Next Generation Advice Pty Ltd (in liq) v Doumani

INTRODUCTION 1 The three applicants in this proceeding (Next Generation Advice Pty Ltd (in liq) ACN 120 066 113, Integral Advisory Solutions Pty Ltd (in liquidation) ACN 639 094 956 (IAS) and Integral Wealth Group Pty Ltd (in liquidation) ACN 632 978 173 (IWG), respectively) seek the continuation of interim Orders made on 13 September 2024, with certain modifications that, in broad terms, restrain the five respondents (Mr James Doumani, Mr Benjamin Hopkins, Mr Jordan Gitani, Mr Omar Salkic and Smartmove Advice Pty Ltd ACN 667 350 370, respectively) from soliciting the applicants' clients, misusing the applicants' confidential information, soliciting the applicants' staff members, and, in the case of the first respondent, who remains a director of each of the applicants, generally being involved in any business which is in competition with the applicants' business. 2 The applicants also seek orders requiring Mr Gitani to provide an affidavit identifying any clients with whom he, or Smartmove Advice, have had any communications regarding that person becoming a client of Mr Gitani or Smartmove Advice, and similarly, identifying any former employees or contractors of the applicants who have become employees or contractors of Smartmove Advice. 3 The first, third, and fifth respondents opposed the continuation of the Orders. There was no appearance by the second respondent, who had been served with the application. The fourth respondent has not been served with the application, and apparently has been unable to be served.

RELEVANT BACKGROUND 4 Next Generation conducts a business providing financial advisory services to clients. IAS and IWG are part of the same corporate group (the Group) and conduct marketing and referral activities for the purpose of procuring clients of Next Generation. 5 Mr Doumani is a current director of each of Next Generation, IAS and IWG. He is also one of the ultimate owners of, at least, Next Generation Advice. Mr Hopkins, Mr Gitani and Mr Salkic were, until very recently, employees of, respectively, IAS, IWG and Next Generation. Mr Hopkins was employed by IAS until 6 September 2024. His signature block in emails described him as "Head of Advice & Responsible Manager". Mr Gitani was an employee of IWG until 27 August 2024. It appears that he was a "manager" from September 2023 to 27 August 2024, and Mr Gitani's evidence is that, prior to that time, his role was as a general adviser. 6 Mr Gitani's evidence is that he was an independent contractor, rather than an employee. Mr Salkic was employed as Financial Controller of Next Generation Advice until 6 September 2024. Mr Gitani is also a director and the sole shareholder of Smartmove Advice. Following Mr Hopkins' and Mr Densley's departure as directors on 3 and 5 September 2024, respectively, Mr Gitani is now the sole director of Smartmove Advice. It is the applicants' contention that there is, at least, a prima facie case that Mr Doumani, in fact, controls Smartmove Advice.

SHOULD THE ORDERS BE CONTINUED? 7 An applicant for an interlocutory injunction must establish that it has a prima facie case, and that the balance of convenience favours the granting of an injunction. I note that the applicants have offered the usual undertaking as to damages, and that that undertaking is of value.

Mr Doumani 8 The applicants submit that, in respect of Mr Doumani, the evidence grounds an inference (and, in any event, there is at least a prima facie case) that first, Mr Doumani stands behind Smartmove Advice, and, secondly, although Mr Gitani is listed on the Australian Securities and Investments Commission (ASIC) search as the sole director and shareholder of Smartmove Advice, Mr Gitani is a "front" for Mr Doumani. 9 Mr Doumani describes this as a fantastical narrative, and denies that there is any "conspiracy", as it was put, in these terms. Both the first respondent, and the third and fifth respondents, point to the fact that Smartmove Advice has held an Australian Financial Services Licence (AFSL) since August 2023. That fact, however, does not preclude the possibility that the applicants' case theory is at least arguable. 10 As to the applicants' case theory, they point to the following factors. First, as far back as December 2023, Mr Doumani described, by email, Smartmove Advice as being Next Generation's back-up licence. Mr Doumani's comments in a document emailed by him in May 2024 are to the same effect. Secondly, in both of those communications, the purpose of Smartmove Advice's AFSL was said to be, and I quote, "confidential". That desire for confidentiality, the applicants submit, is consistent with the establishment of having another person as the "front" for the business. 11 Thirdly, Mr Doumani's email exchange with Mr Sandy Zhang of Creo Legal in December 2023 is consistent with Mr Doumani "calling the shots", as the applicants submit. It is not apparent why Mr Doumani would have any role at all in, for example, arranging a constitution for Smartmove Advice, and deciding who would be a director of the company, if he did not stand behind that company. The applicants say that it is most difficult for Mr Doumani to explain away, in this context, his presence at the two meetings held on 6 September 2024, and his comments to staff members at those meetings. 12 As to the events of that day, at about 8.58am on 6 September 2024, Mr Salkic sent an email resigning as Financial Controller of Next Generation, effective 13 September 2024. Just over half an hour later, Mr Hopkins and Mr Salkic told all staff working in the office at Next Generation's business premises (at 21-23 Upton Street, Bundall, in Queensland) (NG Premises) to go next door to another building for a meeting. When staff members went next door to that building, Mr Doumani was present and waiting for them. A meeting then occurred at about 9.40am, attended by approximately 15 to 20 staff members of the Group. 13 The affidavit evidence reveals that it was Mr Doumani who, at that meeting: told staff members that there was a dispute between his family and the Pappas family, and then explained some details of that dispute; that an email which had been sent earlier that day would destroy the value of the client book, with the result that the staff would not have any ongoing work with the Group shortly; and that he would "look after" the staff. Mr Hopkins then said to the staff members in attendance that they should resign from the Group immediately, that jobs were being offered to all the staff at Mr Gitani's business, and that they should contact Mr Gitani about new positions at his business. 14 Subsequently, at around 10.00am, Mr Hopkins directed staff to leave the NG Premises and drive to Mr Gitani's new business premises, located at Ashmore Road in Bundall. The affidavit evidence then deposes to a second meeting having taken place at those premises at Ashmore Road, attended by approximately 10 staff members. At that meeting, the attendees were given a tour of the business premises by Mr Hopkins, and Mr Gitani said to those attendees that: staff would receive new contracts and be paid as normal; the new business would operate as normal; and the new business was going to operate like Next Generation. Those statements are contrary to the proposition put by the third and fifth respondents that, in fact, the business was simply going to be involved in, what I will call, the "retirement business". 15 Importantly, as the applicants submit, Mr Gitani also said that it was okay to send a text message to the Group's clients and provide details of the new business, and that once a response had been received from a client, there was no issue from a "conflict of interest perspective" in Mr Gitani's business working with those clients. That statement does not accord with the interpretation put in correspondence by Mr Doumani's solicitor to the effect that it was simply giving clients notice that the nature of the business had changed. Mr Doumani and Mr Gitani have now sworn affidavits in this proceeding but did not comment on any of these matters that I have just outlined relating to their involvement in those meetings, or as to what was or was not said at those meetings. Mr Hopkins and Mr Salkic have not given any evidence. I infer that whatever evidence Mr Doumani and Mr Gitani might have given would not have assisted them: Blatch v Archer (1774) 1 Cowp 63; 98 ER 969. 16 The fifth matter to which the applicants pointed as supporting their case theory was that between 19 April 2023 - when Smartmove Advice was incorporated - and 29 August 2024, Smartmove Advice's registered "principal place of business" was 21-23 Upton Street, Bundall. That address is, of course, the location of the NG Premises. Similarly, between 5 February 2024 and 17 September 2024, Smartmove Advice's registered office was the NG Premises. If Smartmove Advice was simply Mr Gitani's business, it is, as the applicants submit, difficult to see why its principal place of business and registered address would be that of Next Generation. 17 The applicants posit a number of causes of action against Mr Doumani. The first is to restrain him from conducting a competing business. This involves an allegation that he may have breached his duties by inducing or encouraging the applicants' clients to transfer their business to Smartmove Advice, and by inducing or encouraging the applicants' staff to resign, or otherwise cease working for the applicants, and to commence working with Smartmove Advice. Additionally, the applicants say that, as a current director of the applicants, Mr Doumani cannot, consistent with his duties to those companies, either under s 181 of the Corporations Act 2001 (Cth) or in equity, conduct or be part of a business operating in competition with the applicants' business. They cite Re JK Meats Proprietary Limited [2018] NSWSC 525 (Brereton J) as authority for that proposition. 18 Further, it is possible that there are also contractual restraints on Mr Doumani. In his affidavit, filed on 23 September 2024, Mr Doumani deposed that he was initially employed by IWG as a manager for a period of about two months before he bought shares in IWG and IAS and became the sole director and shareholder of both companies. He did not give evidence as to whether he signed written employment contracts, nor does he depose that, when he became a director and shareholder, any employment contract - whether written or oral - was terminated. 19 The second cause of action relates to the use of confidential information and the breach of duties, under s 181 of the Corporations Act, to use the applicants' confidential information other than for the purpose of the business of the applicants. There is at least a prima facie case that any such use of the applicants' confidential information would breach obligations under ss 182 and 183 of the Corporations Act, an equitable obligation of confidence, and any contractual obligations Mr Doumani may have, if established at trial. 20 As to the use of that confidential information, the applicants pointed to the following five matters in support of the prima facie case for an injunction to restrain the use of the confidential information. First, what was said at the first and second meetings, particularly the second meeting, indicated an intention to seek to solicit the applicants' clients for the new business. Secondly, from the second meeting, it appeared to be that the intention was to contact the applicants' clients by sending them text messages, and, as the applicants submitted, there is at least a serious issue to be tried as to whether the use of the mobile phone numbers for the applicants' clients themselves, for the purpose of sending those messages, comprised the use of confidential information. 21 Thirdly, and more specifically, there was information to support a conclusion of intention to use particular confidential information of the applicants. Specifically, on 31 August 2024, after the liquidators had been appointed, an employee of IWG emailed Mr Gitani a document, apparently containing a list of the applicants potential clients, with a covering email that suggested (at least) it was done in anticipation of the liquidators restricting access to that particular list. Fourthly, the Telegram Messenger communications between Mr Hopkins and Mr Doumani on 23 and 24 August 2024 (23 August 2024 being the date on which the Supreme Court of Queensland ordered the appointment of liquidators) tend to suggest that Mr Hopkins was taking records of some or all of the applicants' files. 22 Fifthly, there was evidence that the applicants' "Financial Services Guide" and "Privacy Policy" were taken by Mr Hopkins and are now being used (modified as necessary) by Smartmove Advice and are linked to its website. 23 The third cause of action that is posited against Mr Doumani is that of inducing or procuring breaches of contract. The evidence suggests that many, if not most, of the applicant's current and former employees and staff members are parties to contracts of employment or contracts governing an independent contractor relationship. Some of those contracts, at least, include clauses prohibiting solicitation of the applicant's clients and solicitation of the relevant applicant's staff to work for another entity. In light of the events of 6 September 2024, I accept that there is a prima facie case that there is a risk that Mr Doumani will induce or procure breaches of those contracts, and may have already done so.

Messrs Hopkins, Gitani and Salkic 24 As to the prima facie cases against Messrs Hopkins, Gitani and Salkic, they are each in a different position to that of Mr Doumani, because they are not directors of any of the applicants. Rather, they are each former employees of one of the applicants. 25 The evidence is that Mr Hopkins and Mr Salkic are bound by their contracts, which do contain confidentiality clauses. The liquidators have not yet been able to locate Mr Gitani's contract. He deposes to not having had one, or at least to not ever having a written employment contract with IWG. He does not, however, go on to say that he had no oral contract, nor that he had no written agreement, relating to his alleged position as an independent contractor. 26 The absence of a written contract does not, in any event, preclude a finding that a duty of confidence nevertheless arose. There is a serious question to be tried as to whether any such duty of confidence did rise either by contract or in equity. There is therefore also a prima facie case that there is a real risk warranting a quia timet injunction of the second to fourth respondents using the applicants' confidential information, and thereby breaching (at least) s 183 of the Corporations Act, and/or the equitable duty of confidence. Mr Hopkins and Mr Salkic's contracts also contain causes prohibiting solicitation of their employee staff and clients.

Smartmove Advice 27 As to the case against Smartmove Advice, Mr Gitani, as I have said, is a director of Smartmove Advice, and it is the business for which the applicants' staff were encouraged to work. I accept there is, at least, a prima facie case that it is Mr Doumani who controls Smartmove Advice and that Mr Doumani is using Smartmove Advice to keep for himself the business of Next Generation. 28 There is a prima facie case that Smartmove Advice: first, has been or is seriously anticipated to be involved in - within the meaning of that term in s 79 of the Corporations Act - both the contraventions of Mr Doumani under ss 181 to 183 of the Corporations Act, and contraventions by Messrs Hopkins, Gitani and/or Salkic of s 183; and secondly, is knowingly involved in or is anticipated to be involved in breaches by Mr Doumani of his fiduciary duties owed to the applicants, and is engaged in inducing or procuring breach of contract by the applicants' staff.

Balance of convenience? 29 I turn then to the balance of convenience. In the present case, the evidence reveals that there is a substantial risk that the respondents may poach the applicants' clients (and remaining staff) and may misuse the applicants' confidential information. There is at least a substantial risk that, if the Risk Book and Retail Book clients are solicited by or on behalf of Smartmove Advice, or the Group's confidential information required to operate its business is disclosed, the value of the Group's business, including in particular its Risk Book and Retail Book, will be diminished, possibly to zero, and any remaining prospect of effecting a sale of the Group's business as a whole will be lost. 30 To the extent that it was submitted by Mr Doumani that all that is, in fact, being sold are the assets of the business, and not the business itself, on the material before the Court at this stage of the proceedings, I reject that submission. There is evidence that the valuation of the business is substantial. 31 Conversely, any detriment to the respondents of continuing the injunctions is likely to be limited. There is no evidence from Messrs Doumani, Hopkins or Salkic about any alleged detriment they would suffer by the proposed interlocutory injunctions, except in Mr Doumani's case, to the extent that he says he is unable to be gainfully employed whilst he remains a director. I observe, however, that whether or not he remains a director is a matter wholly within his own ability to remedy. Indeed, it is fair to say that the grant of the injunction was not seriously opposed by counsel for the third and fifth respondents. Rather, what was urged was an expedited hearing. In my view, the balance of convenience in this case favours the continuation of the interim orders, albeit in a modified form. 32 As to the Norwich orders (Norwich Pharmacal Co v Commissioner of Customs and Excise [1974] AC 133) sought by the applicant, my attention has been drawn to the decision of Moshinsky J in New Aim Pty Ltd v Leung [2021] FCA 1329. The circumstances of that case were, in material respects, different from those currently before the Court. I do not consider it appropriate in this case to require the respondents to, in effect, provide discovery prior to pleadings. Even were such a procedure generally recognised by the Federal Court Rules 2011 (Cth), the applicants have not identified anything exceptional about the circumstances of this case that would persuade me to make such an order. 33 Consequently, I will make Orders substantially continuing the interim Orders but with modifications reflecting concessions made by Counsel for the applicants as to the inappropriate breadth of Orders 1(d), 2(b)(i), 2(c)(i) and 2(d)(i). Mr Hopkins and Mr Salkic will be included in the restraint contemplated by Order 3(e). There will be consequential amendments to the Orders substantially in the terms of the applicants' draft. 34 I will also order that the matter be referred to the National Operations Registrar to be listed before a docket judge for an expedited trial and make timetabling orders up to the close of pleadings and discovery. Costs will be costs in the proceeding. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Sarah C Derrington.

Associate: Dated: 25 September 2024 SCHEDULE OF PARTIES QUD 541 of 2024 Respondents Fourth Respondent: OMAR SALKIC Fifth Respondent: SMARTMOVE ADVICE PTY LTD ACN 667 350 370