Shawn Rex Burns & Anor v Integrity Investment Management Pty Limited & Ors

Judgment - EX TEMPORE 1This is an application brought by way of Amended Summons filed in Court today for an injunction restraining the termination of the employment of the first plaintiff, Shawn Rex Burns (the plaintiff), with Integrity Investment Management Australia Limited (Integrity Australia), the seventh defendant, on the grounds set out in an Agenda for the proposed Board Meeting of Integrity Investment Management Pty Ltd (Integrity), the first defendant. Other interlocutory orders sought are that the defendants be restrained at any Board Meeting from passing a resolution for the termination of the employment of the plaintiff and from acting upon the resolution proposed in the Board Agenda. A further order is sought restraining the defendants from transferring or agreeing to transfer or dealing in any way with the shares of the second plaintiff, Biscuit Tin Pty Ltd (Biscuit Tin), in Integrity. 2In support of this application the plaintiff has relied upon his own affidavit affirmed on 22 June 2011. He has been employed by Integrity Australia as a portfolio manager since June 2007. It is a wholly owned subsidiary of Integrity. Biscuit Tin holds shares in Integrity, representing approximately 17.85% of the issued capital. The plaintiff is a director of Biscuit Tin and Integrity. The second defendant, Paul Fiani (Mr Fiani), the third defendant, John Moran, the fourth defendant, Robert Fiani, the fifth defendant, Karen Prowse, and the sixth defendant, Marcus Truman, are directors of Integrity (the personal defendants). 3On 4 July 2008 Biscuit Tin entered into a Shareholders' Agreement with Integrity and others including companies controlled by the personal defendants. In May 2011 the Shareholders' Agreement was varied by a Deed of Variation. The changes that were made to the Shareholders' Agreement were not by unanimous resolution. The plaintiff voted against the resolution on behalf of Biscuit Tin. Without descending into the fine detail, it is not in issue that the variation made it less financially advantageous to a departing director or employee. 4The Contract of Employment between Integrity Australia and the plaintiff provides as follows: 24. Termination 24.1 You or we may terminate your employment by giving 6 weeks' notice in writing. 24.2 If we terminate your employment and you are over 45 and have been employed by us for at least 2 continuous years, we will provide you with a further week's notice. 24.3 If we terminate your employment, we may elect to provide you with payment of the equivalent salary, in part or totally in lieu of notice. 24.4 We may terminate your employment immediately for serious misconduct without any obligation to provide notice or pay you compensation. 24.5 Serious misconduct includes but is not limited to: (1) committing any serious or persistent breach of this Contract; (2) breaching confidentiality or misusing our Intellectual Property; (3) committing any act of dishonesty, fraud or assault in the course of your employment or which affects your suitability for employment with us; (4) being intoxicated or under the influence of illegal drugs or drugs which have not been prescribed for you, while at work; (5) neglecting your duties or incompetence; (6) possessing dangerous, harmful or unauthorised materials in the workplace (including firearms, weapons, drugs and alcohol); (7) being convicted of a criminal offence which affects your suitability for employment with us; (8) a failure to maintain any licence or registration required to fulfil your duties; and (9) refusing to carry out a lawful and reasonable direction. 5The plaintiff's evidence is that up until Monday 20 June 2011 he had no notice that his employment with Integrity Australia was in jeopardy or that it might be terminated. The Managing Director of Integrity, Mr Fiani, had asked the plaintiff to work on a new project in setting up a new fund. The plaintiff worked on that project having what he described as dozens of meetings with companies that represent investment opportunities with further meetings scheduled. 6At approximately 4pm on 20 June 2011 the plaintiff was called to a meeting with Mr Fiani who advised him that matters had recently come to his attention that had caused him concern and that as a result his employment was to be terminated. Mr Fiani handed the plaintiff an Agenda for a meeting of the Board of directors of Integirty. That Agenda is in the following terms: To consider and if thought fit, to pass, the following resolutions: Resolution 1 That the Board give its approvals to a member of the Group, Integrity Investment Management Australia Limited (IIMA), to terminate the employment of Shawn Burns, effective immediately, on the following grounds: (a) downloading, copying and diverting to himself, contrary to his duties, without limitation under clauses 4.2, 14 and 25 of his contract of employment with IIMA dated 30 June 2010, IIMA's IT directory policy dated September 2009 and recirculated on 2 May 2011, and his common law fiduciary duties and duties of fidelity owed as a senior employee of IIMA, materials being the property of IIMA including confidential information of IIMA (including, without limitation, .pst files, sensitive client information), without required authorisation. (b) retaining, and storing on, and forwarding from, IIMA's IT systems, contrary to his duties, without limitation under clauses 4.2 and 24.5(6) of his contract of employment dated 30 June 2010, and contrary to prior warning, pornographic material including still images and movie files comprising softcore pornography (partial and full nudity of a sexual nature) and hardcore pornography (graphic sex including penetration). (c) providing, contrary to his fiduciary duties and duties of fidelity, and contrary to his duties without limitation clauses 4 and 28 of his contract of employment dated 30 June 2010, material support to a potential competitor of the Company (Challenger Alpha) for its application for an AFS licence, including assisting an individual, Bruce Smith, who was at that time still employment by Alliance Bernstein. (d) Potential breaches of personal trading rules if they have occurred, having regard to inconsistencies in records, noting Burns' duties with respect to consent and disclosure to the Company of shares held in any ASX listed company also traded by IIMA, including under clause 28.1(3) of his contract of employment. It being NOTED that Clause 8.3 of the Shareholders Agreement of the Company provides that: The employment or consultancy by a member of the Group of any Principal may not be terminated by that member of the Group without the prior approval of the Board by Special Majority. Resolution 2 That the Board notes the proposal of Shareholder A, upon the passing of Resolution 1, to exercise his power under clause 4.3(1) of the Shareholders Agreement of the Company, to remove, effective immediately, by notice to the Company copied to each Shareholder, Shawn Burns as a Director of the Company. 7Mr Fiani informed the plaintiff that until the Board Meeting was held he was not to attend work nor go back to his computer. The plaintiff left the building and went home. He has not been able to access any material relating to his employment to help him to respond to the allegations that have been made. 8On 21 June 2011 the plaintiff sought legal advice. His solicitor wrote to Integrity on 22 June 2011 in terms that included the following: In or about February this year Mr Fiani proposed a number of changes to the governance of the Company [Integrity]. ... On 6 May 2011 Mr Fiani purported to convene a meeting of shareholders of the Company at which changes were approved to the shareholders agreement. These included the changes to the exit value for a shareholder which had earlier been foreshadowed. Again, our client objected to those changes. We understand a deed of variation may have been prepared or signed to give effect to the resolution. Biscuit Tin refused to sign that deed. Earlier this week Mr Fiani purported to call a meeting of directors of the Company for the purposes of authorising the immediate termination of Mr Burns's employment on the basis of four stated grounds. We are instructed that none of the grounds stated in the proposed resolution is valid. In particular, with reference to the lettered paragraphs in the notice of meeting issued by Mr Fiani: (a) The purpose of our client 'diverting' to himself electronic material was wholly and directly in accordance with his duties with the Company and for the purpose of performing those duties as employee and director. This included the alleged 'sensitive client information' which our client reviewed at home in connection with a proposal put to him by Mr Fiani for the start-up of a new business within Integrity. The access by directors of the Company to electronic material whether 'sensitive' or not at home is an accepted and routine part of the Company's operation and necessary for the performance of Mr Burns's duties. The material has not been disclosed to any other person or used in any way other than in the course of his duties. To the extent it was confidential information, it has retained that character. (b) Our client denies dealing in any manner inappropriately with any material of the nature described. (c) The alleged breach of duty was in the nature of providing minor assistance to an industry colleague Mr Smith. This was completely unconnected to any competition by our client with the Company. Our client has taken no steps of any kind in relation to any employment or association with any competitor. There is no breach of any duty constituted by anything our client has done. The notion that assisting a colleague in an industry is a breach of duty is in any event absurd. (d) This alleges breach of personal trading rules 'if they have occurred'. Our client denies any breach but notes that Mr Fiani appears to propose that the company dismiss our client based on some kind of speculation that he might have breached rules. 9An undertaking was sought that the meeting would not be proceeded with and the resolutions would not be put to any meeting. 10On 22 June 2011 the defendants' solicitors declined the invitation for an undertaking and responded to the plaintiff's solicitors' letters in terms that included the following: Confidential Information It is not sustainable that your client would assert that the actions taken by him in relation to the digital information, belonging to our client, would be regarded "as an accepted and routine part" of his duties. His activities were in clear and serious breach of his duties under his contract of employment, his common law duties and was in direct contravention of policy circulated and reiterated by our client. Further details of this material will of course also be put in evidence. Assistance to Challenger Alpha and Mr Smith It is simply not correct that your client's admitted breaches of duty in this regard were unconnected to any competition with the company. This has missed the point. He has supported and facilitated competition by others, namely Challenger Alpha, by actively supporting its application for an AFS licence. Such support is contrary to the interests of our client and contrary to your client's duties as a director and employee in that regard. Further, these actions took place in circumstances where your client would have been well aware that Mr Smith's actions with respect to Challenger were likely to be in material breach of his then duties to his employer Alliance Berristein, thereby exposing our client to risk of becoming concerned in Mr Smith's breaches through your client's actions. Breach of Trading Rules At their meeting on 20 June 2011 our client required your client to provide the materials which would clarify this issue. Your client has refused to provide that material, and our client's demand for that material is reiterated in this letter as a matter of urgency. 11A Notice to Produce was served on the plaintiffs on 23 June 2011 for the materials that the defendants alleged were on the home computer of the plaintiffs. 12On 23 June 2011 Windeyer AJ heard an ex parte application for an interlocutory injunction to restrain the defendants from holding the meeting. His Honour said this: 2. In ordinary circumstances, the Court lets these meetings take place and leaves it to the party who considers that he has been wronged to bring a claim for damages for breach of contract or wrongful dismissal. However in this case, it may be that if the meeting does proceed and the employment is terminated then the value which will be ascribed under the Shareholders Agreement to the shares which would become subject to a compulsory transfer would be lower than the value if the meeting did not take place until after 30 June and it could be difficult to unscramble transfers which had taken place. 3. That seems to me to be a sufficient reason to restrain the defendants from holding the meeting at 9am today, but only for a short time to enable them to come to court to argue why that restraint should not be continued in view of what might be the urgency of the matter. 13His Honour granted an injunction which expires at 5pm today. In those circumstances, the plaintiffs seek an injunction from 5pm today. It seems to me that it is not the defendants' onus to argue why the restraint should not be continued, but the plaintiffs' onus to establish that the injunction should be granted. 14The plaintiff has now provided a response to the allegations (consistently with his solicitor's letter) in an affidavit affirmed on 22 June 2011 as follows: 17. I respond as follows, using the numbering in that agenda: (a) In the normal course of business I often work from home and have forwarded to my home material from time to time to do that. All information of that character is kept secured on my home computer that it not part of a network. No data has been shared or viewed by third parties. In the last six months I have been working on establishing a structure for a possible new fund and business for Integrity. Existing clients of the company would be targeted as possible clients for the new fund and Mr Fiani had specifically asked me to address the clients including existing clients that would be targeted. (b) From time to time I have received unsolicited pornographic material. Without the dates of receipt and without access to my files and how and when this was deleted from my work computer it is difficult to respond to the allegation made against me. I cannot recall the dates of receipt but I do believe that most if not all of this is quite dated. I have a friend who has from time to time sent me this kind of material. I have asked him not to send any more material to me. He did not cease to do so despite my request. It is important to note that the content of any material has not been sourced by me. This issue has never been raised as an issue with me before Monday, 20 June 2011 and I do not believe that it has affected my work in any way. (c) Bruce Smith and I worked together at Zurich Financial Services and are good friends. He told me himself and a few of his colleagues were intending to set up a fund management operation. Seeing I had gone through the exercise previously he was interested in my broad views on structure and what may be done differently. I gave a character reference to Bruce on the ASIC application for a financial services licence. I did this as a friend and did not believe that there was any problem in doing so. No issue with this had been raised with me before Monday 20 June, 2011. (d) It is usual policy in my industry to have personal trades pre-approved by the company's compliance officer. There have been several breaches by other staff members over the years and they have been reinformed about the process. As far as I know I am in compliance with this policy. I have had no indication of any issue with this before Monday. 15The plaintiffs submit that there is a serious issue to be tried that if the defendants were to vote in favour of the proposed resolutions, such resolutions would be invalid. There are a number of arguments in relation to why they would allegedly be invalid. It was submitted that there was no protocol or policy in place in relation to the receipt or use of pornographic material on work computers. In this regard Mr Gyles SC, for the plaintiff, referred to the decision of the Industrial Relations Commission in Budlong v NCR Australia Pty Ltd [2006] NSWIRComm 288. In that case the appellant admitted receiving 125 emails of a pornographic nature over a five year period that he stored in his emails under the heading "Amusements Folder" and that he accessed over a five year period. He accepted that those emails were obscene and likely to offend. Mr Gyles points out that in that case there was a policy in relation to the use of pornographic material and he relies upon paragraphs [86] and following of that judgment where the Court considered whether summary dismissal was justified. After a review of the relevant authorities their Honours expressed doubts, without deciding, whether there was a proper basis for summary dismissal. 16There is in evidence an email from Mr Fiani relating to the use of computers, although it is not clear to me that it was received by the plaintiff. There is no express reference to pornography in that document and the defendants will in due course have to establish, if necessary, that the plaintiff received it. It will also be necessary to establish that it would be inconsistent with the contents of that document to have received the pornography and passed it on to others. In any event, Mr Gyles submits that the material that is in evidence is and would be described as of minor or minimal seriousness. I do not need to decide that today other than to say it is clear that the plaintiff admits to receiving and accessing pornographic material. Whether that conduct will remain as an item that the defendants wish to consider at their meeting will be a matter for the defendants. 17It is submitted that the conduct in relation to the material on the home computer is benign. The plaintiff claims that he needed to access his work material at home and, although his solicitor's letter claimed that it was an accepted and routine part of his duties, there is not within the plaintiff's explanation thus far how that came to be an accepted practice. The explanation given by the plaintiff in relation to his good friend Mr Smith is one that is consistent with the solicitor's letter and there is no issue that the matter was not raised with the plaintiff until Monday 20 June 2011. 18As to the alleged breaches of personal trading rules, the plaintiff is in some difficulty understanding what really is the case against him. He claims that, as far as he knows, he has complied with the policy that was imposed in respect of such trades. Mr Gyles has also relied upon Turner v Australasian Coal and Shale Employees Federation and Anor (1984) 55 ALR 635, a decision of the Federal Court of Australia - Industrial Division, in which Northrop, Keely and Gray JJ dealt with the authorities in relation to contracts of employment and the prospect of granting injunctive relief. That case deals with statutory entitlements. Mr Gyles relies upon the following passage at 649: What is clear is that the courts will no longer set their faces against granting the remedies of declaration and injunction with respect to contracts of employment. 19If I may say, it will all depend upon the facts of the particular case. Injunctions have been granted in respect of contracts of employment. In this case the inter-relationship of the employment contract and the Shareholders' Agreement seems to be what persuaded Windeyer AJ to grant the injunction. 20I have indicated during the course of argument that I needed to hear from Mr Gyles as to why this case was not an exquisite example of damages being an adequate remedy. Mr Gyles submitted that the employment contract is between the plaintiff and Integrity Australia and the meeting proposed to consider the termination of the plaintiff is a meeting of Integrity. He submitted that if resolutions are passed, there is a deeming provision that Biscuit Tin's shares in Integrity will be transferred. He submitted that he should not be disadvantaged by having to sue the defendants for damages and, indeed, suggests that Integrity Australia may not be in a position to pay damages if so ordered. There is no evidence in support of that suggestion. There is no evidence of the financial circumstances or financial wherewithal of Integrity Australia to meet an award for damages. It does not seem to me appropriate to raise as an argument the possible impecuniosity of a company without any evidence. 21The plaintiffs submitted that there is a serious issue to be tried as to whether there are proper grounds for summary dismissal of the plaintiff. This is not a case in which notice has been given that the plaintiff is to be dismissed. Notwithstanding the conversation between Mr Fiani and the plaintiff the Agenda quite clearly indicates that what is being put before the Board of directors of Integrity are resolutions " to consider and if thought fit , to pass ". The directors have obligations to consider the appropriate evidence before them as to whether they should in all the circumstances pass resolutions having a financial impact on the plaintiff. 22As I have indicated during the course of argument, I am of the view that this application is premature. It seems to me that until the Board of directors considers the material placed before it, it is premature to claim that Integrity Australia has acted illegally or invalidly. It is also premature to claim that there is invalidity in the process of the personal defendants considering the material before them and/or ultimately passing a resolution. It seems to me that the only way in which the plaintiffs would be entitled to put such a proposition is that if material placed before the directors (and I am not sure what material will be placed before them) does not amount to a proper basis upon which the resolution was passed adversely affecting the plaintiff. 23Mr Gyles submitted that if I were against him in respect of the relief sought in relation to the holding of the meeting and passing of the proposed resolution then I would be satisfied that it is appropriate to grant the relief restraining the defendants from acting upon any such resolutions. 24I do not know what resolutions additional to or otherwise amended will be put before a further meeting of the Board. The meeting at which these resolutions were to be considered has not occurred. It seems to me in the circumstances that the defendants are well aware of the plaintiff's explanations in respect of the proposed resolutions thus far and it will be their responsibility, as the Agenda suggests, to consider and if thought fit to pass various resolutions. 25The commercial arrangements between the plaintiffs and Integrity Australia and the plaintiff as a director and shareholder of Integrity should continue in the commercial environment to which the parties agreed. 26There is one other aspect of this matter with which I should deal. The plaintiffs submitted that the amendments to the Shareholders' Agreement and the present conduct of the defendants is for the purposes of effectively getting rid of the plaintiff at a price less than that at which he would have had to have been terminated had the amendment not been made and/or had any termination occurred after the end of this financial year. 27Mr Gyles submitted that it was the defendants' obligation to indicate to the Court by way of explanation as to how it became aware of the alleged conduct of the plaintiff. That is, to explain that there had been a review of the plaintiff's computer and the time of that review to show that there is no impropriety in moving now as opposed to later against the plaintiff. 28The defendant does not have an obligation to do as Mr Gyles has submitted. It is really a matter for the plaintiffs to prove some facts upon which the Court could be satisfied that the conduct of the defendants commencing prior to early May 2011 was a concerted effort to put in place structures and an environment in which they could damage the plaintiff by getting rid of him at a cheaper price than without the amendment. Presently there is nothing before me upon which I could find that such a case could be made out. It may well be in due course that the plaintiffs may reconsider this submission when they obtain documentary material from the defendants but at the moment it is not a case that can be made out. 29It seems to me that this is not an extraordinary circumstance, that is, out of the ordinary as described by Windeyer AJ. I am satisfied that I should dismiss the plaintiffs' application for an injunction to prevent the defendants from holding the meeting which would include the proposed resolutions contained in the evidence before me. 30Accordingly, I dismiss the application for interlocutory relief. 31Costs are reserved.