Aussie Mini Slitters Pty Ltd v Noble Steel Pty Ltd
[2010] VCC 1648
•21 December 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST – GENERAL DIVISION
Case No. CI-09-01250
| NOBLE STEEL PTY LTD | Plaintiff |
| v | |
| AUSSIE MINI SLITTERS PTY LTD | Defendant |
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| JUDGE: | HIS HONOUR JUDGE ANDERSON |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 10 – 12, 15 and 16 November 2010 |
| DATE OF JUDGMENT: | 21 December 2010 |
| CASE MAY BE CITED AS: | Aussie Mini Slitters Pty Ltd v Noble Steel Pty Ltd |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 1648 |
REASONS FOR JUDGMENT
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Catchwords: Contract – Whether employee acting on behalf of employer or third party in
negotiations for a supply agreement – Breach of fiduciary relationship.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff/1st and 2nd | Mr M. T. Lapirow | Davies Moloney |
| Defendants by counterclaim | ||
| For the Defendant/Plaintiff by | Mr C. R. Northrop | Rigby Cooke Lawyers |
| counterclaim | ||
| For the 3rd to 5th | Mr C. G. K. Madder | Harrick Lawyers |
| Defendants by counterclaim | ||
| HIS HONOUR: |
1 Paul Zietsman was a boilermaker by trade. In 2002, he and Leigh Hancock established a company, Aussie Mini Slitters Pty Ltd, which carried on business as a steel processor under the name Steelco. In July 2003, Jeff Dyer commenced employment with the company. He had extensive steel working experience with BHP. At Steelco, Dyer operated the slitting and recoiling machinery which produced steel strapping.
2 When Hancock left Steelco in late 2004, Zietsman asked Dyer if he wished to purchase shares in the company. In 2005, Dyer bought 14 out of 100 shares in the company. He paid Zietsman $6,500 for each of 11 shares, and $7,800 for each of 3 shares; a total purchase price of $94,900. Dyer said that at the time of the purchase Zietsman told him that he had paid Hancock $250,000 for Hancock’s shares in Steelco.
3 In December 2005, Guy Bulmer commenced employment with Steelco as its general manager. In May 2006, Berend Gort joined Steelco as the procurement and distribution manager. The company was a relatively small operation, with factory and office premises in Bayswater. Zietsman had other companies, and had also established a factory in Perth.
4 From early 2007, Zietsman was spending much of his time working in Western Australia and Bulmer was running the operation in Melbourne. It was suggested in evidence that by 2007 Steelco was experiencing cash-flow problems. Dyer was apparently frustrated that, compared to Zietsman, he as a minority shareholder, was not receiving a fair return for his investment in the company.
5 In February or March 2007, Bulmer had a conversation with Zietsman in Melbourne. Bulmer proposed that Dyer take over the slitting and recoiling operation at the Bayswater premises, that Dyer sell back his shares in Steelco and that Dyer supply finished steel strapping to Steelco which Steelco would then distribute to its customers. Dyer would be permitted to make other sales, but would not sell to Steelco’s established customers, which included Roofmart WA and Stramit. Later, Bulmer told Zietsman that Dyer was happy to enter into an arrangement of this sort.
6 The critical issues for determination in this case revolve around this transaction and whether Dyer, Bulmer and Gort were acting in concert to further their own interests and not those of Steelco, their employer, and whether Noble Steel had bound itself not to supply Roofmart WA and Strammit.
7 Later, steps were taken to give effect to the arrangements discussed between Zietsman and Bulmer, as follows:
a. A formal proposal was made by facsimile dated 12 March 2007 from Dyer to Zietsman. b. A sale of shares agreement was executed by Steelco and Dyer on 29 June 2007. Steelco agreed to purchase Dyer’s 14 shares in the company for $140,000 payable by 14 monthly instalments of $10,000. c. Dyer commenced to pay $500 per month as his share of the rent for the Bayswater property, made contributions towards the cost of electricity, and paid the sum of $2,569.29 per month, which was what Steelco was paying the National Australia Bank as loan facility payments for the slitting and recoiling machines. d. The first three months’ instalments of $10,000 for the repurchase of Dyer’s shares in Steelco were paid, but no further payments were made. e. Noble Steel commenced to supply finished steel strapping product to Steelco. f. After a month or so, Gort worked part-time for both Steelco and for Dyer. 8 A draft supply agreement between Steelco and Dyer’s company, Noble Steel Pty Ltd, dated 1 July 2007, was prepared by Bulmer, but was never executed by the parties.
9 In early November 2007, a deed of variation to the sale of shares agreement was executed. It provided that Dyer would forgo the remaining 11 payments of $10,000 and that, once all payments due for the slitting and recoiling machinery under the facility from the National Australia Bank had been made, that Dyer would “acquire title” to the machines.
10 In November 2007, Bulmer’s employment with Steelco was terminated. The termination was initiated by Zietsman although the following day, Bulmber purported to offer his resignation. Bulmer worked on until early 2008 on a contract basis.
11 In June 2008, the slitting and recoiling machinery was removed by Dyer from the Bayswater premises whilst Zietsman was in Western Australia. Zietsman said that Steelco then had difficulty fulfilling orders. He later found out that a company of which Dyer was a director, Noble Steel Trading Pty Ltd, was supplying Roofmart WA and Stramit and was undercutting Steelco’s prices.
12 Subsequently, Zietsman also discovered that:
a.
Bulmer had prepared the draft supply agreement dated 1 July 2007 between Steelco and Noble Steel. Zietsman said that Bulmer had never brought the document to his attention. If the supply agreement had been executed, it would probably have protected Steelco from Dyer supplying the strapping product to Roofmart WA and Stramit.
b.
On 16 February 2007, Noble Steel Pty Ltd had been incorporated with Dyer as a director. The application for registration of the company was made by Bulmer. Bulmer, through his company, Noble House Trading Pty Ltd, held 10 out of 30 shares in the company. Gort also held 10 shares from 16 February 2007 to 10 April 2008. The remaining 10 shares were held by Dyer.
c.
In about March 2007, Noble Steel opened 4 bank accounts with the National Australia Bank. Bulmer, Gort and Dyer each signed the application form and were to be co-signatories of the account.
d.
On 8 May 2007, Bulmer, Gort and Dyer signed a further authority for the bank in relation to the Noble Steel accounts.
e.
On 19 March 2008, Noble Steel Trading Pty Ltd was incorporated with Dyer as a director. Between 17 March 2008 and 1 June 2008, Gort held 20 out of 100 shares in the company.
13 Zietsman said that Bulmer and Gort had never disclosed to him their involvement in Noble Steel. Zietsman alleges that during 2007 and 2008, whilst Bulmer and Gort were employees of Steelco, they pursued their own, and Dyer’s interests, to the detriment of Steelco.
14 The issues for determination in the case are:
1.
Whether at the time Bulmer prepared the draft supply agreement in early July 2007, he was acting for, or with the knowledge of, Dyer or Noble Steel.
2.
In those circumstances, must Dyer and Noble Steel be taken to have affirmed the terms of the draft supply agreement as the basis for the ongoing relationship between Dyer and his companies and Steelco.
3.
Whether Noble Steel had breached the terms of the supply agreement with Steelco, and specifically:
a. the clause of the draft supply agreement which prevented him from supplying the existing customers of Steelco, including Roofmart WA and Stramit; b. an implied condition that he would not dispose of the slitting and recoiling machinery. 4. Whether Dyer had induced a breach of contract on the part of Noble Steel.
5. Whether Bulmer or Gort had breached their fiduciary obligations as employees of Steelco and Bulmer had failed to comply with a direction by his employer that he put in place a supply agreement with an enforceable restriction against Dyer trading with Steelco’s customers.
6. Whether Steelco was entitled to damages from Noble Steel, Dyer, Bulmer or Gort.
7. Whether Noble Steel Trading had obtained, from its transactions with Roofmart WA and Stramit, a benefit for which it is obliged to account to Steelco.
15 It was conceded that Steelco had failed to pay invoices from Noble Steel for the supply of steel strapping totalling $71,051.54 for goods ordered by the defendant between 7 March and 13 June 2008. The only defences relied upon by Steelco to the claim by Noble Steel were the matters referred to above, which were raised by way of set-off and counterclaim in the proceeding.
Credibility of witnesses
16 Oral evidence was given at the trial by Zietsman, Dyer, Bulmer and Gort. I do not consider that I can safely rely upon their evidence of the relevant events. To varying degrees, each witness appeared on the one hand to give detailed evidence of events many years ago but when challenged on these and other matters said that they had little clear recollection.
17 characterised by his failure of memory, hostility and lack of responsiveness. Certain
matters, the subject of later evidence by Dyer, Bulmer and Gort were not put in cross-Zietsman’s evidence-in-chief was confidently given. His cross-examination was evidence. I do not consider, however, that it is necessarily a reason to have more confidence in the evidence of Zietsman.
18 The evidence-in-chief of both Dyer and Bulmer was given defensively, and it appeared evasively. Some aspects of Bulmer’s evidence were inconsistent with earlier statements by him and Bulmer’s attempts to move away from earlier versions were unconvincing. Gort’s evidence was less extensive and appeared more reliable until he was tested on critical matters. In the circumstances, I consider that I must primarily rely on the contemporaneous documents to provide a framework for the chronology of events and then to carefully assess the relevant oral evidence of each of the witnesses where it is important to my determination of the matters in issue. I will set out the evidence of the witnesses in some detail below.
19 One further matter which made the task of reaching decisions difficult was the evidence of the shifting relationships between the parties and the shared interests each of them had from time to time. This evidence was generally not explored in any detail. Essentially, the defendant’s complaint was that Dyer, Bulmer and Gort had breached obligations they owed to Steelco by actions they took without informing Zietsman. However, each of the four individuals involved in this dispute appeared to have various different and perhaps conflicting interests which they pursued, and of which each of the others was generally aware. Each party interacted in a variety of roles – as fellow employees, shareholders in various enterprises including Steel Converters and Azure Group Holdings and as workplace colleagues with very different skills and responsibilities.
20 There are a number of general findings open on the evidence:
a. Zietsman initially established Steelco with Hancock. b.
Although Dyer invested in Steelco by purchasing shares, the company continued to be run by Zietsman without much regard to Dyer’s interests.
c.
Whilst Steelco was a relatively small operation, Zietsman appears to have paid himself a substantial salary and engaged in extensive travel.
d.
Steelco employed Bulmer and Gort in high level managerial roles without the company seeming to have the capacity to sustain these overheads. As a consequence, priority appears to have been given to Steelco paying its employees and Zietsman. Payment to suppliers was irregular and usually made late resulting in interruptions and other difficulties in the supply of steel.
e.
Bulmer, through his company Noble House Trading Pty Ltd, invested in other enterprises with Zietsman, including Steel Converters and Azure Group Holdings. Dyer, by reason of his shareholding in Steelco, received a 15 per cent interest in Steel Converters.
f.
Zietsman had other enterprises in Western Australia and, particularly in 2007 and early 2008, he spent considerable time in Western Australia and left the running of Steelco to the general manager, Bulmer.
g.
During 2007, Dyer, Bulmer and Gort pursued independent business interests through Noble Steel Pty Ltd. Each of them was adamant in evidence that Noble Steel’s business was carried out in the best interests of Steelco and Zietsman. However, at no stage did they inform Zietsman that Bulmer and Gort were equal shareholders with Dyer in Noble Steel.
h.
There was a distinct lack of evidence about the background to the establishment of Noble Steel and the intention of the participants.
i.
After Noble Steel took over responsibility for the production of steel strapping, Bulmer appeared to provide some administrative and managerial support to the company and Gort’s employment was formally shared between Noble Steel and Steelco.
j.
For some months, the arrangement between Noble Steel and Steelco appeared to work for their mutual benefit. Noble Steel took over the responsibility of sourcing steel supplies and Steelco was supplied with a finished product which it on-sold to its customers. In addition, Noble Steel commenced paying or contributing to a number of business expenses which had previously been borne by Steelco.
k.
In November 2007, the arrangement was altered; payment for the repurchase for Dyer’s shares was suspended and the only consideration offered in return appeared to be that, when the repayments to the National Australia Bank in
respect of the slitting and recoiling machinery were complete, ownership of
that machinery would pass to Dyer.
l. In November 2007, Bulmer’s employment with Steelco was terminated although he continued to carry out certain tasks for some months. m. In early 2008, Noble Steel Trading Pty Ltd was established. There is no evidence that Bulmer and Gort had any involvement in its establishment. Gort was briefly a shareholder although this does not appear to have been at his initiative. Bulmer had no shareholding in the company.
n.
In June 2008, when the National Australia Bank had been paid out in respect of the machinery, Dyer took the machinery to other premises and closed down the processing operation at Bayswater. It appears that he carried out these steps without the knowledge of Gort.
o.
Prior to that time, Bulmer had been involved in exploring with potential customers whether they wished to trade with Noble Steel. Gort had made enquiries from the bank in relation to outstanding monies in respect of the machinery. Any further involvement by Bulmer and Gort in Noble Steel or Noble Steel Trading is unclear.
p.
The trade by Noble Steel Trading with Roofmart WA and Stramit, which commenced in July 2008, apparently did not involve Bulmer or Gort.
Discussions between Zietsman and Bulmer in March 2007
21 Zietsman said that in February or March 2007 Bulmer spoke to him at the Bayswater factory. Bulmer put the proposition to Zietsman that Steelco outsource the slitting and recoiling work to Dyer. Bulmer told Zietsman that it would result in cost reductions and increased cash flow. Zietsman said that generally he was not across the detail of this proposal because he was in Western Australia and Bulmer accepted the responsibility for putting the necessary arrangements in place.
24 22 There were subsequent discussions between them and Zietsman said Bulmer had raised the need to put in place a supply agreement to protect Steelco’s business with its established steel strapping customers, including Roofmart WA and Stramit. Bulmer had suggested that Dyer be restricted from supplying these and other customers of Steelco and suggested the arrangement should operate for a period of two years. They also discussed the price at which the strapping would be supplied by Dyer to Steelco.
23 On 12 March 2007, a letter from Dyer to Zietsman was faxed to Zietsman in Perth. The letter reads as follows:
“Re purchase by Steelco of my 14 shares.
I propose that Steelco pays me $40,000 upfront followed by ten monthly payments of $10,000 each for a total of $140,000 or $10,000 per share. This will cover my initial purchase costs of around $90,000 plus accrued interest to date.
Upon receipt of the initial payment I propose to set up my own company and Toll Process for Steelco and any other companies that require this service. I will sell product to customers that Steelco no longer deals with
and will retain my relationship with Top Idea. I will remain at London of $2,569.29 per month for the slitting line and recoiling machine. Once the lease is over I would like an option to buy the equipment for a reasonable amount, say $40,000. I will also pay for the electricity bill (until Steel Converters starts to use their 80 tonne press) and contribute $500 per month to the rent.
As I have an entitlement to 10 Steel Converters shares via my Steelco holding, I would like Steelco to transfer 10 Steel Converters’ shares into Azure Group Holdings on my behalf. Azure Group Holdings can then issue me with another 100 of their shares to cover the Steel Converters’ shares that I have transferred to it.
I would like an answer to this proposal by return and would be looking to start my own company from 1 May 2007”.
Zietsman was not clear on the further course of the negotiations. However, on Dyer’s solicitors. Zietsman said that Bulmer had presented the document to him for signature. Essentially, the sale of shares agreement provided that the company, Aussie Mini Slitters Pty Ltd, would repurchase the shares for $140,000 by monthly payments of $10,000. In the meantime, the arrangement originally suggested by Bulmer to Zietsman was put in place - Dyer’s company, Noble Steel, made certain payments which had previously been paid by Steelco and supplied steel strapping products which were distributed by Steelco to its customers Australia wide.
25 In early November, a Deed of Variation of the Sale of Shares Agreement was executed. Zietsman was a party to the Deed as the guarantor of the obligations of Aussie Mini Slitters Pty Ltd. By the variation, Dyer appeared to forego the remaining 11 payments of $10,000 for the repurchase of the shares. In return, he was to acquire title to the slitting and recoiling machinery. This machinery would ordinarily have been paid off in May 2011.
26 A diary note by Zietsman on 12 November 2007 following a meeting with Bulmer recorded, “ASIC paperwork for Jeff’s shares is not done correctly. We have to formalise sales agreement and remove J. Dyer off agreement and share register”.
27 Although Zietsman said that he was in Perth for substantial periods during 2007, there was little coherent evidence as to what Zietsman understood the position to be between July and November 2007 during which period Noble Steel was supplying Steelco and paying substantial expenses previously met by Steelco.
28 Zietsman said that he found a copy of the draft supply agreement in his “in” tray in his never given him the supply agreement to sign. He said that Bulmer should have got the document signed by Dyer as Bulmer would have realised the importance of having the supply agreement in place. Zietsman was unable to explain why Bulmer did not do so. Zietsman said that until June 2008, when Dyer removed the machinery from the Bayswater factory, he had no issue with him because Dyer was still supplying the strapping product within the terms of the supply agreement and Noble Steel had not been supplying Stramit.
29 A copy of the draft agreement was later found on Bulmer’s work computer. The draft supply agreement bound Steelco to exclusively purchase the strapping product from Noble Steel for two years from 1 July 2007 and restricted Noble Steel from supplying customers of Steelco who were listed in an attachment to the draft agreement
(including Roofmart WA and Stramit) for the same period of two years. The draft agreement set out a purchase price of $1,650 per tonne exclusive of GST, as the price Steelco would pay for the strapping, and indicated the approximate quantities of
strapping which would be purchased by Steelco from Noble Steel on a monthly basis.
Dyer’s evidence of his dealings concerning Noble Steel
30 Dyer said that at the end of 2006 he had raised with Zietsman his concern that Steelco had financial difficulties which meant that it was unable to pay its bills. Zietsman was unsympathetic and later Dyer said he discussed matters with Bulmer,
complaining that compared with the wages Dyer was receiving, Zietsman was being paid considerably more, including substantial expenses. As a result, Dyer received an extra $100 each week.
31 Soon afterwards, Dyer said that he and Bulmer had a further conversation. Dyer asked whether Steelco could pay out the money for the shares he had bought. Bulmer told him that the company had no money and suggested Dyer speak to Zietsman to see if Zietsman could borrow money to pay out Dyer. Dyer said that this prompted him to consider starting his own business and supplying the customers who had left Steelco. He explained this proposal to Bulmer, who described it as a “win/win”. Dyer told Bulmer that he had registered a business name, Noble Steel, copying Bulmer’s company name, Noble House Trading Pty Ltd.
32 Dyer said that Bulmer got back to him a few days later. Bulmer said he had spoken to Zietsman and suggested that Dyer’s shares would be bought back. Dyer asked his lawyers to prepare the sale of shares agreement. He asked Bulmer to assist in setting up a company to take over the slitting part of Steelco’s business which had fallen away.
33 Dyer said that he supplied Steelco with strapping product which it supplied to the Steelco customers. Dyer commenced to pay the bank charges relating to the slitting and recoiling machinery, and contributions towards rent and electricity. The first three payments of $10,000 were made by Steelco pursuant to the sale of shares agreement but no further payments were made. Dyer said that Bulmer and Gort told him that the company could not afford to make the payments.
36 34 Dyer said he suggested to Bulmer and Gort that he would forfeit the remaining payments so long as the machinery was transferred into his name. A few days later, Dyer said Bulmer told him that Zietsman had accepted the proposal and he should go ahead with a Deed of Variation. He said that he probably met Zietsman at about this time in relation to the Deed of Variation but at the meeting nothing was said about the supply arrangements.
35 Dyer said that in June 2008 he paid out the finance agreement between Steelco and the National Australia Bank in relation to the slitting and recoiling machinery and moved the machinery offsite. He said that by that stage Steelco was paying very slowly. They had been put on stop credit and were only supplied with strapping product when they supplied their own steel. At that stage he could not proceed with Noble Steel as it was not financially viable and commenced operating through Noble Steel Trading Pty Ltd.
Dyer said that in March 2007 he was not close to Bulmer. They worked together on a Noble House Trading, with 20 out of 30 shares, was the majority shareholder in Noble Steel, Dyer was the director of the company and controlled it. He said it was Bulmer’s idea for Noble Steel to have 30 shares, the same structure as Bulmer had organised for Steel Converters. In late February/early March 2007, in a conversation between himself and Bulmer, they had discussed that it would be convenient for Noble Steel to take over the production of the steel strapping. Dyer said he asked Bulmer as the manager of Steelco to speak to Zietsman to ask him whether Dyer could “get out of” Steelco.
37 The facsimile letter that Dyer sent to Zietsman on 12 March 2007 had been drafted by Bulmer, although Dyer said that basically they were his words. He said he did not disclose that Noble Steel Pty Ltd had already been set up because he was in “fear of being dismissed” by Zietsman. It was not his intention to take existing customers of Steelco.
38 Dyer said that Bulmer approached him and told him that Paul Zietsman had said to help him as much as possible. This was the reason that Bulmer had opened the bank accounts for Noble Steel. Dyer said that he did not tell Zietsman about the assistance he received from Bulmer and Gort because it was his own business and Zietsman did not tell him about the deals that he had with Bulmer.
39 In May and June 2007, prior to the new arrangements being put in place, Bulmer had sent emails to former customers of Steelco and had prepared quotations for the supply of products by Noble Steel to potential customers. Dyer said that some of these customers would not deal with Steelco. In relation to the supply of products from Noble Steel to Steelco, he said the price of $1,650 had been discussed between Zietsman and Bulmer. He said, however, that there had been no discussion about the existing customers of Steelco after he had sent the fax to Zietsman in March. He knew that Stramit and Roofmart WA were significant customers of Steelco. He did not regard them as “off limits” but he was busy enough without them. In early June, Stramit approached Dyer and complained that they were being ripped off and no longer wished to deal with Steelco. Dyer later sold steel strapping to Strammit thorough Noble Steel Trading.
40 Bulmer assisted Dyer with making purchases for Noble Steel in September 2007 and had negotiated a car lease in May 2007. In relation to the sale of shares agreement, Dyer had asked Bulmer if he could get him out of Steelco. In everything he did, Dyer went through Bulmer and did not negotiate direct with Paul Zietsman.
41 In August 2007, Bulmer made arrangements for Noble Steel stationery. Cards were printed up for both Bulmer and Gort. Dyer said he did not see a problem using Bulmer one day a week as general manager of Noble Steel. He had discussed with both Bulmer and Gort the possibility of them working for him and “unloading costs” from Steelco. He said that “everybody was trying to work for everybody”.
42 Dyer said that in September 2007 he had asked Bulmer to find out what the payout figure to the bank was for the slitting and recoiling machines. There was about $100,000 owing to him for his shares in Steelco and the payout figure on the machines was about $90,000. He said he was concerned that if Steelco could not pay him Noble Steel may go broke. He did not tell Zietsman that the bank might be paid off earlier for the equipment. In early 2008, Noble Steel was on credit hold. He was concerned that he may need to move from the same premises occupied by Steelco.
43 On 13 June 2008, Dyer said that he arranged for the sum of $82,764.39 to be paid to the National Australia Bank. Dyer said that Bulmer and Gort did not know that the equipment was going to be removed from the Bayswater premises or that Noble Steel Trading was going to start operations. By that stage, Gort was not a shareholder in Noble Steel Trading and, although Noble House Trading was a shareholder of Noble Steel, Noble Steel had by then stopped trading. It had debts of about $80,000 which were later paid off by Dyer personally.
Gort’s evidence about his involvement in Noble Steel
44 Gort said that Zietsman had asked him and Bulmer to help Dyer set up a business. They had discussions at various times. Steelco’s credit position was very tenuous and they had been placed on credit hold by a number of steel suppliers including
Smorgons, Impact, One Steel, Selection and Selwood. Gort had organised payment plans to be put in place. In March 2007, Gort said Zietsman told him that he was happy for Gort to help Dyer set up Noble Steel because, as he said, Dyer “doesn’t know what he is doing”. Gort worked with Steelco until 31 August 2007, after which he was employed by Noble House Trading performing work for Steelco, Steel Converters and Noble Steel. After 4 October 2007, he was employed by Noble Steel who hired him out to Steelco and Steel Converters.
45 In February 2007, Gort had an interest in Noble House Trading. The company had been set up as a business services company and Gort had shares in it. Dyer had started talking about wanting to set up Noble Steel and Dyer had consulted with Gort before Noble House Trading became a shareholder in Noble Steel. Both he and Bulmer had contributed $500 through Noble House Trading and Dyer had contributed $500. Arrangements were made between Zietsman and Bulmer about the establishment of Noble Steel. Gort did not have knowledge of the facsimile dated 12 March 2007 from Dyer to Zietsman before it was sent.
46 Steel or the fact that Gort and Bulmer were signatories of the company’s bank
accounts. Gort said he was aware that Bulmer had drafted a document relating toGort said he was not sure why Zietsman was not told about his shareholding in Noble Bulmer had mentioned this in passing, although he was not sure if Bulmer had told Dyer. Bulmer told him that he had given a draft of the supply agreement to Zietsman, who was to discuss it with Dyer. Bulmer had said it was something that needed to be sorted out between Zietsman and Dyer. Gort did not think that he had mentioned the supply agreement to Zietsman or Dyer and it was not something that he had followed up. He knew that Noble Steel would be supplying steel strapping products to Steelco and would not be trading with Stramit or Roofmart WA in those products. He said he was not aware, however, whether Noble Steel was prohibited from selling to Stramit or Roofmart WA.
47 Gort provided some financial details in relation to Steelco to Dyer at his request. He did this because Dyer was a shareholder in the company. However, Gort did not tell Zietsman about the request. Gort was copied in on some quotes to customers. He was aware of the stationery being prepared for Noble Steel and he had talked to Dyer
about moving into Noble Steel as the production and distribution manager. After September 2007, Gort had attempted to obtain payout figures on the machinery lease. Gort said that he did not feel that there was any conflict although he could not
recall telling Zietsman about these matters. He said he did not realise that Zietsman would be interested. He was not aware that Dyer would take the machinery and go out on his own.
48 In relation to the deed of variation to the sale of shares agreement, Gort only found out about it later on. Although Gort was allotted 20 shares in Noble Steel Trading Pty Ltd, he had no idea that was going to happen and soon after he found out he told Dyer that he was not interested. He said he did not ask Dyer why he had set up the company or allotted shares to him. He was content simply to do his job. In June 2008, he knew that Dyer was unhappy about not being paid by Steelco but had no idea that he was going to move the machinery and set up elsewhere. Gort said that in mid-April 2008, he transferred his shares in Noble Steel. Before he did so, Zietsman had approached him and told him that he was aware that Gort had shares in Noble Steel.
49 After Dyer had removed the machinery from the Bayswater premises in June 2008, Zietsman asked him to work for him although he was aware of Gort’s previous shareholding in Noble Steel. Gort had no knowledge of any dealings between Stramit and Dyer before Dyer left the Bayswater factory in June 2008.
Bulmer’s evidence of his involvement with Noble Steel
50 Bulmer said that he had suggested Steelco acquire Steel Converters and he had run that company. Bulmer said that in early 2007 Steelco was having financial difficulties. It needed to reduce its operating costs. Dyer wanted to go out on his own and Bulmer proposed to Dyer in February/March 2007 that Noble Steel be established. Bulmer said that it was following his discussions with Zietsman, that he filled out the application form to register Noble Steel on 12 February 2007. He said that he had discussed Noble Steel with Zietsman and Zietsman had suggested that because Dyer was not a business man, Bulmer should help him. Bulmer said that because he considered it was in the best interests of Steelco, he agreed to help Dyer.
drafted a supply agreement and that Zietsman would be discussing it with Dyer.
51 As regards the letter faxed from Dyer and Zietsman on 12 March 2007, Bulmer said he would have typed the letter based on discussions with Dyer. He had discussed with Zietsman the overall intention of reducing operating costs by purchasing the finished product. Zietsman had agreed in principle and it was around that time Bulmer had discussed setting up Noble Steel. Bulmer had established bank accounts for Noble Steel because he had a long relationship with the National Australia Bank. Bulmer’s earlier recollection (which he conceded was wrong) had been that he was not a signatory to the account. He thought that Gort would be primarily responsible for processing payments and he would simply be a back-up.
52 In February/March 2007, he had discussed with Zietsman commencing the supply arrangement with Dyer from 1 July 2007. Bulmer said that he had recommended to Zietsman that he prepare a document to protect Steelco’s principal customers. The two year period was standard and he had discussed with Dyer the price of $1,650 per tonne. Bulmer said that he had given the document to Zietsman in the office at Bayswater. When he gave Zietsman the draft, Bulmer explained its contents, and said that this was his recommendation and that Zietsman should go through it with Dyer and get solicitors to draw up a final document.
53 The non-competition clause was intended to protect the core business of Steelco. Bulmer discussed this with Zietsman. The seven customers included in the attachment were Steelco’s key accounts. The effect of outsourcing the production to Noble Steel would be to save costs.
54 During May and June 2007, Bulmer had prepared quotes for customers who would not be purchasing strapping and had arranged the lease of a car for Dyer. He had discussed the sale of shares agreement with Zietsman, although he was not involved
in the preparation of the document. Bulmer said that he advised Dyer that he had progressing but could not be specific about that.
55 Bulmer said that on a number of occasions later in 2007 he had, at Zietsman’s request, looked in his “in” tray for other documents and he had seen the supply agreement on those occasions. He said that Zietsman had placed the document in
the “in” tray in about February/March. Bulmer said that he told Dyer that he had
drafted the document and Zietsman would speak to him about it. Dyer told him that
Zietsman had said to him that they would not need an agreement, that they had been
“mates” and they went “way back” and did not need an agreement. Bulmer said that
this was not his view.56 Converters and Azure Group Holdings. Noble Steel sold product to Steel Converters.
Noble House Trading had shares in Noble Steel. It also had shares in Steel Steel had few assets. Bulmer said that after March 2008 he had no involvement with Zietsman’s or Dyer’s companies. He was not aware of Noble Steel Trading. Bulmer said that although he told Dyer that he had prepared a draft supply agreement, he did not discuss it with Dyer and did not tell him about the customers included in the attachment or the two year exclusion period. The arrangement was that Noble Steel would only get paid once Steelco had been paid by its customers. Bulmer said he discussed this matter with Dyer.
57 Bulmer said that the discussions with Dyer had occurred mostly in February/March 2007. These would have included talking about forming the company and his shareholding. Bulmer could not be specific about that. He could only recall discussions in general terms. Dyer had mentioned that he had registered the business name Noble Steel. Zietsman had asked Bulmer to assist Dyer to set up his company. Bulmer did not tell Zietsman that Noble House Trading would be a major shareholder in Noble Steel. Noble House Trading was only a passive shareholder although there were expectations of future dividends.
58 There was an understanding that Bulmer and Gort would provide consultancy services to Noble Steel at some stage. Noble House Trading was a share trading company that held shares in public and unlisted companies including Steel Converters and Azure. Bulmer did not discuss Noble House Trading’s shareholding in Noble Steel with Zietsman because he did not think it would be of interest to him. Zietsman trusted Bulmer and Bulmer had originated proposals in relation to Steelco, Steel Converters and Azure. Bulmer had discussed with Zietsman that Noble Steel would not deal with Steelco’s customers and seven specific companies would be listed with whom Dyer would be prevented from trading for two years. Noble Steel would have the benefit of two years supply to Steelco and Steelco would be required to buy the strapping product exclusively from Noble Steel. This would be to the advantage to Noble Steel and, as Bulmer hoped, ultimately to his own advantage.
59 Bulmer said he did not try to mislead Zietsman in relation to the facsimile dated 12 March 2007. Bulmer said he did not clearly recall typing it. He included the words, “propose to set up my own company” although he knew Noble Streel had already
been established and Bulmer and Gort were involved in it. Bulmer said he did not consider the contents of the letter very much. Bulmer said he did not discuss the trading restrictions with Dyer as Bulmer was the go-between. He told Dyer that
Zietsman would be going through the agreement with him. Bulmer discussed with Zietsman the list of seven companies in the attachment and the operating period of two years. Bulmer said he did not give a copy of the draft supply agreement to Dyer.
60 Bulmer said that he did not recall Dyer showing him a draft sale of shares agreement. Bulmer agreed that the sale of shares agreement and supply agreement were in a similar format although he said that, for the draft supply agreement, he used a template from New South Wales solicitors which he had obtained in 2005 and any similarity between the draft supply agreement and the sale of shares agreement was coincidental. The pricing of $1,650 per tonne was proposed by Dyer and discussed by Bulmer with Zietsman. The non-competing clause was not mentioned by Bulmer to Dyer. Although Bulmer had drafted the document, he said it was to be discussed between Zietsman and Dyer. The two year period was the normal timeframe for such agreements. Bulmer was unsure whether he had discussed the forecast quantities of Steelco orders with Dyer and Zietsman.
61 Bulmer said later in his evidence that the similarity between the draft supply agreement and the sale of shares agreement might have been because he had given a draft of the sale of shares agreement to Dyer for him to give it to his solicitors. This was notwithstanding the fact that a “draft” agreement had been sent by Dyer’s solicitors to Dyer, and Bulmer had had no communication with those solicitors.
62 Bulmer agreed that he had said in previous statements that he was not a signatory to the Noble Steel bank accounts and that he had put the draft supply agreement in Zietsman’s “in” tray. These statements were not true, even though his counsel had cross-examined Zietsman on the basis that the document had been put in Zietsman’s “in” tray. Bulmer said that he recalled discussing price with Dyer. He possibly discussed the two year period but did not recall discussing the seven specific customers with whom Dyer must not deal.
63 When, in September 2007, Bulmer had ascertained the lease payout figures from the thought that Noble Steel was going to refinance the bank loan. He did not expect that Dyer would remove the machinery. Bulmer said in evidence that he was then aware that there was a conflict of interest as a result of him participating in negotiations, because of his shareholding in Noble Steel through Noble House Trading. Bulmer said that he did not discuss this with Zietsman at the time because he did not think about it and was not trying to hide the fact.
64 In relation to the sale of shares variation deed, Bulmer said he thought he discussed it with Dyer but did not recall telling Zietsman about it because Dyer was going to tell Zietsman. Bulmer prepared quotations for Noble Steel based on information given by
Dyer. Noble House Trading still retained shares in Noble Steel.
Counterclaim against Noble Steel Pty Ltd
65 The counterclaim against Noble Steel Pty Ltd is for breach of contract. It is alleged that Noble Steel should not have traded with Stramit or Roofmart WA either through itself or the later reincarnation, Noble Steel Trading Pty Ltd. In the facsimile dated 12 March 2007, Dyer had stated that he “will sell product to customers that Steelco no longer deals with”. It was not suggested on behalf of Steelco that this promise was sufficient to restrict Noble Steel from dealing with Stramit or Roofmart WA at some time in the future.
66 To restrain Noble Steel (or Noble Steel Trading Pty Ltd) from dealing ith Steelco customers, Steelco relied upon the terms of the draft supply agreement. Steelco alleged that it is entitled to rely upon the terms of the draft supply agreement in two
ways:
a.
by alleging that Noble Steel should be regarded as having had knowledge and having accepted the draft supply agreement from the “fact that Guy
Bulmer procured the preparation of the agreement at a time when he was
employed or engaged by Noble Steel”;
b. alternatively, the draft supply agreement should bind the parties because of the “conduct of the parties acting in accordance with” its terms. 67 Although the particulars of the relevant allegation in the counterclaim of the draft supply agreement refers to both “written and oral terms” the supply agreement is alleged to have been “partly written and partly to be implied”.
68 There is no evidence that Dyer or Gort had knowledge of the contents of the draft supply agreement. Bulmer said that he did not give Dyer a copy or discuss the terms relating to the clause which restrained Noble Steel from dealing with Steelco’s major customers of steel strapping. It is not clear on the evidence when the draft supply agreement was prepared by Bulmer. He said it was prepared in about March 2007 and given to Zietsman soon after.
69 Zietsman said that he did not find the draft supply agreement in his “in” tray until July 2008. During 2007 and 2008, Zietsman was spending large periods of time working in Western Australia. He left the operations at Bayswater under the management of Bulmer. It is possible that the draft supply agreement remained in Zietsman’s “in”
tray from March 2007 until July 2008.
70 During the course of the hearing, I was informed that the defendant may call a computer expert to give evidence about the draft supply agreement. He was not called on the basis that an agreement had been reached between the plaintiff to counterclaim and the third to fifth defendants to counterclaim that the draft supply agreement was last edited on 12 October 2007, and that this was the last print date. That evidence is an indication that Bulmer probably printed a copy of the document for some purpose in October 2007. No evidence was led, however, as to the date the document was prepared. In the circumstances, it is difficult to conclude, even on the balance of probabilities, that the document was provided to Dyer or that the details of the restrictions upon Noble Steel dealing with Strammit and Roofmart WA was discussed with Dyer.
71 Noble Steel relies upon the fact that the document was prepared by Bulmer and his knowledge must be taken to be that of Noble Steel because he was, in the discussions with Zietsman acting on Noble Steel’s behalf either as the employee or otherwise as an agent.
72 The defendant’s pleading relies upon the fact that Bulmer arranged for the incorporation of Noble Steel and 20 out of 30 shares in the company were held by Noble House Trading Pty Ltd, a company of which Bulmer was a director. It is clear that the initiative for the discussions between Bulmer and Zietsman came from Bulmer, and he did not disclose to Zietsman that he was financially interested in Noble Steel.
73 arrangement was entered into in the context that Dyer had previously had a
shareholding in both Steelco and Steel Converters. Bulmer (and Gort) had aThe arrangement between Noble Steel and Steelco had mutual benefits. The Group Holdings. Zietsman knew from Dyer’s facsimile dated 12 March 2007 that Dyer would be operating the business through a company. It was also anticipated that Gort would provide administrative support to Dyer in his operations. This in fact happened later in 2007.
74 In the preceeding months, Steelco had been having considerable difficulty securing its own steel supplies and meeting its outgoings. In these circumstances, the supply agreement with Noble Steel had considerable attraction to Steelco, as Noble Steel
would accept the responsibility for sourcing its own steel supplies and would be
making substantial contributions to outgoings for rent, electricity and the machinery
loan payments.75 Zietsman said he had anticipated that he would execute a supply agreement. The sale of shares agreement prepared by Dyer’s solicitors was executed by him in June 2007. The agreement was apparently sent to Western Australia where Zietsman executed the document and returned it to Melbourne. The variation to the sale of shares agreement was, however, prepared following a discussion with Dyer in Melbourne, where later Zietsman executed the deed of variation. It is surprising that Zietsman made no enquiry of Bulmer about the supply agreement. There is conflicting evidence about this issue. Bulmer said that he prepared the document and gave it to Zietsman, who said he would discuss it with Dyer. Bulmer said that Dyer told him that Zietsman had said that there was no need for an agreement.
76 In the circumstances, it is difficult to be certain what transpired between the parties. No version of events is more probable than any other. The evidence of each of the witnesses was unsatisfactory. Evidence was given by Gort and Bulmer of the steps they took in setting up Noble Steel and assisting in its operations. However, these
matters were apparent from the discovered documents and were always going to be
raised at the trial. This position can be contrasted with the lack of any cogent
explanation by Gort, Bulmer or Dyer as to why they had not disclosed the financial
involvement of Gort and Bulmer in Noble Steel. However, the evidence of Zietsman
concerning the draft supply agreement and his failure to follow it up with Bulmer was
also unsatisfactory. Zietsman’s refusal to concede that Steelco had financial
difficulties was particularly unconvincing. Ultimately, the onus of establishing a
contract entered into by Bulmer on behalf of Noble Steel in the terms of the draft
supply agreement is upon Steelco. I am not satisfied on the evidence that it has
discharged that onus.77 In the alternative, it was alleged that an agreement arose as a result of the course of conduct of the parties. Steel strapping was supplied by Noble Steel to Steelco for about 12 months from July 2007, although from March 2008 few payments were made by Steelco leading to the claim by Noble Steel which initiated the proceeding. The steel was supplied at a price of $1,650 per tonne and for the first 12 months Noble Steel did not attempt to deal with Steelco’s steel strapping customers.
78 The payments of outgoings by Noble Steel were referred to in the 12 March 2007 facsimile but were not specifically set out in the draft supply agreement. I see no reason, on the basis of the conduct of the parties, to imply an agreement which
draws in the terms of the draft supply agreement when the conduct is generally
consistent with the 12 March 2007 facsimile and the oral discussions relayed
between Dyer and Zietsman by Bulmer. Steelco alleges that the supply agreement
contained terms which were “to be implied to give business efficacy to the transaction
and by operation of law”. Those terms were, firstly, that “Noble Steel would notduring the period of the supply agreement dispose of the equipment required to
manufacture strapping” and, secondly, that “Noble Steel would not enable or allow
others to supply strapping to the nominated companies during the period of two
years”.
79 sale of shares agreement made it clear that, upon payment out of the National
Australia Bank loan arrangement in relation to the machinery, Noble Steel would
become the owner of the machinery. Although the National Australia Bank facility
might have run until mid-2011, that fact alone does not justify the implication of aIn my view, there is no basis for the implication of these terms. The variation to the to acquire title to the machinery, or that, if it did acquire title to machinery, it would not be entitled to remove it from the Bayswater premises.
80 Although the variation to the sale of shares agreement was executed as a deed, the only consideration for Dyer forgoing the payments for the repurchase of his shares was that he would acquire title to the machinery. In these circumstances, the early payout of the National Bank facility by Dyer and the removal of the machinery from the Bayswater premises was understandable. The 12 March 2007 facsimile had stated that Dyer “will remain at London Drive in the short term” (emphasis added).
81 By the end of June 2008, Steelco had refused to pay monies which had been progressively overdue to Noble Steel for many months in circumstances where there had been no complaint about the product supplied. Dyer started looking for other markets, including Steelco’s former customers, whom he proposed to deal with directly and at prices which would undercut Steelco. Whether Dyer initiated those contacts is not entirely clear. Although Steelco had machinery in Perth, it was probable in my view that both Roofmart WA and Stramit would have been supplied from the strapping produced for Steelco by Noble Steel. In circumstances where Steelco was not meeting its obligations to Noble Steel in terms of overdue accounts it is difficult to see what basis it could have for asserting that Noble Steel should be prevented from looking for other paying customers.
82 If Noble Steel were not bound to refrain from supplying nominated customers of Steelco for a period of two years, as I have concluded, it would have no obligation in relation to any other entity who might wish to deal with those customers, such as Noble Steel Trading Pty Ltd. For these reasons, the counterclaim against Noble Steel by Steelco must fail.
Counterclaim against Dyer
83 breach the supply contract. I am not satisfied that Noble Steel breached the supply
contract because the restraint clause in relation to the companies listed in the
attachment to the draft agreement was not part of any arrangement I am satisfiedThe counterclaim against Dyer is brought on the basis that he induced Noble Steel to also fail.
Counterclaim against Bulmer
84 At all relevant times until November 2007 and perhaps beyond that date, Bulmer was an employee of Steelco. As an employee, he owed contractual and fiduciary obligations to Steelco as his employer. Bulmer and Gort were alleged to have breached those obligations by failing to “act in the interests of Steelco in the performance of their employment”.
85 It was said that Bulmer “acted contrary to the interests of Steelco [in that he] sought
to obtain a collateral advantage…and procured for himself or another benefits that
were against the interests of Steelco”
breach of his obligations as an employee, did not comply with the directions of. Alternatively, it was alleged that Bulmer, in entered into that prohibited Noble Steel from dealing with Steelco’s customers in respect of steel strapping for a period of two years.
86 The evidence establishes that Bulmer did not disclose to Zietsman that he had a financial interest in Noble Steel. I am satisfied that the terms of any agreement reached between Steelco and Noble Steel were partly derived from the facsimile from Dyer to Zietsman (typed by Bulmer) on 12 March 2007 and partly in discussions mediated by Bulmer between Dyer and Zietsman which were later incorporated in the draft supply agreement. Dyer, however, denied that he was aware of a formal requirement that for two years he was contractually prohibited from dealing with Steelco’s major steel strapping customers, although this was something he had voluntarily refrained from doing before July 2008.
87 It is probable that Bulmer deliberately misled Zietsman by failing to disclose his financial involvement through Noble House Trading Pty Ltd in Noble Steel and the other steps he had taken which appeared to go beyond the assistance Zietsman anticipated would be given to Dyer. Nevertheless, I consider that the critical matter alleged against Bulmer, as a breach of his obligations as an employee, related to his failure to secure a supply contract which bound Noble Steel to refrain from dealing with Steelco’s steel strapping customers.
88 For the reasons I have set out previously, I do not consider that Steelco, through the evidence of Zietsman, has established that the reason no binding supply agreement was entered into might be anything more than the failure by Zietsman to ensure that he executed an appropriate contract as he had done in relation to the sale of shares agreement and the deed of variation in which Dyer agreed to forego the payments he
on the part of Zietsman or a dereliction of duty on the part of Bulmer or because
was entitled to under the sale of shares agreement. Whether this was simply neglect was happy to proceed with Dyer on the basis of no written supply agreement is a matter of conjecture. In any event, Steelco has not satisfied the burden of proof upon it.
Counterclaim against Gort
89 Similar allegations were made in relation to Gort as those made in respect of Bulmer, on the basis of Gort’s involvement in the setting up of Noble Steel and his shareholding through Noble House Trading Pty Ltd. However, Gort played no part in the negotiation of the supply agreement and therefore no allegation is made in that regard as it was against Bulmer. For the reasons I have discussed in relation to Bulmer, I consider that the more limited claim against Gort cannot succeed.
Counterclaim against Noble House Trading Pty Ltd
90 A claim is made on the basis that “the company has benefited from Bulmer and Gort’s breaches of obligation”. The allegation relies on the fact that Noble House Trading Pty Ltd held 20 of the 30 shares in Noble Steel and apparently continue to hold some shares in the company. There can be little basis for a successful claim against the company if no liability is established in relation to Noble Steel or against Bulmer or Gort. There is no evidence to suggest that Noble House Trading Pty Ltd, through its shareholding in Noble Steel, has benefited from any trading undertaken by Noble Steel, let alone trading with Steelco’s former steel strapping customers by the separate company, Noble Steel Trading Pty Ltd, after July 2008.
91 In late June 2008, Steelco owed Noble Steel approximately $71,000. Parts of that sum had been owing for more than 60 or 90 days. The sum remains unpaid. It is not clear why it was not paid before July 2008, although Steelco’s counsel, Mr Northrop, suggested that Steelco had simply extended the payment terms slightly and the critical matter was the unauthorised trading by Noble Steel with Roofmart WA and Strammit after July 2008. I consider, however that the failure by Steelco to pay the outstanding accounts added to the financial difficulties of Noble Steel and probably led to the decision by Dyer to incorporate another company to take over the slitting and recoiling machinery and to continue to produce steel strapping.
92 Dyer’s evidence that Noble Steel had debts which Dyer later paid out was not seriously challenged and this seems likely in view of Steelco’s failure to pay the accounts owing to Noble Steel.
Noble Steel’s claim against Steelco
93 Apart from the counterclaims which I have dealt with, there was no other basis upon which it was alleged that Steelco had a defence to the claim by Noble Steel in respect of the outstanding accounts. In the circumstances, Noble Steel will be entitled to judgment together with interest pursuant to statute.
Orders 94
There will be judgment for the plaintiff against the defendant for $71,051.54 together with interest pursuant to statute. The defendant’s counterclaim will be dismissed.
95
I will hear further submissions from the parties in relation to issues of interest and costs.
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Certificate
I certify that these 29 pages are a true copy of the reasons for decision of His Honour Judge
Anderson delivered on 21 December 2010.
Dated: 21 December 2010.
Hannah Christensen
Associate to His Honour Judge Anderson
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