St Frances Xavier Cabrini Hospital Governing Board Inc v Micallef [1999] VSC 292

11. Having considered the affidavit material relied upon by the parties, I am satisfied that there are not less than two serious questions to be determined in the proceeding.

14. In the first place, there is no question but that the defendants have been in contact with clients of the plaintiff and that four of those clients, namely, Shepparton Private Hospital, Vaucluse Private Hospital, Gippsland Private Hospital and Djerriwarrh Health Services have agreed to use the services of the defendants in lieu of the services previously provided to them by the plaintiff.

17. The question which arises, of course, is whether the defendant's conduct in that regard, in particular the conduct of Micallef, amounted to a breach of Micallef's contract of employment with the plaintiff.

20. For the plaintiff it is contended that it did.

23. In that regard the plaintiff relies upon the agreement between Micallef and the company from which the plaintiff acquired the business in question, namely, Hospitech Pty Ltd and the oral agreement entered into between Micallef and the Chief Financial Officer of the plaintiff shortly prior to the time at which Micallef entered the employ of the plaintiff.

26. The relevant clause in Micallef's contract of employment with Hospitech (then called Welltrade Pty Ltd) reads:

"11. The employee, in consideration of the company's common law duties and in further consideration of the payment to him by the company of the sum of $5,000 (the restraint payment) during each year of the term and any renewal thereof, shall not, either on his own account or for any other person, firm, company or entity, at any time during the term or for a period of two years after the termination thereof (a) solicit, interfere with, or endeavour to entice away from the company or otherwise act for or perform any business services for any person, firm, company or entity who at any time during such period has been a customer of or in the habit of dealing with the business."

30. The relevant paragraphs in the affidavit of the plaintiff's Chief Financial Officer sworn 5 July 1998 read:

"11. In late January 1999, on a date which I cannot specifically recall but after 22 January 1999, I was telephoned by the first defendant who requested a meeting with me. He stated that he wanted to talk generally about the offer of employment and to clarify his position with the plaintiff should he accept the offer of employment. 12. I met that day with the first defendant at my office and during the course of the conversation I went through the contents of the offer of employment. 13. I told the first defendant that the monetary amount he would receive was higher than what he was receiving at present and that the plaintiff would value his services if he chose to accept the offer of employment. I also told the first defendant that the offer of employment that he had received did not contain all the terms and conditions of the first defendant's proposed employment with the plaintiff and that the offer of emplyment was on the basis that all the current terms and conditions of the first defendant's employment contract with Hospitech were included in the offer and that when the sale of the businesses was completed the plaintiff would arrange a formal contract of employment to be drawn up which contained all of the terms and conditions of his contract of employment with Hospitech. 14. The first defendant told me that was acceptable to him and that he was anxious to accept the offer but that he had concerns as to whether he would be able to accept the plaintiff's offer of employment because a clause in his contract of employment with Hospitech precluded him from working with the plaintiff. I informed the first defendant that he should discuss his concerns with Stubbs. 15. After the meeting with the first defendant had concluded I telephoned Stubbs and told him that the first defendant was concerned that the current provision in his contract of employment in relation to restraint of trade would stop him from accepting the plaintiff's offer of employment. Stubbs told me that he would provide the first defendant with his approval on behalf of Hospitech to waive the restraint of trade clause in respect of any employment offer from the plaintiff." .

35. The case for the defendants in this regard is that Micallef's contract of employment with Hospitech expired, at the latest, when Micallef entered the employ of the plaintiff; further, that at no time did Micallef agree to enter the employ of the plaintiff on the basis that all the current terms and conditions of Micallef's employment contract with Hospitech were included in the offer.

38. Clearly, I am in no position to determine the issue, that must await the trial of the proceeding. What I do say, however, is that having regard to the fact that Micallef was the original founder of the business which was later acquired from him by Hospitech, the important role he played in the business whilst it was conducted by Hospitech and the important role he was expected to play in the business once it was taken over by the plaintiff, it would be somewhat surprising if the plaintiff did not seek to place some restraint on Micallef once he agreed to enter its employ, all the more so when one considers that it had paid Hospitech $520,000 for the business.

41. At all events, in my opinion there is a serious issue to be tried in respect of the matter.

44. In the second place, it is strongly arguable that the defendant, Micallef, has misused confidential information obtained by him whilst in the employ of the plaintiff thereby enabling him to solicit clients from the plaintiff by undercutting the plaintiff.

47. In that regard it is to be noted that whilst in the employ of the plaintiff Micallef gained an intimate knowledge of the business of the plaintiff, in particular, all costings for tenders and quotations for work.

50. The fact that the defendants have been able to win over four significant clients of the plaintiff since Micallef left the employ of the plaintiff on 24 May last justifies one inferring that as a matter of probability Micallef has made use of his knowledge of the identity of the plaintiff's clients and the terms upon which the plaintiff performed services for them to achieve the plaintiff's success in that regard.

53. Of course, if the plaintiff establishes at trial the matters deposed to by the plaintiff's Chief Operating Officer in paragraph 36 in his affidavit of 5 July 1999, namely, that the administration manager of the Vaucluse Private Hospital had spoken to an employee of the plaintiff named Nayagar and told him that the plaintiff, "Would have to sharpen its pencil to retain the business because Ed has given us a better price", then so much stronger could be the plaintiff's case in this regard.

56. My conclusion, therefore, is that there are serious issues to be determined in the proceeding. The real question is: Where does the balance of convenience lie?

59. Having considered the material placed before me in relation to this aspect of the application, I have come to the conclusion that the balance of convenience favours the plaintiff.

62. The plaintiff was paid $520,000 for the business of Hospitech. If the defendants continue to win over the plaintiff's clients, the value of the business acquired by it will obviously decline. I regard that as a matter of significance, particularly in view of the fact that after Hospitech sold the business to the plaintiff, Micallef personally received the sum of $62,500, being the value of his own share in the business of Hospitech.

65. It is said that if injunctive relief is granted, Micallef, and his partner Tanner, will be unable to gain other employment and will suffer significant financial loss as a consequence. I am not persuaded that that will be the situation.

68. Because of the disruption it will cause to the four former clients of the plaintiff who have gone over to the defendants if I were to restrain the defendants from continuing to supply services to them, I propose to exclude those clients from the restraining order I intend to grant.

71. It is also to be remembered that there are three other significant competitors of the plaintiff in this particular field, namely, IG/Datex, Omega and Medigas. Any order I make will place no restrcition upon the defendants in so as far as the clients of those three companies are concerned. They will be free to approach such clients as they see fit.

74. In that situation I see little real prejudice being caused to the defendants by the making of the restraining order - all the more so because I also intend to make appropriate interlocutory orders designed to bring this proceeding to trial as speedily as possible.

78. The undertakings having been given by counsel for the plaintiff, firstly, as to damages, and, secondly, that the plaintiff will prosecute the proceeding to trial with expedition, I make the following orders in the proceeding:

1. That until the trial of this proceeding or any further order, the first defendant, either on his own account or for any other person, firm, company or entity, including, but not limited to the second defendant, be restrained from soliciting, interfering with, or endeavouring to entice business away from the plaintiff or otherwise act for or perform any business services for any person, firm, company or entity referred to in Exhibit SMP1 of the affidavit of Susan Mary Phillips, sworn 29 July 1999, save for Djerriwarrh Health Services, Shepparton Private Hospital, Vaucluse Hospital and West Gippsland Private Hospital.

2. Exhibit SMP1 to the affidavit of Susan Phillips sworn 29 July 1999 be kept confidential and be retained in a sealed envelope at the offices of the plaintiff's solicitors and be inspected only with the plaintiff's consent or by order of a judge of the court.

3. The defendants file their defences on or before 5 August 1999.

4. The plaintiff file and serve any reply on or before 10 August 1999.

5. The parties file and serve affidavits of discoverable documents on or before 17 August 1999.

6. The proceeding be set down for trial without the need for the filing of a certificate of readiness.

7. The proceeding be referred to the Listing Master on a date to be fixed for fixing for trial and I request that the Listing Master give the trial of this proceeding such priority as she is able.

10. I direct that within 48 hours this order be prepared by the plaintiff's solicitors and brought to me for authentication.

11. I direct that within 7 days of its authentication a copy of this order be served on the Associate to the Listing Master.