[2024] NSWSC 1568

Peninsula Business Services Group Limited v Edward Mallett; Peninsula Business Services Group Limited v Steven John Nicholson

See [38] and [39]

Catchwords

PRACTICE AND PROCEDURE — pleadings —applications in related proceedings — whether plaintiffs should have leave to amend their respective commercial list statements — where proposed changes meet the essential requirements of an acceptable pleading — where defendants on notice of the cases they have to meet — HELD — leave to amend commercial list statement in each set of proceedings granted

Cases cited

Graham & Linda Huddy Nominees Pty Ltd v Byrne[2016] QSC 221
McGuirk v The University of New South Wales[2009] NSWSC 1424
Richard Churchill v The University of Sydney[2020] NSWSC 1343
Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7)[2019] QSC 241
Wheelahan v City of Casey (No 12)[2013] VSC 316

Legislation cited

Civil Procedure Act 2005 (NSW) § 56, 57, 58, 64

Judgment

INTRODUCTION

[1]
These are my reasons for granting leave to the respective plaintiffs to amend the commercial list statement in each of the following two related proceedings:
1. (1)
  proceedings by the plaintiff, Peninsula Business Services Group Ltd, against the defendants, Edward Mallett and Retinue Accounting Pty Ltd (Mallett proceedings); and
2. (2)
  proceedings by the plaintiff, Peninsula Australia Pty Ltd (formerly known as Employsure Pty Ltd), against the defendants, Steven Nicholson, Mr Mallett and Retinue (Nicholson proceedings).
[2]
Peninsula Business is the parent company of Employsure (now Peninsula Australia).
[3]
Where the context requires it, I will collectively refer to Mr Mallett, Mr Nicholson and Retinue as the defendants.
[4]
On 2 August 2024, the Mallett proceedings were commenced by Peninsula Business by the filing of a summons with an accompanying commercial list statement (Peninsula Business CLS). As yet, there has been no commercial list response filed to the Peninsula Business CLS.
[5]
The essence of the claims made in the Peninsula Business CLS is that Mr Mallett sold all of his shares in Employsure to Peninsula Business and has acted in breach of various restraints contained in a share purchase agreement to which he was a party by subsequently, through Retinue, carrying out a business in competition with Employsure and employing former critical Employsure personnel.
[6]
On 30 August 2024, the Nicholson proceedings were commenced by Employsure by the filing of a summons with an accompanying commercial list statement (Employsure CLS). As yet, there has also been no commercial list response filed to the Employsure CLS.
[7]
The gravamen of the claims made in the Employsure CLS is that while Mr Nicholson was still employed as the Chief Financial Officer of Employsure, he co-founded Retinue with Mr Mallett and has become a director, beneficial shareholder and CEO of Retinue, breaching restraints contained in his employment agreement with Employsure and breaching his fiduciary duty to Employsure. It is also alleged in the Employsure CLS that Mr Nicholson, Mr Mallett and Retinue have induced former Employsure employees to breach their employment agreements with Employsure which prevented them from working for a business in competition with Employsure.
[8]
The amendment applications arise in circumstances where the defendants previously sought the summarily dismissal or strike-out of the Peninsula Business CLS and the Employsure CLS. On 5 November 2024, I ruled against the summary dismissal applications on terms which allowed for the amendment of the Peninsula Business CLS and the Employsure CLS respectively, either by the consent of the defendants or by leave of the court. As the consent of the defendants was not forthcoming, these amendment applications were made.
[9]
Peninsula Business applies to amend the Peninsula Business CLS in the form of the proposed amended Peninsula Business CLS which is attached to the notice of motion filed 22 November 2024 (Peninsula Business amended CLS).
[10]
Employsure applies to amend the Employsure CLS in the form of the proposed amended Employsure CLS which is attached to the notice of motion filed 22 November 2024 (Employsure amended CLS).
[11]
In dealing with the amendment applications, I am conscious that in exercising the discretion under s 64(1) of the Civil Procedure Act 2005 (NSW) (CPA) to grant leave to a party to amend any document in the proceedings, I must have regard to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings (s 56 of the CPA) and act in accordance with the dictates of justice (s 58 of the CPA), which include the overriding purpose and the objects of case management (s 57 of the CPA).
[12]
The application to amend the Peninsula Business CLS is opposed by Mr Mallett and Retinue. The application to amend the Employsure CLS is opposed by Mr Nicholson, Mr Mallett and Retinue. The only basis for the opposition to the application in each case is the form of the amendments, there being no issue of injustice, delay or other prejudice which the defendants assert as a reason why I should decline to allow the amendments.
[13]
At the hearing, I ordered that the two amendment applications be heard together. I will deal with each amendment application in turn.

THE PENINSULA BUSINESS AMENDED CLS

[14]
The only changes proposed in the Peninsula Business amended CLS are to paragraphs 24, 52 and 53.
[15]
To put those paragraphs in context, in very summarised terms, the Peninsula Business amended CLS alleges:
1. (1)
  Mr Mallett and his wife have ultimate control of Retinue through their shareholdings of EWHM 3 Pty Ltd, which is the 100% shareholder of Retinue Holdings Pty Ltd, which in turn is the 99% shareholder of Retinue, and by reason of Mr Mallett being a director and secretary of Retinue ([7]–[10]).
2. (2)
  Employsure has two related companies, Employsure Limited and Employsure Law Pty Ltd, and those three companies are collectively referred to as the Employsure Companies ([13]).
3. (3)
  Peninsula Business is part of a group of companies comprising its subsidiaries, holding companies and subsidiaries of its holding companies (collectively the Peninsula Group Companies) ([17]).
4. (4)
  Before 17 December 2020, EWHM Pty Ltd as trustee for the Mallett Family Trust owned 35% of the share capital in Employsure and Peninsula Business owned 65% of the share capital in Employsure ([14]–[16]).
5. (5)
  On 17 December 2020, Mr Mallett, EWHM as trustee for the Mallett Family Trust and Peninsula Business entered into a share purchase agreement (SPA) pursuant to which EWHM sold all of its shares in Employsure to Peninsula Business for $180 million ([16]).
6. (6)
  The SPA contained five categories of restraints on Mr Mallett ([18]– [22]), which broadly prevented him from:
7. (7)
  In the period from 18 December 2019 to 17 December 2020 and continuing since then, Employsure provided Payroll Advice Services and a software-based online platform called BrightHR to mainly small and medium enterprises and Employsure Law advised and represented clients at court proceedings in relation to employment law and workplace health and safety issues ([24]–[26]).
8. (8)
  Since 17 December 2020, Retinue has provided Payroll Advice Services and payroll software products and services in Australia, targeting small and medium enterprises, which are the same as or similar to the products or services sold or supplied by Employsure during the period 18 December 2019 to 17 December 2020 and competitive with them ([27]–[31]).
9. (9)
  Mr Mallett is engaged, concerned or interested in the business of Retinue and has breached the restraints in the SPA ([32]–[33]).
10. (10)
  Mr Mallett, through Retinue, has employed or offered to employ 14 former employees of Employsure who were employed in the period from 18 December 2019 to17 December 2020 and has breached the restraints in the SPA ([34]–[50]).
11. (11)
  By reason of the breaches of the SPA, Peninsula and the Employsure Companies have suffered loss ([52]–[53]).
12. (12)
  Peninsula seeks declarations that Mr Mallett has breached the SPA, an injunction against Mr Mallett and Retinue requiring them to cease providing products and services in competition with the Employsure Companies and not make any offers of employment to critical persons as defined in the SPA, damages for breaches of the SPA and an account of profits earned by Mr Mallett and Retinue by reason of the breaches of the SPA ([54]).
[16]
The principal points of debate at the hearing before me involved the allegations of loss in paragraphs 52 and 53 of the Peninsula Business amended CLS.
[17]
Paragraphs 52 and 53 of the Peninsula Business amended CLS provide as follows:
[18]
Mr Mallett and Retinue say that paragraphs 52 and 53 are deficient because Peninsula Business has not pleaded any material facts which establish a causal link between the individual and separate alleged multiple breaches of contract and the loss of business or revenue allegedly suffered, and therefore there is no proper factual basis pleaded to justify the inclusion of a claim for damages in the proceedings. They say that those paragraphs broadly assert in a rolled-up conclusion that by reason of the alleged breaches Peninsula Business has suffered loss.
[19]
Mr Mallett and Retinue referred to the following authorities in support of their argument, which can be summarised as follows:
1. (1)
  Sanrus Pty Ltd v Monto Coal 2 Pty Ltd (No 7) [2019] QSC 241, Bond J (as his Honour then was) at [17]–[18], [21] and [51]–[57] explaining the obligation of a plaintiff to directly and unambiguously identify material facts which are relied on to at least arguably establish the causal link between the impugned conduct and the loss allegedly suffered, such that the plaintiff may be pinned down to a causation hypothesis. His Honour there referred to the need, where the plaintiff’s causation hypothesis depends on establishing a particular counterfactual scenario, for the plaintiff to plead and particularise that counterfactual scenario in accordance with the rules of pleading ([21]).
2. (2)
  Wheelahan v City of Casey (No 12) [2013] VSC 316, Dixon J at [115]–[120] detailing the failure of a plaintiff to plead material facts establishing a causal link between the alleged breaches of contract or duty of care and the loss allegedly suffered, either as one indivisible loss or individually.
3. (3)
  Graham & Linda Huddy Nominees Pty Ltd v Byrne [2016] QSC 221, Jackson J at [51] setting out the requirement in most cases for a plaintiff alleging loss of a valuable commercial opportunity to also allege the extent of the loss it claims to have suffered on the possibilities, so that it is not left open to contend that the issue to be decided by the court is the actual degree of likelihood anywhere between 100% and 1%.
4. (4)
  The University of Sydney v Multiplex Constructions Pty Ltd (No 2) [2023] NSWSC 1019, Stevenson J at [38]–[46] observing that a plaintiff must identify the potential scenarios between the alleged breach of duty and the counterfactual relied upon.
[20]
Mr Mallett and Retinue also say that the proposed amendments to paragraphs 52 and 53 are pure speculation because no specific existing or prospective clients that have been lost are identified.
[21]
Peninsula Business says that its pleading is not deficient, confusing or ambiguous, being an entirely conventional and clear allegation that the defendants’ breaches have caused Peninsula Business to suffer a loss of business and revenue, its revenue being lower than it would have been but for the defendants’ breaches. Peninsula Business says that it is unable to identify any specific clients that it has lost, which is unsurprising in circumstances where the alleged breaches include the inducing of key business development employees to leave the plaintiff who would otherwise have generated revenue through existing clients and by attracting new prospective clients to Peninsula Business.
[22]
I agree with Peninsula Business. The proposed changes in paragraphs 52 and 53 of the Peninsula Business amended CLS, albeit principally being in the form of additional particulars, meet the essential requirements of an acceptable pleading — the allegations of breach and loss are not expressed at such a level of generality that the defendants do not know in advance the case that they have to meet: McGuirk v The University of New South Wales [2009] NSWSC 1424, Johnson J at [33]. As observed by Wilson J in Richard Churchill v The University of Sydney [2020] NSWSC 1343 at [27] (referring to statements of claim and/or pleadings generally, although her Honour’s remarks have equal application to commercial list statements and the function they serve in proceedings in this list), pleadings (emphasis added):
[23]
At [28], her Honour went on to cite McGuirk with approval and paraphrase Johnson J at [21]–[29], saying:
[24]
This essential function, in my view, is served by the Peninsula Business amended CLS in this case. Moreover, I do not consider the characterisation by Mr Mallett and Retinue of paragraphs 52 and 53 as “broadly asserting, by way of a rolled-up conclusion, that by reason of the alleged breaches, the plaintiffs have suffered loss” to be a fair one.
[25]
Peninsula Business has tied the breaches of the SPA to the loss of the Employsure Companies’ business and therefore revenue by explicitly stating that the loss is by reason of business being carried out by Retinue in breach of the SPA. Peninsula Business has given numerous particulars of this loss by stating that the revenue generated by the Employsure Companies in the period since the breaches of the SPA has been lower than it would have been but for those breaches. It has then given as one reason for that lower revenue that existing and prospective clients of the Employsure Companies have engaged the services of Retinue where, but for the breach of the SPA, they would otherwise have engaged the services of the Employsure Companies.
[26]
Peninsula Business has therefore put forward its causation hypothesis. Peninsula Business does not need to precisely identify those existing and prospective clients for the defendants to know the case that they have to meet. This is particularly so since the identity of Retinue’s clients and the manner in which the ex-employees of Employsure have engaged them are matters which are particularly known to the defendants. Peninsula Business’ case is not “speculative” merely because it is in no position to precisely identify existing and prospective clients from whom they have lost business, when that matter fundamentally depends on events within the defendants’ knowledge and not within that of Peninsula Business.
[27]
I do not think that there is anything missing from paragraphs 52 and 53 of the Peninsula Business amended CLS which is required to allow the defendants to know the case that they are meeting. It has stated the reason for the revenue being down as causally linked to the breaches of the SPA.
[28]
In my opinion, the defendants are able to respond to the contents of paragraphs 52 and 53. They know the basis for the case which is being put. As Peninsula Business anticipates, the allegations will either be admitted or denied by the defendants. For these reasons, I allow those paragraphs in the Peninsula Business amended CLS.
[29]
The changes which are proposed to paragraph 24 in the Peninsula Business amended CLS (including the further change proposed during the hearing by the addition of the word “payments” in [24](a)(ii)) are marked as follows:
[30]
The complaints of Mr Mallett and Retinue in relation to paragraph 24 are put faintly. There were no written submissions on the point. Mr Mallett and Retinue do not say that they could not plead to it with the addition of the word “payments” proposed by Peninsula Business during the hearing (T11). In my view, the changes proposed to paragraph 24 of the Peninsula Business amended CLS should be allowed.

THE EMPLOYSURE AMENDED CLS

[31]
In summary, the Employsure amended CLS alleges:
1. (1)
  At relevant times until 28 October 2022, Mr Nicholson was a director and a company secretary of Employsure, as well as a company secretary of Employsure Law, and the sole director and 100% shareholder of SJN 40 Pty Ltd ([13]).
2. (2)
  Mr Mallett and his wife have ultimate control of Retinue through their shareholdings of EWHM 3 Pty Ltd, which is the 100% shareholder of Retinue Holdings Pty Ltd, which in turn is the 99% shareholder of Retinue, and by reason of Mr Mallett being a director and secretary of Retinue ([14]–[16] and [18]).
3. (3)
  Since 6 April 2023, Mr Nicholson has been the 100% shareholder of SJN, which is a 1% shareholder of Retinue ([17]).
4. (4)
  Under the Executive Services Agreement dated 1 April 2021 (ESA) between Employsure and Mr Nicholson, Mr Nicholson was required to ([20]):
5. (5)
  As an employee of Employsure and during his employment, Mr Nicholson owed a fiduciary duty to Employsure to avoid actual and potential conflicts of interest ([21]).
6. (6)
  On 9 May 2022, Mr Nicholson gave six months’ notice of his intention to resign from Employsure and on 8 November 2022 Mr Nicholson’s employment with Employsure was terminated ([25]–[26]).
7. (7)
  Prior to 8 November 2022, Mr Nicholson learned of Mr Mallett’s plans to start a new business known as Retinue, developed his own plans to leave Employsure to help establish Retinue, took steps to assist Mr Mallett to set up Retinue, knew that Retinue would be, or might become, a business in competition with Employsure and did not inform the Board of Employsure of any of these matters ([27]).
8. (8)
  From 16 November 2022 until May 2024, Mr Nicholson was a director and the CEO of Retinue ([28]).
9. (9)
  Retinue, under Mr Nicholson’s leadership as CEO, made offers of employment to 11 people who had worked at Employsure, and who had each signed an employment agreement with Employsure with restraints on them being engaged, concerned or interested in a business in competition with the business of Employsure for a period of up to 12 months after their employment with Employsure terminated, which they accepted in breach of those employment agreements ([29]–[32]).
10. (10)
  At the time that Retinue made offers to each of the former Employsure employees, Mr Nicholson, Mr Mallett and Retinue each knew that the former Employsure employees had employment agreements with those restraints and that they would be in breach by accepting Retinue’s offer of employment ([32]).
11. (11)
  At all material times, Employsure provided Payroll Advice Services and a software based online platform called BrightHR to mainly small and medium enterprises and Employsure Law advised and represented clients at court proceedings in relation to employment law and workplace health and safety issues, and for the 12 months prior to the termination of his employment with Employsure, Mr Nicholson was materially concerned in Employsure’s provision of these products and services ([33]–[36]).
12. (12)
  Since it was established, Retinue has provided Payroll Advice Services and payroll software products and services in Australia, targeting small and medium enterprises, which are the same as or similar to the products or services sold or supplied by Employsure and competitive with them ([37]–[41]).
13. (13)
  Mr Nicholson was carrying on, employed or concerned in the business of Retinue between November 2022 and November 2023 ([42]).
14. (14)
  Mr Nicholson has breached the ESA and the fiduciary duty he owed to Employsure ([43]–[45]).
15. (15)
  Mr Nicholson, Mr Mallett and Retinue intended to induce and did in fact induce each of the former Employsure employees to breach their employment agreements ([46]).
16. (16)
  By reason of the breaches of the ESA, the fiduciary duty and the inducement of the breaches of the employment agreements, Peninsula has suffered loss ([47]).
17. (17)
  Employsure seeks declarations that Mr Nicholson has breached the ESA and his fiduciary duty and that Mr Nicholson, Mr Mallett and Retinue induced the breaches by the former Employsure employees of their employment agreements, damages for those breaches and an account of profits earned by Mr Nicholson by reason of his breach of his fiduciary duty ([48]).
[32]
The principal points of debate at the hearing before me involved the allegations of loss in paragraph 47 of the Employsure amended CLS.
[33]
Paragraph 47 of the Employsure amended CLS provides as follows:
[34]
Paragraph 47 of the Employsure amended CLS is substantially equivalent to paragraph 52 of the Peninsula Business amended CLS. For the same reasons I have expressed above in relation to paragraph 52 of the Peninsula Business amended CLS, I allow paragraph 47 of the Employsure amended CLS.
[35]
Paragraph 33 of the Employsure amended CLS (including the further change proposed during the hearing by the addition of the word “payments” in [33](a)(ii)) are marked as follows:
[36]
For the same reasons as I have given in relation to paragraph 24 of the Peninsula Business amended CLS, I allow paragraph 33 of the Employsure amended CLS.

ORDERS

[37]
For the reasons expressed above, the orders I have made are as follows.
[38]
In proceedings number 2024/00283994 (Mallett proceedings):
1. (1)
  Note that the plaintiff will insert the word “payments” after the word “termination” in paragraph 24(a)(ii) of the proposed amended commercial list statement attached to the plaintiff’s notice of motion filed 22 November 2024.
2. (2)
  Leave is granted to the plaintiff to file an amended commercial list statement in the form of the document attached to the plaintiff’s notice of motion filed 22 November 2024 (as amended per the notation in order 1 above).
3. (3)
  Order that the plaintiff file the amended commercial list statement in accordance with order 2 by 2 December 2024.
4. (4)
  The plaintiff is to pay the costs thrown away by reason of the amendment.
5. (5)
  The costs of the motion are to be the plaintiff’s costs in the cause.
6. (6)
  The defendants are to file their commercial list response in these proceedings on or before 20 December 2024.
[39]
In proceedings number 2024/00322300 (Nicholson proceedings):
1. (1)
  Note that the plaintiff will insert the word “payments” after the word “termination” in paragraph 33(a)(ii) of the proposed amended commercial list statement attached to the plaintiff’s notice of motion filed 22 November 2024.
2. (2)
  Leave is granted to the plaintiff to file an amended commercial list statement in the form of the document attached to the plaintiff's notice of motion filed 22 November 2024 (as amended per the notation in order 1 above).
3. (3)
  Order that the plaintiff file the amended commercial list statement in accordance with order 2 by 2 December 2024.
4. (4)
  The plaintiff is to pay the costs thrown away by reason of the amendment.
5. (5)
  The costs of the motion are to be the plaintiff's costs in the cause.
6. (6)
  The defendants are to file their commercial list response in these proceedings on or before 20 December 2024.