Plaintiff v Defendants

Supreme Court of Victoria|2008-08-22|Before: BYRNE J

EMPLOYER and EMPLOYEE - Accountant - whether employee in breach of duty of fidelity to employer - whether employee removed confidential information - whether employee in breach of restraint clause in employment contract

1 The firstnamed defendant, James Mario Galea, has since 1982 been an accountant. In or about May 1999 he was employed as such by the plaintiff, Patrick Michael Foster, who carried on business as a certified practising accountant in Werribee under the firm name PM Foster & Co. Over the previous 17 years Mr Galea had built up a substantial client base with a turnover of about $150,000 per annum. And so, to secure this business, Mr Foster paid him about $126,000 as the "purchase price" of his client portfolio. These clients duly became clients of Mr Foster but their affairs continued to be looked after by his employee, Mr Galea. By 2003, this portfolio represented about 53 clients, many of whom brought with them associated entities, such as partnerships, trusts, superannuation funds, companies, and family members. They were referred to at trial as "the acquired clients" although, in fact, Mr Galea had begun servicing a small number of them during his tenure at PM Foster & Co.

2 By an agreement in writing dated 18 February 2003 Mr Foster and Mr Galea formalised the terms of his employment. This document was expressed to apply from the commencement of Mr Galea's appointment on 28 June 1999 and to run until 31 December 2003.

3 The employment agreement contains a restraint clause in the following terms:

It is agreed that the employee shall at no time during his employment with the employer undertake any accounting or taxation work for any then or previous client of the employer or which work has been generated from current or past clients or contacts made therefrom.

It is further agreed that the employee shall not for a period of two years from his termination, either in his own name or through any employer, undertake any accounting or taxation work for any client of PM Foster & Co or any contacts made therefrom.

The preceding clause does not prevent the employee from undertaking any accounting and/or taxation work, as an employee of another firm, or[2] any individual or entity which was at any time previously a client of PM Foster & Co but which had left PM Foster & Co as a client completely of its own accord, or a contact made therefrom.

4 In mid-2003, relations between Mr Foster and Mr Galea became somewhat strained and the latter decided late in the year to seek employment elsewhere. On 5 January 2004 he gave four weeks' notice and on 2 February he became an employee of the secondnamed defendant Theresa Sgambaro, who was carrying on business in Werribee as a public accountant. Soon after he became her employee she began trading under the firm name Werribee Accounting Service.[3] Notwithstanding that this was not the name of the firm at the time of many of the events with which this proceeding is concerned, I shall refer to it as Werribee Accounting Service unless it is necessary that I be more precise.

5 Very soon after he commenced with Ms Sgambaro, nearly[4] all of the acquired clients transferred their accounting work from PM Foster & Co to Werribee Accounting Service. This litigation concerns Mr Foster's claims against Mr Galea and Ms Sgambaro for damages and other relief arising out of the loss of these clients.

6 The proceeding commenced in the County Court in 2004 and was transferred to this Court in 2005. The current version of the statement of claim[5] alleges three causes of action against Mr Galea:

(1) In breach of the terms of his employment agreement he solicited the acquired clients to transfer their accounting work from PM Foster & Co to Werribee Accounting Service.[6]

(2) In breach of the fiduciary duty owed to Mr Foster as his employer: [7]

(a) he solicited the acquired clients to transfer their accounting work to Werribee Accounting Service;

(b) he performed work for the acquired clients without causing them to be invoiced by PM Foster & Co for that work;

(c) after he left his employment with PM Foster & Co he caused to be invoiced by Werribee Accounting Service the acquired clients for the work which he had performed as an employee of PM Foster & Co;

(d) he took away documents and confidential information from PM Foster & Co without authorisation and for his own benefit.

(3) Mr Galea communicated certain confidential information, the property of PM Foster & Co, to Ms Sgambaro.[8]

7 Two causes of action are alleged against Ms Sgambaro, both concerning the receipt by her of confidential information. It is alleged that she knew or ought to have known that she had received the confidential information through Mr Galea and that the information belonged to PM Foster & Co.[9] The plea goes on to allege that the confidential information was used in her accounting practice, that she derived fees and income from its use[10] and that she is liable for this in damages The same allegations are then made in support of a claim in restitution.[11]

8 The evidence showed that by about mid-2003 Mr Galea was not content with his position with PM Foster & Co. He said that certain of the acquired clients were also unhappy. One of them, John Lando, who provided work over the preceding years worth about $20,000 to $30,000 in fees, was a concreting contractor. He was unhappy that concreting work for a property development promoted by Mr Foster in Werribee was given to a competitor. In September 2003 he withdrew his accounting work from PM Foster & Co. It may be that his brother, Sam Lando, also left PM Foster & Co at the same time. Other clients who left were Giurfo and Mario Chetcuti, who left in September 2003 and his brother Joe Chetcuti, who left on 5 November 2003. Mr J Chetcuti had provided accounting work worth about $7,800 in the financial year 2000, $2,650 in the year 2001, $6,500 in the year 2002 and $7,800 in the year 2003. On the same day, Mr J Chetcuti consulted Ms Sgambaro but she performed no accounting work for him or his associated entities in that year.

9 Mr Galea took six week's leave from 14 November 2003 up to the end of the year. He said that it was at this time that he made a final decision to leave PM Foster & Co. He said that in October he had discussions with Ms Sgambaro about his taking a position with Werribee Accounting Service and that, following his decision in December to leave PM Foster & Co, he telephoned her and accepted her offer. She said she had by year's end no agreement with him that he be employed by her. It was not until after 5 January 2004 when he gave to Mr Foster four weeks' notice in writing that, according to her, he first offered himself as an employee and she accepted him.

10 By this time, it was apparent that to all concerned that the remaining acquired clients might leave PM Foster & Co with Mr Galea and he had already sought and obtained legal advice as to his rights and obligations about this. The substance of this advice was, of course, privileged, but it seems likely that it concerned the impact of the restraint clause upon any work which he might do in the future for the acquired clients.

11 Ms Sgambaro said that she was not interested in performing work for the acquired clients. Indeed, she said that she was employing Mr Galea to look after her own clients as she and her staff were already fully extended. She said that she enquired about the work that he had been doing but this was the better to understand Mr Galea's capacity and experience. She said that she neither offered nor paid him anything for the acquired clients and no commission or extra salary for work which he might do for them as her employee. She said that he told her that he had received legal advice but she denied the suggestion put on his behalf that he gave her a copy of the advice. I accept her evidence as to all of this.

12 Upon receiving Mr Galea's notice, Mr Foster, too, was aware that the acquired clients for which he had paid a large sum might leave him. On 9 January 2004 the two men discussed the sale back to Mr Galea of the acquired clients. Mr Foster's conduct at this time is difficult to understand. At this meeting, faced with the likelihood that valuable clients would be lost, he not unreasonably suggested that Mr Galea should pay him some compensation. He invited his employee to put a figure forward. Mr Galea responded that it was Mr Foster who should make the opening bid. This stalemate was never resolved and the matter of compensation was not discussed again. By a memorandum of 19 January Mr Galea again sought that Mr Foster make him an offer. Mr Foster's surprising response was to serve the writ in this proceeding on the following day.

13 Another bone of contention was the PM Foster & Co working documents with respect to work done for the acquired clients. Mr Foster divided the documents he held into three classes. First, there were the prime source documents provided by the client which were returned to the client when the accounting work was completed. Second, there were the statutory registers, which included books of account, minute books and the like. These were retained by PM Foster & Co in a locked cupboard until called for. Third, there were what he called the working papers file This included drafts, trial balances, working papers which go to produce the financial reports or tax returns, copy correspondence and the like. Furthermore, there were, of course, PM Foster & Co's own records. These included time sheets and the firm's billing records including computer records. I am content to adopt this classification and terminology. Mr Foster took the position that only documents of the first and second classes were the property of the client and which the client might call for. The remaining classes were his own property and he was not ready to hand them to the departing clients or to their new accountant.

14 Following the receipt of Mr Galea's notice, Mr Foster said that he caused to be carried out a search of the files of the acquired clients. This examination was in fact conducted by his personal assistant and office manager, Angela Edmonds. She is no longer in his employ and was not called to verify her searches although her notes of some of them were put in evidence. In these, she speaks of documents missing from the working papers files. Mr Foster adopted the notes of her searches, saying that he, too, looked at the files and noticed that documents were missing. He said that all of this happened before the discussion about compensation on 9 January.

15 I doubt that this is correct but nothing turns upon it. It was contradicted by Mr Galea. It is more likely that it occurred some days after 9 January. I make this finding in the light of my estimation of Mr Foster as an unreliable witness and because it is inconceivable that he failed to mention this matter on 9 January if he then knew about it. It became a matter of considerable importance some days later when, on 15 January 2004, he accused Mr Galea of unlawfully removing client files from the office and in the exchange of irate correspondence between them about this on 16 January. The accusation appears in the statement of claim on the writ filed on 20 January. The allegation of unlawful removal of all or most of the acquired clients' papers continued to be made after January; when Ms Sgambaro telephoned Mr Foster about this in late February or early March, he rudely refused to speak with her. The allegation continued to be made in intemperate and extravagant terms up to the morning of the third day of the trial. Mr Foster, having repeated it on oath in evidence in chief, finally repented and accepted that documents were missing from four files only.

16 It is convenient at this stage to venture my views upon the reliability of the three parties as witnesses. Mr Foster struck me as having maintained his outrage about his former employee's conduct over the four years which have passed. I have mentioned the admittedly false and extravagant allegations with respect to the client files. This was but one and perhaps the most egregious example of emotion swaying his judgment, his reason and his recollection. The statement of claim contains a number of allegations of which there was no real attempt to offer substantiation. His readiness to jump to conclusions adverse to Mr Galea and to Ms Sgambaro provides another example. It was sufficient from an observation the Mr Galea's car was seen outside Mr Lando's place of business and in the business district of Werribee for him to conclude that Mr Galea was surreptitiously conspiring with the acquired clients to his detriment. In the witness box he seemed on many occasions to give ill-considered and obviously inaccurate answers. In my assessment this was the product of emotion rather than any malice. Whatever be the cause, the consequence is that I approach his evidence as potentially unreliable.

17 His evidence is to be contrasted with that of Ms Sgambaro who struck me as an honest witness doing the best she could with events of many years ago. She was ready to make concessions when this was appropriate but remained unshaken in her testimony notwithstanding searching cross-examination.

18 Mr Galea's evidence presents its own difficulties. By the time he gave evidence counsel for Mr Foster had, as will appear, erected a powerful circumstantial case that he had in some way engineered the migration of the acquired clients. There was, about the case, what I described as a bad smell. This was not altogether dispelled by the witness's evidence, which I approach with a good deal of caution. The difficulty arises from the fact that none of the acquired clients gave evidence. There was no evidence to contradict Mr Galea's statements that he did not take the files, that he did not solicit the clients and that he did not act improperly to the detriment of his former employer. The other witnesses, Mr Foster and Ms Sgambaro, were not able to give direct evidence as to these matters. No substantial inconsistencies appeared in his evidence and there was little in the way of contradictory evidence. Notwithstanding my caution, I am not prepared to reject his uncontradicted evidence.

19 I shall consider the allegations against Mr Galea under four general headings. First, that during his employment he improperly solicited the acquired clients to leave PM Foster & Co and to engage Werribee Accounting Service. Second, that during his employment he diverted work or fees away from PM Foster & Co. Third, that during his employment he improperly took away documents and confidential information from PM Foster & Co. Fourth, that he breached the restraint covenant. Mr Galea denied these allegations in the witness box. No direct evidence was led to challenge the first three of them: counsel for Mr Foster presented a circumstantial case in support of these allegations. It is to this circumstantial case that I first turn.

21 First, from about mid-2003 the normal volume of work billed to a number of the acquired clients diminished. The PM Foster & Co records for 19 of these 53 clients were subject to scrutiny to establish this fact. These 19, however, included John Lando, Sam Lando, Joe Chetcuti, Mario Chetcuti and Giurfo, all of whom had left in 2003. Of the remainder, the billing records show that between 1 July 2003 and 30 January 2004 the number of hours billed was unaccountably less than in previous years.

22 Second, an examination of the 19 client files shows that accounting work was in fact done by Mr Galea for some of them but the work was not recorded in his timesheets and not billed to them.

23 Third, part or all of the working papers files of four clients were found in January 2004 to be missing. These included John Lando, Sam Lando, Mario Chetcuti and Joe Chetcuti who had previously withdrawn their work from the practice. The other files were those of the clients Fragapone, Velisha and Yankos.

24 Fourth, Mr Galea was on 15 January seen to be removing files from the office of PM Foster & Co. In fact, Mr Foster was in Colac on that day. When the removals were reported to him he accused Mr Galea of removing clients' working paper files but this was denied.

25 Fifth, during the time that Mr Galea was on leave, his car was seen outside the business premises of John Lando and around the Werribee business district where others of the acquired clients had their businesses.

26 Sixth, Mr Galea started with Werribee Accounting Service on 2 February 2004. The billing records of that firm and Ms Sgambaro's evidence show that, almost immediately, a large number of the acquired clients consulted him at his new employer's offices and that all 53 ultimately became clients of Werribee Accounting Service.

27 Seventh, in February 2004 Ms Sgambaro signed 49 "ethical letters" which were sent to PM Foster & Co. These, together with two which were dated March 2004 covered all of the acquired clients which had not left PM Foster & Co in 2003. These letters, which were in a standard form devised by Mr Galea but modelled on Ms Sgambaro's pro-forma contained advice that the client in question proposed to engage Werribee Accounting Service as their accountant and enquired whether "there [was] any reason professional or otherwise, which would preclude me from accepting this appointment". The letter went on to seek delivery of a number of documents which included documents within Mr Foster's classification of working documents. The request for these and other information varied to suit the requirements of the particular client.

28 In response to these ethical letters Mr Foster in early March wrote fairly formal letters advising that "we have no reason, ethical or otherwise, as to why you should not accept the appointment as Accountant for the above named". The terms of the various responses varied to suit the position of the client. In general, he offered to deliver up the statutory registers, but not his working documents files. He pointed out that the detailed tax returns and financial statements had been provided to the client.

29 Eighth, although the ethical letters were, for the most part, also signed by the clients, Mr Galea also procured their signature on another series of standard form documents entitled "Authority to Act". These documents appear to have been drafted with an eye to the prospect that Mr Foster might contend that, in breach of the covenant or otherwise, Mr Galea had solicited the client to follow him to Werribee Accounting Service. By signing the authority the clients repudiated this and, further, in terms invoked the exception provisions of the third paragraph of the covenant set out above.[12] The authorities are in these terms:

I/We ....................... of ............................ have chosen to appoint WERRIBEE ACCOUNTING SERVICE to act as my/our tax agents and accountants and I/we state that I/we have not been induced or canvassed or approached by any employee of WERRIBEE ACCOUNTING SERVICE including JAMES GALEA to move my/our affairs from any other practice.

I/We state that I/we have chosen to move to WERRIBEE ACCOUNTING SERVICE of my/our own accord.

30 According to Mr Galea these authorities were drafted by his solicitors in January or February 2004 and shown to and approved by Ms Sgambaro. She then sent them with a covering letter to the client and they were executed and returned to her office. He was unable to produce any of the covering letters or a copy of them. Ms Sgambaro denied this. She denied sending out covering letters and added that there is no record of them in the office mail registers. She said that the first time she saw such a document it was lying on a desk in the office. She said, too, that it would have been incorrect for the letters then to describe her business as Werribee Accounting Service. It did not assume that name until mid to late February 2004. She said, however, that the authorities provided her with some comfort against the risk that the client's in question might be said to have been poached by her or on her behalf.

31 Ninth, another aspect of these documents, the ethical letters and the authorities to act, which was relied upon by counsel for Mr Foster was their chronology. It was suggested that the Werribee Accounting Service billing records showed that in some cases, Mr Galea was performing work for the acquired clients before the dates of the ethical letters or the authorities. My examination of such of the records and documents as were in evidence does not bear this out. Of the acquired clients that migrated to Werribee Accounting Service in 2004, 15[13] only are shown as having first had work done in the first month of Mr Galea's employment and that, of these, all but four[14] had signed the ethical letter and authority prior to the work being recorded.

32 Finally, after the acquired clients transferred their business to Werribee Accounting Service. It seems that there were a number of complaints by them of overcharging by PM Foster & Co. These complaints were said to be in similar terms.

33 There was no direct evidence that Mr Galea or Ms Sgambaro solicited or approached any of the acquired clients with a view to encouraging them to transfer their business from PM Foster & Co. Each of them denied the allegation in the witness box. The strength of this allegation lay in the inference to be drawn from the number and timing of the transfer by the acquired clients of their business from PM Foster & Co to Werribee Accounting Service. It was accepted by Ms Sgambaro and the other witnesses that there was, inevitably to some extent, a degree of loyalty between an employee accountant and clients whom that employee had serviced for many years. This being the case, it is not uncommon for there to be what she called a "drift" of clients when the employee moves from one firm to another. This is to be distinguished from the poaching of clients which occurs where an active role has been played in encouraging or inducing the clients to move to the new employer. It was said, on behalf of Mr Foster, that given the fact that all of the acquired clients transferred their work to Werribee Accounting Service this movement was greater than might be characterised as drift. I am by no means persuaded that this is the case. As I have mentioned, early in January 2004 Mr Foster and Mr Galea recognised that a large proportion of the clients who Mr Galea had brought into PM Foster & Co would leave with him. Mr Galea had been looking after the financial affairs of these clients for over 20 years. It may well be also that in a relatively small community such as Werribee the clients were personal friends of Mr Galea or family members. In these circumstances the fact that a substantial proportion of his clients moved is not surprising.

34 A further consideration was the time at which the clients moved from PM Foster & Co. For reasons which will appear, I am not persuaded that this is of itself significant.

35 The fact that Mr Galea prepared and used standard form documents to record the migration of the acquired clients and to protect himself from allegations of breach of the restraint covenant is not significant.

36 The fact that Mr Galea's car was seen outside the premises of some of the acquired clients is not, of itself significant without a good deal more evidence of his relationship with those clients. This was not forthcoming.

37 Mr Galea said that during January 2004 it was common knowledge among his circle that he was unhappy with PM Foster & Co and that he was leaving. He conceded that he told clients that he was leaving and where he was going. He insisted, however, that he did not raise this question but simply provided this information in response to enquiries from the clients.

38 Accepting that it is but a small step from this to the position that he actually told his clients that he was leaving and where he was going in terms or in circumstances which might have encouraged them to move from PM Foster & Co, there is no evidence that this was ever done. No client was called to speak of this. While I have some misgivings about the timing and the circumstances of the acquired clients leaving PM Foster & Co, I am unable on the evidence to make a positive finding that Mr Galea solicited them or encouraged them to leave that firm.

39 Next, since the volume of work performed by PM Foster & Co for the acquired clients in 2003 was less than expected, it was suggested that I should infer that Mr Galea was engaged in one or other of the following practices in breach of his fiduciary duty as employee:

(a) That this work was deferred until Mr Galea had found alternative employment;

(b) The work for these clients in 2003 was in fact performed by Mr Galea but he did not record it in his timesheets. It was not suggested that he received payment direct from these clients personally; rather, that the bills were held back and rendered by Werribee Accounting Service or, perhaps, that he did not bill them at all. This was said to be supported by evidence of work done for a number of acquired clients for which no time was recorded in the PM Foster & Co timesheets.

40 The inference that the acquired clients' work was deferred is not easily put to one side. It is indeed puzzling that clients who in previous years had regularly had work done by PM Foster & Co in the first half of the financial year had little or no work done in 2003. Nor was any explanation offered by Mr Galea. The files of 19 clients, including five[15] who left in 2003, were subjected to analysis by Mr Foster in his evidence. Of the remaining 14 clients, the analysis disclosed a reduction in the sums billed to 12[16] of them in the period July to the end of 2003 as compared with the preceding years. Some were relatively small accounts but the falling away is striking. I remind myself, however, that there are about 34 of the acquired clients whose accounts were not subjected to this scrutiny. I would suppose that this was because there was nothing out of the ordinary in their work pattern.

41 There is really little basis for drawing the suggested inference that work was deferred until Mr Galea had found employment with Werribee Accounting Service. While it is true that he had been unhappy with his position for some months, Mr Galea did not reach a decision to leave PM Foster & Co until very late in the year. There was, as I have mentioned, no analysis of the work done for these clients after they came to Werribee Accounting Service. Indeed, the Werribee Accounting Service records tell against the inference. If work was not done as suggested, it might be expected that it was attended to as a matter of urgency when Mr Galea finally started with Werribee Accounting Service on 2 February 2004. Of the 12 clients in respect of which the diminution in work was demonstrated, only five[17] are shown as having had any work done during the first two weeks of Mr Galea's employment.

42 The principal difficulty facing this inference is the lack of evidence to support it. None of the acquired clients was called. Although, I draw no Jones v Dunkel inference from this; the fact remains that no client has given evidence that work of any substance was deferred.

43 As to the suggested inference that work was performed in 2003 but not charged for, it will be recalled that there were some 53 acquired clients. Of these, the files of 19, including the five clients who left in 2003, were the subject of particular scrutiny. Of the 14 remaining clients, the evidence showed that uncharged for work was performed for 11[18]. This work, however, was of a very minor character. The working papers files of all of these 14 clients except two,[19] remained with PM Foster & Co and no evidence was led to the effect that they showed substantial unbilled work. It was not suggested that the files of the 34 clients which were not the subject of this scrutiny disclosed any uncharged work. Mr Galea said that for minor work he would not make an entry in his daily timesheets; he would, at the time of rendering a bill, add a little for general care and attention. Given that the PM Foster & Co bills represented an aggregation of times recorded from the timesheets, this practice presents particular difficulties. I am, however, not prepared to reject his evidence. Nevertheless, the amount of work here involved was very small and may well not amount to a separate billable unit. The amount certainly does not warrant me drawing the inference that he performed substantial work without recording it. No attempt was made to demonstrate that this work was later billed through Werribee Accounting Service by any analysis of the Werribee Accounting Service records or otherwise. In any event, this would have accrued no benefit to Mr Galea who was paid a flat salary.

44 This inference, too, faces the difficulty that there is no evidence from the clients to challenge the denials of Mr Galea and Ms Sgambaro. There is no benefit shown as accruing to Mr Galea. In the circumstances, I decline to draw the suggested inference that work was systematically done by Mr Galea or other PM Foster & Co staff in 2003 and not charged through PM Foster & Co.

45 This claim suffered gravely from the fact that it was grossly exaggerated in the pleading and largely exaggerated by Mr Foster in his evidence in chief. Of the confidential information particularised in paragraph 15 of the statement of claim only the working papers files were pressed at the end of the evidence. And even with respect to these papers, it is unclear what confidential information is said to have been removed. It will be recalled that, of the 48 acquired clients who remained with PM Foster & Co by the end of 2003, allegations that files were missing were made only in respect of the clients Fragapane and Velisha. In respect of Frapapane, Ms Edmonds' note records that "almost all working papers and general correspondence have been removed from this client's current file". Mr Foster's evidence was that the file was not in existence in early January when he searched for it. This is clearly an exaggeration: certain documents from the file were relied upon in support of Mr Foster's allegation that work done for this client in 2003 was not charged for. Evidence with respect to missing documents in the Velisha file was, likewise, very unsatisfactory. Ms Edmonds' note records simply a "huge amount of paperwork missing from the file". Mr Foster said that the working papers were missing in their entirety. Again, this evidence is inconsistent with the documents tendered from this file. In the circumstances it is difficult to identify the confidential information which is said to have been misappropriated. Of the clients who left prior to the end of 2003, the evidence showed that virtually all of the current information with respect to the client Joe Chetcuti had been removed.

46 With respect to the John Lando group of clients, Ms Edmonds' note records that all financial records for the financial year ended 2003 and the following year to November 2003 were found to have been removed.

47 The question of the John Lando documents was much explored. Mr Galea said that, in September 2003, following Mr Lando's decision to terminate the retainer of PM Foster & Co, he handed over to Mr Lando the statutory registers and a lever arch folder for each of his companies. This would have contained "trial balance, journal books, listing of debtors and creditors, and any other notes, BASs, copies of BASs and any information that they required for next year's tax". He said that the documents delivered to the client comprised about six lever arch folders, four company boxes and two superannuation files and two partnership files. Mr Foster was not able to challenge this but he maintained that none of his working papers were permitted to leave his office.

48 From this point, the trail becomes obscure. It seems that in January 2004 Mr Lando's company was subject to an ATO GST audit. Although PM Foster & Co were then not its accountants, they remained its tax agent. Mr Galea on 13 January 2004 responded on the company's behalf to an ATO requirement of 9 January. Mr Galea said that he did so at the direction of Mr Foster who authorised him, for the purpose, to take and use the PM Foster & Co hardcopy working papers for the years 2000 and 2001. These documents were, in due course, passed to Mr Lando when the work was done. This is confirmed by Mr Galea's fax of 12 February 2004 and that of Mr Lando of 13 February 2004. To the extent that Mr Foster's evidence challenged this account, I reject it. These are, of course, not the working papers for the years 2003 and thereafter about which Mr Foster complained.

49 I return to the general allegation that confidential information has been wrongfully removed by Mr Galea. I conclude that this has not been demonstrated.

50 It was not in issue that Mr Galea's work for the acquired clients when he was employed by Werribee Accounting Service contravened the prohibition contained in the second paragraph of the covenant.[20] Two points were taken on behalf of Mr Galea. The covenant was wide and was therefore unenforceable, and, second, that the acquired clients left PM Foster & Co completely of their own accord so that they fell within the exception provision of the third paragraph.

51 The evidence as to the application of the exception was scanty. There was Mr Galea's evidence that he applied no pressure upon the clients to leave PM Foster & Co and the evidence of the authorities which were apparently signed by the clients or on their behalf. This is, of course, hearsay but the authorities were tendered by counsel for Mr Foster without qualification or objection. Accordingly, I treat them as having some evidentiary value. This being the evidence, and there being no direct evidence to the contrary, I conclude that each of the acquired clients left PM Foster & Co completely of its own accord. No breach of covenant has been made out.

52 The second point taken on behalf of Mr Galea was that the covenant was not shown to be have been reasonable, as required by the authorities. The prohibition is against his performing accounting work for a PM Foster & Co client within two years of his leaving the employ of that firm. No evidence was lead as to the reasonableness of this period of time but it was not challenged. Argument on this point focussed on the extension of the restraint to work performed within two years for any contact made from a PM Foster & Co client. I agree that this is too wide. The clause is therefore unenforceable.

53 The claims against Ms Sgambaro were brave indeed. They depend upon an allegation that the confidential information wrongfully taken from PM Foster & Co was received by her and that she did so when she knew or ought to have known that it was wrongfully taken.[21]

54 The claim must fail with the associated claim against Mr Galea that he wrongfully took the confidential information; a claim which I have rejected. It must fail for the further reason that it is clear on the evidence that she did not receive any such information and, further, that she did not know that she received the confidential information. An attempt was made in cross-examination to demonstrate that she ought to have known these matters. It was unsuccessful. I accept her evidence that she did not have the suggested knowledge nor am I prepared to infer that she ought to have had this knowledge.

55 The alternative claim against her is put in restitution. It, too, fails for want of proof of the pleaded ingredients. I leave for another day whether the facts alleged would give rise to such a claim.

56 It follows from all of this that the claims of the plaintiff against the first and the secondnamed defendants fail. I would propose, therefore, that there be judgment for the defendants with costs, including reserved costs. I will, however, hear counsel further as to the terms of the orders that should be made to give effect to these conclusions.

[1] The precise number varies depending upon how the clients are counted, but it was of the order of 53 clients.

[2] It may be that this word should be "for".

[3] Statement of Claim, para 3; Defence para 3. See para [30] below.

[4] Five clients had already transferred their work to her in 2003; namely Joe Chetcuti, Mario Chetcuti, John Lando, Sam Lando, and Giurfo.

[5] It is in fact the fourth version and was dated 19 November 2007.

[13] Barnard (18/2), Bisby (25/2), Buzza(19/2), Costa (11/2), Giurfo (17/2), Grima (6/2), Giust (5/2), Joakim (16/2), Magnolia (23/2), Rainone (20/2), Randello (19/2), Velisha (2/2), Westerndorp (18/2), Yankos (16/2), Zulian (23/2)

[14] Joakim (same day), Giust, Grima and Velisha.

[15] Joe Chetcuti, Mario Chetcuti, Giurfo, John Lando, and Sam Lando.

[16] The following clients had reduced bills: Barnard, Christo, Fragapane, Grima, Magnolia, Pengelly, Rainone, Sammartino, Spicer Diesel, Velisha, Yankos, Zulian

[17] Christo, Grima, Velisha and Yankos.

[18] Caruana, Christo, Grima, Magnolia, Pengelly, Rainone, Sammartino, Spicer Diesel, Velisha, Yankos, Zulian

[20] See para [3] above.

At a glance

Court

Decision date

Before

Source

Judgment (84 paragraphs)

Parties