Client solicitation
10 The first part of Prescott Securities' strike out application concerns Mr Gobbett's pleading in his defence to its allegation of loss resulting from his alleged conduct with respect to the nine former clients. The pleading of Mr Gobbett's conduct in the further amended statement of claim (FASC) in relation to each client follows a similar format. It alleges, in relation to each client or pair of clients, the conduct said to constitute the breach of the covenant. Paragraph [29], in relation to the first client, concludes with the plea:
[29] By reason of the breaches by Gobbett of the Restrictive Covenant pleaded in paragraph 28 above, Prescott Securities has suffered loss and damage.
Particulars
The plaintiff refers to the particulars of loss and damage contained in Schedule 1 to this Further Amended Statement of Claim.
11 Mr Gobbett's amended defence responds to that plea in relation to the first client and then adopts by incorporation that pleading in relation to each of the succeeding pleas concerning the other eight clients or pairs of clients. The pleading in [29] of his amended defence is as follows:
[29.1] Prescott Securities has suffered no loss and damage because this Prescott Securities' client would, or would likely, have terminated their retainer with Prescott Securities in any event, and in consequence Prescott Securities would not have earned the revenues or profits pleaded in Schedule 1 of the FASOC.
[29.2] Prescott Securities is and at all relevant times has been a fully owned subsidiary of Crowe Horwath (Aust) Pty Ltd, which company was acquired by Findex Group Ltd (Findex) in mid-2014.
[29.3] After Findex's acquisition of Crowe Horwath (Aust) Pty Ltd, and in turn its subsidiary Prescott Securities in late 2014, Findex required changes to be made to the way in which the business of Prescott Securities was to operate.
[29.4] Those changes and the directions to implement those changes, full particulars of which can only be provided after discovery in this action, effected or were to effect an implementation of a more standardised and type cast approach to the provision of financial advice to the clients of Prescott Securities (including the introduction of "managed discretionary accounts" which were promoted by Findex representatives as requiring less client contact and being more efficient and profitable, and the encouragement of clients to move their investments to "wrap accounts" from self-managed superannuation funds), as opposed to a previous practice of providing advice with a focus on the individualised circumstances, including the financial circumstances, of clients and a more personalised relationship between the Prescott Securities' adviser and the client.
[29.5] Prior to the aforementioned changes required by Findex, the Prescott Securities business was known in the market for its personalised approach to the provision of financial advice to clients.
[29.6] The changes led to dissatisfaction of the clients of Prescott Securities.
[29.7] Further, this Prescott Securities' client had been serviced by Gobbett for a number of years, the exact length of time being unknown to Gobbett and only ascertainable from the files of Prescott Securities in discovery, during which time a natural personal affinity and level of trust developed between them and Gobbett.
[29.8] In the premises of the preceding paragraph, quite apart from the alleged conduct and any alleged use of the PS Client Information, this client would, or would likely, have terminated their retainer with Prescott Securities in any event.
[29.9] Since Findex implemented the aforementioned changes to the business of Prescott Securities, a substantial number of Prescott Securities' clients, the identities of whom are not known to Gobbett prior to Prescott Securities making discovery of documents in this proceeding, have terminated their retainer with Prescott Securities by reason of their dissatisfaction with the aforementioned changes.
[29.10] The aforementioned changes have caused a substantial decline in the profitability and the viability of the Prescott Securities' financial advising business.
[29.11] Gobbett does not know and cannot admit, without the provision of expert reports and the prior discovery of Prescott Securities files in respect of this client, its financial records, and records of previous sales and acquisitions of client books by Prescott Securities and/or Findex from other financial adviser practices:
[29.11.1] the quantum of the alleged loss and damage pleaded in Schedule 1 to the FASOC in respect of this client;
[29.11.2] whether the multipliers of 10 times annual profits or 3 times annual revenue as pleaded in Schedule 1 to the FASOC are appropriate for this client; and
[29.11.3] whether Prescott Securities was making a profit equal to 35% of its revenues, as alleged.
Particulars
A. Prescott Securities and/or Findex have acquired client books from other financial adviser practices, such as Centric Wealth Advisory Pty Ltd in or about early 2014, the full particulars of which are not known to Gobbett until after discovery in this action.
12 Prescott Securities seeks the striking out of the pleas in [29.1], [29.3], [29.4], [29.5], [29.6], [29.9] and [29.10]. It did not pursue an application that [29.7] be struck out, and nor did it seek the striking out of [29.11].
13 Prescott Securities seeks the striking out pursuant to r 16.21 of the Federal Court Rules 2011 (Cth) (the FCR). There was no dispute between the parties as to the principles to be applied on such a strike out application and it is not necessary to refer to them in detail. I do keep in mind that the power to strike out is to be employed sparingly and only in a clear case, and is to be exercised in the interests of justice. In the circumstances of this case, I also keep in mind that the striking out or retention, as the case may be, of the impugned paragraphs is likely to have a significant impact on the parties' discovery obligations and on the evidence which it will be necessary for them to adduce at trial and, accordingly, on the length of the trial.
14 I consider that Prescott Securities' application should succeed with respect to [29.3] to [29.6] inclusive and with respect to [29.9] and [29.10], but should otherwise be rejected. I have reached this conclusion on the grounds of relevance. Prescott Securities' claim in [29] of the FASC concerns the loss which it alleges that it has suffered as a result of Mr Gobbett's conduct in relation to one client only. Of the paragraphs in [29] of the amended defence, only [29.1], [29.7] and [29.8] are directed to the circumstances of the named client.
15 Paragraphs [29.3] to [29.6], [29.9] and [29.10] make allegations concerning the clients of Prescott Securities generally. I am confirmed in my view that these paragraphs are not responsive to the plea concerning the named client because they do not include any pleading to the effect that the circumstances which they allege have any application at all to the circumstances of the particular client. In my view, Mr Gobbett's pleading of these paragraphs has the effect of introducing extraneous matters with the undesirable consequence that the attention of the parties will be distracted away from the circumstances which led the particular client who is the subject of [29] of the FASC to cease her retainer of Prescott Securities.
16 For those reasons, [29.3] to [29.6], [29.9] and [29.10] will be struck out.
17 On the basis that the pleading in [29.7] and [29.8] is a particularisation of the allegation at [29.1], which is the submission of Mr Gobbett, the pleading in [29.1] is not objectionable and will not be struck out. Those conclusions make it unnecessary to address the other bases of challenge mounted by Prescott Securities to the pleadings in [29].
18 Because the later pleadings in the amended defence concerning the remaining eight clients or pairs of clients adopted the technique of referring back to [29] it is not necessary to make orders with respect to them but this is, no doubt, something to which Mr Gobbett will wish to give attention in due course.