AIIB Pty Ltd v Beard - [2009] NSWSC 1001

No judgment structure available for this case.

CITATION: AIIB Pty Limited v Beard [2009] NSWSC 1001

HEARING DATE(S): 4, 5, 6 and 11 February and 16 July 2009

JUDGMENT DATE :
24 September 2009

JURISDICTION: Equity

JUDGMENT OF: Ward J

DECISION: As against first defendant, plaintiff to elect between account of profits and equitable compensation to be assessed on enquiry.
As against second defendant, enquiry as to damages ordered.
Claim dismissed against third defendant.
On cross-claim, first and second defendant ordered to indemnify third defendant.

CATCHWORDS: CONTRACTS - general contractual principles - offer and acceptance - whether contracts formed between plaintiff and first or second defendant - whether breach of confidentiality or non-solicitation provisions of contracts - held that contract formed between plaintiff and second defendant - held that second defendant had breached confidentiality and non-solicitation provisions of contract - EQUITY - general principles - obligations of confidence - whether first or second defendant owed equitable obligation of confidence to plaintiff - whether breach of obligation of confidence - whether third defendant liable as principal of first or second defendant or otherwise - held that first defendant owed and breached equitable obligation to plaintiff - held that third defendant not liable as principal as relevant acts outside scope of agency and s 917B Corporations Act inapplicable

LEGISLATION CITED: Corporations Act 2001
Uniform Civil Procedure Rules

CATEGORY: Principal judgment

CASES CITED: Blackburn, Low & Co v Vigors (1887) 12 App Cas 531
Coco v AN Clark (Engineers) Limited [1969] RFC 41
Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434
Deta Nominees Pty Limited v Viscount Plastic Products Pty Limited [1979] VR 167
El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685
Expectation Pty Limited v PRD Realty Pty Limited (2004) 140 FCR 17
Faccenda Chicken Limited v Fowler [1987] Ch 117
Film Bars Pty Limited v Pacific Film Laboratories Pty Limited (1979) 1 BPR 9251
Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Limited [1964] 2 QB 480
Gurr v Robinson (unreported, 10 February 1986)
Hadid v Redpath (2001) 35 MVR 152
Halliday & Nicholas Insurance Brokers Pty Limited v Corsiatto [2001] NSWCA 188
In re Robinson’s Settlement: Gant v Hobbs [1912] 1 Ch 717
Laws Holdings Pty Limited v Short (1972) 46 ALJR 563
Mid-City Skin Cancer and Laser Centre Pty Limited v Zahedi-Anarak (2006) 67 NSWLR 569
Monie v Commonwealth of Australia (2005) 63 NSWLR 729
NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 228 CLR 470
Peter Pan Manufacturing Corp v Corsets Silhouette Limited [1964] 1 WLR 96
Pitcher v Langford (1991) 23 NSWLR 142
Robb v Green [1895] 2 QB 1
Sasson v Fahevu [1999] NSWCA 400
Southern Real Estate v Dellow (2003) 87 SASR 1
Talbot v General TV Corp Pty Limited [1980] VR 224
Vokes v Heather (1945) 62 RPC 135
Warman International Limited v Dwyer (1995) 182 CLR 574

TEXTS CITED: Meagher Gummow & Lehane's Equity Doctrines and Remedies

PARTIES: AIIB Pty Limited (Plaintiff)
Peter Beard (First Defendant)
Hamtuan Pty Limited (Second Defendant)
Chegwyn Corporate Services Pty Limited (Third Defendant)

FILE NUMBER(S): SC 1843 of 2008

COUNSEL: R Wilson (Plaintiff)
L Katsinas (First and Second Defendants) (4-6 February 2009)
In person (First and Second Defendants) 16 July 2009
D A McLure (Third Defendant)

SOLICITORS: Coleman & Greig (Plaintiff)
DPH Lawyers (First and Second Defendant) (4-6 February 2009)
In person (First and Second Defendants) 16 July 2009
J Biady & Associates (Third Defendant)

- 91 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WARD J

THURSDAY 24 SEPTEMBER 2009

1843/08 AIIB Pty Limited v Peter Beard

JUDGMENT

1 AIIB Pty Limited is a company which carries on the business of insurance brokerage. From November 2005 to February 2008, Hamtuan Pty Limited was its authorised representative. Mr Peter Beard, the sole shareholder and director of Hamtuan, was the individual through whom Hamtuan provided insurance broking services in its capacity as AIIB’s authorised representative. In February 2008, Hamtuan and Mr Beard terminated their business relationship with AIIB. On 7 March 2008, Hamtuan was appointed as an authorised representative of another insurance broking company, Chegwyn Corporate Services Pty Limited (ACN 128 875 767) (“Chegwyn”).

2 This dispute arises out of the use allegedly made by Mr Beard/Hamtuan in February 2008 of client contact details and information as to clients’ insurance needs (said to amount to confidential information of AIIB) first in soliciting clients formerly serviced by Hamtuan (as AIIB’s authorised representative) to appoint Hamtuan as their broker and subsequently when renewing insurance contracts on behalf of former AIIB clients when Hamtuan was the authorised representative of Chegwyn.

Issues

3 Broadly summarised, the following issues arise:

(i) whether Mr Beard/Hamtuan were contractually bound not to use information in relation to (or solicit) clients serviced by them at AIIB;

(ii) whether there was an equitable obligation of confidence on the part of Mr Beard/Hamtuan in relation to the alleged confidential information;

(iii) whether, if Mr Beard/Hamtuan did owe an obligation of confidence (contractual or equitable) in relation to some or all of the information, there was an unauthorised use thereof;

(iv) whether Mr Beard/Hamtuan acted as Chegwyn’s agents in soliciting (and later acting for) AIIB clients or Chegwyn has improperly made use of AIIB’s allegedly confidential information; and

Summary

4 For the reasons set out below, I summarise my findings as follows.

5 AIIB and Mr Beard entered into a binding employment agreement on the terms of an Offer of Employment signed by Mr Beard on 11 October 2005, pursuant to which Mr Beard became bound by the confidentiality obligations and non-solicitation clauses contained in that document. That employment agreement came to an end by mutual consent in late November 2005. (Although the confidentiality/non-solicitation provisions, in their terms, became operative when that employment agreement was terminated, no liability has arisen under that agreement.)

6 When Mr Beard/Hamtuan commenced with AIIB in November 2005, they did so not on the basis of the employment agreement but on the basis of an arrangement under which Hamtuan was appointed AIIB’s authorised representative. Neither Mr Beard nor Hamtuan signed the “Authorised Representative Agreement” provided to Mr Beard/Hamtuan on 28 November 2005. The evidence does not establish that either of them expressly notified AIIB of acceptance of its terms. Nevertheless, I consider that Hamtuan (acting through Mr Beard) by its conduct sufficiently manifested acceptance of the Authorised Representative Agreement by accepting appointment of Hamtuan as AIIB’s authorised representative, acting as AIIB’s authorised representative and accepting increases in remuneration proffered on the basis that there was such an agreement in existence. In coming to that conclusion I place weight on the fact that, when it came to bringing their relationship to an end, Hamtuan issued a formal notice of termination of the so-called Authorised Representative Agreement.

7 Had there been no binding contract between AIIB and Hamtuan in the terms of the Authorised Representative Agreement, I would have been satisfied that Hamtuan was bound by an equitable obligation of confidence not to disclose or use, without the consent of AIIB, confidential client contact details or information as to the insurance needs or requirements of clients serviced at AIIB.

8 Mr Beard was not a party to the Authorised Representative Agreement and so was not bound by its terms. While the Authorised Representative Agreement contemplated that Mr Beard would (in his own right) enter into a form of guarantee contract which itself contained confidentiality provisions, there is no evidence that such a contract came into existence (nor is such a contract pleaded).

9 I find that any confidential client details and information as to the insurance needs or requirements of clients serviced at AIIB information was information received by Mr Beard in circumstances sufficient to import an equitable obligation of confidence on his part.

10 I consider that Mr Beard and Hamtuan’s respective obligations of confidence extend to client information contained in or procured from AIIB files, prospect sheets or the like in respect of confidential client contact details or information as to the insurance needs or requirements of clients who were procured by Mr Beard’s own initiatives or efforts while he was in a business relationship with AIIB (such as Northpoint Constructions and Essential Air) as well as clients who had been referred to Mr Beard by others at AIIB (such as Paraquad or Streetbuild).

11 I do not consider that either Mr Beard or Hamtuan owes any obligation of confidence (equitable or otherwise) to AIIB in respect of client contact details or insurance needs information gained by Mr Beard while he was with his former employer, Driessen Insurance Brokers (“Driessen”). That information does not fall within the definition of confidential information in the Authorised Representative Agreement nor can it be information which was received by Mr Beard in circumstances where he owed any duty to AIIB to keep it confidential, since information of that kind was necessarily gained before Mr Beard was in a business relationship with AIIB. (That said, to the extent that a client’s insurance needs would (or may) change from year to year, information gained while Mr Beard acted for former Driessen clients while at AIIB (such as the former Driessen clients’ then current insurance needs as at February 2008) could, in my view, fall within the obligations of confidence owed to AIIB (even though information as to the previous insurance needs of those clients gained while Mr Beard was at Driessen would not have done). There is, however, no evidence from which I could identify any such information.)

12 I consider that the removal from AIIB of client contact or insurance needs information in the form of prospect sheets, copies of insurance policies or renewal information, and the use of that information in February 2008 to solicit clients formerly at AIIB, was a clear breach, on the part of Hamtuan, of the confidentiality and non-solicitation covenants in the Authorised Representative Agreement and, on the part of Mr Beard, of his equitable obligation of confidence.

13 Other than in the course of soliciting AIIB clients (by letters sent on or about 29 February 2008) to appoint Hamtuan as their broker following termination of the AIIB relationship, I am not satisfied that any actual use was made by Mr Beard or Hamtuan of confidential information taken from AIIB. The subsequent policy renewals (for example, the Paraquad renewals) seem to have occurred after Mr Beard was required (in the context of these court proceedings) to hand back the relevant confidential information. I accept Mr Beard’s evidence that he had to work, in effect, from “scratch” in relation to those policy renewals.

14 The conduct of Mr Beard (on behalf of Hamtuan) in soliciting AIIB clients in February 2008 (before Mr Beard or Hamtuan was appointed as Chegwyn’s authorised representative) is not conduct for which Chegwyn is liable under any doctrine of agency, nor is it conduct which Chegwyn subsequently “adopted” so as to give rise to any direct claim by AIIB against Chegwyn as Mr Beard/Hamtuan’s principal. I do not find that there has been any improper misuse by Chegwyn of information which was confidential to AIIB. I therefore dismiss AIIB’s claim against Chegwyn.

15 The principal relief sought against both Mr Beard and Hamtuan is put in the alternative, namely an order for an enquiry as to damages or an account of profits.

16 The appropriate relief in respect of the breach by Hamtuan of contractual non-solicitation and confidentiality obligations owed to AIIB (under the Authorised Representative Agreement) is an order for damages calculated so as to put AIIB in the position it would have been in had there been compliance with the contractual obligations in question. Those damages may extend beyond the loss of profits from commissions which would be likely to have been earned from clients who left AIIB as a result of Hamtuan’s conduct to any loss sustained to the value of the business of AIIB by reason of Hamtuan’s conduct. However, damages for loss of value to the business would have to be subject to an appropriate discount for the possibility that the clients in question may have chosen to leave AIIB even without the breach by Hamtuan. I think it appropriate to order an enquiry as to the amount for which Hamtuan is liable to AIIB. (I do not consider it appropriate to order an account of profits in respect of Hamtuan’s breach of contract.)

17 The appropriate relief in respect of the breach by Mr Beard of his equitable obligation of confidence, is for AIIB to have the right to elect between an order for equitable compensation and an account of the profits made by Mr Beard as a result of his breach. Again, I think it appropriate to order an enquiry as to the amount for which Mr Beard is liable to AIIB, once it makes its election.

18 I do not consider it appropriate to grant a final injunction as sought by AIIB against Mr Beard/Hamtuan.

19 I find for Chegwyn on its cross-claim against Mr Beard/Hamtuan.

Conduct of the proceedings

20 To explain the course these proceedings took (and to set the context for some of the submissions made in relation to the relief sought) I set out briefly below the history of the conduct of these proceedings.

AIIB’s claim

21 These proceedings were initially commenced by Summons filed on 12 March 2008. AIIB sought orders restraining each of the defendants for a six month period from 29 February 2008 from:

(a) soliciting insurance business from or providing insurance services to any person who was a client serviced by Mr Beard and/or Hamtuan during the two years prior to 29 February 2008;

22 Interlocutory relief was sought to restrain the use, pending further order, of any information contained in documents described in Annexure “A” to the Summons or soliciting, for the purpose of entering into any contract, or entering into any contract, with any of the persons or entities referred to in Annexure “A” to the Summons.

23 The documents described in Annexure “A” were, broadly speaking, insurance or insurance renewal documents or policies, “prospects sheets” detailing “new prospects”, and telephone or contact details. The persons or entities named in Annexure “A” included, relevantly, the Paraplegic and Quadriplegic Association of NSW (“Paraquad”), Gemaveld Pty Limited (“Gemaveld”) and its subsidiaries (identified as Citadel, Action), and Northpoint Constructions Pty Limited.

24 When the matter came before the court on 17 March 2008, undertakings were proffered (without admission) by the defendants. Those undertakings were subsequently extended by consent (again without admission) on 26 March 2008, until further order. Those undertakings remain in force. They were given upon AIIB, by its counsel, giving the usual undertaking as to damages.

25 Relevantly, the undertakings are that the defendants shall not, by themselves their servants or agents use, any information contained in the documents described in the relevant Annexures or “solicit for the purpose of entering into any contract or enter into any contract with” any of the persons referred to in those Annexures.

26 AIIB ultimately proceeded on a Further Amended Statement of Claim filed pursuant to leave granted by me on 11 February 2009 (that amendment application having been brought by AIIB during the course of closing submissions and at the conclusion of a two day hearing by which time all the evidence then proposed to be adduced in the proceedings had been heard) in the circumstances set out in my reasons for judgment published on 11 February 2009. The hearing was adjourned to July 2009.

27 While the hearing was unfortunately disrupted by the adjournment (and the resolution of the proceedings delayed), I have been assisted, when preparing these reasons, by the extensive notes taken by me throughout the course of the hearing (see generally Hadid v Redpath (2001) 35 MVR 152 at 159 [34] per Heydon JA; Expectation Pty Limited v PRD Realty Pty Limited (2004) 140 FCR 17 at 33 [73]; Monie v Commonwealth of Australia (2005) 63 NSWLR 729 at 742 [43] per Hunt AJA; NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 228 CLR 470 at 504 [109]-[111] per Kirby J, at 525 [169] per Callinan and Heydon JJ).

28 The further amendment was limited to an amendment to the name of the third defendant from “Chegwyn Corporate Services Pty Limited ACN 090 107 092” to “Chegwyn Corporate Services Pty Limited ACN 128 865 767”. This amendment had the effect of removing the company bearing ACN 090 107 092 (formerly known as Chegwyn Corporate Services Pty Limited, but now known as Nikalview Pty Limited) and joining the company bearing ACN 128 865 767 (formerly known as Nikalview Pty Limited, but now known as Chegwyn Corporate Services Pty Limited). The two companies had, in effect, swapped names in March 2008. AIIB’s legal representatives first became aware of the swap (and of the fact that the wrong company within the Chegwyn group of companies had been joined to the proceedings) upon receipt of closing written submissions of Mr McLure (counsel for the respective third defendants).

29 While documents lodged with ASIC on 12 March 2008 record the passage of the relevant special resolutions for the changes of name as occurring on 7 March 2008 (somewhat curiously, since the date appearing next to Mr Chegwyn’s signature on the notices is 6 March 2008), the name changes (contrary to the submissions made on behalf of Chegwyn) did not take effect, as a matter of law, until 13 March 2008 (s 157(3) Corporations Act 2001) when ASIC altered the details of the companies’ respective registrations. Therefore, as at the date of commencement of the proceedings, the company bearing ACN 090 107 092 was named Chegwyn Corporate Services Pty Limited (though its name would change the following day).

30 AIIB’s claim against Mr Beard/Hamtuan is principally a claim for breach of contract (by reference to the confidentiality/non-solicitation provisions in both the October 2005 employment agreement and the alleged November 2005 Authorised Representative Agreement). In the alternative, a claim is brought for breach of an equitable obligation of confidence.

31 AIIB’s claim against Chegwyn is pleaded on the basis that the relevant conduct of Mr Beard/Hamtuan (in soliciting, canvassing, approaching and accepting approaches from AIIB clients) was engaged in as “agents and authorised representatives” of Chegwyn. By reason of the alleged agency/authorised representative relationship, that conduct is said to be “deemed to be the action of” Chegwyn (paragraphs 21 and 22 Further Amended Statement of Claim). Further, it is alleged that Chegwyn, by its alleged agents, has “improperly made use of” AIIB’s proprietary and/or confidential information (paragraph 23 of the Further Amended Statement of Claim).

32 AIIB seeks an order that there be an enquiry as to damages suffered by AIIB as a result of the conduct of each of the defendants (including Chegwyn) (paragraph 6 of the prayers for relief in the Further Amended Statement of Claim) and, in the alternative, an account of the profits which AIIB would otherwise have received but for the conduct of the defendants or each of them (paragraph 7 of the prayers for relief). As to the injunctive relief sought, AIIB no longer presses the claim for the six month restraint sought in paragraph 1 of its Further Amended Statement of Claim (corresponding to paragraph 1 of the Summons) as this is no longer of any utility, the relevant period now long since expired. Nevertheless, AIIB still presses for an order in the form of a perpetual injunction against Mr Beard and Hamtuan to restrain them from using the confidential information referred to in paragraphs 13(a)-(e) of the Further Amended Statement of Claim (see paragraph 3A of the prayers for relief).

Defences

33 By their defence, Mr Beard/Hamtuan deny that Mr Beard ever commenced in the employment of AIIB; deny that the terms of an October 2005 “Contract of Employment” (as defined in AIIB’s pleadings) ever governed the terms of the relationship between Mr Beard and AIIB; admit that Hamtuan was an authorised representative of AIIB from about November 2005 until 29 February 2008; and deny that Hamtuan ever entered into a written Authorised Representative Agreement (as defined in AIIB’s pleadings) or that its terms ever governed the relationship between Hamtuan and AIIB.

34 In particular, Mr Beard and Hamtuan deny the terms alleged by reference to clauses 14 and 19 of the Authorised Representative Agreement (relating to AIIB’s ownership of confidential information, as defined in clause 1, and imposing a two year non-solicitation clause, respectively).

35 Mr Beard and Hamtuan admit that, following termination of the business relationship with AIIB, they retained certain documents but say that those documents were their property and that they were entitled at law to retain those documents. (In due course, the documents so retained were, according to Mr Beard, produced to the solicitors for AIIB in answer to a notice to produce issued in these proceedings. Mr Beard denies that he currently holds any of the documents in question or any copies thereof.)

36 The (originally named) third defendant filed its defence on 27 August 2008, denying liability and positively asserting that the entity “Chegwyn Corporate Services Pty Limited ACN 128 875 767” became licensed as an AFSL licensee on 7 March 2008 (though not stating that at that time the entity with that particular ACN was then registered with ASIC as Nikalview Pty Limited) and asserting that Hamtuan became an authorised representative of that entity on 7 March 2008.

37 The present third defendant filed an Amended Defence on 24 June 2009 denying liability, but admitting that on 7 March 2008 it became licensed as an AFS licensee and that Hamtuan became its authorised representative and agent on that day. The Amended Defence also asserts an entitlement to have any equitable pecuniary remedy for which Chegwyn is liable reduced by the expenses incurred in establishing and operating Hamtuan’s agency.

Cross-claim by Chegwyn

38 After leave was given by me for the amendment of the pleadings to rectify the misjoinder of the company bearing ACN 090 107 902, the (now correctly named) third defendant, Chegwyn, filed a cross-claim against Mr Beard and Hamtuan seeking a declaration that they are liable to indemnify Chegwyn with respect to any equitable pecuniary remedy Chegwyn may be held liable to pay AIIB, any order for costs made against Chegwyn and any legal costs incurred by Chegwyn in relation to these proceedings.

39 That cross-claim is based on an alleged express term of the agency agreement between Chegwyn and Mr Beard/Hamtuan to the effect that the latter were not authorised to provide insurance services to former clients of AIIB where that had not been agreed between them and AIIB (and would indemnify Chegwyn for any liability or costs incurred in so doing). Chegwyn pleads that as at June 2009 it has made demand (which remains unsatisfied) on the indemnity for its legal costs in defending the proceedings to that date. Chegwyn also seeks unspecified damages.

40 At various times during the proceedings, and in particular during the hearing before me on 4-6 February 2009 and again on 11 February 2009, Mr Beard/Hamtuan had the benefit of legal representation but this was not the case when the hearing resumed on 16 July 2009. Mr Beard (who by that time was representing himself and, as I understand it, Hamtuan) indicated that a defence to the cross-claim would be filed. No such defence has been filed. It seems to me that Mr Beard has had ample opportunity to obtain advice and put forward any defence he or Hamtuan may have had to the cross-claim. In his oral evidence Mr Beard conceded, in effect, that he had no authority from Chegwyn to use any confidential information, or solicit any clients, if he was not entitled viz-a-viz AIIB so to do.

Facts

41 As noted above, each of AIIB and Chegwyn carries on business as an insurance broker and each held, at the relevant times, an AFSL.

42 As at 2005, Mr Lofts was the majority shareholder (holding about 75% of the shares) and a director, of AIIB. His fellow director, Mr John Brindle, held the remaining 25% of the shares of AIIB.

43 At some time in early 2005, Mr Brindle decided that he wished to retire from AIIB in about 2006. Mr Brindle gave evidence that, as part of the retirement process, he wanted to sell his shareholding in AIIB and to retire as a director. Mr Lofts did not wish to acquire Mr Brindle’s parcel of shares. Mr Brindle gave evidence that he had negotiations with various parties in relation to the sale of his shares. He said that he first offered his parcel of shares to another insurance broker, Mr Stephen McGrath, but that Mr McGrath was not able to acquire the whole parcel. In about April 2005 he had discussions with Mr Beard (T 54), who was then employed as an insurance broker by Driessen, as to the possibility that Mr Beard would take up a position with AIIB and would acquire part (but not all – T 68) of Mr Brindle’s shareholding in AIIB.

44 Mr Brindle says, in general terms, that he offered Mr Beard a position with the company and with the opportunity of purchasing a portion of his shareholding in that company at an agreed value and that Mr Beard accepted that offer (T 55). Mr Brindle nominated a price of $216,000 for 900 of his shares (about 9% of the company’s capital). He says that Mr Beard requested a complete list of finances for two years to make a judgment (T 55) (although Mr Beard’s evidence suggests that he simply accepted the figure put to him by Mr Brindle).

45 Mr Brindle says he calculated the value of his shareholding as a percentage of the value of the total shares, valuing the business at 1.5 times earnings (that being the way he said shares are valued in “insurance practices” - T 56/57). Mr Brindle says that Mr Beard had agreed (presumably only in principle since there was not a formal agreement till May 2006) to purchase 900 of his shares in October 2005, before he gave Mr Beard the client list, which has assumed some significance in these proceedings, identifying particular clients (T 55).

46 Mr Lofts agrees that he was privy to some of the initial discussions between Mr Brindle and Mr Beard. Mr Beard says it was represented to him that, on acquisition of the shares, he would be made a director of AIIB. According to Mr Lofts, the discussion about a directorship was in the context of someone taking up the whole of Mr Brindle’s 25% shareholding. Mr Lofts said that prior to November 2005 he had had a conversation with Mr Beard in relation to the proposed sale of Mr Brindle’s 25% shareholding in which he says that he had indicated that the person who purchased a 25% holding would be made a director of the company (T 27). Mr Lofts apparently did not wish to enlarge the board by appointing more than one director in place of Mr Brindle. The fact that Mr Beard was ultimately not made a director of the company was a source of some contention on Mr Beard’s part (as evidenced by the complaints contained in his notice of termination).

· Offer of Employment – October 2005

47 On 11 October 2005, Mr Beard signed a document titled Offer of Employment (“Offer of Employment”), accepting the offer by AIIB of a position as an account manager of AIIB commencing on 28 November 2005 on a salary of $85,000. It is not disputed that under this offer, Mr Beard’s overall monetary package was in the vicinity of $100,000 per annum (slightly less than Mr Beard’s salary package had been at Driessen).

48 Shortly afterwards, Hamtuan was incorporated by Mr Beard on 14 October 2005 (as disclosed in the ASIC search a copy of which is Annexure D to Mr Lofts’ affidavit).

49 Mr Beard commenced work with AIIB on 28 November 2005. At least on the face of the pleadings, there is a dispute as to whether, when he did so, he remained bound by the terms of the Offer of Employment he had signed. Mr Beard says that the “offer” contained in the Offer of Employment was superseded by a verbal agreement between AIIB and Hamtuan pursuant to which the latter was to be appointed as an authorised representative of AIIB. Mr Lofts, for his part, seems broadly to have accepted in the witness box that the only “agreement” in place when Mr Beard started with AIIB was that Hamtuan would be an authorised representative and would receive the agreed monthly commission (T 29).

· Authorised Representative Agreement – November 2005

50 On about 28 November 2005, Mr Lofts provided Mr Beard with a document titled “Authorised Representative Agreement” and dated 28 November 2005 (“Authorised Representative Agreement”), in which the Licensee was expressed to be “AIIB Pty Limited” and the Authorised Representative was expressed to be “Hamtuan P/L”. The basis on which this document was provided by AIIB is disputed. Mr Beard suggested that this document was in some way foisted upon him (and Hamtuan); he says he was told to “rip up” the Offer of Employment and that a corporate authorised representative had to be appointed. Mr Lofts says, to the contrary, that it was Mr Beard who requested that his corporate entity be the authorised representative and Mr Lofts denies that he told Mr Beard his company would have to be an authorised representative (T 28).

51 There was no reason put forward as to why Mr Lofts would have insisted upon the contractual arrangements being structured with Hamtuan and Mr Beard (rather than simply with Mr Beard himself) as an authorised representative rather than an employee, in circumstances where he had already provided to Mr Beard, and Mr Beard had already signed, an employment agreement. The reason for the change cannot logically be linked to the purchase by Hamtuan of Mr Brindle’s shares, since this had been the basis on which Mr Brindle was “offering” Mr Beard a position with AIIB in the first place. There is no suggestion that an authorised representative arrangement (as opposed to an employment relationship) was necessary if what was contemplated was the sale of a client portfolio (as opposed to a sale of shares), although Mr Beard seemed to think the portability of a client base was facilitated by his appointment as an authorised representative. Nor was it suggested that there was a particular need on the part of AIIB for Mr Beard or his company formally to be appointed as an authorised representative, as such, rather than Mr Beard simply operating as an employed insurance broker (as Mr Beard says he had been at Driessen).

52 Any difference between the two roles (as described by the two men) seems at most to turn on the kind of financial services advice which can be given under an AFSL but neither Mr Beard nor Mr Lofts placed any emphasis on this. After (rather uninstructively) saying (at T 132) “An insurance broker is an insurance broker. An authorised representative is an authorised representative. They fulfil many of the same jobs – risk analysis – both do”, Mr Beard later contradicted this (T 140) by saying that an authorised representative had totally different responsibilities and characteristics. Mr Beard described the difference by reference to the level of perceived autonomy an authorised representative would have had and whether his computer system would be under another’s control. He said that an authorised representative has more duties and responsibilities and basically sets his or its own business plan and agenda, operating as an individual company under the umbrella of a licensed broker. Mr Lofts seems to have accepted that Mr Beard/Hamtuan’s role was or would have been the same whether Mr Beard was employed under the employment agreement or whether Hamtuan was appointed AIIB’s authorised representative operating under AIIB’s licence as an employee or as an authorised representative (T 10).

53 There are two factors which seem to me to point to Mr Lofts’ version of events being correct (ie that the change in the working arrangements from that of an employment relationship to the appointment of a corporate authorised representative was made at Mr Beard’s request or at least with his knowledge prior to the commencement of the working relationship). First, it seems there was no requirement that Mr Brindle (whose position Mr Beard was in part assuming) operated through a corporate entity. Secondly, Hamtuan was incorporated after the employment agreement was signed by Mr Beard, some two weeks before Mr Beard says the Authorised Representative Agreement was thrust upon him. There must have been some discussion leading up to the production of that first corporate authorised representative agreement for Mr Lofts to have known the name of the company to be appointed. It is unlikely that such a document was magically brought into existence without Mr Beard’s prior knowledge and foisted upon him on the first day of what had hitherto been proposed as an employment relationship.

54 Mr Beard says that he told Mr Lofts he would give the Authorised Representative Agreement to his accountant to give to his lawyer, and that he did so. Neither he nor Hamtuan signed the Authorised Representative Agreement. To the extent that Mr Lofts’ affidavit deposed to Mr Beard having said he was “happy” with the agreement, Mr Lofts conceded in the witness box that Mr Beard had never indicated one way or the other whether the terms were acceptable to him. Rather, he said that what Mr Beard had said to him was that he was happy with the arrangement whereby he was appointed an authorised representative (T 31).

55 I will come back in due course to the reason why Mr Beard says he (and Hamtuan) did not sign the Authorised Representative Agreement. Suffice it to note that there seems no suggestion that Mr Beard was in any way unhappy with its terms (assuming he had paid any or any more than scant regard to its terms, a matter which is itself in issue). I find it difficult to accept that Mr Beard (who seems at various stages throughout this matter, including at the time he signed the October 2005 agreement, to have been prepared to rely upon his own counsel in making decisions) would not at least cursorily have read the document before passing it on to his advisers.

· Registration of Hamtuan as AIIB authorised representative

56 Hamtuan was registered with ASIC as the authorised representative of AIIB on 28 November 2005, the date on which it and Mr Beard commenced their business relationship with AIIB. At that stage, no agreement for the sale to Mr Beard of any portion of Mr Brindle’s shares had been completed, although it was in principle agreed that Hamtuan would acquire 900 of Mr Brindle’s shares for a price of $216,000. Mr Brindle says that at this stage Mr McGrath, through his company Blue Ocean Two Pty Limited, had agreed to purchase an equivalent of 60% of his shareholding and what Mr Beard had agreed to purchase was an equivalent of 36% of his total shareholding.

· Client list

57 In about November 2005, Mr Brindle handed to Mr Beard a handwritten list of clients, a copy of which is Annexure “A” to Mr Brindle’s affidavit sworn 1 April 2008. The list contains two columns, the left hand headed “SMcG” and the right hand “PB”. What this list represents is a matter in dispute between the parties.

58 Mr Brindle says that this document listed the various clients whom he then managed (and that the numbers adjacent to each client referred to the earnings or revenue to AIIB from each client). Mr Brindle says that he attempted to distribute the clients he managed fairly between Mr McGrath and Mr Beard. (Mr Brindle did not allocate any clients to Mr Anthony Bourke (a broker in AIIB’s Newcastle office) who bought the balance of his shares and was also a party to the ultimate Share Sale Agreement.) Mr Brindle denies that he had any proprietary right or interest in a “client portfolio” and denies that any purchase by Mr Beard of his client portfolio was discussed.

59 Mr Beard, on the other hand, asserts that the list reflects the portion of Mr Brindle’s “client portfolio” that he “purchased”. Mr Beard said that at least three or four draft client lists were provided to him. He denied that a client list was only given to him after he walked through AIIB’s door: “No, because we were in discussions and I wanted to know his client portfolio. I didn’t want to spend a lot of money on something that I didn’t know what was – what was there, so I had run through with him – with him – the potential clients prior to my joining, prior to my leaving my previous employer”. (That in itself seems inconsistent with Mr Beard’s understanding that he was purchasing a “client portfolio” rather than being given an opportunity to earn remuneration based on commissions from a client portfolio he was being given to manage. Had the position been the former, Mr Beard’s willingness to leave his former employment prior to finalising the acquisition of the client portfolio seems to me to be, at best, remarkably trusting. More likely, this is indicative of an understanding that Mr Beard was purchasing company shares, not clients.)

60 Mr Brindle, who says he continued working for AIIB until late February 2006 to ensure the smooth handover of client management, accepts that he visited each of the clients he managed with either Mr McGrath or Mr Beard as the case may be (and some clients on two or three occasions) but denies that this was more than a handover in an administrative sense. I think nothing can be drawn from the fact that Mr Brindle took Mr Beard to introduce him to the clients on the list. It is what might have been expected on either version of events.

· Share Sale Agreement – May 2006

61 Mr Lofts recalled that in about February/March (I assume, 2006) Mr Beard had asked for information as to declared dividends over the years and financial trading information. Mr Lofts said, “I gave an undertaking in relation to the dividends which would be paid which the company later honoured even though profits were smaller because of that transaction with John [Brindle]” (T 12). Nevertheless, he says what he gave to Mr Beard prior to the latter becoming a shareholder were projections as to the payment of dividends (T 14; T 15) not historical financial information (T 12; T 14).

62 It was not until May 2006 that the sale of Mr Brindle’s shares was completed. (Mr Brindle’s evidence is that he was advised by his accountant to postpone signing the Share Sale Agreement until some time after he left AIIB for tax reasons. Mr Beard seemed to suggest the reason for the delay was a financing issue. Nothing seems to turn on this, other than that the lapse of time between the commencement of Mr Beard/Hamtuan at AIIB and the documentation of arrangements in relation to the share sale, including the preparation of a proposed shareholders agreement, makes it difficult for me to accept that the reason Mr Beard did not sign the Authorised Representative Agreement, at least initially, was due to any difficulty in securing Mr Lofts’ agreement to the later documentation.)

63 For completeness (though I have placed no weight on this) I note that Mr McGrath gave evidence (by affidavit sworn 12 April 2008) confirming his understanding that what was purchased by Blue Ocean Two Pty Limited was the equivalent of 60% of Mr Brindle’s shares (or 15% of the total shareholding in AIIB) and not a client portfolio.

64 Under the Share Sale Agreement dated 29 May 2006, Mr Brindle (as vendor) sold to Hamtuan 900 shares in AIIB at a purchase price of $216,000 (1,500 being sold to Blue Ocean Two Pty Limited for $360,000 and the remaining 101 being sold to Mr Bourke for $24,000) out of a total share capital in AIIB of 10,003 shares (the remaining 7,502 shares being held by Mr Trevor Lofts).

65 The means by which the $216,000 purchase price was derived is also a subject of dispute between the parties. Mr Beard gave contradictory and confused evidence in this regard; in particular as to whether or not Mr Brindle had said the share price was to be calculated by reference to the gross revenue of AIIB (T 84 cf T 86) and as to what he understood that to mean.

66 Mr Beard seemed to suggest that the purchase price was in some way linked to a previous representation by Mr Brindle that the client revenue represented 25% of the revenue of the company (T 84) but on no view of the matter was Mr Beard acquiring 25% of the company shares. Mr Beard said: “Mr Brindle said he would hand over a list of a group of clients and those clients represented a certain value to the firm” (T 82) and at T 85 he said, “It related to the whole revenue of AIIB but specifically the purchase of the shares related to his client lists and revenue. So it was based on his client list and client revenues”. Then at T 86, he reverted to saying the purchase price was based solely on his client list and not revenue.

67 The significance of this is as to the question whether Mr Beard/Hamtuan was entitled, as he seems to have believed, to “take” his client portfolio with him when he left AIIB. If that had been the case then surely it would have been considered necessary at some stage to obtain Mr Lofts’ confirmation of the position, since this was inconsistent with the position reflected in both the Employment Agreement and the Authorised Representative Agreement.

68 At or about the same time as the Share Sale Agreement was signed, it seems that AIIB and Hamtuan entered into a loan (Mr Lofts says for $217,000) for the purposes of facilitating Hamtuan’s acquisition of the 900 AIIB shares. Mr Lofts says that the arrangement was that, should Hamtuan fail to repay the loan, the shares Hamtuan had purchased would be returned for the sum of $1. A copy of that loan agreement is not in evidence. As I understand Mr Lofts’ oral evidence, Hamtuan ultimately defaulted on that loan.

69 After the purchase of his shares, Mr Lofts says that Mr Beard asked about the financial position of AIIB “on many occasions” and was given that information “because he was a shareholder” (T 12) but Mr Lofts says that before that time all that Mr Beard was provided with (on a weekly basis as part of management meetings) was current financial information of the company. I was not taken to any documents which shed light on what financial information Mr Beard was given either in November 2005 or later at the time of the share sale.

· Directorship

70 Mr McGrath was appointed a director on 28 June 2005, the date on which Mr Brindle ceased holding office as director. His company had acquired the larger portion of Mr Brindle’s shares. After Mr Beard’s commencement with AIIB, he apparently pressed Mr Lofts to appoint him also as a director. His evidence was that he had been promised a directorship in connection with the purchase of the AIIB shares. It is not clear when Mr Lofts told him that he would not “enlarge” the board. In essence, Mr Beard’s evidence seems to be that, having by then already left Driessen, he had little choice but to continue with the arrangement to join AIIB even though the directorship of AIIB had not been given to him (para 13). Mr McGrath gave evidence that there were conversations in which Mr Lofts suggested that the remaining position of director could be rotated on a two year basis, and that he (Mr McGrath) was prepared to agree to that rotation; but this did not eventuate. The issue of a directorship was one which appears to have rankled with Mr Beard, as did, later, the fact that Mr Lofts had refused to sign the Shareholders Agreement provided to him by Mr Beard. From Mr Beard’s later termination letter, it appears he took particular issue with the fact that members of Mr Lofts’ family had been appointed directors.

· Shareholders’ Agreement

71 At some stage after the purchase by Mr Beard of shares in the company (Mr Lofts says this was in early 2007 - T 29), Mr Beard provided to Mr Lofts a draft Shareholders’ Agreement, which Mr Beard requested he enter into in order to govern the position between the company’s shareholders. (There is no suggestion that this was provided to Mr Lofts in 2005 at the time the Authorised Representative Agreement was prepared, although Mr Beard claims that the reason he did not sign the latter was because Mr Lofts would not sign the former). Mr Lofts said the Shareholders’ Agreement was not in acceptable form (based, according to him, on something like a yacht club agreement) and he said it would need to be redone. Although another draft was prepared, that was also not acceptable to Mr Lofts.

· Increases in remuneration

72 There seems no dispute that during the period 2005-2007 Hamtuan was paid commission in accordance with the Authorised Representative Agreement (initially in the amount set out in the one-page schedule appearing at the end of Annexure C). On 25 September 2007, Mr Lofts, in his capacity as director of AIIB, wrote to Hamtuan (in a letter addressed to the attention of Mr Beard) notifying an amendment to Hamtuan’s remuneration both as at 1 October 2006 (curiously, on its face, a retrospective notification) and 1 October 2007 (Annexure E to Mr Lofts’ affidavit):

… to advise that with effect from October 2007 Schedule A of your Authorised Representative Agreement dated 28 November 2005 has been amended to reflect the following increase in remuneration…

In all other respects the Authorised Representative Agreement remains unaltered.

73 This letter is clearly predicated on an assumption that there is a written document comprising the Authorised Representative Agreement and that it is more than a one-page document (since it refers to a Schedule A and the one-page document has no schedule thereto). Neither Mr Beard nor Hamtuan responded to this letter to assert that there was in place no Authorised Representative Agreement.

· Departure from AIIB

74 According to Mr Lofts, the relationship between AIIB and Mr Beard deteriorated gradually. He says Mr Beard had raised concerns as to his non-inclusion in company activities. (Mr Beard’s ultimate termination letter raises a variety of other work-related issues, in tones of what might fairly be described as self-righteous indignation. I think it safe therefore to conclude that there was a breakdown in the relations between Mr Lofts and Mr Beard.)

75 By late 2007, Mr Beard seems to have been looking to leave AIIB. Mr Chegwyn, by affidavit sworn 23 June 2009, deposed to a conversation he had with Mr Beard at a conference in October 2007, when Mr Chegwyn mentioned to Mr Beard that he was in the process of applying for an AFSL, following which (in early December 2007) Mr Beard again met with Mr Chegwyn. Mr Beard told him that he intended to sell his shares in AIIB and to commence his own business.

76 On 12 December 2007, seemingly consistent with what Mr Chegwyn had told Mr Beard in October, “Nikalview Pty Limited” ACN 128 875 767 was formed, with Mr Chegwyn as its sole director and secretary.

77 In late December 2007, according to Mr Chegwyn, he again met with Mr Beard who said he intended to become an authorised representative of another broker and suggested that Mr Chegwyn might be that broker. (In the witness box (T 188) Mr Chegwyn put this discussion as being on 27 December 2007.)

78 Mr Chegwyn says that on 17 January 2008, Mr Beard told him he had decided to leave AIIB at the end of February and a conversation took place in the following words:

Beard - I've decided to leave AIIB at the end of February. I have a group of clients that belong to me that I will bring over with me.

Chegwyn - Okay, but I don't want to get involved in any conflict between you and AIIB over clients. It is important to make sure that your separation is clean and that there are no misunderstandings.

Beard - You don't need to worry, the clients I will bring over are mine. I bought most of them when I bought into the business, the others followed me from my previous practice. I don't have any non-compete agreement with AIIB and besides, I am happy to indemnify you for everything in relation to those clients.

79 Mr Beard does not deny that a conversation to this effect took place. Mr Chegwyn says that Mr Beard told him in that conversation that he had purchased a book of clients with potential fees per annum of $200,000.

80 From early 2008, it appears Mr Beard was making preparations for his departure from AIIB. Ms Ashleigh Allston, who was employed as the front desk receptionist for AIIB at the relevant time, swore an affidavit (21 April 2008) deposing to an occasion on 31 January 2008 when she attended a weekly “prospects meeting” and Mr Beard asked her to get his referrals in “hardcopy”, after which meeting Mr Beard asked her if she could “print out all contacts from our prospect system” and, when told everything would have to be printed out individually, said “If you come across any of the engineering, metal or similar prospects, please print out a hard copy and give them to me”. Ms Allston says she printed out the prospects requests over the next month and handed Mr Beard at least 20 documents displaying contact names and details. Mr Beard accepts that he asked Ms Allston if he could get his referrals on hard copy but says she did not print out any prospects lists for him.

81 I accept Ms Allston’s evidence. She was unshaken in cross-examination and there seems no reason why she would have fabricated her evidence. Her recollection accords with her handwritten note of the 31 January prospects meeting.

82 At the very least it appears that from January 2008 (prior to the time at which Mr Beard initially deposed to having formed the intention to leave AIIB) Mr Beard was compiling or looking (with assistance from Ms Allston) to compile his own set of hard copy information on “prospects” or clients serviced by him or within his fields of insurance expertise. This can only have been for the purpose of later making use of that information in competition with AIIB, since Mr Beard had no need for hard copy materials at AIIB (where he said everything was operated on a soft copy system) and had already indicated to Mr Chegwyn that he would be bringing a client portfolio with him.

· Commencement with Chegwyn

83 In February 2008, there was an exchange of email correspondence between Mr Chegwyn and Mr Beard in which Mr Chegwyn extended an offer to Hamtuan to be appointed as a Corporate Authorised Representative of his company for a fee of 15% of all commission and fee revenue invoiced within Chegwyn’s broking system. These emails had the footer “Chegwyn Corporate Services Pty Limited” noting that it was an authorised representative of Chegwyn Insurance Brokers Pty Limited AFSL 283020. (At this time an application was apparently still pending for registration of Chegwyn itself (then named Nikalview Pty Limited) as an AFS licensee.)

84 The first of these email communications was on 1 February 2008, when Mr Chegwyn sent to Mr Beard an email detailing the “broad terms” in accordance with which Mr Beard’s “firm” would become a “Corporate Authorised Representative”. Said to be attached to that email (though not attached to Mr Chegwyn’s affidavit), was an ASIC application form and a draft Corporate Authorised Representative Agreement.

85 An exchange of emails then took place between Mr Beard and Mr Chegwyn between 7 and 9 February. On 9 February 2008, Mr Beard sent an email to Mr Chegwyn attaching a document bearing the header: “Corporate Authorised Representative Application Form”. That document included the following:

2. Details Of Existing / Prior Authorisations

Provide details of any authorisation, registration or agency held (include copies of any relevant agreements). If you have any current arrangements state whether you intend to continue with the arrangement.

HAMTUAN PTY LIMITED HAS A VERBAL AUTHHORISED [sic] REPRESENTATIVE AGREEMENT WITH AIIB PTY LIMITED.

PETER JAMES BEARD HAS ALSO BEEN APPOINTED AN AUTHORISED REPRESENTATIVE, WITHOUT ANY AGREEMENT.

WRITTEN NOTICE WILL BE PROVIDED TERMINATING THE APPOINTMENT PRIOR TO COMMENCING WITH CHEGWYN INSURANCE BROKERS.

86 Pausing there, this document evidences what I see as Mr Beard’s tendency to gloss over the details of his working arrangements. While the assertion that Hamtuan had a “verbal” authorised representative agreement is consistent with the stance propounded by Mr Beard in these proceedings, the suggestion that Mr Beard had been appointed an authorised representative in his own right is not supported by any evidence.

87 Mr Chegwyn says that on 25 February 2008 he was advised that the issue of a licence by ASIC for Chegwyn was imminent and he contacted Mr Beard by telephone to advise him this was the case. He says he believes he told Mr Beard what the licence number was going to be so that Mr Beard could prepare his stationery but that he was not to use it until Chegwyn had obtained the licence and Hamtuan was formally appointed as a representative. (Mr Beard seems to have used this information in his 29 February 2008 letters. He also seems to have “jumped the gun” in notifying clients that the change was effective “immediately”, since his commencement date with Chegwyn seems not to have been until at least 7 March 2008.)

88 Mr Chegwyn was not challenged on this (somewhat self-serving account of) the conversation on 25 February 2008. Although it might be seen as somewhat odd that he considered it necessary to tell a person such as Mr Beard, with purported experience already as an authorised representative, that once he became appointed as such any correspondence must note this fact and must include the relevant AFSL number or, conversely, that he could not use the licence number until the appointment was formalised), this may simply indicate a level of attention to detail on Mr Chegwyn’s part which would support the perhaps pedantic view he appears to have taken of other matters (evident in his response to Mr Lofts’ subsequent enquiry in March 2008 referred to below).

· Removal of AIIB information

89 Ms Allston says that in late February, namely during the weeks commencing 18 and 25 February 2008, Mr Beard asked her to print out documents relating to his clients from the computer system for him, and to put those and the prospects papers into a folder. Ms Allston also observed on one occasion that Mr Beard had printed papers showing contact details from AIIB’s main address book.

90 In the witness box Mr Beard appeared to concede that he had been involved in printing out or obtaining client reports, insofar as he had already admitted he took with him copies of the Paraquad policies and, in the witness box, he said it is more likely that he would have printed these out himself than that Ms Allston did so (T 117). He agreed he printed out about 100 pages of contacts but says he “would have used them and thrown them in the bin” and only “updated 20 or 30” (T 118).

91 Again, I accept Ms Allston’s evidence in this regard. She was firm in her recollection that she had put documents into folders for Mr Beard and this does not seem something about which she would be likely to have been mistaken. Presumably, in the course of her role as receptionist, a task such as this which may have taken her some time, as she told Mr Beard it would, would be one she would remember.

· Termination of business relationship

92 Ms Allston says that Mr Beard told her in February 2008 that he had resigned and was taking his clients with him. Ms Allston gave evidence that on occasions around this time she observed Mr Beard leaving the office with those folders and not returning with them.

93 Mr McGrath gave evidence that in about February 2008 Mr Beard said to him words to the effect “I am setting up my own brokerage. I have been planning this for months”. Mr McGrath was not challenged on this conversation.

94 In his first affidavit, Mr Beard said that he began to have concerns about AIIB’s “longevity” towards the end of February 2008 (para 22) and decided to move his client base to another AFSL holder “to protect my income and my clients’ best interests” (para 22). The above chronology (and the apparent removal or stockpiling of information from at least January/February 2008) indicates that in fact Mr Beard’s decision to move from AIIB was being formulated at least two months earlier than he deposed to in his affidavit.

95 By letter dated 29 February 2008, addressed to the Proper Officer of AIIB, Mr Beard (signing as director of Hamtuan) advised that the “Authorised Representative (AR) agreement” was terminated with effect from 5pm on that day. In that letter, Mr Beard noted that “the original copies of the AR agreement remain unsigned and have been held by my accountant since 2005”. He can only thereby be referring to the original of the hard copy document which is Annexure C.

96 The letter recited a number of reasons for Mr Beard’s (or Hamtuan’s) lack of confidence in the directors of AIIB (most of which are not relevant for present purposes), the first of which was:

failure of AIIB to repurchase the 9% shareholding held in Hamtuan, (reflecting the portfolio of clients originally purchased from John Brindle), therefore making AIIB shares illiquid and virtually worthless. Although a loan of $230,000 was taken out to secure this portfolio of clients.

97 Mr Beard then went on to say:

Any attempt by AIIB, it’s [sic] staff or consultants, to contact clients in the portfolio held by Peter Beard / Hamtuan Pty Limited will result in immediate legal action.
Although I wish to settle all outstanding matters amicably, these and other issues will no doubt enter into the public domain in the event of legal action between the parties.

and Mr Beard concluded by giving notice that all correspondence must be sent care of his lawyer. It would seem that Mr Beard anticipated (and perhaps was seeking to pre-empt) a challenge to his asserted rights to a client portfolio.

· Solicitation of clients/removal of client information

98 In evidence were four letters dated 29 February 2008 on Hamtuan letterhead and signed by Mr Beard as director of Hamtuan. Those were addressed to persons at Baker & Provan, Integrated Premises Services Limited, Street Consulting Pty Limited and DSM Food Specialities Australia Pty Limited. The letters were substantially identical. There is a fifth letter in evidence in substantially the same form but on which no date or addressee appears. Mr Lofts deposes to the fact that this letter was provided to him by Corroseal Coatings Pty Limited. Mr Chegwyn denied knowledge that Mr Beard was proposing to send out those letters (T 190).

99 The letters are in the following terms:

Regarding: Insurance & Risk Management Services for 2008-2009

Thank you very much for giving me the opportunity to act as your insurance advisor over the past three years, following the purchase of John Brindle’s business on his retirement. I have pleasure in announcing that due to continued growth in similar accounts to yours, Hamtuan has commenced the process of applying for its own independent Insurance Broking & Risk Management license [sic]. The new company name will be AIR Insurance Brokers & Risk Managers…

As such the current Authorised Representative agreement with AIIB will cease today (29th February) and be replaced immediately with a Corporate Authorised Representative Agreement with Chegwyn Corporate Services (based at North Sydney), pending issue of a full licence for AIR in the next 4-5 months by ASIC.

This change to a Corporate Authorised Representative will in no way effect [sic] your current insurance cover or premium. The only minor change will be in the letterhead of documents sent from me, which will be on Chegwyn Corporate letterhead.

The new contact details from Monday 3 March 2008 are…

If required, Alex Chegwyn (Managing Director) will also be available to discuss any questions that you may have in relation to this matter….
I will call to make an appointment to meet with you as early as possible. Please note that I will continue to handle all existing claims, as well as finalise any outstanding issues or recent changes to cover.

100 Mr Beard acknowledges that on his departure from AIIB he took with him some papers and two hard copy files (relating to Gemaveld/Agriwealth and Paraquad), which documents he says he believed to be owned by him. Mr Beard denies that he removed any other physical or electronic documents upon his departure from AIIB.

101 Mr Arcus, a computer expert, gave evidence as to the forensic searches carried out on Mr Beard’s office computer which revealed that a considerable amount of material had been deleted from Mr Beard’s computer in a manner which Mr Arcus considered gave rise to suspicion and that Mr Beard had had electronic access to a considerable number of client files prior to his departure from AIIB. Mr Arcus recovered 3.2 gigabytes of information on 22 March 2008 but did not know whether that included photographs (T 44). He said that the “My docs” folder was noticeably barren of files and the “recycle bin” was empty (T 46).

102 Mr Arcus said that, in his experience, normal computer users would regard the mode of deletion adopted by Mr Beard as permanent. Hence, he suspected that Mr Beard had sought to delete files without enabling AIIB to know what had been deleted. Mr Arcus said that, ordinarily, documents removed in the normal course of work from the documents folder will be in the recycle bin (T 47).

103 Mr Beard agreed he had deleted all information from his “my documents” folder and from the trash bin on his computer but says he did not do so to close off any trace of his action or to email the material to an external source (T 114/115) or to frustrate AIIB’s relationship. (Rather, he said most of the files deleted were personal files (T 120) and his explanation for having had access to numerous client email files in the time before he left AIIB was, he says, because he emailed all the time and looked at client files on AIIB’s soft copy system.)

104 Mr Beard does not therefore appear to deny that he systematically deleted a large number of entries from his computer. Whether he did so to obstruct AIIB or to take information with him is, however, impossible to tell. Mr Beard’s explanation for this is as noted above. While I do not accept that Mr Beard’s account of his working arrangements is reliable (given the inconsistency between his account of events, such as the share purchase arrangements and the written record of those events and his attempt to post-date the making of his decision to leave AIIB), I am inclined to accept this denial of having removed more than the contact details/insurance policies from AIIB mainly because Mr Beard seemed to me to exhibit a strong sense of grievance that he should have had to hand this material back and thereby have to start from scratch when renewing policies after that time.

105 On 7 March 2008, there was an exchange of email correspondence between Mr Chegwyn and Mr Lofts. The precise times at which the respective emails were sent are not entirely clear. The first communication (from a virtual office service) bears the time “13:41”. Mr Chegwyn’s first email bears the time “14:13”. Mr Lofts’ response bears the time “15:31”. Mr Chegwyn’s second email bears the time “14:35”. It seems unlikely (from its terms) that Mr Chegwyn’s second email was sent before receipt by Mr Chegwyn of Mr Lofts’ email. There is no suggestion that Mr Chegwyn and Mr Lofts were in different time zones. I would infer that the emails were sent either at 2:13 pm, 2:31 pm and 2:35 pm respectively or at 3:13 pm, 3:31 pm and 3:35 pm.

106 The text of Mr Chegwyn’s first email, somewhat defensive in its approach, was in the following terms:

I have received a message to call you which I can only assume relates to some dispute you are having with Peter Beard. [It would seem by this that Mr Chegwyn had anticipated that there might be a potential dispute in relation to Mr Beard’s departure from AIIB.]

I have nothing to do with Peter’s separation with your business and if there are some issues that require sorting out – then with respect – that is between Peter & yourself to discuss with a view to finding a commercial resolution.

I hope you understand my position and I confirm that I will not be entering into any conversation or further correspondence in relation to AIIB & Peter Beard. [To the extent that AIIB may have had a genuine complaint as to conduct of Mr Beard relating to clients or AIIB’s confidential information, the attitude conveyed by Mr Chegwyn’s response in my view was tantamount to shutting his eyes to any problem.]

107 Mr Lofts’ response was in the following terms:

My only [seemingly incorrect, insofar as Mr Lofts apparently had other concerns by that stage as to removal of company records] concern is that Peter Beard and his company Hamtuan are purporting to be an authorised representative of your company but that has not been registered with ASIC. This gives me concern as ex clients who suggest that they are going to Peter are not clearly leaving our books.

108 The text of Mr Chegwyn’s second email was in the following terms:

Your email is noted.

reconfirmed

This does not, however, prevent him for [sic] acting in a direct manner for this company (i.e. engaged either as an employee or contractor) until his Authorised Representative status is confirmed.

109 Mr Chegwyn explained this email as one in which he was saying, in layman’s terms, from one principal to another, that Mr Lofts was not going to tell him how he could run his business. It seemed clear from the way Mr Chegwyn responded to questions as to this during cross-examination that he was indignant at the notion that Mr Lofts should presume to tell him what to do. I read Mr Chegwyn’s email in this light and not as an admission that Mr Beard was in fact already acting as an employee or contractor in advance of the registration of the authorised representative appointment.

110 It is alleged (on behalf of Chegwyn) that at some time on the same day (7 March 2008), the company then registered with ASIC as ACN 090 107 092 changed its name from Chegwyn Corporate Services Pty Limited to Nikalview Pty Limited and in turn Nikalview Pty Limited (ACN 128 875 767) changed its name from Nikalview Pty Limited to Chegwyn Corporate Service Pty Limited.

111 In evidence, there are two copies of documents in the form of ASIC Form 205, which is the prescribed form for notifying ASIC of resolutions. The documents record the special resolutions changing the names of the companies. The date of meeting on both documents is listed as “7/3/08”. These documents were lodged with ASIC on 12 March 2008 as is apparent from the date stamp they bear and from ASIC’s public record. Curiously, the date appearing next to the signature of Mr Chegwyn on both documents is “6/3/08” (ie before the resolutions were supposedly passed). (As noted earlier, any name change would have become effective only when registered by ASIC on 13 March 2008.)

112 What seems, therefore, to have happened is that on 7 March 2008, an AFSL (No: 321117) came into effect in respect of the company possessing ACN 128 875 767 (then named “Nikalview Pty Limited”) and immediately after that occurred, or (if the 6 March date is correct) in anticipation of it occurring, steps were taken to change the name from Nikalview to “Chegwyn Corporate Services Pty Limited”. Mr Chegwyn explained the name change as being for “compliance reasons” (T 198).

113 Mr Chegwyn deposed to the fact that, on 7 March 2008, Mr Beard attended at his office and signed a “Corporate Authorised Representative Application Form”.

114 There is in evidence a second AFSL document, also bearing licence No: 321117. On its face, it appears to grant a licence, effective as from 18 March 2008, to the company possessing ACN 128 875 767 (by then named “Chegwyn Corporate Services Pty Limited”). However, an ASIC record dated 17/03/2009 (annexed to Mr Chegwyn’s affidavit) lists the licensee, there described as “Chegwyn Corporate Services Pty Limited” as having “commenced” as at 07/03/2008 and there seems no reason why a replacement or second licence should later have issued (unless to record that name change).

115 Mr Beard said (in his affidavit sworn in January 2009) that there were only six clients for whom he had acted at AIIB for whom he subsequently did work at Chegwyn (T 90). In explaining the inconsistency in client numbers (his earlier affidavit having conceded that there were 19) Mr Beard said that three clients had given him verbal instructions or instructions in writing to act and then subsequently withdrew them or it was agreed that (in view of the litigation) he would not proceed (Exact Fulfilment, Everything Rubbish and Streetbuild) (T 92) but in saying that he provided no services to them, he conceded that he had put a proposal to Streetbuild and had had a meeting with Streetbuild to discuss its needs and to put forward some policy changes (T 93-94). Mr Beard said it was more accurate to say he had earned commission only on six clients (T 93) but conceded that he was in discussion with approximately 19 clients – “You know, 17, 19, whatever the number is” (T 97). Mr Beard’s evidence was vague and contradictory in this respect.

116 On 15 May 2008, Mr Chegwyn sent an email to Mr Beard notifying him of his termination of the Corporate Authorised Representative Agreement with effect from 22 May 2008. On 22 May 2008, notice of revocation of Hamtuan’s and Mr Beard’s authorised representative status was lodged with ASIC.

117 Mr Beard now operates under a company AIR Investments trading as AIR Insurance Brokers & Risk Managers, a corporate authorised representative of Honan Group. He joined Honan in September 2008 (T 98).

Issue (i) Were Mr Beard/Hamtuan contractually bound by an obligation of confidence or non-solicitation covenant?

· Offer of Employment

118 AIIB in its pleading relies both upon the contract constituted by Mr Beard’s acceptance of the October 2005 Offer of Employment and the contract said to have arisen in terms of the Authorised Representative Agreement provided to Mr Beard in November 2005.

119 (Irrespective of any express obligation of confidentiality under the employment agreement, it is likely that an implied obligation of confidentiality would have arisen as an incident of the initial employment relationship had this in fact commenced (see, for example, the decision in Mid-City Skin Cancer and Laser Centre Pty Limited v Zahedi-Anarak (2006) 67 NSWLR 569 per Campbell J). However, this is unnecessary to determine in view of subsequent events.)

120 While it is conceded that the Offer of Employment was executed, Mr Beard’s position is that he never took up a position as accounts manager at AIIB and was never remunerated pursuant to the Offer of Employment. This is accepted by Mr Lofts.

121 Clause 11 of the contract constituted by acceptance of the Offer of Employment (which was expressed to continue to apply after the agreement was terminated) prescribed certain information as confidential and set out various acknowledgements and obligations of the employee in respect of confidential information. AIIB’s confidential and proprietary information was defined as including “information about our client and our client’s organisational structure, strategies, plans, research, operations, procedures, transactions, databases, customer lists, finances, business affairs, marketing plans, prospects” as well as documents or other material developed or written by the employee in the course of employment.

122 Clause 14.1 of the Offer of Employment provided that:

For the Restraint Period shown in Schedule 1, [being six months after termination of employment] you will not do the following on your account or on behalf of any other person or entity:

…

Solicit, canvass, approach or accept any approach from any person or entity who is, was or has at any time during the 6 months immediately preceding the termination of this Agreement been our client with a view to establishing a relationship with or obtaining the custom of that person or entity in a business which competes with us; …

123 The Offer of Employment contained an acknowledgement to the effect that, by signing it, Mr Beard had read, understood and accepted the terms of employment.

124 In the absence of any evidence suggesting that the cessation or termination of the agreed employment arrangements was to be conditional upon entry into a binding authorised representative agreement (so as to leave open an argument that the employment contract remained on foot unless and until the authorised representative agreement was signed), the consequence of what occurred in November 2005 in my view is that the employment agreement came to an end.

125 That would itself seem to have amounted to a “termination” of the employment agreement for the purposes of clause 14.1 of the contract comprised by the Offer of Employment (unless, as was not suggested, the parties had agreed to its rescission ab initio). Therefore, the non-solicitation clause would appear to have become operative at that point, though it would have made no business sense for AIIB to have enforced it at that stage and there is no suggestion that it did so. More relevantly, the confidentiality obligation would remain binding, though logically no information could have come within it if, as was the case, Mr Beard’s employment never proceeded as a matter of fact (so that as at the time it came to an end Mr Beard had no information falling with that clause). It does not seem to me that the employment contract can be construed as applying to information acquired after the employment relationship was terminated.

126 There nevertheless remains some significance in the fact that Mr Beard had entered into the employment agreement: namely, that he was thereby clearly put on notice of the kind of information regarded by AIIB as confidential – something which in my view would be capable of informing the equitable obligation of confidence for which AIIB also contends. Mr Beard accepted that he had read the Offer of Employment and saw the clauses about confidentiality (in contrast with his assertion that he passed the Authorised Representative Agreement straight to his accountant – T 137), so he can have been in no doubt what AIIB considered confidential.

127 As to the November 2005 document, Mr Beard/Hamtuan denies that it is binding yet Mr Beard clearly believed an agreement of some kind was on foot (since he formally terminated it in his 29 February letter of termination).

· Was there a binding agreement in accordance with the terms of the document given to Mr Beard in November 2005?

128 The Authorised Representative Agreement (a copy of which appears as part of Annexure “C” to Mr Lofts’ affidavit) provided that AIIB, as AFS Licensee, authorised the Authorised Representative to provide financial services on its behalf. Remuneration was to be paid in accordance with clause 6.1 at a fixed monthly fee of $9,200 (including GST) less mobile phone and parking paid by AIIB. Remuneration was to be reviewed on an annual basis. Item 7 provided “the review will look at the percentage of the increase in profit in the Licensee’s business as a result of the client portfolio managed by the Authorised Representative” (my emphasis). Mr Beard concedes that the monthly fee paid by AIIB was based on the total of brokerage and commissions received by him.

129 AIIB relies upon clauses 14.2 and clause 1.1 of the Authorised Representative Agreement which provided that AIIB is the owner of its confidential information, being information concerning clients, supplies, employees, affairs, transactions, trade secrets, operations, processes or dealings of the Licensee which is not in the public domain and which is or may be received by the Authorised Representative in connection with this Agreement. (Pausing there, it is difficult to see how, on this definition of confidential information, it would extend to any information held by Mr Beard or Hamtuan prior to commencement of the agreement.)

130 Clause 19.1 provided:

On termination of this Agreement (for any reason):

(a) Upon payment by the Authorised Representative [Hamtuan] of any amount owed to the Licensee [AIIB] pursuant to this Agreement, the Licensee will own the right to service the Clients and the Portfolio and will be entitled to all commission and/or fees payable in respect of all insurances arranged or renewed by the Licensee after termination of this Agreement;

…

131 Clause 19.3 provided that “this clause 19 will survive the expiry or termination of this Agreement”.

132 The Authorised Representative Agreement made provision for Mr Beard to guarantee Hamtuan’s obligations thereunder.

133 Appearing at the end of Annexure C is a document, signed by Mr Lofts, on AIIB letterhead entitled “Authorised Representative Payment”, showing a base salary of $85,000 and other items totalling a package of $110,300.00, “say $9,200.00 per month retainer plus GST” and concluding “Needless to say this is a retainer which is to be on the basis of 50% of commission written to $130,000 and then 30% above this amount to be adjusted on a three year average subject to variation on the basis of exception [sic] circumstances”. As I understand it, the parties accept that this was not a document forming part of the Authorised Representative Agreement when it was provided to Mr Beard. (This is the only document which Mr Beard accepts records any “agreement” between him and AIIB.)

222 AIIB moved quickly to restrain the apprehended breach by Mr Beard/Hamtuan. Therefore, the profits in fact made by Mr Beard/Hamtuan as a result of the breach were relatively small. Hamtuan’s appointment with Chegwyn was subsequently brought to an end (as a result, largely it would seem, of the ensuing litigation); various clients were advised by Mr Beard to take their custom elsewhere so as not to be embroiled in the litigation or chose not to continue with Mr Beard. Viewed with hindsight, those clients remain lost to AIIB and the goodwill in its business must therefore have suffered as a result to some degree which would not be compensated by an order for an account of profits.

223 In Dellow, the loss in question was a substantial reduction in the number of clients remaining on the rent roll; loss said to have been caused by the defendant’s misconduct. An account of profits was not sought in that case and it was said in those circumstances the most appropriate method of assessing the loss was to assess the diminution in the value of the rent roll. A discount was applied in that case to reflect the fact that the value of the rent roll would have been affected in any event by the establishment of a property management business in competition with the company (the discount factor applied being one third).

224 In Tropeano v Riboni [2005] VSC 229, Gillard J in the Supreme Court of Victoria assessed damages for breach of a restraint clause in connection with the sale of an accountancy business. There, what was lost was part of the asset which comprised the goodwill of the firm (that part being the clients acquired in breach of the restraint of trade clause) and in addition loss of the income the firm would have derived from those clients. Gillard J applied what was described as a general practical approach – asking what would have happened had the breach not occurred. It was said that the prospects were that the clients would have remained with the firm, though there was a risk that some may have left. The value of the goodwill would have been expected to remain at about the level as when purchased, but subject to variation according to the number of clients. The court there awarded damages for loss of clients affecting the goodwill on a dollar for dollar basis based on fees received. No assessment could be made of any loss of net income from those clients.

225 In this case, on the claim for breach by Mr Beard of an equitable obligation of confidence I consider it appropriate that, as against Mr Beard, AIIB be given the right to elect, by way of relief for breach of the equitable obligation of confidence, between an account of the profits made by Mr Beard as a result of his breach(es) on the one hand and on the other hand an order for equitable compensation assessed at the loss of the value to AIIB’s business or the goodwill in that business (measured by reference to the clients lost by reason of Mr Beard’s conduct) discounted by an appropriate amount to reflect the likelihood that these clients would have left anyway following Mr Beard’s departure, plus loss of the net income which AIIB would have earned from the renewal of their policies had those clients not left AIIB. Care would need to be taken to ensure there was no double counting in that regard. Particularly in circumstances where Mr Croft’s report was served late, I consider that the matter should be referred to an associate justice for an enquiry as to the amount of equitable compensation, if this be the remedy for which AIIB elected.

226 (It goes without saying that in the enforcement of any orders I make against Mr Beard/Hamtuan, AIIB cannot obtain double recovery.)

227 I do not consider that a perpetual injunction should be granted in circumstances where client contact information is information which Mr Beard could have compiled from public sources in any event. I accept that Mr Beard/Hamtuan no longer retain copies of the “insurance needs” information taken in the form of existing policy information as at February 2008 (which will presumably be out of date soon, if not already, with the passage of time). To grant an injunction of the kind claimed would in my view go far beyond any reasonable restraint of trade or non-solicitation covenant. Nor am I satisfied that I should make any findings as to the submissions made during the hearing (in support of the claim for a perpetual injunction) that Mr Beard/Hamtuan have breached undertakings given to the court when these proceedings first commenced by renewing insurance contracts on Paraquad’s behalf while at AIIB or Honan.

228 As far as the claim for “unaccounted-for” commission is concerned, Mr Lofts gave evidence that various tax invoices had been issued prior to Mr Beard’s departure (and/or policies placed by him) in respect of which no commission has been received by AIIB (paragraphs 14-21 of Mr Lofts’ affidavit). To the extent that Mr Beard has given evidence that no such commissions were received by him and that certain of the policies were not in fact placed (and was not challenged on his responses to those invoices), it is not clear to me that AIIB has established that any amounts remain owing by Mr Beard or Hamtuan by way of unaccounted-for commission and I make no order for those amounts.

· Against Chegwyn

229 The primary claim pleaded against Chegwyn is that it is liable as principal for the breaches of contract by its agents, Mr Beard/Hamtuan. For the reasons set out below, I do not accept that the conduct in question was conduct as agent of Chegwyn. Unless Chegwyn has some liability in tort for having induced a breach of contract or for conspiracy or unlawful interference with business interests (claims which were not pleaded against it) or is accountable for profits received by it in the knowledge that they were gained in breach of an equitable obligation of confidence, I do not see a basis on which Chegwyn is accountable for commissions it received from former AIIB clients.

230 Reliance was placed by Mr Wilson on Halliday & Nicholas v Corsiatto. There, Handley JA noted (at [37]) (in a passage on which Spigelman CJ and Heydon JA expressly reserved their position) that liability for misuse of confidential information extends to third parties who receive and use the information. (There, however, their Honours found that the entity in question against whom liability was sought to be found was not a third party. The sub-broker was found to have been acting as the agent of the sued insurer, who was bound by the agent’s knowledge and acts “within the scope of his agency”.) Handley JA nevertheless observed that a third party may be restrained from use even if the confidential information is acquired without notice of any impropriety and considered (again in a passage on which the other appellate judges reserved their opinion) that the power of courts of equity to award equitable compensation or an account of profits against third parties could not be narrower than its power to grant an injunction (citing Peter Pan Manufacturing Corp v Corsets Silhouette Limited [1964] 1 WLR 96, 107 and Talbot v General TV Corp Pty Limited [1980] VR 224, 243). In the event, an account was ordered of the profits made from commissions paid by insurers in respect of insurances for former clients of the appellants.

231 AIIB seeks to make Chegwyn liable directly (not as a third party) for the conduct in question. It contends that the conduct of Mr Beard/Hamtuan was within the authority conferred on them by Chegwyn and thus that it is to be regarded as the conduct of Chegwyn. (Mr McLure submits that this contention is based on the incorrect premise that, as a matter of fact, the conduct of Beard and Hamtuan was within the authority conferred by Chegwyn. It is said that it was common ground between Mr Beard and Mr Chegwyn that Mr Beard was not authorised to undertake work for former clients of AIIB unless Mr Beard had purchased the right to do so.)

· Was there an agency relationship at relevant time?

232 Was Hamtuan (or Mr Beard) an agent of Chegwyn at the relevant time(s)? Here, unlike in Halliday, the solicitation letters were written before Mr Beard/Hamtuan commenced with Chegwyn. There is some evidence that Mr Chegwyn knew (or assumed) that Mr Beard would be contacting clients or former clients, since on Mr Chegwyn’s evidence he seems to have been at pains to instruct Mr Beard on the limitations to be put on use of or reference to the AFSL number in any communications by him, and Mr Chegwyn provided (presumably for that purpose) his own contact details.

233 I am not persuaded that when Mr Beard/Hamtuan communicated with clients on 29 February 2008 this was at the request or with the authority of Chegwyn. The terms of the letter seem to make it clear that Mr Beard was notifying a move to Chegwyn as from 3 March 2008. (Although the letter suggests the change of appointment was to happen immediately, this seems to me to be another instance of Mr Beard’s tendency to gloss over details – just as he seeks to portray to his clients in the pro forma solicitation letters that the change was a mere formality.)

234 Mr Wilson’s submission was that the email communications between Mr Lofts and Mr Chegwyn indicated that there was some form of agency existing prior to the formal registration of Hamtuan as Chegwyn’s corporate authorised representatives. This was put on the basis of the assertion contained in Mr Chegwyn’s email to the effect that he had “re-confirmed” with Mr Beard that he was not to act as Chegwyn’s authorised representative prior to registration (responding to Mr Lofts’ stated “only” concern at that stage) but noting that this did not prevent Mr Beard acting in a different capacity. Mr Chegwyn explained this in the witness box (with some feeling) as a response meant to tell Mr Lofts, in effect, not to presume to tell Mr Chegwyn how to run his own business.

235 I do not read Mr Chegwyn’s email as any admission that, prior to the registration of Hamtuan, Mr Beard had been authorised to solicit AIIB’s clients or otherwise to act on Chegwyn’s behalf in relation to its business. I accept Mr Chegwyn’s evidence that he had made it clear to Mr Beard that he was not to do anything involving the poaching of AIIB clients. (Mr Chegwyn’s response, in revoking the corporate representative agreement once it became apparent that there were real issues in this regard, is consistent with his position as expressed to Mr Beard that he wanted no part of any dispute between Mr Beard and Mr Lofts.)

236 Weight was also sought to be placed on the fact that Mr Beard’s emails at this time disclosed that he had an alternative email designation at Chegwyn’s offices. I think little weight can be placed on the fact that administrative arrangements were made in advance for Mr Beard to be allocated an email address.

237 I therefore conclude that any actions by Mr Beard/Hamtuan prior to 7 March 2008 were not undertaken as agent of Chegwyn – nor were they in fact authorised by Chegwyn. Actions taken by Mr Beard/Hamtuan after 7 March 2008 (in renewing insurance policies for at least some of the former AIIB clients, such as Paraquad) would have been as Chegwyn’s agent. However, then the question arises as to whether they were within the scope of that agency.

· Scope of any agency

238 Reliance was placed by Mr McLure on Blackburn, Low & Co v Vigors (1887) 12 App Cas 531 at 537-538 where Lord Halsbury LC said:

Some agents so far represent the principal that in all respects their acts and interests and their knowledge may well be said to be the acts, interests and knowledge of the principal. Other agents may have so limited and narrow an authority both in fact and in the common understanding of their form of employment that it would be quite inaccurate to say that such an agent’s knowledge or intentions are those of his principal; and whether his acts are the acts of his principal depends upon the specific authority he has received.

239 Assuming, contrary to my findings, that prior to 7 March 2008 Mr Beard/Hamtuan were agents at the relevant time, would Chegwyn have any responsibility to AIIB for their actions?

240 Mr Beard admits he told Mr Chegwyn told him he would be able to bring over a number of clients (T 90) and that Mr Chegwyn told him he was authorised to bring only those clients he was allowed (viz-a-viz AIIB) to bring and that he (Mr Chegwyn) did not want any dispute (T 91).

241 Mr Beard said (T 91) that Mr Chegwyn would have been very clear on making sure he conducted his activities within the Authorised Representative Agreement: “He would have said not that I couldn’t do work for clients of AIIB but that I would make sure that the work I was doing for clients was in accordance with the representative agreement that I was entitled to do [Authorised Representative Agreement with Chegwyn] that I only dealt with clients that I was entitled to”.

242 Leaving to one side any express limitations on Mr Beard/Hamtuan’s authority once appointed, the difficulty for AIIB is that the conduct in question seems to have occurred before they were so appointed. It is submitted that information held by Beard and Hamtuan before they became the agent of Chegwyn (and used contrary to Mr Chegwyn's express instruction to the contrary) cannot be imported to Chegwyn. Reliance was placed on what was said by Hoffmann LJ in El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 to the effect that he knew of "no authority for the proposition that in the absence of any duty on the part of the principal to investigate, information which was received by an agent otherwise than as agent can be imputed to the principal simply on the ground that the agent owed to his principal a duty to disclose it". For those reasons, it was submitted that Chegwyn is not imputed with any knowledge of Beard and Hamtuan prior to 7 March 2008.

243 As to the issue of limitations on the authority of Mr Beard/Hamtuan, in oral submissions in response, Mr Wilson suggested that Mr Beard should be taken to have had the usual or ostensible authority to bind Chegwyn as its agent (T 225.24-25). He submitted: “[t]he fact that there was a prescription on his actual authority does not matter because Mr Beard had usual authority. He had ostensible authority to do what he did in his capacity”, which suggests that the concepts of usual/ostensible authority were being treated as one and the same and as reflecting something other than actual authority (T 227.1-3).

244 By this submission, Mr Wilson seemed to be suggesting that Chegwyn’s act of appointing Mr Beard (or Hamtuan) to the position it held with Chegwyn was sufficient representation to third parties such as AIIB to estop Chegwyn from denying the ostensible authority of the agent to do things within the scope of what (but for the express limitation) would be the agent’s usual authority, but which may have been outside the agent’s actual authority (which is circumscribed by the express limitation); the “authority” in such a case being ostensible authority.

245 The immediate difficulty with this proposition is that it was not pleaded. The issue of “ostensible authority” was raised for the first time in Mr Wilson’s oral submissions in reply and Mr McLure promptly took issue with this (T 227.28-32).

246 “Ostensible authority” is used to describe an estoppel arising from a frequently occurring factual circumstance (Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Limited [1964] 2 QB 480 at 498 per Pearson LJ, at 503 per Diplock LJ). As noted earlier in these reasons, estoppel is a matter which should be specifically pleaded. In Laws, Gibbs J referred to the comments of Buckley LJ in In re Robinson’s Settlement: Gant v Hobbs [1912] 1 Ch 717 at 727, regarding the relevant equivalent to the current r 14.14 of the Uniform Civil Procedure Rules:

The effect of the rule is, I think, for reasons of practice and justice and convenience to require the party to tell his opponent what he is coming to the Court to prove. If he does not do that the Court will deal with it in one of two ways. It may say that it is not open to him, that he has not raised it and will not be allowed to rely on it; or it may give him leave to amend by raising it, and protect the other party if necessary by letting the case stand over. The rule is not one that excludes from the consideration of the Court the relevant subject matter for decision simply on the ground that it is not pleaded. It leaves the party in mercy and the Court will deal with him as is just.

247 In Laws Holdings, Gibbs J went on to find that, given the way in which the appellant’s case had been conducted by counsel at first instance (knowing that estoppel was in issue), the appellant could not then complain that estoppel had not been pleaded. In the present case, however, Mr McLure objected almost immediately to the raising of the issue of ostensible authority and it could not, I think, fairly be said that the case had been conducted up to that point on the basis that an ostensible authority claim was in issue. In those circumstances, AIIB ought not to be allowed to rely upon the alleged ostensible authority.

248 The second problem is that, not having been raised until submissions in reply, it is difficult to know with any precision what the basis of the ostensible authority is said to be, how it is made out, and how it could assist AIIB. Ostensible authority is an estoppel by representation operating as between the apparent principal and the third party with whom the apparent agent interacts. The apparent agent is a stranger to this legal relationship (Freeman & Lockyer at 503 per Diplock LJ). Ostensible authority will not, as a matter of actuality, fix Chegwyn with the knowledge, intentions or actions of Beard/Hamtuan. It may (as between Chegwyn and a third party to whom Chegwyn has represented Beard/Hamtuan’s ostensible authority) estop Chegwyn from denying that it is so fixed.

249 To raise such an estoppel, the third party must show that the representation had been made, that the representor had sufficient actual authority to make the representation and that the third party acted in reliance upon the representation in transacting with the apparent agent.

250 In the present case it is hard to know with any precision what the representation was, to whom it was made, and who acted in reliance upon it. In any case, it is hard to see that the representation was one made to AIIB or that it is one on which AIIB relied in any way sufficient to raise the estoppel.

251 If clients to whom Chegwyn impliedly represented that Beard/Hamtuan was its authorised representative had acted in reliance upon such a representation, that may be sufficient to raise an estoppel as between Chegwyn and those clients, but it would not be an estoppel of which AIIB could avail itself.

252 This uncertainty highlights the significance of the first difficulty. Ostensible authority not having been pleaded, there is no clear statement of the facts or circumstances said to give rise to the estoppel. It is not a case of which Chegwyn was on notice and it is not a case on the pleadings which Chegwyn could be expected to have met.

· Section 917B Corporations Act

253 Mr Wilson, for AIIB, relied upon s 917B of the Corporations Act for the proposition that, even if Mr Beard's conduct was not so authorised, Chegwyn was still liable for it. Mr McLure, in response, submitted that at most s 917B of the Corporations Act could apply only to conduct of Mr Beard and Hamtuan from 7 March 2008, when Hamtuan in fact became Chegwyn’s authorised representative. Section 917B, it was submitted, could have no work to do prior to 7 March. This must be the case.

254 Section 917A provides that division 6 of the Act applies to conduct of a representative on which a client could reasonably be expected to rely. Section 917B deals with responsibility as between the licensee and the client. Section 917E provides that the responsibility of a financial services licensee under the division extends so as to make the licensee liable to the client in respect of any loss or damage suffered by the client as a result of the representative's conduct. Section 917F(1) provides that where a licensee is responsible for the conduct of their representative under the division, the client has the same remedies against the licensee that the client has against the representative. Section 917F(3) makes it clear that nothing in division 6 imposes any civil liability under a provision of the Act apart from the division.

255 As Mr McLure submits, division 6 is clearly concerned with circumstances in which a licensee may be made liable to the client to the same extent that an authorised representative would be liable to a client. It has no application to the question whether Chegwyn is liable, as licensee, to a third party (AIIB) for the conduct of its authorised representative.

· Alleged improper use of confidential information

256 Mr Wilson submits that after 7 March 2008 Mr Chegwyn in effect adopted the pre-7 March conduct by meeting former AIIB clients and by accepting instructions from them. Mr Chegwyn’s evidence is that he met one such client in a “handshaking” exercise. If Mr Chegwyn did so at the time believing (wrongly as it transpired) Mr Beard’s assurances that he was free to deal with those clients that does not in my view amount to any adoption of wrongful conduct.

257 Here, I am not satisfied that Chegwyn has in fact “used” any confidential information of AIIB (innocently or otherwise). The relevant misuse of the confidential information lay in Mr Beard/Hamtuan using the confidential contact details/prospect lists to solicit AIIB clients in breach of their contractual obligations. This happened before Mr Beard/Hamtuan joined AIIB and was not authorised by Chegwyn.

258 As against Chegwyn, therefore, the only remedy which I consider could have potentially been applicable would have been an order that it account for the 15% of commissions retained by it out of the revenue received from the clients formerly serviced by AIIB (less a small deduction to reflect overheads or expenses which would not otherwise have been incurred in producing that income), if it had received the proceeds of a breach of an equitable obligation of confidence in circumstances in which equity would attach liability to it. No such claim was pleaded. (As the quantum of any such account of profits claim is very low, I do not consider that any further enquiry involving Chegwyn would in that event have been warranted.)

259 For the period from 7 March 2008 until 25 May 2008, AIIB contends that Chegwyn wrote insurance business for former clients of AIIB having total insurance premiums of $155,938 and received total commissions of $13,195.85 and total fees of $10,987.90 (plaintiff’s tender vol pp 519-20). Chegwyn contends that the commissions received by Mr Beard or his company in the period were $18,657 of which Chegwyn retained a mere $3,298.

260 Mr Chegwyn has assessed the value of the time spent by him establishing and dealing with Mr Beard’s agency (though conceding that it was not ordinarily his practice to charge for his work on an hourly rate) at $11,250. (45 hours at $250 per hour). However, those costs were referable to the establishment of the overall agency relationship with Mr Beard/Hamtuan which was not limited in its terms to the handling of former AIIB clients. The only overheads or expenses which I would have deducted from the commissions retained by Chegwyn (as being directly attributable to the time, skill and effort of Chegwyn in obtaining commission fees from AIIB clients) would be the “cost” of Mr Chegwyn’s 20 minute meeting (or “handshaking exercise”) with Paraquad to which Mr Chegwyn deposed in paragraph 16 of his affidavit sworn 23 June 2009. (I note that Mr Chegwyn has attributed a cost in preparation of invoices of four hours. In circumstances where this seems to me excessive, since the invoicing function could surely have been handled by someone at a lower level than managing director, I would not have allowed such a deduction).

261 Mr Chegwyn’s affidavit discloses net commission and fees referable to Mr Beard’s clients as $21,985.22 net of GST of which Chegwyn retains $3,297.78. The appropriate deduction would in my view have been $83.33 to compensate for 20 minutes of Mr Chegwyn’s time. The only amount for which I consider Chegwyn would potentially have been liable (assuming that its receipt of insurance renewal proceeds, with notice of the contention by AIIB that this was the result of a misuse of its confidential information, was actionable in equity) would have been $3,214.45. As it is, no order against Chegwyn is warranted.

262 Insofar as the cross-claim brought by Chegwyn against Mr Beard/Hamtuan is concerned, it does not seem to be disputed by Mr Beard/Hamtuan that there was an agreement by them to indemnify Chegwyn for any liability incurred in relation to the clients formerly serviced by AIIB. No defence was filed to that cross-claim. I find for Chegwyn on its cross-claim.

I propose to order as follows:

1. Hamtuan is liable to pay to AIIB damages for breach of the confidentiality and non-solicitation clauses in the Authorised Representative Agreement, to be assessed in accordance with 3 below, calculated as the loss of commissions which would otherwise have been likely to have been received but for Hamtuan’s breach from the clients identified in paragraph 11 of Mr Lofts’ affidavit of 12 March 2008, plus a sum which represents the loss of value to AIIB’s business by reference to the loss of those AIIB clients (less an appropriate discount for the prospect that those clients may have left in any event), subject to any deduction necessary to avoid double counting between those two heads of loss.

2. Mr Beard is liable, at AIIB’s election, either to pay equitable compensation or to account for the profits made by him by reason of breach of his equitable obligations of confidence in soliciting the AIIB clients referred to in 1 above to leave AIIB, with such deduction as is appropriate for skill and expertise, again such amount to be assessed in accordance with 3 below.

3. The matter be referred to an associate justice for enquiry as to the sum payable by Hamtuan by way of damages for breach of contract and by Mr Beard by way of equitable compensation or an account of profits, depending on AIIB’s election.

3. AIIB’s claim against Chegwyn be dismissed.

263 I will hear any submissions as to costs and as to the form of final orders to be made.

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Citations

AIIB Pty Limited v Beard [2009] NSWSC 1001

Most Recent Citation

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CITATION:	AIIB Pty Limited v Beard [2009] NSWSC 1001
HEARING DATE(S):	4, 5, 6 and 11 February and 16 July 2009
JUDGMENT DATE :	24 September 2009
JURISDICTION:	Equity
JUDGMENT OF:	Ward J
DECISION:	As against first defendant, plaintiff to elect between account of profits and equitable compensation to be assessed on enquiry. As against second defendant, enquiry as to damages ordered. Claim dismissed against third defendant. On cross-claim, first and second defendant ordered to indemnify third defendant.
CATCHWORDS:	CONTRACTS - general contractual principles - offer and acceptance - whether contracts formed between plaintiff and first or second defendant - whether breach of confidentiality or non-solicitation provisions of contracts - held that contract formed between plaintiff and second defendant - held that second defendant had breached confidentiality and non-solicitation provisions of contract - EQUITY - general principles - obligations of confidence - whether first or second defendant owed equitable obligation of confidence to plaintiff - whether breach of obligation of confidence - whether third defendant liable as principal of first or second defendant or otherwise - held that first defendant owed and breached equitable obligation to plaintiff - held that third defendant not liable as principal as relevant acts outside scope of agency and s 917B Corporations Act inapplicable
LEGISLATION CITED:	Corporations Act 2001 Uniform Civil Procedure Rules
CATEGORY:	Principal judgment
CASES CITED:	Blackburn, Low & Co v Vigors (1887) 12 App Cas 531 Coco v AN Clark (Engineers) Limited [1969] RFC 41 Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 Deta Nominees Pty Limited v Viscount Plastic Products Pty Limited [1979] VR 167 El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 Expectation Pty Limited v PRD Realty Pty Limited (2004) 140 FCR 17 Faccenda Chicken Limited v Fowler [1987] Ch 117 Film Bars Pty Limited v Pacific Film Laboratories Pty Limited (1979) 1 BPR 9251 Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Limited [1964] 2 QB 480 Gurr v Robinson (unreported, 10 February 1986) Hadid v Redpath (2001) 35 MVR 152 Halliday & Nicholas Insurance Brokers Pty Limited v Corsiatto [2001] NSWCA 188 In re Robinson’s Settlement: Gant v Hobbs [1912] 1 Ch 717 Laws Holdings Pty Limited v Short (1972) 46 ALJR 563 Mid-City Skin Cancer and Laser Centre Pty Limited v Zahedi-Anarak (2006) 67 NSWLR 569 Monie v Commonwealth of Australia (2005) 63 NSWLR 729 NAIS v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 228 CLR 470 Peter Pan Manufacturing Corp v Corsets Silhouette Limited [1964] 1 WLR 96 Pitcher v Langford (1991) 23 NSWLR 142 Robb v Green [1895] 2 QB 1 Sasson v Fahevu [1999] NSWCA 400 Southern Real Estate v Dellow (2003) 87 SASR 1 Talbot v General TV Corp Pty Limited [1980] VR 224 Vokes v Heather (1945) 62 RPC 135 Warman International Limited v Dwyer (1995) 182 CLR 574
TEXTS CITED:	Meagher Gummow & Lehane's Equity Doctrines and Remedies
PARTIES:	AIIB Pty Limited (Plaintiff) Peter Beard (First Defendant) Hamtuan Pty Limited (Second Defendant) Chegwyn Corporate Services Pty Limited (Third Defendant)
FILE NUMBER(S):	SC 1843 of 2008
COUNSEL:	R Wilson (Plaintiff) L Katsinas (First and Second Defendants) (4-6 February 2009) In person (First and Second Defendants) 16 July 2009 D A McLure (Third Defendant)
SOLICITORS:	Coleman & Greig (Plaintiff) DPH Lawyers (First and Second Defendant) (4-6 February 2009) In person (First and Second Defendants) 16 July 2009 J Biady & Associates (Third Defendant)