RajLaw NSW Pty Ltd v RajLaw Pty Ltd

Judgment 1By Contract of Sale dated 6 July 2012 the plaintiff company purchased from the first defendant that part of its legal business as was carried on in New South Wales. The second defendant (Mr Raj) was the sole director of the first defendant. The purchase price was $1 million subject to variations. A sum of $600,000 was paid on completion as part of the ultimate purchase price. 2The plaintiff company is a legal practice. Mr Bechara Shamieh is its sole director. Mr Raj was previously a director but in some way that appointment, according to the ASIC search in evidence, ceased on 12 September 2013. The shares in the plaintiff company are held by Consolidated Corporate Pty Limited. Consolidated Lawyers Pty Limited is another legal company. Mr Shamieh is one of four directors. He holds a majority of the shares. The other directors are Graham Fullick, Therese Armstrong and Ramy Qutami. Veritas Legal Pty Limited is a third New South Wales legal company. The directors of this are Mr Qutami, Ms Armstrong and Mr Shamieh. Maddison Marcus Law Firm Pty Limited is the fourth law firm involved on the plaintiff's side. It has the same directors as Veritas. 3The Contract omits to describe the business name of the business sold but lists the type of business sold as "legal firm". There are special conditions to the contract relevant to this interlocutory hearing: 45.1 The Vendor and Purchaser agree to the following post settlement collaboration: ... (c) Will use their best endeavours to assist one another to grow their respective practices. 45.2 The parties may agree to the following post settlement collaboration: ... (b) Referral of work and clients to one another. For example, the Vendor shall refer to the Purchaser all work falling within the New South Wales jurisdiction and the Purchaser shall refer to the Vendor all work falling within the Queensland, [sic] even if a client is a national client, that is, the services they require fall within the Queensland jurisdiction and the New South Wales jurisdiction. (c) Notwithstanding Clause 45.2(b) the Purchaser agrees that the Vendor may continue to act for National clients that he currently acts for from his Queensland office as disclosed in Annexure "B" of this agreement. ... 46 Restraint (a) Mr Raj warrants that for a period of seven-(7) years he will not carry on or be engaged in the practice of law in New South Wales (unless otherwise required by the Purchaser) nor will he contact the clients and/or referral partners for the purposes of soliciting that client and/or referral partner to cease dealing with the Purchaser to return to the Vendor company and/or any other company to which Mr Raj is associated or otherwise connected. (b) The Purchaser acknowledges that this Special Condition does not restrain Mr Raj from practising as a Solicitor in another state / jurisdiction other than in the State of New South Wales. (c) The parties acknowledge that this Special Condition shall not merge on completion. (d) In addition, the Vendor, its directors, shareholders and related entities agree that it will not open or be involved in a business, that is similar to or competitive with the Purchaser within the State of New South Wales for a period of seven-(7) years. (e) The Vendor and its directors, shareholders and any related entity agree not to do any act or thing which would cause or is likely to cause the clients to seek the transfer of their file to another firm. For the purposes of this clause related entity has the same meaning as prescribed in the Corporations Act (2001). (f) The Vendor and its directors, shareholders, employees (to the extent possible) and related entities covenant that they shall not undertake, engage or carry out any work on behalf of clients relating to the Practice of Law in New South Wales, a client domiciled in New South Wales and work that would reasonably be expected to be carried out in New South Wales from any other state or jurisdiction, unless otherwise consented to by the Purchaser for a period of seven-(7) years from the Completion Date. This clause shall bear no effect on the Vendor with respect to clients domiciled in Queensland. 4There were discussions between Mr Raj and Mr Shamieh about an over- arching name for the Queensland and New South Wales businesses. The Queensland business after the sale continued to be operated by the first defendant. Mr Shamieh was in favour of Maddison Marcus. On the evidence as it stands Mr Raj did not agree to this. The Maddison Marcus website indicated that Consolidated Lawyers, Veritas Legal and Raj NSW Property Division were combined under the Maddison Marcus umbrella. Maddison Marcus has itself opened an office in Brisbane it seems consisting of Consolidated Lawyers and Veritas Legal but not Raj NSW. Members of the staff of Raj NSW have worked for Maddison Marcus clients from time to time but this does not really matter for the purpose of this interlocutory hearing. 5The third defendant, Arrow Law Pty Ltd (Arrow), was incorporated in July 2013. Mr Raj is one of two directors. A company, Astra Group Investments Pty Ltd, is a major shareholder. It is not clear whether Arrow has purchased the practice of the first defendant or whether there has been a transfer of business without purchase but Mr Raj is now practising as Arrow Law and is transferring the clients from the first defendant to the new firm. 6The substantive orders sought in the action are: 1. Declarations of breach by the first and second defendants of obligations under the restraint provisions of the contract for sale; 2. An order for specific performance of certain obligations the subject of the alleged breaches; 3. An order for final injunctions restraining breach of the restraint provisions and certain other provisions of the contract; 4. In addition, orders are sought restraining Arrow from carrying on any legal practice for 7 years, and an account of profits of the third defendant; and 5. Damages. 7This judgment deals with a claim for interlocutory relief. The principal orders sought are set out in prayers 20-25 and 27 of the Amended Summons as follows: 20. An order, until further order, restraining the Third defendant (whether by its servants or agents or otherwise howsoever) from carrying on, or being engaged in, legal practice. 21. An order, until further order, restraining the First and Second defendants (whether by its servants or agents or otherwise howsoever) from transferring the business of the first defendant to the third defendant. 22. An order, until further order, restraining the Second defendant (whether by its servants or agents or otherwise howsoever) from carrying on, or being engaged in, legal practice in a name other than 'Raj Lawyers' in Queensland and Victoria. 23. An order that the First defendant, Second defendant and Third defendant be restrained (whether by themselves, their servants or agents or otherwise howsoever), pending the final hearing of the proceedings, or further or earlier order, from: a. carrying on, or being engaged in, any work for a client domiciled in New South Wales, or that involves the practice of law in New South Wales; b. carrying on, or being engaged in, any work for a client domiciled outside of New South Wales that would reasonably be expected to be carried out in New South Wales. 24. Further and in the alternative, an order, until further order, under section 232/234 of the Australian Consumer Law restraining the Third defendant from aiding and abetting the contravention by the First and Second defendant of section 18 of the Australian Consumer Law by carrying on, or being engaged in, legal practice. 25. Further and in the alternative an order, until further order, under section 232/234 of the Australian Consumer Law restraining the First defendant from contravening section of 18 of the Australian Consumer Law by: a. restraining the First defendant from transferring its business to the Third Defendant; b. restraining the First defendant from carrying on, or being engaged in, any work for a client domiciled in New South Wales, or that involves the practice of law in New South Wales; c. restraining the First defendant from carrying on, or being engaged in, any work for a client domiciled outside of New South Wales that would reasonably be expected to be carried out in New South Wales. ... 27. Further and in the alternative, an order, until further order, restraining the Third defendant from interfering with the Contract between the Plaintiff and the First defendant by carrying on, or being engaged in legal practice. 8There are additional claims under section 18 of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law) against the first and second defendant. These are really representation claims based upon the contractual obligations and claimed breaches of those obligations. 9It is accepted by the defendants for the purpose of this hearing that there is a reasonable question to be determined as to whether Mr Raj is a party to the contract. It is I think clear that Arrow, through Mr Raj, had knowledge of the contract for the sale of business so that in accepting as clients those who were previously clients of Raj Law Pty Ltd there is at least a seriously arguable case to be tried as to whether Arrow induced a breach of the contract between the plaintiff and the first defendant: OBG Ltd v Allan [2008] AC 1 at 39-41 per Lord Hoffman. There is also a question of whether or not Arrow was formed as a sham for the purpose of enabling the first and second defendants to evade their obligations under the contract: Albert Locke (1940) Ltd v Winsford Urban District Council (1973) 71 LGR 308 (Chancery Division). 10Whether the tort of causing loss by unlawful means has been committed is not presently to the point. The decision of the House of Lords in OBG Ltd v Allan [2008] AC 1 shows why DC Thomson & Co Ltd v Deakin [1952] Ch 646 is no longer good law in England. There was a statement by Williams JA in Deepcliff Pty Ltd v Gold Coast City Council (2001) 118 LGERA 117 at 139 that it is only for the High Court of Australia to decide whether a tort of causing loss by unlawful means exists in Australia, after that Court refused to decide that question in Sanders v Snell (1998) 196 CLR 329. 11Whether or not that tort is part of the law in Australia, the tort of inducing breach of contract is: Short v City Bank of Sydney (1912) 15 CLR 148. To that extent, the reasoning of the House of Lords is open to be followed here. Commentators have said that it could be followed: R P Balkin and J L R Davis, Law of Torts (2013, 5th edn) at 610. Judges have cited Lord Hoffman's speech relating to inducing breach of contract with apparent approval: Wilson HTM Investment Group Ltd v Pagliaro (2012) 226 IR 75 at 96 per Bergin CJ in Eq; Cleary v Kocatekin [2012] NSWSC 692 at [18] per Bergin CJ in Eq; LED Technologies Pty Ltd v Roadvision Pty Ltd (2012) 199 FCR 204 at 215-216 per Besanko J. 12As the first and second defendants are restrained under the contract from carrying on legal business in NSW for 7 years and there is an arguable case that Arrow was formed for the purpose of circumventing this and that Arrow has induced the first defendant to breach its contract with the plaintiff, I consider there is a serious question to be tried on those issues. The balance of convenience is clearly in favour of an interlocutory order restraining Arrow from carrying on legal business in New South Wales. I can see no basis for restraining Arrow from practising anywhere at all as is actually sought. Prayer 21 of the Amended Summons 13The evidence indicates that the transfer has taken place. In that case there would be no point in the order sought. In addition the argument on this claim as addressed by Mr AW Street SC was based upon clause 46(e) of the contract which in my opinion deals with clients of the NSW firm. There is no suggestion or threat such clients have been or will be approached to transfer or will be somehow transferred to Arrow. I do not consider there is a proper question to be tried on this claim. Prayer 22 of the Amended Summons 14This claim appears to be contrary to rights under clause 46(b) of the contract. Clause 46(e) does not appear to vary clause 46(b) rights. There is no doubt that Mr Raj is involved in the Arrow company but the claim for interlocutory relief was not based upon the agreement as to collaboration under clause 45 of the contract. Prayer 23 of the Amended Summons 15There is no evidence that any work of the nature referred to is being carried on or that there is some threat that it will be. Matters identified related only to completion of leasing matters where the costs had already been paid. In addition, the nature of the restraints sought in prayer 23(b) is expressed in terms that lack clarity and certainty. I do not consider the court would make the order sought. This is because one cannot ordinarily direct injunctions at people who are not parties and because "any work ... that would reasonably be expected to be carried out in New South Wales" is so uncertain and open to debate as to its meaning that it could not form part of a court order. Prayer 24 of the Amended Summons 16As I have said I intend to make an order pursuant to the claim in prayer 21 on a more limited basis I would not make a wider order under paragraph 24. Prayer 25 of the Amended Summons 17In respect of prayer 25 the same conclusions are reached as I have already reached on the earlier paragraphs dealing with the contractual claims. 18Other interlocutory orders sought in the Amended Summons were not addressed by counsel and were therefore not pressed and I do not deal with them. I should add that clauses 46(a) and (c) of the contract of sale cannot impose obligations on Arrow which is not a party to the contract. Result 19The result of this is that an order will be made in more limited terms than that sought in prayer 20. The balance of the claims for interlocutory relief will be dismissed. As each party has had some success and as the final result has not been determined it seems to me that the appropriate order for costs is that the costs of the interlocutory hearing be determined by the trial Judge. 20It is, I think, important that this matter be determined on a substantive basis as quickly as possible. It seems likely that a lot of the evidence required for final hearing has already been gathered. I will make directions to do this. Orders