AHRKalimpa Pty Ltd v Schmidt

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT

S ECI 2015 00459

AHRKALIMPA PTY LTD (ACN 164 529 533) & ANOTHER	Plaintiffs
v
ALAN HESSEL SCHMIDT & ANOTHER	Defendants

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JUDGE:	ELLIOTT J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	2, 3, 7-10, 14 AUGUST 2017
DATE OF JUDGMENT:	22 NOVEMBER 2017
CASE MAY BE CITED AS:	AHRKALIMPA PTY LTD v SCHMIDT
MEDIUM NEUTRAL CITATION:	[2017] VSC 701

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JOINT VENTURE – Agreement between joint venturers – Nature of agreement – Duties arising from negotiations and transactions – Joint venture company incorporated after trading commenced – Further trading – Duties of directors – Fiduciary duties – Confidential information – Unauthorised use – Accessorial liability.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr J Peters QC and Ms K Brazenor	Holding Redlich
For the Defendants	Mr S Anderson QC and Mr C Northrop	Harwood Andrews Lawyers

TABLE OF CONTENTS

A.. Introduction................................................................................................................................... 1

B.. Background................................................................................................................................... 3

B.1... The parties and related persons........................................................................................ 3
B.2... Dealings prior to the joint venture discussions.............................................................. 4
B.3... Initial joint venture discussions...................................................................................... 10
B.4... An agreement to proceed with a joint venture............................................................. 12
B.5... Steps taken as part of a joint venture.............................................................................. 13
B.6... Attempts to formalise the joint venture......................................................................... 15
B.7... A joint venture being formalised becomes less likely................................................. 21
B.8... Joint venture relationship seriously breaking down................................................... 24
B.9... Further sales contracts entered into................................................................................ 28
B.10. Preparation for possibility of Otway Livestock alone conducting the business..... 30
B.11. Joint venture relationship further deteriorates............................................................. 35
B.12. Arrangements to enable Otway Livestock alone to conduct the business............... 36
B.13. Joint venture relationship terminated............................................................................ 37
B.14. Events after termination of the relationship.................................................................. 38

C.. Further facts and findings........................................................................................................ 40

C.1... Whether, since 27 June 2013, AHRKalimpa conducted business exporting Australian livestock to Israel.................................................................................................................................... 40
C.2... The Israel Market Information......................................................................................... 45
C.2.1.. Overview of the plaintiffs’ case........................................................................... 45
C.2.2.. Whether the Israel Market Information, or part of it, was confidential and not public information............................................................................................................. 46
C.2.3.. Whether any of the Israel Market Information was disclosed to Schmidt in confidence 53
C.2.4.. Whether Schmidt and Otway Livestock have used the Israel Market Information to arrange, with the Israeli Importers, to export livestock to Israel to the exclusion of AHRKalimpa, usurping to themselves the opportunity and business, without AHRKalimpa’s or Kalimpa’s authorisation and to their detriment.............. 62

D.. Issues for determination refined............................................................................................. 65

E... Director’s duties.......................................................................................................................... 65

E.1...... Appropriation of the benefit of AHRKalimpa’s 2 contracts with Dabach.............. 67
E.2...... Whether agreements entered into were to the exclusion of AHRKalimpa............ 68
E.3...... Planning or intending to divert profits that would have flowed to AHRKalimpa 68
E.4...... Schmidt’s use of the Israel Market Information as a director................................... 70
E.5...... Usurping to Schmidt or related entities the opportunity and business of exporting livestock............................................................................................................................................ 71
E.6...... Diverting to Schmidt or related entities the business of AHRKalimpa................. 72
E.7...... Summary of position to 25 November 2013................................................................ 72
E.8...... Events after Schmidt’s resignation as a director of AHRKalimpa........................... 72

F... The joint venture and fiduciary duties.................................................................................. 74

F.1... The nature and extent of the joint venture agreement and whether the relationship gave rise to fiduciary duties.................................................................................................................. 74
F.2... The nature and extent of the fiduciary duties............................................................... 77

G.. Accessorial liability.................................................................................................................... 79

H.. Other matters............................................................................................................................... 80

I.... Conclusion................................................................................................................................... 81

HIS HONOUR:

A. Introduction

This proceeding concerns a joint venture for the export of cattle to Israel.

In November 2012, the parties behind the joint venture agreed to the basis upon which anticipated contracts were to be “[put] together”. At this time, the parties also agreed to incorporate a joint venture vehicle, which would be named “AHRKalimpa”.

The 3 individuals involved were Haim Bzezinski (“Bzezinski”) and Danny Ruschin (“Ruschin”) (who are both associated with the plaintiffs), and the first defendant, Alan Schmidt (“Schmidt”).

In March 2013, before any formal joint venture contracts were entered into, cattle were exported to Israel pursuant to agreements for 2 shipments (“Voyage 1” and “Voyage 2” respectively). The contracting party as supplier for Voyages 1 and 2 was the second defendant, Otway Livestock Exports Pty Ltd (then known as AH & R Schmidt Pty Ltd) (“Otway Livestock”). It was common ground that Voyages 1 and 2 were done on behalf of a joint venture, albeit the terms of that joint venture are in dispute.[1]
[1]The defendants’ position is that there were no profits from Voyages 1 and 2. However, the issues relating to accounting for any profits or an assessment of the amount of any damages are not presently before the court. Because of a delay in expert evidence concerning quantum, the court ordered that issues of liability would be determined separately, if necessary, so that the trial date could be maintained.

By mid-2013, issues had arisen with respect to finalising the terms of the joint venture. Despite this the joint venturers agreed to a third and a fourth shipment of cattle to Israel (“Voyage 3” and “Voyage 4” respectively). Although the terms of the joint venture remained in dispute, it was also common ground that Voyages 3 and 4 were conducted pursuant to the same joint venture as for Voyages 1 and 2.

Ultimately, the parties behind the venture were unable to agree upon the terms of the joint venture for the purposes of formal documentation or any further shipments.

Since the collapse of the relationship, Schmidt has continued to be involved in exporting cattle to Israel, through Otway Livestock.

Very broadly, the dispute involves:

(1) Whether a binding joint venture agreement was ever entered into.
(2)If no to (1), whether a fiduciary relationship, or other relationship involving equitable obligations, was created based on the transactions conducted and the related negotiations.
(3)If yes to (1) or (2) above, what were the terms of that venture or what was the nature of that relationship; and what obligations were imposed, including with respect to the future.
(4)Regardless of the answers to (1) to (3) above, whether Schmidt breached his duties as a director of AHRKalimpa by arranging for the continuation of the business of exporting cattle to Israel without the involvement of AHRKalimpa, and then resigning as a director and subsequently conducting that business through Otway Livestock.
(5)Regardless of the answers to (1) to (4), whether confidential information was provided to the defendants in circumstances imposing an obligation of confidentiality, and whether that obligation was breached by unauthorised use of the information.

For the reasons that follow, while the plaintiffs have failed to prove a binding joint venture agreement in the terms alleged, they have succeeded in establishing that fiduciary duties owing by the defendants were breached and that, in addition, Schmidt breached his statutory duties as a director. The plaintiffs have also established that certain confidential information provided to the defendants was the subject of unauthorised use by them.

B. Background

B.1 The parties and related persons

Schmidt and his wife, Rachael Schmidt, have been directors of Otway Livestock since its incorporation in 1995.

The first plaintiff, AHRKalimpa Pty Ltd (“AHRKalimpa”) was incorporated on 27 June 2013. At all material times from November 2012 up to its incorporation, it was proposed that AHRKalimpa would be the joint venture vehicle. Its founding directors were Schmidt, and his adviser, David Dunn (“Dunn”). Dunn was an experienced commercial lawyer. Dunn and Schmidt had an established close working relationship.[2] Dunn was only a director for 2 months, before he resigned and Bzezinski became a director.
[2]Dunn described Schmidt as his “partner and friend”. They had, and continue to have, a number of business ventures together.

Schmidt continued to be a director until 25 November 2013. Since then, Bzezinski has been the sole director of AHRKalimpa.

From the time of the incorporation of the second plaintiff, Kalimpa Pty Ltd (“Kalimpa”), on 4 August 2011, until 21 May 2015, Bzezinski was its sole director. He was replaced by Julia Ruschin (“J Ruschin”). J Ruschin resigned from that position on 3 January 2017, whereupon Bzezinski resumed the position of sole director.

J Ruschin’s husband, Ruschin, is a business associate of Bzezinski. Having met in 2003, Ruschin spoke with Bzezinski in 2008 about the possibility of getting involved together in the export of cattle to Israel. Ruschin and Bzezinski agreed Ruschin would investigate and research the Israeli cattle market, with Bzezinski providing support, including financial assistance. Ruschin agreed to share with Bzezinski the product of his work, but otherwise the information was to be kept confidential.

Ruschin and Bzezinski have been involved in the business activities of Kalimpa since its incorporation. Ruschin holds his 50 percent interest “through” J Ruschin. Bzezinski owns the other 50 percent of the shares.

The 3 key individuals in this case are Bzezinski, Ruschin and Schmidt. On the whole, each of them gave frank and responsive evidence. Given the lapse of time, none of them had a perfect memory of all of the relevant events. Each of them readily acknowledged this. Although this affected the reliability of their evidence in some minor respects, each of them was a credible witness.

B.2 Dealings prior to the joint venture discussions

In 2008, Ruschin started acquiring knowledge about the Israeli cattle market. He made inquiries of people that he knew in Israel, and then approached others based on references given by those people. It was a work in progress for approximately 3 years, during which Ruschin gradually accumulated more and more information.

Ruschin made inquiries at various levels. He often spent extended hours on the telephone establishing relationships with various persons in Israel.[3] He spoke to importers, quarantine officials, veterinary officers, compliance auditors, feedlot owners and others. He also got to know the managing director of the Beef Association in Israel, who was a valuable source of information. All discussions, primarily over the telephone, were conducted in Hebrew.
[3]See further par 169 below.

From 2008 to 2011, Ruschin also investigated the Australian export market to ascertain appropriate suppliers of live cattle to Israel.

During the course of his investigations, and his discussions with Bzezinski, a strategy was conceived for exporting cattle to Israel. In broad terms, Ruschin was able to get the 2 largest importers to agree to have their shipments coordinated. By working together, these importers were able to use the same vessel at the same time. According to Ruschin, this had not been done before. With this possibility in place, by 2011 Ruschin and Bzezinski considered they were in a position to find an appropriate “partner” to export beef to Israel. Neither of them had any experience in exporting live cattle from Australia and needed a co-venturer with this experience and ability in order to succeed.

The nature of the Israeli market was the subject of expert evidence. It may be described as a feeder market, with the imported live cattle subject to extended feeding periods before processing. Further, because of the particular requirements of the market, including ensuring that the meat will be kosher, more sophisticated infrastructure and management is required to successfully export livestock to Israel.

Further, like many other international markets, the Israeli market relies heavily on relationships between buyer and seller. With only a small number of importers in Israel, who have specific commercial requirements, these relationships may take on considerable significance. Furthermore, any exporter would need to understand the applicable animal health protocols, which are complex.

Perhaps these circumstances explain, at least in part, why the volume of cattle exported to Israel from Australia is relatively small. For example, in the 2009 to 2010 financial year, of a total of $698.2 million of cattle exported from Australia, only $21.2 million represented exports to Israel.[4] For the 2008 to 2009 financial year only $9.8 million of cattle was exported to Israel out of a total of $646 million worldwide.[5]
[4]Australian Livestock Export Corporation Ltd Annual Report 2009-2010, p 11.
[5]These figures are lower than the preceding 2 financial years, but even then the amounts involved are relatively small.

In 2011, Schmidt was employed by Elders International Australia Ltd (“Elders”), as marketing manager for international live exports. In that role, Schmidt was responsible for Elders’ exporting of livestock to Turkey, Russia and China. He also oversaw the purchase of cattle from Australia, New Zealand, Uruguay, Paraguay and the United States of America.

Before his role at Elders, Schmidt had had extensive experience in the live cattle export trade. Through Otway Livestock, he had established a successful business selling Australian cattle to Japan, which business he had then sold to Elders. However, Schmidt had had no experience of the live export cattle trade to Israel. He did not know the key Israeli importers. Further, although Elders had had some involvement in the past, it was not exporting cattle to Israel in 2011.

2011 was a tumultuous year for the Australian live cattle export industry. There was widespread publicity about the treatment of live cattle exported to Indonesia. In response, the Australian Government, amongst other things, introduced the Exporter Supply Chain Assurance System in around mid 2011.

According to the evidence before the court,[6] this system required exporters to provide information of their “full supply chain” to the Department of Agriculture. The regime required exporters, on a confidential basis, to give the details of all dealings with the livestock, from the time and place it was sourced through to the delivery to the ultimate overseas end user who processed the cattle, including details of all contracts entered into. The system imposed an obligation on the exporter to ensure that livestock were treated according to prescribed standards at all stages up to and including the time when the cattle were slaughtered overseas.
[6]This evidence was from key witnesses in the case, rather than a government official.

In around mid 2011, discussions commenced between Kalimpa and Elders concerning arrangements for the export of cattle to Israel. Prior to this time, Ruschin had built up a list of contacts and other information concerning the Israeli cattle market, the details of which he had kept to himself and Bzezinski.

As a result of these discussions, on 5 October 2011, Schmidt sent an email to Bzezinski raising a number of issues with respect to the possible shipping by Elders of cattle to Israel. That email referred to a need to commit to between 18,000 and 36,000 head of cattle being shipped to Israel. The email continued:

For us to do this we would have to have complete comfort around the following.
·     Your capacity to deliver customers for this volume on an ongoing basis.
·     Understand where the cattle are going and how substantial the customers are.
·     …
·     Cover off the risk. In other words we would need some confidence around the contractual and financial commitments from your customers.
We are prepared to sign an agreement with you. …
Before we start we will need to visit your customers and meet with them. We will have to negotiate contracts that will have some longevity, for example up to two years. Should we not be able to successfully complete these we will need to have provisions in our contract that allow us to mutually unwind if appropriate.
I emphasise however that we are certainly interested in doing business with you as our partner, and we are certainly willing to keep negotiations going. However the reality is there is considerable risk and complication shipping to Israel and we need to address this.
(Emphasis added.)

Negotiations continued. They culminated in a written agreement, executed as a deed on 17 October 2011 by Bzezinski on behalf of Kalimpa and by Schmidt on behalf of Elders (“the Elders Agreement”). The Elders Agreement included the following:

Background
AElders is in the business of exporting Australian livestock sheep and cattle to overseas markets and for this purpose holds export licence number L007.
BKalimpa has customers sources and contacts for the purchase of Australian livestock sheep and cattle in Israel.
…
Operative provisions
…
2.1Livestock sales to Israel
As from the date of this deed:
2.1.1Kalimpa will market and manage orders for the sale of Australian livestock to Israel and will exclusively use the services of Elders.

…
2.3 Orders
2.3.1Kalimpa will provide orders directly or will provide initial contact details between Elders and Israeli customers.

3.2 Non circumvention and non-disclosure
…
3.2.2In case of termination under Clause 4.1 (Non-performance) of this agreement, then Elders may, with the exception of those customers introduced by Kalimpa to whom the provisions of clause 4.3.2 shall apply, pursue other opportunities with other parties in Israel.
3.2.3Each of Elders and Kalimpa will maintain complete confidentiality regarding each other’s business, customers (sic) business and sources and will not disclose any such details to any other parties without the explicit written authorisation of the other.
…
3.2.5Elders agrees that in the event of circumvention of this directly or indirectly, Kalimpa shall be entitled to compensation and damages including punitive damages, including and not limited to all legal costs and expenses to recover lost revenue.

…
4.2Survival of clause
Clause 3.2 survives the expiration or termination of this Agreement.
4.3Term of Agreement
4.3.1The term of this agreement is [5 years] …
4.3.2Upon termination of this agreement whether at the end of the term or otherwise Elders cannot use or benefit in any way from the customers contacts and sources introduced by Kalimpa for a period of two years from the date of termination.
4.3.3Upon termination of this agreement Elders will be free to pursue other customers or relationships in Israel. However Elders are expressly precluded from entering contracts with customers contacts or sources introduced by Kalimpa as per clause 4.3.2, above.
…

4.20 Relationship of parties
Unless this Deed expressly provides otherwise, nothing in this Deed may be construed as creating a relationship of partnership, of principal and agent or of trustee and beneficiary.

(Emphasis added.)

It is evident from the negotiations in 2011 and the terms of the Elders Agreement that Schmidt, acting for Elders, acknowledged that Kalimpa had its own customers and contacts in Israel, that Elders (including Schmidt) did not know the details of the contacts, and that the parties treated such details as confidential. Further, not only was this confidentiality to be maintained during the life of the Elders Agreement, but Elders (including Schmidt) could not take the benefit of this information for 2 years after its termination. At no time did Schmidt indicate, either during his time as an employee of Elders or in his subsequent negotiations in his own right,[7] that he was not bound by the confidentiality obligations contained in the Elders Agreement, or that he did not intend to honour these obligations.
[7]Including on behalf of Otway Livestock.

Before the Elders Agreement was executed, Bzezinski and Ruschin did not disclose Kalimpa’s customer details to Schmidt. It was not until 26 October 2011 that they emailed a list of 5 “Kalimpa … clients” to Schmidt, with the direct personal telephone numbers of senior officers of each of those customers. The customers included Israel’s 2 largest cattle importers, Bakar Tnuva Limited Partnership (“Tnuva”) and Dabach Slaughterhouse Ltd (“Dabach”). Further, information was provided to Elders about the Israeli Market. It was this very type of information that Elders did not have and required. To use Schmidt’s own words, “That is what they [ie Bzezinski and Ruschin] were paid to do”.

In late 2011, and again in early 2012, Bzezinski and Schmidt travelled to Israel to meet with the potential customers with whom Ruschin had established a rapport, including Tnuva and Dabach. The first of these trips lasted about 7 to 10 days. Only some of the people with whom they met spoke English. Bzezinski and Ruschin (by telephone) usually conducted these conversations in Hebrew, and translated for Schmidt as necessary. Before the Elders Agreement was entered into, all of Ruschin’s discussions with the Israeli customers had been conducted in Hebrew. Before the trip in early 2012, Ruschin sent an email to Schmidt identifying the “time and date for the meeting[s] with Kalimpa clients in Israel”. The email contained the names of the persons in question, together with their employers.

Two voyages were arranged and completed pursuant to the Elders Agreement. However, in late 2012, Elders decided not to continue with the relationship.[8] This position was accepted by Kalimpa. These events roughly coincided with Schmidt contemplating going into business with Kalimpa for the export of live cattle to Israel. In or about September 2012, negotiations concerning that possibility commenced.
[8]Ruschin gave uncontested evidence that Schmidt told him in around September 2012 that Elders would not commit to a long-term contract with Tnuva and that it was not in Elders’ policy to continue to supply to Israel. See also par 199 below.

B.3 Initial joint venture discussions

Various discussions and written communications occurred. Bzezinski and Ruschin met with Schmidt alone, and also with solicitors from Harwood Andrews in Geelong. Ruschin and Bzezinski understood Harwood Andrews were acting for all parties in seeking to set up an appropriate structure. They were not told otherwise at this time.

It is unnecessary to catalogue all the communications. For present purposes, it suffices to record that Schmidt, on numerous occasions, referred to both Bzezinski and Ruschin as his partners. This occurred in correspondence from Schmidt not only to Bzezinski and Ruschin, but also to third parties. In 1 such communication, sent on 17 October 2012 by Schmidt to Altus Lawyers, copied to Bzezinski and Ruschin, the following was stated:

We, [Ruschin], [Bzezinski] and [Schmidt] (the partners) wish to enter into an agreement as owners of a new company (new co). We will require a shareholders deed between us in relation to the company. This company will be the beneficiary of the new export business that we propose to undertake to Israel and other parts of the world.
…
The overall aim of the agreements will be to:
Ensure that the IP [intellectual property] developed in relation to the new business is protected for the [benefit] of the partners.
Document the process to be undertaken in the event of the exit of one or more partners, or the death of one or more partners.
There will be other considerations in relation to the new business that we can discuss in due course.
We will also have to draft a document between Elders/Kalimpa and Elders/[Otway Livestock] that releases the constraints [that] are currently in place.
There will also be additional documentation to review in term so (sic) contracts between Israeli customers and the proposed new co.
(Emphasis added.)

On 24 October 2012, Schmidt sent an email to Harwood Andrews, again copied to Bzezinski and Ruschin, containing similar information to that set out in the previous paragraph. The email stated that the new company would be owned by 3 “equal shareholder partners”, with an expected “annual turnover in the [vicinity] of US$40-60M” with respect to exporting cattle to Israel. Schmidt then stated:

All livestock and meat business carried out by this entity in the future and that is introduced by any of the partners will be traded through this entity.
(Emphasis added.)

Schmidt also stated that the “partners (besides myself) are Israelis”, that they would be “providing the market” and that he would be “providing the Cattle and Australian logistic knowledge and also funding”. Schmidt also gave the following instruction:
Initially it may be appropriate for my existing trading company … to do the exporting under contract to Newco. The reason being that my company has trading history and also an export licence. The issue here will be to ensure that the value that is created via the establishment of Newco is protected.
Other issues that need to be considered and drafted into the shareholders articles include:-
The definition and roles of shareholders.
Accumulation of capital and distribution of dividends.
Issue of new capital as appropriate.
Sale of share requirements and the associated process to be followed by any shareholder that wishes to depart.
Death of a shareholder.
Dispute resolution process.
Non-compete.

(Emphasis added.)

This letter also discussed issues concerning a restraint deed Schmidt had entered into with Elders. In that regard, Schmidt stated:
Put simply, I am of the view that if Elders do not renew their contract with Kalimpa and are therefore unable to trade to Israel, then: I am free to persue (sic) business interests in Israel as I would not be competing with Elders.
(Emphasis added.)

Negotiations ensued with a common desire to put a joint venture arrangement in place so trading to Israel could commence.
B.4 An agreement to proceed with a joint venture

On 13 November 2012, Schmidt sent an email to Bzezinski and Ruschin, attaching a 9 page organisational chart (“the Chart”), with a covering note explaining that the Chart would be used “as the basis for putting together our various contracts”. The Chart proposed trading in Israel, China and Pakistan. It referred to the parties as “joint venture partners”, with Kalimpa having a 66.6 percent interest in the joint venture, and Schmidt having 33.3 percent (to be held by a company referred to as “Ozfresh”).[9] It was acknowledged that Kalimpa would provide market access to Israel, and would manage market relationships in Israel.
[9]Schmidt has been a director of Oz-Fresh Group Pty Ltd since 1 October 2007. In closing submissions, the defendants suggested it was not the corporate entities who were the joint venturers, but rather the 3 individuals, Bzezinski, Ruschin and Schmidt. This issue had not been raised on the pleadings, other than by way of a bare denial of any joint venture, which was subsequently qualified: see par 224 below. In response, the plaintiffs objected to the point being raised and also indicated they would object to any application to amend the defence. No amendment application was made by the defendants and the issue was not further raised in their reply closing submissions. This matter has not been addressed on this basis, and also because it is unnecessary to decide: see fn 175 and par 256 below.

Schmidt was to take care of the general management of exports. It was contemplated that a 5 year management agreement (with an option to extend for a further 5 years) would be entered into between Otway Livestock and the proposed joint venture vehicle.[10]
[10]See par 11 above. On 9 November 2012, Harwood Andrews advised Schmidt that the name “AHRKalimpa” was available.

It was expressly stated that the management agreement would provide that the parties, and related entities of the then proposed joint venture vehicle, would “not sell trade or facilitate delivery of any livestock via any other third party for a period of two years should the management contract cancel, expire or not renew”.

On a page entitled “Management oversight and communications”, it was stated that there would be “a clearly defined contract” between the “joint venture partners and AHRKalimpa” and “AHRKalimpa and [Otway Livestock]”. With respect to decisions of the board, they were to be decided by a simple majority, with the chairperson to have the casting vote. The chair was to be appointed on a rotational basis from either Ozfresh or Kalimpa. The page concluded with the following:

·In the case of matters requiring decisions relating to finance, for example:
–Where Contributed capital, loan notes or debt are to be drawn or repaid
–Where voyage costs and disbursements are to be transferred from AHRKalimpa to [Otway Livestock]
–Where Voyage profits are to be disbursed from AHRKalimpa back to the joint venture partners, then:

·Any such decision cannot be enacted without the approval of the Directors of the contributing entity.

The Chart also made provision for pre-emptive rights as between shareholders.

Each of Ruschin, Bzezinski and Schmidt gave evidence, in substance, that in November 2012 the contents of the Chart reflected what they had discussed, and that they had agreed to the contents. However, the parties had different views as to what it was that they had agreed, and its legal effect.

B.5 Steps taken as part of a joint venture

On 5 December 2012, Schmidt sent an email to Bzezinski and Ruschin inquiring about “your volume customer in Israel”. Various pieces of information were sought about the customer’s requirements which, apparently, were not known to Schmidt.

As not infrequently occurs in business, Schmidt, Bzezinski and Ruschin did not wait for the formal documentation to be prepared before beginning to trade. In around January 2013, Bzezinski and Schmidt travelled to Israel and met with various importers, including Tnuva and Dabach. The importers were told there was going to be a new company, with Schmidt as a partner, and that they would not be dealing with Elders anymore.

As a result, in March 2013, agreements for Voyage 1 were struck with Tnuva and Dabach, for the export of 4,800 and 2,400 head of cattle respectively, to arrive in Israel between 11 and 23 May 2013. In the same month, agreements were entered into for Voyage 2 with Tnuva and Dabach, for the same number of cattle as Voyage 1, for delivery between 1 and 5 July 2013.

Each of the contracts entered into in March 2013 with Tnuva and Dabach named Otway Livestock as the contractor agreeing to supply the cattle. At this point, AHRKalimpa did not exist. Further, it was Otway Livestock that held the necessary export licence.[11]
[11]A person is prohibited from exporting livestock unless the exporter holds a “live-stock licence”: the relevant provision at the time was the Export Control (Animals) Order 2004 (Cth), s 2.02(a); made pursuant to the Export Control (Orders) Regulations 1982 (Cth), reg 3.

The contact details for each contract provided Schmidt’s residential address as the address of the supplier. Further, with respect to 3 of the 4 contracts for Voyages 1 and 2, Schmidt was listed as the contact. The contract with Dabach for Voyage 1 had both Schmidt and Ruschin listed as the contacts. Why there was a difference between the contacts in this regard was not explored in evidence. In any event, little turns on this as Schmidt readily acknowledged during cross-examination that Voyage 1 and Voyage 2 were conducted by Otway Livestock for and on behalf of the proposed joint venture vehicle, AHRKalimpa.[12]
[12]For completeness, Dunn gave evidence Voyages 1 and 2 were carried out by Otway Livestock in its own right. Not only was this evidence contrary to Schmidt’s acknowledgement, it was contrary to the contemporaneous documents in the case.

On 5 May 2013, Kalimpa signed a 3 year lease, commencing that day, for commercial premises on St Kilda Road, St Kilda (“the Premises”). The obligations under the lease were guaranteed by Bzezinski alone. The rent for the first year was $35,980, with a rent free period up to and including 4 October 2013. There was some general evidence about the costs of occupying the Premises. It appears that both Schmidt and Bzezinski took some of the responsibility for the rent and outgoings with respect to the Premises.

From this point onwards, the affairs of the joint venture arrangement (to use a neutral term) were conducted from the Premises.[13] Ruschin attended the Premises regularly, and worked on the venture on a full time basis. Bzezinski attended infrequently, as he was also attending to his other business interests on an ongoing basis.
[13]See also fn 16 below.

B.6 Attempts to formalise the joint venture

Although the parties decided to engage in trade without formal documentation being in place, they continued to recognise the need for such documentation. In around mid-2013, steps were taken to progress this.

On 13 June 2013, a meeting was held between Bzezinski, Ruschin, Schmidt and Dunn. Dunn gave evidence that, by this time, he had a mandate from Schmidt to “sort all this out”. He saw his role as putting “some rigour into the relationship”.

On 17 June 2013, Dunn sent an email referring to the meeting on 13 June 2013. That email attached various documents for “sign off” by Schmidt, Bzezinski and Ruschin, so that the parties could “move to documentation of the relevant structures and arrangements”.

On the plaintiffs’ case as pleaded, it was contended that an agreement was entered into “in around June to July 2013”. This case relied upon various documents exchanged between the parties during those 2 months. However, that part of the case was not pursued in closing submissions. Indeed, it was plain that at no time from June 2013 were the parties able to reach any final agreement.

Accordingly, it is unnecessary to go through the attachments to the email sent on 17 June 2013 in any detail. Suffice to say, the documents included some matters which reflected that things had moved from the position as stated in the Chart in November 2012. In particular, reference was made to Minerva Foods SA (“Minerva”). Minerva had agreed to provide finance for Voyage 1 on the basis Minerva would participate in the profits.[14] That such an arrangement would be entered into had not been expressly contemplated in the terms of the Chart. Minerva was also the co-owner of a vessel, Pearl of Para.[15]
[14]See also par 85 below.
[15]Although the details at trial were sketchy, these arrangements also involved a company referred to as Eurofrance. Ruschin approach Eurofrance before he started his discussions with Elders.

On 21 June 2013, Dunn sent an email to Harwood Andrews, copied to Schmidt, Bzezinski, Ruschin and Katrina Day (“Day”),[16] attaching a proposed corporate structure and a schedule of documentation that needed to be the subject of negotiation. The covering email stated that Dunn was working with “Schmidt and his partners”. Dunn stated that there were “a number of steps required to be taken to ensure the structure is appropriately in place and documented prior to 30 June”.
[16]Day is a certified practising accountant and had previously been engaged by Schmidt. From 2007, she was involved in Schmidt’s cattle export business. She continued to work for him after that business was sold to Elders: see par 25 above. She worked for Schmidt remotely, but “moved collectively” into the Premises in May 2013: see par 49 above.

On 24 June 2013, Dunn sent an email to Schmidt, Bzezinski and Ruschin stating that AHRKalimpa could be incorporated that week. Dunn proposed that there be 3 shares, 1 held by Otway Livestock and 2 by Kalimpa.

The following day, Dunn sent a further email proposing AHRKalimpa be incorporated before 30 June 2013, “to provide you with maximum flexibility in managing your emerging business opportunities”. The email recorded that considerable time would need to be set aside to consider the “formation” documents and that Dunn would obtain a quote from Harwood Andrews to prepare and finalise the key documents. Dunn recommended this be done on behalf of all the parties.

On 27 June 2013, AHRKalimpa was incorporated.[17] It appears Dunn arranged for 9 shares to be issued,[18] 3 in his name[19] and 6 in Schmidt’s name. On the same day, Dunn sent an email to Schmidt, Bzezinski, Ruschin and Day attaching a proposed management agreement.
[17]See par 11 above.
[18]On the records before the court it appears 9 shares were issued, though there was no direct evidence on the point.
[19]Around this time, Dunn was seeking to secure an equity holding in AHRKalimpa. Dunn had emailed Schmidt on 19 June 2013, attaching a draft “Mandate Letter for the work I am trying to take on your behalf in relation to AHRKalimpa”. In addition to setting out the proposed tasks, Dunn included a clause that addressed an “ongoing fee structure”. As part of this, Dunn proposed “an equity share or carry [ie there would be no obligation to pay for his share] recognising the value add contribution” of Dunn.

On 2 July 2013, Dunn sent an email attaching a revised draft heads of agreement. The draft agreement had Schmidt, Bzezinski and Ruschin as the proposed parties. Dunn proposed a “workshop” be held on 5 July 2013 at the Premises, and asked the parties to allow for a full day “to have maximum value”.

Whilst the documentation required for the joint venture was in a state of flux, the parties actively continued to seek further business. On 3 July 2013, Ruschin sent an email to Schmidt and Bzezinski stating that, “We [have a] deal for two shipments back to back”. Ruschin attached an email he had previously sent to Tnuva recording the details.

On 5 July 2013, the workshop was held. It was conducted as a board meeting of AHRKalimpa. Bzezinski was unable to attend, but each of Schmidt, Ruschin and Day were recorded as attending on behalf of AHRKalimpa. Dunn attended with a colleague on behalf of his firm, Otway Partners. According to draft minutes prepared by Dunn, the meeting went for 3 hours.

At this meeting, Ruschin took exception to the manner in which the shares in AHRKalimpa had been issued. It was agreed that Dunn would transfer his 3 shares to Ruschin’s company, Kalimpac Pty Ltd, and Schmidt would transfer 3 of his shares to Bzezinski’s company, Bzezinski Pty Ltd.

On the evening of 5 July 2013, Dunn sent an email to Harwood Andrews, which was copied to Schmidt, Bzezinski, Ruschin and Day. The email attached various documents and instructed Harwood Andrews to prepare a shareholders’ agreement “and other documents referred to in the briefing note” for the purposes of a proposed directors meeting of AHRKalimpa to be held on 17 July 2013. The email concluded:

Alan, Danny and Haim – if any of the attach (sic) does not accord with your understanding please do not hesitate to let me know so that we can pass on appropriate amendments/adjustments.

The attached draft minutes of the AHRKalimpa board meeting recorded that the “Heads of Agreement draft was discussed and approved subject to discussion regarding the scope of non-compliance provisions”. The draft minutes also recorded some outstanding issues with respect to the proposed shareholder agreement, and that Dunn was to arrange for amendments to go back to Harwood Andrews.[20] The draft minutes recorded the items to be addressed at the next board meeting, which included “Profit & Loss statement for the Israel 1 Voyage” and “Feasibility … budget for the Israel 2 Voyage”.
[20]Again, it is unnecessary to go through the detail given the plaintiffs’ position in closing submissions: see par 53 above.

The attached briefing memorandum proposed that Dunn would be appointed the independent chairman of the board. It suggested that it was intended that AHRKalimpa would act as the employer for all staff and that its constitution would remain “a standard constitution”, but the relationship between shareholders would be governed by a shareholders’ agreement.

With respect to management and decision making, the briefing memorandum stated, amongst other things, that until AHRKalimpa’s funding by Otway Livestock had been replaced, decision making by AHRKalimpa was “subject to an overriding consent of [Schmidt]”. It further stated that each of the participants, namely Schmidt, Bzezinski and Ruschin, would devote their full time and attention to working for “the [AHRKalimpa] Group”. The items in this regard included the following:

5Each of the participants shall give a personal covenant to ensure all live export business undertaken by them whilst they retain equity in [AHRKalimpa] shall be effected through [AHRKalimpa].
6Provisions governing the usual constraints of good faith, confidentiality etc shall be incorporated either in the shareholding agreement of [sic] specific employment contracts with participants.

Consistent with earlier documentation,[21] the briefing memorandum contemplated a fixed term of 5 years with an option for a further 5 years. The memorandum also proposed that pre-emptive rights be created between participants in the event that 1 or more of them decided to leave the venture. But the memorandum included the following:

The shareholder agreement should provide that none of the parties will participate in the live export business other than [AHRKalimpa] for so long as each of them holds an equity interest in [AHRKalimpa].

[21]See par 39 above.

As to this proposed restraint, not only was it far narrower than what had been provided in the Chart,[22] but it gave no protection for Kalimpa or AHRKalimpa if Schmidt decided to dispose of his shareholding in AHRKalimpa. Not surprisingly, Bzezinski and Ruschin took issue with this proposed clause.
[22]See par 40 above.

Further, Bzezinski and Ruschin got the distinct impression around this time that both Dunn and Harwood Andrews were acting in Schmidt’s interests rather than in the joint venture’s interests as a whole. Accordingly, they retained their own solicitor, Barry Moshel (“Moshel”), to review the proposed documentation. Dunn was informed of this fact by Ruschin in an email sent on 7 July 2013, which also followed up the agreed transfer of the shares in AHRKalimpa.

On 15 July 2013, Moshel sent an email to Dunn and Schmidt, copied to Bzezinski and Ruschin, attaching the response to the documents forwarded by Dunn on 5 July 2013.[23] In addition to making various suggestions with respect to the minutes and the Heads of Agreement, Moshel amended the briefing memorandum. In doing so, he conveyed Bzezinski and Ruschin’s rejection of a number of matters. These included Dunn being appointed independent chairman.[24] Exception was also taken to the suggestion that the decision-making of AHRKalimpa would be subject to the overriding consent of Schmidt while its funding was provided by Otway Livestock.[25] Further, with respect to the restraint of trade, Moshel suggested that, if any party were to cease to be a shareholder in AHRKalimpa, a provision be included for “non-competition and non-circumvention” for 2 years after termination of the joint venture, or when a party transfers his interest.[26]
[23]See par 63 above.
[24]See par 65 above.
[25]See par 66 above.
[26]See par 67 above.

On 19 July 2013, Dunn “flagged” 2 key issues. In an email sent to Moshel, copied to Schmidt, Dunn noted that Schmidt would welcome funding from either Bzezinski or Ruschin, but stated that Schmidt was not prepared to entertain third party funding in respect of which the source of funds was not identified. Further, the email continued:

As has been agreed with [Ruschin] and [Bzezinski] on a number of occasions,[27] whilst [Schmidt]’s funding is in place, all Management decisions of AHRKalimpa including new funding and repayment of [Schmidt]’s funds will specifically require his consent.
(Emphasis added.)

[27]These occasions were not identified.

On 8 August 2013, a further board meeting of AHRKalimpa was held at the Premises. Schmidt and Bzezinski attended as directors. Also in attendance were Ruschin (on behalf of Kalimpa), Dunn (on behalf of his firm) and Day (on behalf of Otway Livestock). At the meeting, the proposed Heads of Agreement was discussed. Consistent with what had been provided by Moshel, Bzezinski and Ruschin sought not to be parties to that agreement, but rather to have their nominee companies as parties. This was not agreed to by Schmidt. Further, there was disagreement with respect to funding and the ability of Schmidt to have the “last say”.

Also with respect to funding, it was agreed that Bzezinski would seek to procure up to $4 million of new debt funding for AHRKalimpa, subject to certain conditions. Further, it was resolved that the executive salaries of Schmidt, Bzezinski and Ruschin would be recognised at $500,000 per annum.

The costs of the “first voyages” were discussed. It was agreed to pay the “Israel costs”, but subject to Ruschin revisiting and attempting to secure lower outcomes.

Towards the end of the meeting, it was agreed that a cashflow and budget forecast for AHRKalimpa for the next 12 months would be circulated. The meeting was adjourned to the following day so that the shareholders’ agreement and loan agreement could be reviewed, including by Moshel.[28]
[28]Ruschin’s evidence, which was not contested, was that this subsequent meeting took place. It appears no minutes were taken of the meeting held on 9 August 2013. No evidence was given as to what occurred at the meeting.

On 13 August 2013, Dunn circulated an email attaching a “job specification framework” he had prepared, in consultation with Schmidt and Day. Amongst other things, this document recorded Schmidt as the chief executive officer, Day as the general manager corporate, Dunn as head of corporate, and Bzezinski and Ruschin as “sales & marketing”. That email also confirmed that Dunn was meeting with Moshel the following day to progress the documentation.

On 15 August 2013, Schmidt circulated a cashflow forecast and an anticipated profit and loss to June 2014. The forecast cashflow suggested that the business would have “[c]umulative cash” of $4,876,668 at the end of this period.[29]
[29]Curiously, the cashflow forecast was headed “AH & R Schmidt Pty Ltd Cashflow forecast 2013/2014”. No point was made with respect to this at trial.

B.7 A joint venture being formalised becomes less likely

On 15 August 2013, Dunn and Moshel met. After this meeting, Dunn circulated an email which included the following:

As canvassed with [Moshel], it is important for the Principals to agree a process for execution of existing voyages whilst any differences of opinion are resolved (or a position is reached where those differences cannot be resolved).

The email attached a proposed agenda for a board meeting to be held the following day.

On 16 August 2013, the foreshadowed board meeting of AHRKalimpa was held at the Premises. Again, Schmidt and Bzezinski attended as board members. Also in attendance were Ruschin, Dunn, Day (each in the same capacities as 8 August 2013)[30] and Moshel. This was a significant meeting in the context of the present dispute. The minutes prepared by Dunn, which were generally accepted as correct, recorded that:

Following extensive discussion, it was resolved that various forms of business model would be further reviewed and discussed prior to execution of the contract for Voyage 3.

At this stage, Voyage 3 had been agreed upon,[31] but formal documentation had not yet been completed.[32]

[30]See par 72 above.

[31]See par 60 above.

[32]See par 101 below.

The agreed minutes also included the following:

It was further resolved that Voyage 2 would be completed, and if a suitable business model had not been agreed between the parties (or an alternative method of proceeding with Voyages 3 and 4) then the parties would exchange mutual non-compete undertakings in relation to their respective clients and markets, and the live export business between the parties would be wound up.
(Emphasis added.)

Under cross-examination, Schmidt properly accepted that, with respect to Kalimpa, the “respective clients and markets” was a reference to the customers and market of Israel.[33] In contrast, during his cross-examination, Dunn forcefully rejected the suggestion that Kalimpa had a market. When asked whether he had approached the matter on the basis that Kalimpa did not have a market, Dunn responded that it “had some contacts”. Whilst Dunn accepted the minute referred to Israel when speaking of Kalimpa’s clients and market, he stated he had recorded what is set out above only because that was what was discussed.

[33]Schmidt agreed his markets were China and Japan, and said it was agreed he was “going to keep any market that wasn’t Israel”.

At the board meeting, Day tabled an updated cashflow and forecast. It was agreed that these would be reviewed at the next board meeting, which was to be convened on 20 August 2013. There was no evidence that such a meeting ever took place.

Pausing here, AHRKalimpa’s board, with the benefit of advisers for the interests of each joint venturer, unanimously resolved that, if the parties could not finalise a joint venture agreement, the live export business would be wound up.[34] Further, such a winding up would be accompanied by “mutual non-compete undertakings”. In short, the unequivocal position of AHRKalimpa and its stakeholders was that no one involved in the live export business then being conducted could treat the business as its own business in the event that a final agreement was not reached. This position was entirely consistent with what had been agreed in November 2012.[35]
[34]See par 80 above.
[35]See par 40 above.

On 22 August 2013, Dunn provided to Schmidt and Day a “Restructure Position Paper” with respect to AHRKalimpa, which suggested that there was “now fundamental disagreement on key issues between the parties”. There is no evidence to suggest that this document was ever discussed or raised with Bzezinski or Ruschin.

Whilst these events were happening, attempts were still being made to secure executed contracts for Voyages 3 and 4. On 16 September 2013, Schmidt sent an email to Ruschin following up the execution of the relevant contracts by Tnuva.

On 17 September 2013, Moshel forwarded a draft agreement to Bzezinski and Ruschin. The proposed agreement[36] had Kalimpa, Schmidt and Otway Livestock as the only named parties. The draft recorded that 2 shipments had already been undertaken and that 2 further shipments were to occur. It also recorded that Minerva had provided 50 percent of the funding for the shipments and was entitled to 50 percent of the net profit (or loss) per shipment. The draft contained the following recital:

The Parties intend that the relationship should continue beyond the 4 shipments and this agreement sets out the basis:
i if the relationship terminates upon conclusion of the 4 shipments, and
ii where the relationship continues beyond 4 shipments.

[36]It was drafted to be executed as a deed.

Ruschin gave evidence that this draft was prepared because there was an agreement with Schmidt and Dunn that Moshel would prepare a mutual non-compete agreement for Voyages 3 and 4.

The draft purported to set out the relationship between the parties.[37] It recorded that they intended their future relationship to continue, that after the 4 shipments they would operate through AHRKalimpa, and that all contracts and joint venture agreements after that time would be conducted exclusively through AHRKalimpa with any existing contractual arrangements to be assigned. Further, speaking broadly, the draft provided that if the relationship between the joint venturers was terminated, then Schmidt and Otway Livestock would not be able to trade with any of the existing customers or contacts in Israel.[38]
[37]Clause 4.2.
[38]Clauses 3.2 and 4.3.

The draft was forwarded by Ruschin to Schmidt late on 17 September 2013. Schmidt discussed the draft with Dunn and they agreed that what was contained in the draft was unacceptable.

On 21 September 2013, Schmidt sent draft sales contracts for Tnuva and Dabach to Bzezinski and Ruschin. Schmidt invited them to call if they had any issues. Both draft contracts had “AH & R Schmidt Pty Ltd” as the supplier. Ruschin gave evidence he emailed Tnuva, copied to Schmidt, stating the new company existed and the contracts were required to be in the name of AHRKalimpa.[39]
[39]See also pars 108–109 below.

B.8 Joint venture relationship seriously breaking down

On 23 September 2013, Dunn circulated an email, including to Moshel, identifying the issues Schmidt had with the draft forwarded on 17 September 2013. In the covering email, Dunn expressed an understanding that Otway Livestock was to execute all the contracts for Voyages 3 and 4. When giving evidence, he could not recall the basis of this understanding. The email concluded as follows:

Please note we would propose that [Schmidt] transfer his shares in AHRKalimpa to your nominee(s), and resign as a Director of AHRKalimpa as part of the present process. In this way, if an acceptable process for moving forward can be resolved, the relationship between [Kalimpa] (Group) and [Otway Livestock] is clearly defined.

Notwithstanding this proposal, Schmidt continued as a director and shareholder of AHRKalimpa.

The attached comments from Dunn raised 12 separate issues. These included a complaint that Bzezinski and Ruschin were not personally parties to the proposed agreement. (Ruschin gave evidence that neither he nor Bzezinski had a problem with being parties.) Further, Dunn wanted the agreement limited to the relationship between the parties up to Voyage 4, and not beyond.

With respect to provisions concerning restraint of trade, Dunn stated that Schmidt accepted a 2 year restraint for him and Otway Livestock with respect to “customers contacts and sources in Israel”, subject to a reciprocal provision by Kalimpa, Bzezinski and Ruschin in respect of suppliers engaged by Schmidt in the delivery of cattle for Voyages 1 to 4.

It seems that around this time the already significant breakdown in the relationship was escalating.

Ruschin was clearly frustrated by the lack of progress. On 24 September 2013, he sent an email referring to a meeting held earlier that day concerning the proposed agreement between Kalimpa and Otway Livestock. Ruschin stated that the agreement needed to be signed before “the next 2 contracts with the [customers]” were signed (being a reference to contracts for Voyages 3 and 4). The email also stated that all details of the costs incurred by Kalimpa with respect to Voyage 1 and Voyage 2 would be forwarded the following day.

Schmidt was unhappy with Ruschin’s stance. In an email sent the following morning, Schmidt suggested that, by the contents of Ruschin’s email, Ruschin was threatening Schmidt with blackmail. Schmidt expressed the view that such correspondence would cause harm to the customer, himself and the vessel owner.

On the same day, Ruschin responded by email to Schmidt, copied to Bzezinski. Ruschin took exception to the suggestion of blackmail, stating that such a suggestion hurt him as a person and dishonoured their relationship. Ruschin reiterated that the agreement between the joint venturers needed to be finalised as soon as possible. The email continued:

[A]s soon as I saw [Dunn] comment on our agreement by way of saying that you will transfer your share and resign as director of AHRKalimpa we already know that you never [planned] to be our partner or [to do business] with us to other (sic) market than Israel.
I can’t work with someone that [thinks] this thing on me.

Still later on 25 September 2013, Schmidt responded, rejecting the suggestions made by Ruschin. In so doing, Schmidt stated:

So what I have said is that if (as it appears) this is too hard to complete, then I am happy to operate the business to Israel until such time as you have funding in place to do so yourself. That is your call.
In terms of doing other business – you are welcome to [any part] of it, I have consistently said that. However, as I said this will require substantially more equity from someone – just how do you want to address this?

The email concluded by stating that he had not resigned or sold his shares in AHRKalimpa. Indeed, despite what Dunn had previously stated,[40] the email gave no indication as to when Schmidt might resign as a director or cease to be a shareholder.

[40]See par 90 above.

It appears, from an email sent on 29 September 2013, that Ruschin and Schmidt also had a telephone conversation on 25 September 2013 concerning the subject matter of the email sent on that day. In the later email, Ruschin again refuted that he had threatened or blackmailed Schmidt. Ruschin stated that the fact that a non-compete agreement was still outstanding was detrimental “to our efficacy as partners”. The email included the following:

As per our meeting [held on 24 September 2013], you said that you were going to send me the NON COMPETE agreement commentary that we agreed on, in 24 hours (now 5 days ago) and that we can then sign it and keep working on our shareholders agreement for our new company AHRKalimpa. To date I still haven’t received your comment to the agreement we sent on [17 September 2013].
… [W]e need to finish this NON COMPETE agreement as soon as possible, we can’t just keep wasting time as you know that we’ve got two more contracts coming soon.
Let’s move forward with business.
(Original emphasis.)

In the morning of 29 September 2013, Schmidt emailed Ruschin, copied to Bzezinski, taking exception to the issue of blackmail being raised again. Schmidt stated that he accepted Ruschin’s response and thought that was the end of it. Schmidt also stated the shareholders’ agreement was the most important issue, not the “non compete”. He promised to send something further later that day.

It is clear that, by this time, Schmidt was changing his views concerning what might be agreed concerning not competing in the Israeli market.[41] Later on 29 September 2013, he sent an email to Bzezinski and Ruschin with the subject “No-compete”. Schmidt stated that in his life he had never negotiated how a business relationship is going to terminate before a conclusion had been reached on how it started and went forward. He continued:

We are both committed to doing business in Israel and have both now been involved in it for some time and we have all invested heavily in both time and money. What I am saying here is that we both have ownership now. I do not see it as what you have brought or what I have brought to the process. … But we are in it together – let’s be clear on that issue.
We have agreed that the business should be run through [AHRKalimpa] – no problem with that. However to go over this yet again we have to have a shareholders agreement – this has to be formally signed off. We can then fund the company.
In the process of formalising the shareholders agreement I am happy to provide you with a non-compete – provided you provide me with one as well. Quite frankly I do not know why you would want to diminish the value of your share in the company by doing this.
… What that really means is that if either of us want to do business to Israel outside of what we have now – then there is a non-compete that applies to both of us.
Alternatively – we do not have one (non-compete).
(Emphasis added.)
[41]See pars 40 and 82 above.

The email ended with the suggestion of a possible piecemeal arrangement with respect to future restraints of trade.
B.9 Further sales contracts entered into

On 30 September 2013, Schmidt executed sales contracts for Voyages 3 and 4 with Dabach and Tnuva for the export of cattle to Israel. With respect to Dabach, both contracts recorded the supplier as AHRKalimpa. In contrast, the contracts with Tnuva were in the name of AH & R Schmidt (as Otway Livestock was previously known). Schmidt explained the difference in approach on the basis that Dabach was content with AHRKalimpa contracting as supplier, but that Tnuva had stated to Schmidt that, unless Tnuva did a full due diligence on AHRKalimpa, it was not willing to contract with that entity. Accordingly, Schmidt arranged for the Tnuva contracts to be in the name of AH & R Schmidt.

During cross-examination, it was put to Schmidt in substance that his explanation for why the Tnuva contracts were in the name of AH & R Schmidt was a recent invention. Further, it was suggested that the use of the name AH & R Schmidt was part of Schmidt’s plan to take over the exporting business for himself. Schmidt rejected this suggestion.

I accept Schmidt’s explanation for the manner in which the contracts for Voyages 3 and 4 were entered into. In addition to Schmidt being a credible witness generally, there are a number of reasons for this.

First, if there were such a plan, presumably it would have been adopted with respect to both Dabach and Tnuva.[42]
[42]See par 89 above. Schmidt had openly disclosed his initial intention to use the name AH & R Schmidt, as had been done for Voyages 1 and 2 (on behalf of the joint venture company then yet to be incorporated). After Ruschin complained about this, Schmidt clearly changed his intention as AHRKalimpa was used for the Dabach contracts: see par 101 above.

Secondly, there was nothing improper, in itself, in using the name AH & R Schmidt. This was the company which held the export licence, and had been used for the first 2 voyages. The use of that name did not mean the business was being conducted by that company in its own right to the exclusion to AHRKalimpa.

Thirdly, it was always the position of Schmidt that Voyages 1 to 4 were being conducted on behalf of AHRKalimpa.[43] This was recorded in contemporaneous documents. Given the state of the relationship, Schmidt may have not fully and openly discussed the change in position with respect to Tnuva in order to avoid confrontation with Ruschin and Bzezinski, but it does not follow that in September 2013 Schmidt was seeking to put steps in place to misappropriate AHRKalimpa’s business with respect to Voyages 3 and 4.
[43]See par 150 below.

Fourthly, it was clear that AHRKalimpa would not have satisfied any due diligence process. It did not have any substantive assets in its name, or even a bank account. Using the name AH & R Schmidt made commercial sense, rather than putting AHRKalimpa through a due diligence it was bound to fail.

On this topic, evidence was given about a telephone discussion held “somewhere around” late September or early October 2013, between Tnuva, Ruschin and Schmidt while Ruschin and Schmidt were at a “pub” in Broome. Schmidt had only the vaguest recollection of the discussion. In contrast, Ruschin had a specific recollection and said that, after he was informed by Tnuva that the supplier named in the contract was AH & R Schmidt Pty Ltd, he confronted Schmidt with his concerns.

Although I accept Ruschin’s evidence,[44] in my view, it does not advance the plaintiffs’ case on this point. All of the contemporaneous documentation demonstrates there was never any question that, at that time, Schmidt intended to fully account with respect to Voyages 3 and 4 for both Dabach and Tnuva. Further, it is not surprising that Schmidt had little recollection of a discussion that occurred nearly 4 years ago in such a casual environment and when, as I have found, he was not doing anything beyond making sure the contracts could be executed so that AHRKalimpa could export cattle to Tnuva. Furthermore, although Ruschin could recall confronting Schmidt, he did not have a clear recollection of Schmidt’s response. Certainly, there was no evidence of Schmidt admitting to any wrongdoing on his part.
[44]The defendants submitted the evidence should be rejected on the basis of correspondence which disclosed the contracting parties. However, the email relied upon was not sent until 7 October 2013, which was likely to be after the discussion in Broome. Further, the fact that the contracts with Tnuva proceeded in the name of AH & R Schmidt is not inconsistent with the stated desire of Ruschin that AHRKalimpa be used.

Returning to the chronology, things went quiet between the parties in October 2013 with respect to finalising the joint venture documentation.

On 4 November 2013, Day sent an email to Schmidt, Bzezinski and Ruschin providing figures with respect to Voyages 1 and 2, together with a further cashflow forecast for 2013/2014.[45] The spreadsheet referred to 8 voyages to Israel to be conducted over that period, together with a voyage to Uruguay (in January 2014) and a voyage to China (in March 2014).
[45]This cashflow forecast was also in the name of AH & R Schmidt Pty Ltd: see fn 29 above.

B.10Preparation for possibility of Otway Livestock alone conducting the business

In early November 2013, Schmidt sought finance with respect to exporting cattle to Israel. One such application was made to HSBC Bank Australia Ltd (“HSBC”). On 6 November 2013, HSBC sought information concerning “your business” from Schmidt. On 7 November 2013, Schmidt sent an email to Dunn attaching a funding proposal “as discussed”. That draft funding proposal, which formed the basis of what was provided to HSBC,[46] is illuminating for what it does not say as well as for what it says.
[46]See pars 121-125 below.

On 8 November 2013, Schmidt sent an email entitled “Kalimpa invoices” to Bzezinski, Ruschin and Day. In that email, Schmidt discussed the payment of various costs that had been incurred by Kalimpa. The email dealt with the costs as follows:

Re your costs. Happy to pay as I said. We need to have your reconciled dockets. Please speak to [Day]. She should be able to explain how to present.
We did discuss capitailising (sic) Office costs. However if you want the money back we can look at doing this of course.

Although the email concluded with a reference for the need for some “cash”, there was no suggestion that the costs referred to were other than costs properly incurred in the conduct of the joint venture.

Very soon after sending this email, Schmidt sent an email to Tnuva, copied to no one, with the subject “confidential”. Schmidt attached a breakdown of the “actual purchase details for all the cattle purchased for [Voyage] 3”. In the body of the email, Schmidt referred to the details as “very confidential information”, stating that no one knew that Tnuva had been provided such information. The email continued:

I am sending you this just to confirm that I am deadly serious about trying to come to an arrangement with you regarding an open book arrangement.[47]
(Emphasis added.)

When it was put to him in cross-examination, Schmidt rejected the suggestion that he did not disclose the details of this email to Bzezinski or Ruschin because he was intending that Otway Livestock would deal exclusively with Tnuva. He said he decided not to tell them because he did not want to have an argument about the decision to provide this information to Tnuva. (Previously, Tnuva had expressed an interest in an “open book” contract. Ruschin had taken exception to Schmidt disclosing information to Tnuva similar to that disclosed in this email.) Accepting Schmidt’s evidence at face value, it seems he was still open to the possibility of a joint venture with Kalimpa on an ongoing basis. However, the draft funding proposal Schmidt had sent to Dunn the day before[48] demonstrates that Schmidt was also preparing for the real possibility of Otway Livestock going it alone.

[47]This was a reference to an arrangement whereby Schmidt would disclose all the costs of a shipment, and Tnuva would agree to pay a fixed margin in addition to the costs incurred.

[48]See par 112 above.

On 12 November 2013, Dunn sent an email to Helen Zhang (“Zhang”). Zhang was a Chinese cattle importer who had also entered into arrangements with Schmidt to fund shipments to Israel. At some stage during 2013, Bzezinski and Schmidt had travelled to China and met with Zhang to discuss the prospect of exporting cattle to China. On that occasion, Zhang was told that Schmidt had a “non-compete with Elders” in relation to China and that the venture would be with Kalimpa (that is, not AHRKalimpa) as Schmidt could not be involved.

The email noted that Dunn had resigned as a director of another company and transferred his share in that company to Otway Livestock. The email suggested that should Schmidt and Zhang wish to proceed further “with this venture”, Zhang should feel free to give Dunn a call. This email was not copied to either Bzezinski or Ruschin, and there was no suggestion that its contents were ever disclosed to them at that time.

On the same day, Dunn sent an email to Schmidt alone, with the subject “Cattle Operations”. With respect to Minerva, Dunn referred to a proposal to roll over the funding provided by Minerva for Voyage 3 for the purposes of Voyage 4. In this regard, he expressed concern about “[t]he absence of a clearly documented statement of your arrangements with Minerva”.

The next topic dealt with in the email was AHRKalimpa. Dunn recorded that he had previously advised Schmidt to resign and to execute an open transfer of his shares to his co-owners. Dunn expressed the view that Schmidt continuing to defer this action might leave him exposed to claims on proceeds of the Israeli voyages “notwithstanding your view of how those arrangements are being undertaken”. With respect to this last observation, under cross-examination Schmidt said he understood Dunn to be referring to Schmidt trying to get to a point where there was a functioning joint venture.

After discussing Dunn’s concerns with respect to financial exposure to Zhang, Dunn turned to the issue of “Westpac and Other Funding”. On that issue, Dunn recorded that Schmidt was waiting for advice from Westpac concerning its ongoing commitment to provide funding. Dunn noted that HSBC had been approached and that Dunn had also contacted another finance company for the same purpose. Dunn concluded this topic with the following:

There is no cohesive funding strategy for the debt funding of your ongoing voyages. In my view, given the risks and exposures you presently face, this needs to be established immediately.
(Emphasis added.)

It is apparent from the email that the “ongoing voyages” was a reference to up to at least 10 voyages to Israel.[49]

[49]Dunn referred to the need to complete between 4 to 10 voyages profitably in order to recoup existing losses and outstanding liabilities.

On 15 November 2013, Schmidt sent the “balance of the documentation” to HSBC. There was no reference to AHRKalimpa in the covering email or any of the other information supplied. Under cross-examination, Schmidt said that, notwithstanding this fact, he was still working towards establishing a formal joint venture through AHRKalimpa. While this may have been so, it is also apparent that Schmidt was actively preparing for the more likely outcome that no shareholders’ agreement would ever be finalised.

The funding proposal was entitled “Funding Proposal – Israel AH & R Schmidt Pty Ltd”, and was on AH & R Schmidt letterhead, using the Premises as its address. Immediately under the heading, the document identified “the business” of exporting 36,000 to 48,000 live cattle per year to Israel. It continued:

We currently have Sales Contracts in place with two major customers to supply 4 shipments of cattle. The rolling contracts for voyages 5 & 6 are currently being negotiated. To date, we have completed 2 of these shipments and the 3^rd is in progress.
(Emphasis added.)

After giving details of the Israeli cattle market, the document continued:
[Otway Livestock] has developed trading relationships with the two largest importers in Israel, both operating for more than 10 years, [Tnuva] and [Dabach].
…
We have completed a total of four contracts with these customers over the last 2 years. Two under Elders ownership and two under the ownership of [Otway Livestock]. A 4^th contract is in progress.
…
We also have a Partnership Agreement with the Vessel owner and the Minerva SA group of Brazil. As a result of this working supply partnership, no deposit is required to secure vessel and very competitive charter rates.

The document then set out the financial details with respect to Voyages 1 and 2 and explained why there had been “extraordinary events” that had caused losses with respect to those voyages. Projected financial details were included for Voyage 3. All figures were presented as if the Voyages had been carried out by Otway Livestock in its own right.

The proposal had a section entitled “AH & R Schmidt Pty Ltd – background”, which included:

[Otway Livestock became] the largest exporter of live cattle to Japan prior to selling this business to Elders in 2010-11.
[Schmidt] then worked under contract for Elders International as Marketing Manager – International exports for 18 months until March 2013.
The company has now re-entered the export sector concentrating on Israel.
We found that Israeli customers had been dissatisfied with the existing supply chain from Australia and were seeking alternatives. In recognition of this, we have developing (sic) the relationships over the past 8 months resulting in 4 Sale Contracts to date.
[Otway Livestock is] currently operating in partnership with the vessel owner and Minerva SA.
(Emphasis added.)

Not only was there no mention of AHRKalimpa with respect to Schmidt’s activities involving the Israeli export cattle market anywhere in the proposal, but, as may be seen from the matters set out above, the proposal completely misrepresented the manner in which Otway Livestock had managed to establish a connection with the Israeli market and to contract to export cattle. Moreover, the proposal unequivocally stated that Otway Livestock was already in a partnership agreement with a vessel owner and Minerva, again with no mention of AHRKalimpa.

Neither Schmidt nor Dunn provided a copy of the funding proposal to, or discussed the detail with, Bzezinski or Ruschin.

B.11 Joint venture relationship further deteriorates

On 17 November 2013, Ruschin sent an email to Schmidt, copied to Bzezinski and Day, complaining that Schmidt had stopped informing Ruschin and Bzezinski as to how the business was doing. He specifically complained about Schmidt not copying them in “on any of the emails from our customers, Minerva and Be Green”[50] for the past 2 months. Ruschin said he was not sure where that left things and that they should meet to seek to “finish” the shareholders’ agreement.
[50]Be Green was a Chinese importer.

Schmidt forwarded the email to Dunn. Dunn’s initial response to Schmidt was that Ruschin’s email was “setting [Schmidt] up for an injunction on the proceeds of Voyage 3”. In a further email to Schmidt, Dunn provided a draft response, which was forwarded by Schmidt to Bzezinski and Ruschin on 18 November 2013.

In addition to refuting various matters, by Dunn’s drafted email, Schmidt suggested to Ruschin that he had made it clear from the outset, that while his money was funding the operations, he would have unrestricted authority to determine how the business was executed. Schmidt stated that he had sought to resolve how business operations could be conducted through AHRKalimpa, but complained there had been no proposal from Bzezinski or Ruschin since 29 September 2013, as was the fact.

The email concluded by stating that Schmidt had no issue with the relationship Ruschin and Bzezinski had “developed with [their] Israeli clients, and [remained] happy to recognise this value”. However, Schmidt stated that, to the extent that they wished to have entitlements beyond this, they needed to formally outline the basis for this to be considered.

B.12Arrangements to enable Otway Livestock alone to conduct the business

On 19 November 2013, Dunn sent an email to Schmidt and Day, enclosing an agenda for an executive committee meeting of Otway Livestock. The agenda covered funding and joint venture arrangements with Minerva, documentation for Voyage 4, the return of shares and resignation by Schmidt as a director of AHRKalimpa, and various other items, including “overall strategic direction”. There was no suggestion on the agenda of any further negotiation with Bzezinski or Ruschin.

The executive committee meeting was held at 1.00 pm that day.[51] It was resolved at the meeting that Schmidt “confirmed” with Minerva that Minerva required no involvement by AHRKalimpa in the joint venture. Although Schmidt gave evidence that there was no intention to cut AHRKalimpa out, it is plain that, by this time, there had been discussions between Schmidt and Minerva about the continuation of the cattle export business to Israel without any involvement of AHRKalimpa. Consistent with this, later that day an email was sent to Minerva attaching documents for Schmidt and Minerva’s execution to allow business to proceed as between Minerva and Otway Livestock. Needless to say, neither Bzezinski nor Ruschin were forwarded a copy of this email.
[51]The meeting was attended by Schmidt (as chairman) and Day on behalf of Otway Livestock. Dunn was noted as being in attendance for Otway Partners.

E.7 Summary of position to 25 November 2013

For the reasons stated, the plaintiffs have established that Schmidt breached his duties as a director of AHRKalimpa by reason of some, but not all, of the allegations made. The findings of liability are not dependent upon issues concerning whether the parties entered into an ongoing joint venture agreement (that is beyond Voyages 1 to 4) or whether the Israel Market Information was confidential and whether there had been a misuse of that information. In other words, by reason of his position, Schmidt, as a director, was not permitted to use information and know-how obtained as a director, or obtained in anticipation of becoming a director, for his own benefit to the exclusion of AHRKalimpa.

E.8 Events after Schmidt’s resignation as a director of AHRKalimpa

Although Schmidt ceased to be a director on 25 November 2013, there are a number of further matters that need to be considered with respect to his conduct after that time.

As already noted in the context of considering the confidentiality claim,[208] there is no dispute that Otway Livestock has continued to export livestock to Israel after December 2013, for a total of 17 voyages. The defendants contended that all voyages after Voyage 4 were conducted by Otway Livestock in its own right, without any obligation to account to AHRKalimpa. In seeking to establish the absence of any connection with AHRKalimpa, the defendants emphasised that the first voyage conducted after Schmidt resigned as a director and sold his shares was not until October 2014.
[208]See par 219 above.

As for the delay between January 2014 (when Voyage 4 was completed) and October 2014 (when Voyage 6 was conducted), this does not assist the defendants’ case. The delay was not as a result of Schmidt desisting with his involvement in the business.

According to the cashflow forecast circulated on 4 November 2013,[209] Voyage 5 was due to occur in February 2014. Later in November 2013, Schmidt anticipated Voyage 5 would be in either February or late March, and that Voyage 6 would be in March or April 2014.[210] Voyage 5 did not proceed because, at a time Schmidt could not recall, he was told by the manager of the Pearl of Para[211] that the vessel was being sold and would not be available for Voyage 5. Thus, Voyage 5 did not proceed for reasons beyond the control of Schmidt. Further, there can be little doubt that, but for this unforeseen event, Schmidt would have ensured Otway Livestock would have proceeded with Voyage 5.
[209]See par 111 above.
[210]See par 132 above.
[211]See par 54 above.

As for Voyage 6, the livestock importing market in Israel is seasonal. It ceases in around March or April each year and does not recommence until July or August. This explains why, at least in part,[212] given that Voyage 6 had not been able to be completed by March or April, it did not occur until much later in 2014. However, despite this delay, the work which gave rise to securing the contracts for Voyage 6 was largely the work performed while Schmidt was a director of AHRKalimpa.[213]
[212]The formal contract was not entered into until 15 September 2014, but it was, in substance, an agreement for the same shipment that was contemplated in 2013.
[213]See pars 121, 132 above.

It follows that the business conducted by Schmidt and Otway Livestock after November 2013 was the business that, up until at least November 2013, was AHRKalimpa’s business.[214] Moreover, it was conducted with the benefit of all of AHRKalimpa’s misappropriated books and records.[215]
[214]See also fn 57 above.
[215]See pars 142-143 above.

Pausing here, I should observe that no part of the findings made carry with them a finding that Schmidt knew his conduct, in November 2013, or thereafter, was definitely improper. At a time Dunn could not recall, he gave advice to Schmidt that Schmidt was entitled to take the course that he did. It is likely Schmidt was relying on this advice from Dunn, a trusted advisor, in adopting the plan to take over the business for Otway Livestock.[216] That said, Schmidt, as an experienced company director privy to all the relevant circumstances, ought to have known better. For the reasons stated, even if Schmidt did not appreciate it,[217] a reasonable person acting as a director in Schmidt’s position undoubtedly would have known better.
[216]The extent of Dunn’s instructions or knowledge at the time he gave his advice was not the subject of any evidence.
[217]Cf Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 162 [173] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ).

F. The joint venture and fiduciary duties

F.1The nature and extent of the joint venture agreement and whether the relationship gave rise to fiduciary duties

The issues identified on the pleadings, and confirmed at the commencement of the trial, were premised on the defendants’ position that no joint venture was ever entered into and the plaintiffs’ competing allegation that a joint venture agreement was struck in June or July 2013. Now that the parties have resiled from these respective positions, essentially the issue between them with respect to the joint venture is the nature and terms of the agreement acted upon from November 2012[218] until 25 November 2013.[219]
[218]See pars 38-42 above.
[219]See pars 136-138 above.

It was clear from the terms of the Chart, and the conduct of the parties both before and after the contents of the Chart were agreed to, that it was always intended to have formal documentation in place with respect to a concluded ongoing joint venture agreement. The agreement struck required a management agreement to be entered into.[220] It required a shareholders’ agreement and funding arrangements to be formulated.[221] No “clearly defined contract” was ever struck,[222] nor was there ever a meeting of the minds after November 2012 as to what exactly would be the terms of the proposed joint venture. Whilst these later negotiations were being conducted in 2013, there was never any suggestion that each party was other than free to act in its own interests and put forward whatever terms it considered appropriate.[223]
[220]See par 39 above.
[221]See par 41 above. See also par 36 above and Schmidt’s expressed requirement for a shareholders’ deed. Neither Bzezinski nor Ruschin suggested otherwise. And also see par 37 above and the instructions from Schmidt as to what had to be considered with respect to the “shareholders articles”. Again, neither Bzezinski nor Ruschin took issue with this.
[222]See par 41 above.
[223]Although not determinative, it is significant that the plaintiffs’ case as pleaded sought to rely on the alleged agreement in June or July 2013 to then plead terms of the joint venture agreement, rather than simply assert an agreement was reached in November 2012.

Accordingly, to the extent that the plaintiffs’ claim was based upon a binding and enforceable 5 year contract, either in November 2012 (or mid 2013), it cannot succeed. At most, the Chart recorded an agreement that the parties intended to further negotiate to finalise a binding agreement in due course. In these circumstances, it is not the role of a court to seek to impose terms, implied or otherwise, to find a binding and concluded agreement when the parties themselves had not reached such a position.[224]
[224]See, for example, Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1, 26D-27G (Kirby P, with whom Waddell AJA agreed).

It follows that the trading engaged in by way of Voyages 1 to 4 was on a piecemeal basis or pursuant to an interim ongoing[225] agreement (provided all the parties continued to agree), but, on either scenario, always under the umbrella of the parties having agreed to seek to finalise a proposed 5 year (or longer) joint venture agreement (or series of agreements).[226]
[225]Before 23 November 2013, there was never any agreement to limit the joint venture to Voyages 1 to 4.
[226]See par 39 above.

In making these findings as to the more limited nature of the joint venture relationship, the court does not accept the defendants’ submission that the relationship was not fiduciary in nature because the “process of negotiation did not involve trust or confidence, simply hard bargaining”. Although the creation of a joint venture relationship is not, in itself, determinative of whether a fiduciary relationship is also created,[227] in my view the circumstances upon which such a relationship ought to be found existed in this case.
[227]See, for example, John Alexander’s Clubs Pty Ltd v Walker Corporation Pty Ltd (2010) 241 CLR 1, 21 [44] (French CJ, Gummow, Hayne, Heydon and Kiefel JJ).

At least from the moment Schmidt, Bzezinski and Ruschin (both personally and through their corporate vehicles) agreed to the establishment of a joint venture business in November 2012 and acted on that agreement (including allowing information and know-how to be used in pursuit of the joint venture), a fiduciary relationship was brought into existence, involving mutual trust and confidence with respect to the affairs of the venture.[228] This characterisation of the joint venture relationship did not preclude any party from robust negotiations in seeking to finalise a long-term joint venture agreement,[229] “for it is well settled a person may be a fiduciary in some activities but not in others”.[230]
[228]Cf Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 96.10-97.2 (Mason J). As to the precise basis upon which the fiduciary obligations are said to have arisen and between whom, see pars 264-265 below.
[229]See, for example, Adventure Golf Systems Australia Pty Ltd v Belgravia Health & Leisure Group Pty Ltd [2017] VSCA 326, [126] (Santamaria JA, with whom Kaye and Ashley JJA agreed).
[230]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 98.2.

Equally, the fact that the long-term agreement was never concluded does not undermine the premise for the finding of a fiduciary relationship. Even proposed participants in a joint venture may owe fiduciary duties in certain circumstances.[231] But the participants in this case were more than merely proposed; they were actually engaging in the joint venture, despite the fact that the terms of that venture had never been agreed in their entirety.
[231]See, for example, United Dominion Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, 13.3 (Mason, Brennan and Deane JJ).

Of course, whether the consensus underlying the joint venture relationship from November 2012 is best characterised as a series of piecemeal agreements (per voyage) or an interim agreement,[232] such agreements or agreement were in place until the resignation of Schmidt. By reason of the defendants’ concession,[233] it is unnecessary (at least presently) to explore the precise contractual terms of any such agreements or agreement.[234]
[232]See par 257 above.
[233]See par 224 above.
[234]In many cases, the contractual terms may be determinative of whether fiduciary duties arise, and the nature and extent of those duties: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 97.6 (Mason J). However, in my opinion, the issues with respect to fiduciary duties in this case can be properly determined without the need to engage in this process beyond the matters already set out in this judgment: see further pars 263-269 below.

Further, whatever the position with respect to the nature and terms of the joint venture agreement, it came to an end on 25 November 2013 with the resignation of Schmidt. On the plaintiffs’ case, it was accepted a party to the agreement was entitled to terminate its involvement in an orderly manner. Even without this concession, on 25 November 2013 both Bzezinski and Ruschin accepted Schmidt’s position, and the agreement came to an end as a matter of contractual principle in any event.[235]
[235]See, for example, Foran v Wight (1989) 168 CLR 385, 423.8 (Brennan J).

F.2 The nature and extent of the fiduciary duties

The plaintiffs alleged that, in addition to fiduciary duties owed by Schmidt as a director, fiduciary duties were owed by Otway Livestock to both Kalimpa and AHRKalimpa.

With respect to Kalimpa, the plaintiffs relied upon the terms and effect of the joint venture as alleged,[236] alternatively a proposed joint venture,[237] coupled with Kalimpa reposing trust and confidence in Otway Livestock. The manner in which trust and confidence was allegedly reposed was non-exhaustively pleaded. So far as is relevant to the proposed joint venture, the reposing was alleged to have been by Kalimpa agreeing to provide the Israel Market Information, and by the fact that Otway Livestock embarked on the conduct of the joint venture in the manner that it did.
[236]Which claim has been rejected: see par 256 above.
[237]Which has been established: see pars 257-261 above.

With respect to AHRKalimpa, and confining the case to the proposed joint venture as found,[238] the plaintiffs relied upon essentially the same factors in seeking to establish the trust and confidence reposed in Otway Livestock by AHRKalimpa. The only material difference was the allegation that Otway Livestock embarked on the conduct of the joint venture “before the precise terms of the joint venture had been finalised”.
[238]See pars 257-261 above.

The fiduciary duties of Otway Livestock alleged to be owed to both Kalimpa and AHRKalimpa included:

(1)Not to pursue its interests or the interests of a related party in conflict with the interests of the joint venture being conducted or the proposed long-term joint venture.
(2)Not to profit from its position, or to use its position to obtain a profit for a related party, without the fully informed consent of Kalimpa and AHRKalimpa respectively.
(3)To keep confidential the Israel Market Information (to the extent it was confidential), and not use the Israel Market Information contrary to the interests of the joint venture or the proposed long-term joint venture, without the fully informed consent of Kalimpa and AHRKalimpa respectively.

In my view, for reasons already stated,[239] Otway Livestock owed fiduciary duties to both Kalimpa and AHRKalimpa; to the latter from 27 June 2013. The facts demonstrate that Otway Livestock undertook to act on behalf of the interests of Kalimpa, and then later AHRKalimpa, in engaging jointly in the cattle export business, pursuant to which it utilised confidential information and affected the interests of Kalimpa and AHRKalimpa respectively in both a legal and practical sense.[240] Further, the duties as alleged are appropriate proscriptive duties that, in the circumstances of this case, ought to be imposed as a matter of law.[241] It was entirely inimical to the joint venture (to the extent it was agreed and, equally, to the extent it was proposed), for Otway Livestock to pursue its interests to the exclusion of either of the plaintiffs, or to seek to profit from its position, including by the use of confidential information, for its own benefit without obtaining permission from either of the plaintiffs. By acting in such a manner, Otway Livestock breached its fiduciary duties owed to both Kalimpa and AHRKalimpa.
[239]See pars 258-260 above
[240]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 96.10-97.2 (Mason J).
[241]See general observations of Mason J at 99.3, 102.5, 103.6-104.7. See also Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569, 574 [12] (Finn J) and the cases there cited.

Further, but for an understanding that a relationship in the nature of a fiduciary relationship would exist if a joint venture were embarked upon with entities related to Schmidt, Kalimpa would not have permitted Schmidt, or Otway Livestock, to use information that had been provided on a confidential basis to Elders within the strict confines of the Elders Agreement.

Furthermore, the fiduciary duties owed survived termination. It is trite that, in appropriate circumstances, “fiduciary duties may survive the termination of the relationship that first called those duties into being”.[242] In this case, the obligation to act as a fiduciary would be substantially, if not entirely, hollow if the fiduciary, Otway Livestock, were permitted to unilaterally bring the relationship to an end and then take advantage of the opportunity afforded to it by Kalimpa and AHRKalimpa without recourse by them.
[242]Edmonds v Donovan (2005) 12 VR 513, 536 [56] (Phillips JA, with whom Winneke P and Charles JA agreed), referring to Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501, 522-523 [55] (Brooking JA, with whom Ormiston and Chernov JJA agreed).

G. Accessorial liability

Much has been written on accessorial liability in circumstances where a third party receives a benefit from, or participates with “knowledge”[243] in, another’s breach of fiduciary duty.[244]
[243]See, for example, Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 163-166 [164]-[186] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ).
[244]Based largely upon observations made in Barnes v Addy (1874) LR 9 Ch App 244, 251.9-252.2 (Lord Selborne, LC, with whom James and Mellish LJJ agreed).

Very little needs to be said about this area of the law, as the issues concerning accessorial liability of Otway Livestock and Schmidt are straightforward.

As to Schmidt’s wrongful conduct in breach of his director’s duties,[245] Otway Livestock was “the corporate creature, vehicle, or alter ego” of Schmidt, used by him in an attempt to secure profits from the Business Opportunity.[246] Otway Livestock’s accessorial liability arises in circumstances where it actually received a benefit from Schmidt’s wrongful conduct, with full knowledge (ie Schmidt’s knowledge),[247] and without paying any consideration. It must be held liable.[248]
[245]See pars 225, 233-239, 242-253 above.
[246]See Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 357 [243] (Finn, Stone and Perram JJ).
[247]For completeness, the finding in par 253 above as to Schmidt’s state of mind does not affect any relevant issue with respect to Otway Livestock’s knowledge: see, for example, Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd (2011) 285 ALR 63, 94 [242] (Jacobson J, with whom Rares and Besanko JJ agreed), citing Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 162 [173]. See also Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 357 [243], [245].
[248]The plaintiffs’ closing submissions also refer to s 79 of the Corporations Act 2001 (Cth). In light of the findings made, it is unnecessary to decide this issue. Further, as this provision was not referred to in the statement of claim, I will refrain from considering this issue.

As to Schmidt’s accessorial liability, when Otway Livestock decided to, and then did, export cattle to Israel using the Business Opportunity available to it by reason of its relationship with Kalimpa and AHRKalimpa, it was acting at the direction of Schmidt,[249] armed with Schmidt’s knowledge.[250]
[249]Although Otway Livestock had another director (see par 10 above), she did not participate in the meeting of Otway Livestock at which it was decided to pursue the Business Opportunity to the exclusion of AHRKalimpa: see pars 131-135 above.
[250]See par 10 and fn 115 above.

In such circumstances, Schmidt, with full knowledge of the relevant circumstances, had actual knowledge of, and therefore was knowingly involved in, Otway Livestock’s breaches of fiduciary duties to both Kalimpa and AHRKalimpa. He must also be held liable in this regard.

H. Other matters

I have deliberately refrained from expressing any view as to the form of relief which ought to flow from the findings made above. The parties have not squarely addressed these issues to date.[251]
[251]See fn 1 above. The issues not addressed include allegations concerned with the question of whether the plaintiffs failed to mitigate any loss.

In addition, in declining to determine the estoppel issues with respect to the Israel Market Information, I acknowledge that some issues potentially remain outstanding with respect to the information that has been found not to be confidential. However, as the plaintiffs have been substantially successful with respect to the confidential information claim, my present view is that it is unnecessary to the resolution of the real issues to traverse this aspect of the case.[252]
[252]The relief sought by the plaintiffs does not include injunctive relief.

Conclusion

For the reasons stated above, the plaintiffs have been substantially successful.

The parties will be invited to make submissions as to what relief is appropriate in light of these reasons. This will include requiring the plaintiffs to make an election whether to seek an account of profits or compensatory relief.[253]
[253]See, for example, Warman International Ltd v Dwyer (1995) 182 CLR 544, 559.2 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).

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