBetter's business depends on revenue exceeding expenditure, even if its objective is not to achieve a result where the former exceeds the latter. A not-for-profit business will suffer loss if its expenses exceed its revenue. The viability of the business may be jeopardised where that result occurs.
As LiveBetter's commercial objective is not-for-profit, and therefore in a sense charitable, it should not matter to LiveBetter in principle as to which enterprise provides the necessary services to disadvantaged or disabled clients, provided those services are delivered to an appropriate standard. If LiveBetter loses revenue as a result of the loss of agreements with its clients to a competitor, that should not matter to LiveBetter provided that it can make, in a timely way, an adjustment to its expenses to accommodate the reduction in revenue. However, for all businesses, including not-for-profit ones, some expenses are fixed and not all other expenses are readily variable to accommodate reductions in revenue in a timely manner.
These rudimentary observations on the nature of losses that may be suffered by not-for-profit enterprises are not comprehensive and may not exhaust the considerations that may be relevant to the determination of any loss that LiveBetter may suffer. They are offered in order to indicate the sort of considerations that may be required to be addressed in order to establish the likelihood that a not-for-profit enterprise will suffer loss and the magnitude of that loss.
Unfortunately, the evidence presented by LiveBetter in this case to establish the likely measure of the damage it will suffer if the defendants' conduct is not restrained is both general and diffuse, even accepting the urgency with which the interlocutory application has been brought on for hearing. The whole of that evidence has been set out in pars 57 and 60 above.
The evidence at this stage establishes that LiveBetter operates three group houses for disabled people in Wagga Wagga and its environs. While the evidence is not precise, I infer that all of the clients who have been accommodated at the three houses have now given notice of termination of their agreements with LiveBetter.
LiveBetter did not provide evidence as to whether there were any other houses under its control or any other clients who were at risk of being solicited wrongfully by the defendants.
The evidence does not establish whether LiveBetter owns or rents some or all of the three houses. I would infer that the houses have been reconfigured to make them suitable for the needs of disabled people, and they could not readily or immediately be let to ordinary persons or families, at least without some significant expenditure.
Ms Redford asserted that LiveBetter would lose revenue estimated at more than $3M from the loss of the eight clients, and that continuing breaches by the defendants will lead to an estimated loss of revenue of $3M to $4M per annum. Ms Redford did not support these figures with any explanation or any evidence concerning the terms of LiveBetter's arrangements with the clients or the NDIS in respect of these clients.
Ms Redford did not explain, even in general terms, what steps LiveBetter would be forced to take to attempt to obtain alternative revenue or to reduce its expenses to match the loss in revenue. Lost revenue by itself is not a useful measure of ultimate loss.
I accept that, as a matter of principle, the ability of LiveBetter to justify employing care, management and administrative employees will in broad terms be proportional to the revenue earned, which in turn is likely to be proportional to the number and circumstances of the clients with whom LiveBetter has agreements to provide services. The evidence provided by LiveBetter, thus far, does not afford real confidence in the Court as to the true amount of disruption that will be caused to LiveBetter's workforce as a result of the continuation of the defendants' conduct.
It is therefore not possible on the present state of the evidence to make any estimate of the magnitude of the loss that LiveBetter may suffer as a result of the conduct of the defendants that appears to have involved a relatively flagrant breach by Mr Quarmby of his duty of fidelity to LiveBetter, the breach of his contractual obligation not to solicit LiveBetter's clients during the period of his employment, and the misuse of LiveBetter's confidential information in order to contact the clients or their guardians for the purpose of solicitation and for the purpose of understanding the needs and service requirements of the clients. The evidence given by Ms Redford concerning the revenue that was likely to be lost was admitted without objection. It is a starting point for the assessment of the loss, although the position that will be reached if LiveBetter properly implements its obligation to mitigate its loss cannot be forecast. The magnitude of the likely loss of revenue suggests that mitigation will require LiveBetter to reduce its workforce, so there is a real likelihood that current employees will lose their jobs. No more can be done than to accept that LiveBetter's loss and the loss of employment by some of its employees will probably be substantial.
The defendants submitted that even in this case it will be an adequate remedy for LiveBetter that it will be entitled to an award of damages if it succeeds at the final hearing. That will not comfort the employees of LiveBetter who will probably lose their jobs as a result of the loss of revenue. As the magnitude of the damages cannot be estimated reliably, it cannot be known whether the defendants will have the resources to meet any order for damages against them. There was no evidence on this issue but, as New Directions is a newly established company with no paid-up capital, and as Mr Quarmby has not provided any evidence that he has the financial capacity to meet a substantial award of damages, it is unlikely that damages would be an adequate remedy in this case.
In any event, I do not accept that, as a matter of principle, it is sufficiently clear that damages will be an adequate remedy to cause the Court to find that the balance of convenience favours a refusal to grant interlocutory relief to LiveBetter. That is because of the inherent forensic difficulty in proving on the balance of probabilities all of the financial consequences of the defendants' breaches and what the result would be of reasonable steps in mitigation taken by LiveBetter.
I would therefore grant interlocutory relief to LiveBetter substantially on the terms set out in par 79 above, subject to the considerations that I will now raise.

Protection of the interests of LiveBetter's clients

As the learned editors of Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) observe at [21-380], citing the decision of the Privy Council in National Commercial Bank Jamaica Ltd v Olint Corp Pty Ltd [2009] 1 WLR 1405 at [16]: What is meant by saying that the Court must take into account the balance of convenience and the question of hardship is that it must consider carefully what effects the granting of an injunction will have on both parties (and indeed third parties), and in particular whether to grant one would cause hardship to the defendant or to refuse one would cause hardship to the plaintiff…
It is unusual for the Court to decide that the interests of third parties may be determinative of whether or not the balance of convenience favours the granting of an interlocutory injunction that would otherwise be granted, but this in my view is such a case.
The third-party interests that give rise to the concern are the interests of LiveBetter's disabled clients.
Were this a case where the competing services offered by the parties were offered to capable clients who were able to make their own commercial choices from amongst competing offers without any disadvantage, the Court would ordinarily decide the issue of the balance of convenience having regard to the strength of the plaintiff's claim against the defendant, the nature and consequences of the alleged breach, and issues of hardship as between the parties alone. It would ordinarily be of little concern that the grant of the injunction may oblige the customers to continue to deal with the plaintiff and the refusal of the injunction may in practical terms oblige the customers to deal with the defendant.
However, in the present case the Court has become aware that LiveBetter's clients, and in particular the eight clients who have been identified, suffer from disabilities which in most cases have the consequence that guardians are required to act on their behalves. There is no evidence concerning the nature or seriousness of the disabilities suffered by any of the clients. There is no evidence about the nature of the services provided by LiveBetter other than accommodation in what appears to be group residences. There is no evidence concerning the importance to the clients of the continuation of the personal relationship between the clients and any employees of LiveBetter who may provide care to the clients. There is not even evidence that specifically establishes that LiveBetter's remaining employees are able adequately to replace any services provided to clients by any employees of LiveBetter whose employment has now ceased or been suspended. Consequently, the Court is not in a position to know whether, if the interlocutory injunction sought by LiveBetter is granted, LiveBetter will be able seamlessly to continue to provide the services provided to the disabled clients hitherto at the existing properties operated by LiveBetter. As in the eight known cases, notice of termination was given to LiveBetter in mid-December 2019, the clients will have been expecting for the better part of a month that, at dates in February of this year, their accommodation would change from their existing residences to properties operated by New Directions. Experience gained from the exercise of the Court's various protective jurisdictions shows that there can be considerable psychological risks to emotionally disadvantaged persons that arise from changes in living circumstances and disappointment of expectations. The evidence does not put the Court in a proper position to judge what the consequences of either granting or not granting the interlocutory injunction will be for the clients.
In these circumstances, I will not grant the interlocutory injunction sought by LiveBetter that I would otherwise have granted, at this stage. I will give the parties an opportunity to address this question and to provide any additional evidence that may be relevant to its resolution. The parties should consider the possibility that I may need to be persuaded that I should not require the clients, or their guardians, to be given an opportunity to express their properly informed preferences concerning the appropriate future arrangements for the accommodation of the clients and the provision of any associated services.
I have formulated the interlocutory order that I would otherwise have made in par 79 in somewhat broad terms. As I have mentioned, I have found the evidence to be less than comprehensive at the interlocutory level, and this has impeded my ability to formulate an appropriate interlocutory order with precision.
I will publish these reasons for judgment, and invite the parties to respond in accordance with par 103, and to make submissions as to the terms of the interlocutory order that should be made, if the Court is persuaded to make such an order.
I am inclined to think that the proper order for costs is that the costs of the interlocutory application should be the parties' costs in the cause, although I will hear the parties on the issue of costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 January 2020

At a glance

Court

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Before

Source

Judgment (11 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (9)