The facts
4SWM commenced business in Cowra in 1980. It had been looking to acquire an accountancy practice in Sydney since late 2005. Work levels were diminishing in Cowra and the plan was to utilise staff in Cowra to provide services to an expanding practice in Sydney.
5Mr Lloyd responded to an advertisement placed by SWM in the March edition of the Chartered Accountant Journal. On 8 April 2007, Mr Lloyd sent Mr Murphy an email attaching a confidentiality agreement, which Mr Murphy signed, together with material that included the profit and loss accounts for Astims for 2005-2007 financial years, client profiles and staff details. The material also contained a summary of Astims' revenue since 1999. The summary disclosed that Astims' total billings in 2005 were $1,034,879.00, in 2006 were $1,383,115.00 and in the 9 months to 31 March 2007 were $1,055,111.00, with an estimate for the whole year of $1,390,000.00. The material included a list of past and current employees, including their current salaries and a brief description of each. In the case of Mr Finlay, it disclosed that his salary for the 2005 financial year was $65,000, for 2006 was $70,000 and that for 2007 he was on a "Busn Services package" of $75,000. The material also made reference to a company called Iolan Pty Limited. That company, which was formerly known as Astims Bookkeeping Pty Ltd, changed its name to its then current one in 2004. It was described in the profit and loss accounts as a "company run for new clients with issues to resolve or Buy/Sell busn. Once stabilised they become clients of Astims." Iolan contributed billings of $287,593.00 in 2005, $74,478.00 in 2006 and $142,400.00 in the 9 months to March 2007. In fact, Mr Finlay and another employee were employed by Iolan, not Astims, and Mr Finlay's salary for the year 2006-07 was $60,000.
6In an email dated 9 April 2007, Mr Murphy raised the question whether Mr Lloyd and Ms Wu would be willing to stay on at the firm after the sale. He also said:
I mentioned briefly on the phone that we plan for me to work in Sydney 3 or 4 days per week. The offices would be linked electronically and would like [sic] to send as much work as possible back to Cowra for processing. We can organise staff from Cowra to attend Sydney if there is a need. We currently look after and audit many superannuation funds and a number of the larger audits in our town. I would appreciate your thoughts as to whether this proposal would work with your practice.
Mr Lloyd replied the following day. In relation to his own plans, he said:
I am happy to provide consulting services ongoing, however I would only have 2-3 days a week available, and diminishing gradually. I would always be available to meet with clients or provide help, or historical information. I would certainly refer all future accounting work to Astims, ...
Mr Lloyd also said that he thought that Ms Wu would be willing to remain on as a consultant. On the question of linking the offices electronically, he said:
Our office is very electronic, both email and internet feature heavily in our communication paths. I am sure our staff would also benefit from more hands on supervision and variety of work, and more audit exposure. At various times I have been able short term to run my office from Hong Kong, London, and US, so I do not expect any difficulty in dealing between Cowra and Sydney.
Mr Lloyd goes on to say that he thought the practice could expand quickly and that its expansion had been held back by his other interests.
7On the same day, Mr Murphy sent Mr Lloyd a further email. In that email, he outlined the way in which he thought Mr Lloyd and Ms Wu could be remunerated if they stayed on as consultants. Mr Lloyd replied in an email dated 12 April 2007 that he was happy to provide 10 hours per week at no cost for up to 1 year in return for access to office facilities and that he thought that Ms Wu would be prepared to work 4 days per week for a fee of $100,000 per annum. Mr Lloyd also said that he would be happy to refer as much business to SWM as possible.
8In an email dated 13 April 2007, Mr Lloyd responded to a number of other questions asked by Mr Murphy. In that response, Mr Lloyd said:
The acquisition proposition you are indicating would be extremely good for us and our clientele as we could continue in this location with all staff, (if you wanted to) and assist through a settling in period, without any concern that clients would get nervous about continuity. Having an available back up work force in Cowra would cut a lot of staffing issues in Sydney that tend to hold back expansion.
9Mr Lloyd and Mr Murphy met at Astims' offices on 24 April 2007. Following that meeting, SWM decided to proceed with due diligence which occurred on Sunday, 29 April 2007. In the meantime, on 27 April 2007, Mr Murphy emailed Mr Lloyd a draft sale agreement and draft consultancy agreements for both him and Ms B Wu.
10Mr Murphy and his partners met Mr Lloyd and Ms B Wu on 29 April 2007. At that meeting, Mr Lloyd explained that the practice was divided into two sections. The good clients were serviced by Astims. Those with problems were recorded as clients of Iolan, although all tax returns were lodged through Astims' tax agent system. Clients of Iolan either had bookkeeping or cash flow problems. When their affairs were better organised, they were transferred to Astims. Mr Lloyd asked Mr Murphy whether SWM wanted to acquire the Iolan business as well and Mr Murphy replied that it did.
11Mr Lloyd also says that at some time on 29 April 2007 they discussed the draft consultancy agreement and that he said:
Also, the consultancy agreement needs to be redrawn altogether as there are a lot of things I don't agree with and some of the terms are unclear. I have looked at this draft consultancy agreement but there is almost nothing in it that I would agree with. I told you initially I would be available to do consultancy for 2-3 days a week, but you never responded. I've always said I would be available after the sale, for up to 10 hours per week to deal with clients and their historical and goodwill stuff. I don't expect to be paid for that. If you want me to do paid consultancy this document needs lots of changes.
According to Mr Lloyd, Mr Murphy suggested that they talk about it later. Mr Murphy denies that they discussed the consultancy agreement at all.
12On 30 April 2007, Mr Murphy sent Mr Lloyd an email in which he said:
We are keen to use a standard office management system such as Sol6 or MYOB Accountants office
He went on to ask a number of questions about that proposal. Mr Lloyd responded on 1 May 2007 by saying:
I think using Sol6 or MYOB Practice management should be fine, we just haven't done it, as I believe there is an up front cost as well as a licence fee per person per year. I will check and come back to you. I don't think tere [sic] should be any issue in using it here.
13On 7 May 2007, Mr Murphy sent an email to Ms Wu asking where she was up to in considering the contents of her service agreement. Ms Wu sent a reply on 8 May in which she said that she had "[j]ust a few minor questions". One question was whether she would be engaged as an employee or a consultant. She indicated she wanted the latter. The other question related to the number of days she would have to work. She also indicated that a period of 24 months' service was acceptable to her. Mr Murphy replied to that email suggesting that Ms Wu be paid 40 percent of the time she billed out. Ms Wu did not reply to that email prior to 23 May 2007. Nor did anything further happen in relation to Mr Lloyd's service contract.
14The agreement for sale was signed by Messrs Murphy, McMaster and Fisher on 22 May 2007 and by Mr Lloyd and Ms B Wu on 23 May 2007. The agreement was prepared by the parties without assistance from lawyers. Clause 3(a) provides:
(i) The Vendor [defined to be Mr Lloyd and Ms B Wu] agrees to sell and the Purchaser [defined to be the three partners of SWM] agrees to purchase the business goodwill and assets included in this sale for $1,200,000.00 apportioned as to Goodwill $1,150,000 and plant fixtures and fittings $50,000, such goodwill purchase price being based on sustainable billings post acquisition equivalent to $1,400,000 per annum, and Plant Fixtures and Fittings at estimated market value $50,000. Provided that if the losses as defined in sub paragraph (a) (ii) of this clause for the year ended 30 th June 2008 then the price for the goodwill and assets shall be reduced by seventy six cents for each fee dollar lost but limited to a fee loss equivalent to the total retention amount ($120,000) specified in paragraph 3 (d).
(ii) Fee losses referred to in sub paragraph 3 (a) (i) shall be calculated as an amount of $1,400,000 less billings achieved by Astims during the year ended 30 th June 2008.
Clause 3(d) provides:
The Purchaser will provide to the Vendor on or before 27 th June 2008, a calculation of Fee Loss as anticipated in Clause 3(a)(i), so as to agree on a fee loss amount, if any. Following agreement in respect of this calculation and by 27 th June 2008, the Retention Sum (10%) amounting to $120,000 shall be paid by the Purchaser to the Vendor and no interest will be payable in respect of this retention amount. In the event that the Retention Sum is not paid, the Vendor shall be entitled to a lien over debtors of the business carried on by the Purchaser, formerly Astims, until such time as the retention sum is paid, and interest at 10% pa shall be payable from 27 th June 2008. In the event that agreement is not reached in respect of this matter, then arbitration procedures as specified in Clause 15 will be followed promptly.
15The agreement contains an entire agreement clause (cl 4(a)). In addition, cl 4(b) states that the parties are not bound "by any warranty, representation, collateral agreement or implied term" except to the extent that they cannot be excluded by agreement and cl 4(c) contains an acknowledgement by the purchasers that they do not rely on any statements, inducements or representations other than those specifically listed in the agreement.
16Clause 7 relevantly provides:
The Vendor warrants that:
A. Relating to the vendor's capacity and title
.....
D. Relating to employees of the Vendor being re-employed
The employees listed on Schedule A are to be employed by Licencee [sic] after 27 th June 2007 under the same terms and conditions under which the were employed by Vendor for a period of 12 months from 27nd [sic] June 2007 or such longer period as may be agreed. Vendor will do all things necessary to ensure the staff remain as employees of Purchaser or licencee for a period of at least 12 months after 27 th June 2007.
17Clause 10(a) provides:
The Vendor agrees to abide by the restraints of trade set out in clause 8 of the Consultancy Agreement collateral to this Agreement.
Clause 10(b) contains an acknowledgment that those restraints are reasonable.
18Clause 11(2) provides:
The Licencee [meaning SWMFS, which was not a party to the contract] agrees to offer to re-employ the Vendor's employees on terms and conditions not less favourable than those current at the date of this agreement.
19No Consultancy Agreement was attached to the sale agreement. Clause 8 of the consultancy agreement that had been the subject of negotiation between Mr Murphy and Ms B Wu was in the following terms:
(1) Agreement for restraints.
BWHW agrees to abide by each of the restraints contained in this clause.
(2)Reasonableness of restraints.
BWHW acknowledges and agrees that each of the restraints is reasonable as regards the nature of the conduct restrained and the duration and scope of the restraint and that the restraints are reasonably necessary for the future protection of SWM when acquiring the business and its goodwill.
(3)Benefit of restraints.
The benefit of each of the restraints contained in this clause endures in favour of SWM and SWM's successors and assigns being the successive legal owners of the business and the benefit of those restraints may be assigned to those persons or companies together with the goodwill of the business.
(4)Trade restraint.
...
(5)Confidential information.
...
(6) Solicitation of clients.
...
(7) Solicitation of employees .
BWHW agrees that during the period ending 30 th June 2009 she will not entice or attempt to entice any employee of the business from continuing to be employed in the business,
(8)Persons who may be restrained.
(1) BWHW agrees to procure the execution of restraints by such of the former employees of BWHW and the Accountancy Practice Astims as SWM requires.
Clause 7 of the proposed consultancy agreement with Mr Lloyd was in similar terms.
20On 22 May 2007, Mr Richard Wu, who was the office manager of Astims (and Ms B Wu's nephew), resigned.
21On 30 May 2007, Astims' staff were informed of the sale. On the same day, Mr Murphy sent an email to Mr Lloyd in the following terms:
At this stage the thought is to have the server located in Cowra with dumb terminals in Neutral Bay. That way all of the programmes are maintained in Cowra and there will be a second server in our other office in Cowra to back up everything as it happens.
...
Our inclination at the moment is to stay with Accountants Office for accounting, tax and office costing and Level 31 for filing. MYOB can transfer you [sic] SOL6 tax into Accountants office data base that will give names addresses and Tax file numbers and AO can transfer those details to L31. MYOB assure me this is a simple process and can be done relatively quickly and at much less cost and disruption to converting to Viztopia.
If we go that way with your consent we should be able to have the system up and running in your office in the week commencing 11th June
22Mr Lloyd replied to that email on 30 May 2007. He said the staff had taken the announcement well and said that "We will be happy to go with Accountants Office, and installation can be next week or later." He went on to record complaints about MYOB and, in particular, the fact that it appeared that the representative of MYOB with whom SWM dealt had already been told about the merger.
23Completion occurred on 26 June 2007. The following day, Ms B Wu provided further comments on her consultancy agreement. Her principal comment was that the period of her consultancy and the restraint in cl 8 should be reduced to 12 months.
24On 2 July 2007, Mr Murphy wrote to both Mr Finlay and Ms J Wu in relation to the terms of their employment. In each case, the letter said:
As you know ASTIMS and SWM Financial Services Pty Ltd merged on 27 th June 2007. As part of the merger agreement all of the clients and staff of ASTIMS were transferred to the new firm.
...
All employment conditions of staff as at 26 th June 2007 will continue and your pay will be transferred electronically into your nominated bank account as usual.
We attach a schedule of your salary arrangements from 1/7/07 which we understand you have discussed with Belinda Wu and if you agree that the schedule is correct please sign a copy of the schedule and return it to me. ...
In each case also, the letter had an attachment headed "EMPLOYMENT CONDITIONS FROM 1 ST JULY 2007" which contained details of the employee's annual salary and which provided that there would be "Annual Reviews unless employee considers an Earlier review is required". The attachment contained a statement "I confirm that the above conditions are acceptable to me". Both Mr Finlay and Ms J Wu signed their respective statements.
25Previously, Ms J Wu had signed an employment agreement dated 1 October 1999 with Astims and Mr Finlay had signed one dated 1 July 2005. Clause 10 of each agreement relevantly provided:
In particular you acknowledge through signing this agreement that you will strictly observe the following:
(a) You will recognise the confidential nature of the business dealings of Astims with its clients, and you will at all times respect such confidentiality and comply with all legal requirements in respect of privacy.
(b) You must not either during or after employment with Astims communicate or divulge or discuss with any person other than a current Astims principal or employee anything relating to the confidential affairs of Astims or its clients or business interests.
(c) ...
(d) You will not without prior consent of the Principal Partner of Astims either directly or indirectly, for a period of 12 months after your employment with Astims terminates, knowingly seek to represent or seek to be appointed to represent any company on whose account you have worked while at Astims during any part of the 12 months preceding the termination of your employment, in the same city as that of your previous employment with Astims. This condition may be waived by Astims, given reasonable expectation that no conflict will exist as a result of such appointment.
26At the time that Ms Wu signed her employment contract, Astims was a partnership between Mr Lloyd and Mr Morris Rozario. Her responsibilities at that time consisted largely of administration and accounts work including the preparation of some tax returns. She had no responsibility for supervising staff. The partnership between Mr Lloyd and Mr Rozario was dissolved by an agreement dated 31 January 2000 between them. From that time until 30 June 2000, Mr Lloyd continued the accountancy practice under the name "Astims" as a sole practitioner. On 20 June 2000, Ms B Wu entered into an agreement with Mr Lloyd by which she became an equal partner effective from 1 July 2000 and, on 29 June 2001, Mr Guy Hammond entered into an agreement with the existing partners to become a partner with an equal share effective from 1 July 2001. However, that partnership was dissolved by an agreement dated 12 February 2002, which was expressed to take effect from 31 December 2001. From that time, Mr Lloyd and Ms Wu continued in partnership together. No new agreements were signed with Ms J Wu at the times when the composition of the partnership changed. Although it is not clear from the evidence, it appears that each time that the ownership of the practice changed, the new partnership took responsibility for any accrued rights that Ms J Wu had.
27Mr Finlay had, prior to signing his employment agreement with Astims, been employed by Iolan. He was also a director of, and a 50 percent shareholder in, that company. For reasons which are not relevant to the current dispute, Mr Lloyd and Mr Finlay agreed in December 2005 that it would be more sensible if his employment was transferred back to Iolan. The evidence is that that happened on or about 1 January 2006. Mr Finlay did not sign an employment agreement with Iolan. However, from that time, he was paid by that company and that company made superannuation contributions on his behalf.
28Following completion, Mr Murphy began to introduce a number of changes at the Neutral Bay office. Two areas of change - both foreshadowed in Mr Murphy's email dated 30 May 2007 - were to the computing and accounting and practice management systems. The principal change to the computing system was to arrange for all processing to be done in the Cowra office, with staff in the Neutral Bay office accessing that office through a leased-line connection using what would essentially become dumb terminals. Another significant change was that employees of the Neutral Bay office no longer had access to webmail, which created difficulties when they were working out of the office. The changes to the practice management systems involved replacing Astims' proprietary system and a software package known as MYOB AE Tax with a software package known as MYOB Accountants Office. Neither change went smoothly. There were delays in arranging the line between Cowra and Telstra. When it was installed, the terminals in the Neutral Bay office became slow, and the line would periodically drop out. The Neutral Bay office became wholly dependant on the Cowra office to rectify any problems. There were also delays in installing the new MYOB software and, when it was installed, the computers in the Neutral Bay office froze frequently. In order to overcome this problem, staff attempted to use the old systems to process their work and then copy the results back to the new software, only to find that the processed files were over-written. Eventually, it seems that the difficulties with the connection between the Cowra and Neutral Bay offices were resolved and the technical difficulties with the new software were overcome when SWMFS bought new computers. However, there were also complaints by the staff that they had received inadequate training on the new system with the result that they struggled with its implementation. These problems undoubtedly had a significant effect on staff morale and no doubt involved the staff in working longer hours. The likelihood is that they had some effect on the firm's revenue. There is, however, no evidence which attempts to analyse that effect and, in the absence of evidence of that type, I am not prepared to infer that the effect was substantial.
29Another area of change was to the way in which work in the office was allocated. Prior to the sale, work was allocated by the managers to any staff member who was available to do it, and the work was supervised by the two partners. Following the merger, in late August 2007, Mr Murphy established three "teams" in the office: one headed by Ms B Wu, a second headed by Ms J Wu and a third headed by Mr Finlay. Mr Murphy did not discuss the new structure with staff before introducing it. However, he did discuss it with Mr Lloyd on 15 August 2007. Mr Lloyd's file note of the meeting does not suggest that he raised any objection to it. Under the new structure, work was only to be allocated within a team by the team leader. Ms B Wu gave evidence that the structure was "unbalanced" and that Mr Finlay was given "a weak team and inadequate support" because he had no senior accountant or anyone with a good understanding of tax in his team.
30Other complaints were catalogued in the evidence filed on behalf of the defendants concerning the new management. So, for example, there was evidence that there was limited partner involvement with the staff and with clients. In particular, Ms B Wu gave evidence that Mr Murphy only spent 2 to 3 days a week in the Neutral Bay office, that when he was there he tended to keep to himself, that he showed limited interest in meeting with clients, that he spent less than 30 weeks of the first year following the acquisition in the office and that when he was on holidays the other partners took it in turns to come to the office. Mr Lloyd gave evidence of several occasions on which he introduced Mr Murphy or Mr Fisher to clients and the meetings had not gone well because of a lack of interest on their part. Complaints were also made that the fortnightly meetings held by staff were cancelled and that a significant amount of the more interesting work, including audit and superannuation work, was moved to the Cowra office. Finally, Ms B Wu and Mr Finlay gave evidence of changes in SWMFS's terms of trade which required staff to obtain approval from Mr Murphy to do work for clients who had accounts that were outstanding for more than 15 days and both gave evidence of increases in charge-out rates that caused client dissatisfaction.
31The various issues raised by the defendants were denied or explained by Mr Murphy. Much of the hearing was taken up in investigating those matters.
32There is no doubt that many of the staff at the Neutral Bay office became dissatisfied with the changes that were made and with the way in which the firm was run. Their dissatisfaction was increased by the substantial difficulties in changing the computing and practice management systems of the firm. Prior to the sale, it appears that the firm was run very much as a family business. Mr Lloyd's former wife was a sister of Ms B Wu and Ms J Wu, and, as I have mentioned, the office manager was their nephew; and, even if Mr Lloyd was estranged from his wife, it seems clear that he remains on good terms with her family. Mr Lloyd was the driving force behind the firm. His management style was quite different from Mr Murphy's, as exemplified by their evidence in the witness box. Mr Lloyd comes across as a thoughtful and polite person. Indeed, in the early days, he had impressed Mr Murphy as a "gentleman". Mr Murphy, on the other hand, comes across as down to earth, direct, if not blunt, and a harder-nosed business man. With the benefit of hindsight, it is perhaps not surprising that the "merger" of the two firms did not go well.
33So far as Mr Lloyd is concerned, things reached a head on 19 September 2007 when he sent a letter addressed to the partners of SWM in which he described many of the complaints I have referred to. He maintained that the firm was understaffed and complained about the fact that, despite repeated requests by him, Mr Murphy had not replaced a senior accountant who had left in June and about the fact that the level of outstanding work was "quite staggering". He indicated in the letter that he could not continue providing services to the firm and asked the partners to circulate a letter to clients saying, in effect, that he would no longer be involved in the business. He also sought payment of the $120,000 immediately. Following that letter, Mr Lloyd and Mr Murphy met on 25 September 2007. Nothing came of that meeting and, on 28 September 2007, Mr Lloyd wrote to SWM again saying that, although it was anticipated that he would make himself available for at least 10 hours per week for no charge in return for an office, no consultancy agreement was signed, and that, in those circumstances, he no longer required an office but that he would "continue to make myself available to clients and staff who seek my assistance". Mr Murphy reported on the meeting to his partners in an email, only the last page of which was in evidence. In that email, Mr Murphy concluded "I think the outcome of all this is best for him and us as there is less tension in the office when he is not here". Mr Murphy replied to Mr Lloyd's letter on 2 October 2007. He agreed that there was a backlog in work but explained that that was due to a change in systems and said that it was planned to make a "big effort" to meet clients once the operational issues had been sorted out. He went on to say that he thought that it was important to remain in contact so that they could access Mr Lloyd's "vast client and industry knowledge". There was some further correspondence between the parties and Mr Murphy says that he and Mr Lloyd had a further meeting (which Mr Lloyd denies). The result, though, was that Mr Lloyd ceased to have any further involvement with SWMFS. However, on 13 December 2007, Mr Murphy sent Mr Lloyd an email rejecting his claim that the retention amount be paid immediately, although Mr Murphy went on to say that SWM still believed that they would be paying the retention amount. He pointed out that they were not aware of any large clients having left the firm, that the firm had obtained some new clients, that billings in the first 5 months were $533,610 and that they still expected to earn fees of $1.6 million for the full year.
34Ms B Wu finally signed her consultancy agreement on 20 December 2007. Clause 8 was amended in a number of respects. The radius of the restraint was reduced to 20 kilometres. Clause 4(b) was amended to permit Ms Wu to become an employee of a public accounting practice from 1 July 2008 provided she did not solicit clients of SWM within 12 months of terminating the agreement. The restraints themselves were imposed for a period ending 12 months from the date she ceased to be a consultant or 30 June 2009 (whichever was later) and the obligation in cl 8(8) was removed.
35Sometime in January 2008, Mr Finlay spoke to Mr Lloyd and told him that he intended to resign and to set up his own bookkeeping and consulting business. Mr Lloyd told Mr Finlay that he had a company, TTT, that Mr Finlay could use for that purpose.
36Mr Finlay also told Mr J Wu in late January 2008 that he was planning to leave SWMFS and go into business on his own. The likelihood is that Mr Finlay asked Ms Wu whether she would be interested in joining him. They spoke again in early February by which time Ms Wu says that she had formed the intention of joining Mr Finlay but that she had not made a decision to do so. From that time, she began to assist Mr Finlay in establishing his new business. Ms Wu spoke to Mr R Wu and asked him for help in setting up the business - including advice on appropriate computer software and hardware and help in dealing with suppliers, which Mr Wu agreed to provide. He invoiced TTT $3,200 for his services.
37In January and February 2008, two other employees - Elsa Chu and Diem Nguyen - resigned.
38On 18 February 2008, Mr Finlay became the sole director of TTT and JBMF Pty Limited, the trustee of Mr Finlay's family trust, became its sole shareholder. At about the same time, Mr Finlay asked Mr Lloyd for financial assistance in setting up the new business. In his affidavit evidence, Mr Finlay said that "the reality was that I did not have sufficient funds to meet the start up costs of the business". However, in cross-examination (by Mr Alkadamani on behalf of Mr Lloyd and Ms B Wu) he said that he was leaving "regardless" of the loan. In any event, Mr Lloyd agreed to lend TTT approximately $30,000. That loan was provided to TTT by Mailun Pty Limited, a company controlled by Mr Lloyd and his two daughters. On 24 February 2008, Mr Finlay obtained a new email address of james@tttaus.com.au. He gave one month's notice of his resignation from SWM Astims on 29 February 2008 and TTT commenced operations on 1 April 2008. Mr Murphy gave evidence that Mr Finlay told him at the time that he (Mr Finlay) intended to work in his wife's business, although Mr Finlay denies that he said that. The postal address TTT used when it commenced operations was a post office box belonging to Mr Lloyd. Mr Finlay said in cross-examination that he used that address without Mr Lloyd's consent. However, I find that evidence implausible and do not accept it.
39There is a question of when Ms J Wu decided to leave SWMFS and join TTT. In cross-examination, Ms Wu was careful to draw a distinction between her intention to leave SWMFS and her decision to do so. She conceded (reluctantly) that she had formed the intention to join TTT in February 2008. But she says that she did not make the decision to leave SWMFS until about 22 April 2008, following a meeting with Mr Murphy on 8 April 2008. Mr Murphy, concerned about Mr Finlay's departure, arranged to meet with Ms Wu on that day. At that meeting, at which a solicitor retained by SWMFS was also present, Mr Murphy offered Ms Wu a new employment contract that was to run for a period of two years and contained a number of post contractual restraints. Ms Wu rejected that offer in a letter dated 22 April 2008 and she conceded that by then she had made the decision to join TTT. Mr Finlay was also adamant that Ms Wu had made no commitment to join TTT before she gave notice of her intention to leave SWMFS.
40I do not accept Ms Wu's or Mr Finlay's evidence on this point. In my opinion, Mr Wu agreed in February 2008 to join Mr Finlay and it was agreed at that time that they would establish an accountancy practice. It is difficult to understand why Ms Wu agreed to help Mr Finlay at that time in the absence of such an agreement. In February 2008, Ms Wu was corresponding with her nephew about computer software that was appropriate for an accountancy practice. In particular, on 21 February 2008 Mr Wu sent Ms Wu and Mr Finlay a copy of an email from MYOB concerning a single licence for "AE Tax" software. On 22 February 2008, Mr Wu sent Ms Wu and Mr Finlay an email asking them to fill in "asap" a "BGL Software Subscription Agreement" for software used by accountants to provide secretarial services to clients. Ms Wu completed that agreement in the name of TTT and signed it on 25 February 2008. Ms Wu gave her email address on that form as "judy@tttaus.com.au". On 1 March 2008, TTT agreed to buy three laptops. The natural inference from that fact is that Mr Finlay expected TTT to have three employees - himself, Ms Wu and Ms Kam. Ms Wu was involved in selecting office furniture for TTT in March 2008. On 1 April 2008, Mr Finlay wrote to Ms Wu saying that he needed to issue an invoice to David Zwart (who was a client of Astims SWM) and seeking her approval to a form of letterhead. On 4 April 2008, Ms Wu was copied in on an email from Mr Finlay to an insurance broker concerning insurance for TTT. In that email, Mr Finlay queried why TTT needed product liability insurance of $10 million in these terms: "Why product liability of $10M - we are accountants". In May 2008, Mr Finlay corresponded with a proposed lessor in relation to premises that TTT was planning to lease. In an email dated 20 May 2008, he says that he has discussed the lease with "the others". Mr Finlay said in cross-examination that he had no idea who "the others" were. Ms Wu suggested that the reference to "the others" was a reference to her husband. In my opinion, the reference to "the others" was a reference to Ms Wu and Ms Kam. It is inconceivable that Mr Finlay could not remember who 'the others' were; and it is difficult to understand why Ms Wu's husband, rather than Ms Wu herself, would be involved in signing the lease.
41There is also a question when Ms J Wu told Ms B Wu that she intended to leave Astims. Both gave evidence that it was not until after 8 April 2008, following Ms J Wu's meeting with Mr Murphy. Ms B Wu's evidence was that it was on 20 April 2008, at which time her sister told her that she planned to join Mr Finlay. Ms B Wu told Mr Finlay about what her sister proposed the following day. There is no documentary evidence to suggest that Ms J Wu spoke to her sister earlier than 20 April. Ms B Wu says that she did not encourage her sister to leave and that she had some concerns about her proposal to do so because she was the main bread-winner in her family. I accept this evidence. It strikes me as plausible and there is no reason to disbelieve it.
42Mr Finlay left SWMFS on 29 March 2008. Before he left, Mr Murphy asked him to prepare a list of clients for whom he was working and to contact those clients and tell them he was leaving and to deal with Mr Murphy in the future. Mr Finlay worked from home for a period of time. A number of clients of SWMFS gave notice that they intended to leave the firm. One was Quest Metals, who gave notice on 27 March 2008. Another was Mr Zwart, who gave notice on 3 April 2008. A substantial number of other clients left over the following months. Some went to TTT. Others went elsewhere.
43On 18 April 2008, Ms Kam gave one month's notice of her resignation from SWMFS and, on 30 May 2008, both Ms B Wu and Ms J Wu gave one month's notice of their resignations. Two other employees - Aiden Chan and Vivien Lu - also resigned in May. Ms Kam commenced employment with TTT on 1 June 2008.
44Following notice of her resignation, and in accordance with instructions given to her by Mr Murphy, Ms J Wu prepared a list of clients for whom she was working. Mr Murphy also asked Ms Wu to tell clients that she would be leaving. The list prepared by Ms Wu lists the name of each client (grouped together where the clients were related, such as related companies), the name of the principal contacts at each client and some remarks about the clients and who at SWMFS had contact with them. Ms Wu kept a copy of that list together with a number of client files on a personal computer which she took with her when she left the firm. She gave evidence that she had not used that material while working for TTT, although, when pressed in cross-examination, she said that she may have referred to a couple of client files in connection with the work she was doing for those clients while at TTT. Ms Wu says she kept those files on her computer so that she had access to them after hours after web access to Astims' computer system was terminated.
45On 26 June 2008, Mr Murphy wrote to Mr Lloyd and Ms B Wu stating that the fees raised by SWMFS in the year ended 30 June 2008 were $1,173,612 and that, in those circumstances, no part of the deferred consideration of $120,000 was payable. Neither Mr Lloyd nor Ms Wu responded to that letter.
46Both Mr Lloyd and Ms B Wu have used the services of TTT. Mr Lloyd lodged tax returns on behalf of a number of persons through TTT. However, he gave evidence that, in each case, he did it as a personal favour for the persons involved and did not charge a fee. He had no difficulty in identifying the relevant clients and gave plausible explanations in each case for why he chose to lodge the returns without charging a fee. Ms Wu gave affidavit evidence that, in order to retain her registration as a migration agent, she was listed as a consultant of TTT so as to obtain the benefit of TTT's professional indemnity insurance. However, she gave evidence that she has done no work for TTT. There is no reason to doubt the evidence given by Mr Lloyd and Ms Wu in this regard, and I accept it.