Mantech Systems Pty Ltd v Alpha Nursing Pty Ltd

REASONS FOR JUDGMENT introduction 1 On 9 June 2004, the applicants sought leave to amend their application and statement of claim pursuant to O 13 r 2 of the Federal Court Rules ("the Rules") in conformity with a draft second further amended application and second further amended statement of claim. Pursuant to leave, under cover of their solicitors' letter dated 11 June 2004, the applicants filed another draft second further amended application and second further amended statement of claim. The differences between the earlier and later drafts do not affect the following discussion. 2 Order 13 r 2 confers a broad discretion to permit an amendment to pleadings at any stage of the proceeding. In this case, the respondents have opposed the grant of leave upon the basis that the amendments are so manifestly untenable that they would be struck out if they had appeared in an earlier version of the pleadings. For the reasons that follow, I consider that the amendments raise arguable claims and, therefore, I would grant leave: compare Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 at 155 per Dawson, Gaudron and McHugh JJ. The respondents do not claim any prejudice that cannot be compensated by costs if the amendments are made. 3 The applicants submitted that they sought to make the amendments following further discovery, the production of documents under subpoena, and further discussions with nurses in preparing for trial. The applicants' counsel gave an overview of the applicants' case in what he termed a "Note of Oral Submissions". I set out part of these submissions in order to explain the nature of the applicants' case (without expressing any particular view about it). 1. Within a short time from commencement of its business, the First Respondent had recruited about 40 nurses, 35 of whom worked for the Applicants, in circumstances where it is submitted that the Sixth Respondent, the sole director of the First Respondent, lacked the capacity or experience to pursue such recruitment himself or to set up a nursing agency and did not in fact do so. He relied upon and sanctioned and approved the interventions of the other personal Respondents. 2. The process of recruitment started in at least November 2000, when the Second and Third Respondent[s] commenced an active recruitment campaign while still working for the Applicants utilising knowledge available to them concerning the particular nurses of the Applicants, as well as the knowledge of the Applicants' clients in the Western suburbs. … The manager and nurse allocators who worked for the Applicants shifted to the First Respondent. They recruited a key group of the Applicants' nursing agency staff, and canvassed for the business of the Applicants' key customers … . … 5. After cessation of employment, the personal Respondent nurses engaged in direct recruitment activities as employees of the First Respondent in clear contravention of their non-competition obligations. 6. With respect to the personal Respondent nurses, the case is divided between pre- and post-termination activity. 7. Primary liability with respect to the pre-termination case is directed against the Second and Third Respondents, while primary liability with respect to the post-termination conduct is directed against each of the Second, Third, Fifth and Seventh Respondents. The Second Respondent became general manager of the First Respondent. She was the manager of the Second Applicant's business … . The Third Respondent, in particular, was engaged in improper recruitment activity for a period of at least two months prior [to] her termination with the Applicants. … 8. The pre-termination issues are breaches of the non-competition clause and the confidentiality clause, as well as breaches of fiduciary obligations. 9. The post-termination issues are breaches of the non-competition clause and the confidentiality clause, being directed to both recruitment activity and canvassing of business from the Applicants' clients. 4 In other written submissions, the applicants explained the nature of the amendments in the following terms: The amendments provide as follows:- a. Par. 8 - They outline in further detail the nature of the fiduciary duties owed by the individual Respondents to the Applicants (following the criticism expressed at the last hearing, and noting in particular the judgment of the High Court in Pilmer v. The Duke Group Ltd (in Liq) (2001) 207 CLR 165 at pars. 74 and 78). b. Pars. 10 and 11 identify precisely the conduct in breach of fiduciary duties and breach of agreement engaged in during employment by the Second and Third Respondents. The particulars refer to specific conduct and say that this conduct is "indicative". This approach may be likened to the nature of particulars required in intellectual property cases - see Order 58 Rules 16, 21, 26 and 27. It is invariably not possible - and not required - for an applicant to give particulars of every breach asserted, as long as the categories of breach are identified and such particulars as can be given are given. Specific instances of unlawful conduct are set out, identifying recruitment activity on behalf of the newly established competing business of the First Respondent. The case to be proved at trial is clearly enunciated. c. Par. 12 - This paragraph gives further particulars of recruitment activity after cessation of employment. Again the issues for trial are clearly defined. d. Par. 13 - This paragraph sets out breaches of the confidentiality clause in the employment agreements. e. Pars. 17 and 18 - A plea of inducing breach of fiduciary duties against the First and Sixth Respondents is sought to be introduced. Consequently, further particulars of flagrancy are given. the proposed amendments 5 As the applicants' submissions indicate, in paragraph 8 of the proposed second further amended statement of claim, the applicants would plead that, in addition to the obligations imposed on them by virtue of their contract of employment, the second, third, fifth and seventh respondents owed the applicants a fiduciary duty "with respect to their acting as managers or allocators utilising the particular knowledge they had acquired concerning the nurses who were members of the Second Applicant's agency, and not to promote their personal interests by making or pursuing a gain in circumstances of conflict with the Applicants". The duty arose, so the applicants claimed, "by reason of the [respondents'] employment as managers or allocators for the Second Applicant, and as such having day to day dealings in that capacity with the nurses who were members of the Second Applicant's agency (and in particular knowing contact details of such nurses, payment details, the type of work they undertook, their availability, shift preferences and location preferences)". In particulars to this pleading, the applicants claimed that the fiduciary duty was to be implied from the employer/employee relationship between the first applicant and these respondents "with respect to their role as managers or allocators". 6 In paragraph 10 of the proposed amended pleading, the applicants seek to allege breach of fiduciary duties. In substance, they would allege that, whilst still employed by the first applicant and working for the second applicant, and utilising "financial, business and confidential data … concerning the Applicants' agency staff and business": · the second and third respondents worked as recruitment consultants and allocators for the first respondent and contacted the applicants' agency staff to persuade them to work for the first respondent, rather than the second applicant; and · the second respondent recruited the fourth respondent to work as a manager for the first respondent. There are particulars for these allegations. 7 It is plain enough from paragraph 11 of the proposed pleading that the second and third respondents rely on the same conduct to constitute the alleged breaches of fiduciary duties and the alleged breaches of contractual obligations. 8 The effect of paragraph 12 of the proposed pleading is to allege that the second, third, fifth and seventh respondents breached a non-competition clause in their contracts of employment with the first applicant after this employment terminated. The applicants would give further particulars of this alleged breach. Specifically, they would add, by way of particulars, that each of the relevant respondents "recruited many nurses to work for the First Respondent in the 12 month period following the cessation of their employment with the Applicants, many such nurses being members of the Second Applicant's agency". The applicants have prepared a table indicating, by reference to month and year, the number of nurses who joined the first respondent and the number of nurses who joined the second respondent who were also nurses of the second applicant. 9 In paragraph 13 of the proposed pleading, the applicants propose to allege that, since the termination of their employment, the second, third, fifth and seventh respondents have used "financial, business and confidential data" belonging to the applicants and their customers without the applicants' consent. After giving particulars of these allegations, the applicants' claim is that this conduct breached a confidentiality clause in their contracts of employment. 10 Finally, in paragraphs 17 and 18, the applicants would plead that the first respondent induced the second and third respondents to breach their fiduciary duties and that the sixth respondent "acted as a joint tortfeasor" with the first respondent in inducing these breaches. The applicants give particulars of these allegations, including that: The Sixth Respondent acted at all material times as managing director of the First Respondent and directed and requested that the Second and Third Respondents engage in the conduct of using their special knowledge concerning nurses who were members of the Second Applicant's agency … for the benefit of the First Respondent. the respondents' opposition to these amendments 11 Counsel for the first and sixth respondents challenged the proposed pleading on numerous bases. Counsel submitted, first, that the breaches of fiduciary duty claim added little to the claimed breaches of the restraint of trade clause, since the same conduct was in issue in both claims. They noted too that this conduct was also part of the inducement claims made against the first and sixth respondents. They also submitted that there was little substance in the alleged breach of the contractual obligation of confidence, having regard to the particulars and the context of the case. 12 Whilst there is some force in these submissions, acceptance of them would not of itself justify a court in refusing the leave the applicants seek. 13 Counsel for the first and sixth respondents also submitted that the claimed breaches of fiduciary duty were untenable, because the applicants relied on the same conduct as that constituting breaches of contract and fiduciary duty and, in substance, framed the alleged contractual and equitable obligations in the same terms. The respondents' submission was that there was no room for the imposition of a fiduciary duty where the parties specified in their contract the terms and conditions that related to the very matter of the complaint. 14 In order to understand this submission it is necessary to consider briefly the current state of the authorities. In Breen v Williams (1996) 186 CLR 71 at 113, Gaudron and McHugh JJ said: In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed. In Pilmer v Duke Group Ltd (in Liq) (2001) 207 CLR 165 ("Pilmer") at 199, McHugh, Gummow, Hayne and Callinan JJ added: [T]he fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is "a conflict or a real or substantial possibility of a conflict" between personal interests of the fiduciary and those to whom the duty is owed. That is how the matter was put by Mason J in [Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103]. The relation of employee and employer is an accepted fiduciary relationship. 15 Citing Morris v Hanley [2003] NSWSC 42 at [42] - [47] per Hamilton J, Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 ("Hospital Products") at 97-98 per Mason J and Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831 at 839 per Fletcher Moulton LJ, counsel for the first and sixth respondents submitted that, since the parties' obligations were specified in the contracts of employment with the first applicant and the conduct complained of fell within the terms of these contracts, then the law could not superimpose concurrent or additional fiduciary duties. 16 I begin by observing that, plainly enough, a fiduciary obligation is different in character from an obligation in tort and contract: see Pilmer at 196 per McHugh, Gummow, Hayne and Callinan JJ. Contractual and fiduciary relationships may coexist on some occasions, as for example in the employee-employer relationship: see Pilmer at 197 per McHugh, Gummow, Hayne and Callinan JJ. Indeed, as Mason J said in Hospital Products at 97: [T]he existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. It does not follow from this, however, that there cannot be concurrent obligations both of the fiduciary and contractual kind: see Pilmer at 218 per Kirby J. Of necessity an employee-employer relationship is contractual. But, as Mason J, in his dissenting judgment, said in Hospital Products at 105: The employees' duty of loyalty may involve him in a breach of duty if he secretly makes arrangements during his employment to compete with his employer after termination of the employment.