Baird v Crowe Horwath (Aust) Pty Ltd
[2016] FCCA 1379
•10 June 2016
FEDERAL CIRCUIT COURT OF AUSTRALIA
| BAIRD v CROWE HORWATH (AUST) PTY LTD | [2016] FCCA 1379 |
| Catchwords: EQUITY – Breach of fiduciary duties – employee’s misuse of confidential information – exploiting employer’s confidential information to acquire a personal benefit to the employee. CONTRACT – Summary termination for egregious breaches of contract of employment and of fiduciary duties. |
| Legislation: Corporations Act 2001 (Cth), s.182 Fair Work Act 2009, ss.44, 117, 123, 323 |
| Cases cited: P. D. Finn, Fiduciary Obligations (1977) |
| Applicant: | ANDREW BAIRD |
| Respondent: | CROWE HORWATH (AUST) PTY LTD ACN 006 466 351 |
| File Number: | MLG 792 of 2014 |
| Judgment of: | Judge Wilson |
| Hearing dates: | 2 – 3 December 2015 |
| Date of Last Submission: | 3 December 2015 |
| Delivered at: | Melbourne |
| Delivered on: | 10 June 2016 |
REPRESENTATION
| Counsel for the Applicant: | Mr D. Bongiorno |
| Solicitors for the Applicant: | Holding Redlich |
| Counsel for the Respondent: | Mr J. Tracey |
| Solicitors for the Respondent: | Minter Ellison |
ORDERS
The Application – Fair Work Division filed by the applicant on
30 April 2014 is dismissed.
Within 14 days of the date of this order, each party file and serve written submissions with respect to costs.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLG 792 of 2014
| ANDREW BAIRD |
Applicant
And
| CROWE HORWATH (AUST) PTY LTD ACN 006 466 351 |
Respondent
REASONS FOR JUDGMENT
Introduction
By application filed 30 April 2014, Andrew Baird (“the applicant”) sought liquidated damages in the sum of $122,512.50 together with other relief arising out of what the applicant asserted was a contravention of the Fair Work Act 2009 (Cth) (“the Act”).[1]
The applicant also claimed relief for breach of contract. In essence,
the applicant contended that Crowe Horwath (Aust) Pty Ltd
(“the respondent”), of which he was an employee between
February 2000 and April 2014, had wrongfully dismissed him.
[1] Statement of Claim filed 30 April 2015.
The respondent contended that it was entitled to summarily dismiss the applicant on account of the fact, so the respondent contended, that the applicant had engaged in conduct amounting to gross or serious misconduct. The applicant asserted that there were no circumstances warranting his summary dismissal.
Synopsis
For the reasons that follow, in my judgment –
a)the applicant engaged in conduct amounting to gross or serious misconduct;
b)the respondent was entitled to terminate the applicant’s employment by reason of his gross or serious misconduct;
c)on 8 April 2014, the respondent terminated the applicant’s employment with the respondent, as it was entitled to do; and
d)no compensation is payable by the respondent to the applicant.
I dismiss this proceeding. I will receive submissions in relation to orders for payment of the costs of this proceeding.
Background
At all relevant times, the respondent carried on business providing accountancy, audit, tax, business and financial advice throughout Australia to various industries and clients. It operated from 13 offices in western Victoria, one office in Melbourne and seven offices in eastern Victoria.
At all relevant times, the applicant had been a certified practising accountant with qualifications that included a bachelor of commerce degree and a bachelor of agricultural science degree.
The applicant commenced employment with the respondent on
14 February 2000.
On 24 August 2012, the applicant and respondent entered into an agreement in relation to the applicant’s role as a principal of the respondent (“the employment contract”).[2] The employment contract contained provisions in relation to the applicant’s commencement, hours of work, salary (base and bonuses), travel, leave entitlements and other machinery provisions. Two other express provisions of the employment contract were relevant to this proceeding, namely cl.5 (Duties) and cl.16 (Termination).
[2] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-1’.
Clause 5 was in the following terms –
5. Duties
5.1 You must:
(a)perform to the best of your ability and knowledge the duties assigned to you by the Company from time to time, whether during or outside its business hours, at such places as the Company reasonably requires and for the benefit of whoever the Company directs (including any Group Member or third party);
(b)serve the Company faithfully and diligently and to the best of your ability;
(c)use all reasonable efforts to promote the interests of the Group;
(d) act in the Group’s best interests;
(e)display the highest ethical and professional standards of service delivery and confidentiality towards the Group and their clients;
(f) comply with all lawful directions of the Company;
(g)dedicate your time and attention during working hours exclusively to the discharge of your duties except as may be authorised in writing by the Company;
(h)comply with all laws applicable to your position and the duties assigned to you;
(i)comply with all policies, guidelines or procedures of the Group; and
(j)comply with all Australian financial services licence laws and compliance measures applicable to the Employment.
5.2 Without limiting your duties to the Company, you must not:
(a) act in conflict with the Group’s best interests;
(b)be involved in competing or preparing to complete with any Group Member;
(c)perform work for any person other than a Group Member without first obtaining the Company’s written consent; or
(d)refer any business of a type performed by any Group Member to any external party without the specific written permission of the Company.
5.3The Company may vary your duties as it considers necessary from time to time.[3]
[3] Affidavit of Andrew Baird sworn 20 October 2015, annexure ‘AB-1’ at pp.46-47.
Clause 16 was in the following terms –
16. Termination
Termination with notice
16.1During the Probationary Period, your employment may be terminated by either party by providing the other the period of written notice set out in Item 9(a) of Schedule 1.
16.2Following the Probationary Period, your employment may be terminated:
(a)by you giving to the Company the period of written notice as set out in Item 9(b) of Schedule 1;
(b)by the Company giving you the period of notice as set out in Item 9(b) of Schedule 1; or
(c)by you and the Company reaching mutual agreement regarding the date that your employment will cease. If the date that your employment ceases is less than the notice period, as stated in Item 9(b) of Schedule 1, then the Company will only pay your salary and other benefits to the date of employment cessation, not the full notice period.
Notice Periods
16.3The Company may require you to work out part or whole of the notice period. It may also elect at its discretion to waive the requirement that you work the notice period in part or in full and make a payment to you calculated by reference to your Remuneration at the date of cessation of employment in lieu of any period of notice not worked. If the Company does so, then your employment terminates on the date that the Company notifies you of this election or such other date as the Company may specify.
16.4If you give the Company notice, you will notify the Company whether it is your intention to join a Competitor.
16.5if either you or the Company gives the other notice to terminate your employment the Company can at its absolute discretion require that you perform only those duties determined by it, or no duties, during part or all of the notice period.
Termination for Cause
16.6The Company retains the right to terminate your employment without notice or payment in lieu of notice in circumstances warranting summary dismissal.[4]
[4] Affidavit of Andrew Baird sworn 20 October 2015, annexure ‘AB-1’ at pp.50-51.
The applicant’s role with the respondent as principal was expressed to have been operative on and from 1 July 2012 even though the employment contract was entered into on 24 August 2012.
In or around July 2013, the applicant was promoted to the position of managing principal. He occupied that role in April 2014 when the main events relevant to this litigation took place. In the role of managing principal, the applicant was responsible for overseeing the respondent’s offices in Mulgrave and Pakenham.
In 2014, the respondent was organised in such a way that the group managing director, Chris Price, oversaw all of the respondent’s operations including the work of the southern region chief executive, Bruce Roberts. Mr Roberts oversaw the respondent’s operations in Tasmania, the Murray Darling, Melbourne, western Victoria and eastern Victoria. The applicant and another employee of the respondent, Trevor Gordijn, were managing principals of the respondent’s eastern Victoria operations. The respondent’s
Chief Operating Officer, Karen Clerici, reported to the applicant and
Mr Gordijn.
The respondent’s head of financial services during the relevant period of 2014 was John Nantes. Organisationally, his seniority placed him on the respondent’s hierarchy at the same level as Mr Roberts yet answerable to Mr Price.
The events of September and October 2013
In paragraph 8 of his affidavit sworn 20 October 2015, the applicant deposed to concerns that he entertained about the respondent’s financial condition in late 2013. He gave evidence that under the incumbent national chief executive officer of the respondent, a national alteration had occurred in the respondent’s business strategy and direction. The applicant gave evidence that numerous redundancies occurred between late 2013 and early 2014, that the respondent had performed badly and that it had suffered a revenue decline as well as a decline in profits over the two previous years.
The applicant gave evidence that in 2012 and again in 2013 the amount of bonuses that the respondent paid decreased. He swore that he was concerned he would not be paid a bonus in relation to the financial year ended 30 June 2014.
The applicant also gave evidence that in late 2013 he took the view that a real possibility existed for the respondent to be placed in administration. He said at about that time, rumours circulated about the future of certain aspects of the respondent’s financial planning business. The applicant did not descend into any detail about the basis for his view that the respondent was at risk of being placed in administration. He did not say whether creditors were at that time expressing their preparedness to appoint administrators. For that matter, the applicant gave no evidence to support the expressions of his concern about the state of the respondent’s financial health. Similarly, the applicant did not give any details to support his assertions that rumours were circulating about the future of the respondent’s financial planning business.
The applicant gave evidence that his colleagues told him in the period between late 2013 and early 2014 that they were concerned about the uncertainty of their employment. He did not say who told him of those concerns nor did the applicant say, in express terms, what those concerns were.
According to paragraph 10 of his affidavit sworn 20 October 2015,
in the period between September and October 2013, the applicant prepared what he described as “basic documents” in connection with his proposal to set up his own business. In his viva voce evidence the applicant said those documents took very little time to prepare, mostly in the order of 10 minutes or thereabouts. It is necessary for me to examine those documents in detail. They bear directly upon a threshold issue in this case. They also go to an issue concerning the applicant’s credibility. Mr Baird maintained that he spent very little time preparing each document and that his purpose in preparing each document was unrelated to any attempt to injure the business or reputation of his employer, the respondent. In that viva voce evidence, the applicant was at pains to put up a wholly innocent complexion about the detail in and purpose of each of those documents.
The first document was a computer spreadsheet. It did not have a title yet the words “2013/14 budget revenue model” appeared at the top left corner of the document.[5] It was densely typed. On it, information was laid out vertically as well as horizontally.
[5] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-3’.
Vertically, details were entered in relation to the name of a particular staff member, his or her start date, his or her finish date, whether that staff member was in full-time employment, and the total work days, holidays, public holidays, sick days and study days were also recorded. Beneath that appeared working days left, hours per day with a sub-total called ‘total hours’. Beneath that appeared marketing, promotion and other issues. Beneath that other features appeared including charge-out rates, potential net capacity potential, budgeted staff costs and multiple rates. Entries appeared for superannuation, payroll tax and WorkCover. Further down on the left column salary details appeared in relation to the persons whose names were entered across the horizontal plane of the spreadsheet. The salary details that descended on the extreme left of the table included proposed salary, bonus, superannuation, payroll tax, WorkCover, increase in AL (which I infer meant an increase in
accrued annual leave), increase in LSL (which I infer meant an increase in accrued long service leave), payroll tax and WC on profit pool. Evidence specifically addressed to an interpretation of the letters WC was not given. The last four lines on the left column were devoted to the numbers of weeks of leave per year and annual leave accrued including 15% on costs, daily and monthly accrual.
The horizontal plane of the spreadsheet was filled with information about specific people. The applicant was the first entry across the horizontal plane. Counting from left to right, the spreadsheet contained entries for 18 people, the last of whose first name was ‘Cameron’. Moving further right, after the entry ‘Cameron’, the spreadsheet contained entries in two columns that were not named. The last four columns in the spreadsheet with names, that is to say the last four shaded in yellow, were devoted to practice support persons, one receptionist and a further practise support person, the first name of whom was ‘Tania’. To the far right of the spreadsheets were columns for totals, gross contributions, percentage margins, net income,
net profit, interest and other particulars.
The bottom entries on the right side of the spreadsheet included
the following initials and dollar amounts - “AB + JN + Profit $752,536.25”.[6]
[6] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-3’.
Through other evidence given during the trial of this proceeding, I infer that the reference to ‘AB’ and ‘JN’ was a reference to the applicant (‘AB’) and Mr Nantes (‘JN’).
As is developed below, in view of the detail and level of particularity of the entries on that spreadsheet, the number of entries on it,
the precise dollar amounts and the differences in those amounts on almost every entry on the spreadsheet, I am unable to accept that the spreadsheet was created in a matter of minutes as the applicant asserted in his viva voce evidence.
The applicant stated in his affidavit sworn 20 October 2015 that he prepared a further spreadsheet. That second spreadsheet contained entries similar but not identical to those of the first spreadsheet.
The vertical entries on the left of the spreadsheet were the same as those on the first spreadsheet, although the dollar amounts differed. Similarly, the number of employees listed horizontally across the top of the spreadsheet was the same. The net profit figures were different as between the first and second spreadsheets and the entry “JN take-home” was $350,000.00 on the second spreadsheet whereas a zero amount appeared as the corresponding entry on the first spreadsheet.[7]
[7] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-3’.
The applicant gave evidence that in the period September 2013 to October 2013, he prepared other calculations.[8] In his viva voce evidence the applicant described the purpose of those calculations as being to “contemplate what a business might look like”.[9] The applicant gave evidence that he included in the calculations he prepared an array of the respondent’s existing clients and he made projections over the period November 2013 to November 2014 as to the income each of those clients might generate if those clients were the applicant’s own clients. The clients numbered 15 in total. Some were shown as contributing income from February 2014. Ten were shown as generating income on a month after month basis from April 2014. Certain of the clients on that set of calculations were shown as not contributing any income at all in the period November 2013 to November 2014. On that set of calculations, total income was
projected at the rate of $49,000.00 per month from April 2014 to November 2014. From that monthly projection of income,
the calculations for the period April 2014 to November 2014 showed on a consistent monthly basis, month after month total monthly payments of $25,874.00, a gross margin of $23,126.00, overheads of $5,000.00 and a net profit of $18,126.00.[10]
[8] Ibid.
[9] Transcript of Proceedings, 2 December 2015, p.16 at line 33.
[10] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-3’.
The same calculations made provision for different arithmetic in the period December 2014 to October 2015. In that period all 15 clients were shown as contributing income that aggregated on a regular ongoing monthly basis the sum of $58,000.00. Salaries were shown as a constant in the sum of $45,874.00. The gross margin over that period was shown on a regular monthly basis to be $12,126.00. Overheads fluctuated by one dollar per month with the amount in December 2014 being $5,001.00 and the amount in October 2015 being a $5,011.00. Net profit in the period December 2014 to October 2015 reduced by one dollar each month from $7,125.00 in December 2014 to $7,115.00 in October 2015.[11]
[11] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-3’.
The applicant also gave evidence that he created certain projections in relation to the financial planning activities of the business then in his contemplation. The arithmetic of those projections was set out on two pages that recorded eight clients with amounts attributed to each ranging from half a million dollars to $2 million. In those calculations funds under management were shown as $22,200,000.00 and the gross contribution was shown as being $109,234.00.[12]
[12] Ibid.
The last of the documents created by the applicant in the period September 2013 to October 2013 was a single sheet of calculations,
the top line of which read “Mulgrave, Bairnsdale, Pakenham, and FP Total”.[13] The applicant gave evidence that he selected the locations of Mulgrave, Bairnsdale and Pakenham because the people in those officers were more entrepreneurial than were the staff in the respondent’s offices in Sale, Warragul and Traralgon who, according to the applicant, were “less like-minded”.[14] The document created by the applicant disclosed a projected income of $5,492,000.00 made up of $2.2 million from Mulgrave, $2 million from Bairnsdale and
$1 million from Pakenham and a further $292,000.00 from financial planning.[15] The document recorded a collection of outgoings and, at the foot of the document, showed several key entries. One was “Total Our profit $1,413,721”.[16] Another was “JN salary $375,000” and
“AB salary $375,000”.[17] The last was “Profit per Partner $706,861”.[18] The applicant gave evidence that the projections just described were based on the respondent’s existing clients coming across to any new venture that the applicant established.
[13] Ibid.
[14] Transcript of Proceedings, 2 December 2015, p.19 at line 21.
[15] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-3’.
[16] Ibid.
[17] Ibid.
[18] Ibid.
In paragraph 10 of his affidavit sworn 20 October 2015, the applicant stated he did not provide to Mr Nantes or to any employee of the respondent the documents he prepared between September and October 2013.
The events of November 2013
The applicant gave evidence that during November 2013 he met certain of his colleagues, one of whom was Mr Gordijn, to discuss the respondent’s future. At the time Mr Gordijn was a managing principal of the respondent. The applicant did not give the date of the meeting. However he said the meeting took place at Warragul Cricket Club.
The applicant said that Mark Zeldenryk, Daniel Hilton and David Reid also attended that meeting. According to the organisational chart which the applicant exhibited to his affidavit, Mr Reid, Mr Hilton and
Mr Zeldenryk were principals who answered to the applicant or to
Mr Gordijn. Aspects of that meeting were the subject of conflicting evidence. Mr Reid and Mr Hilton did not give evidence in this proceeding. Mr Gordijn did. As with the applicant, Mr Gordijn swore an affidavit[19] and he was cross-examined. The applicant and
Mr Gordijn each addressed the events at the November 2013 meeting at the Warragul Cricket Club. Aspects of their evidence differed.
[19] Affidavit of Trevor Gordijn affirmed 13 November 2015.
In paragraph 15 of his affidavit affirmed 13 November 2015,
Mr Gordijn gave evidence that he called the meeting at the Warragul Cricket Club. He said he did so because he was frustrated
with the management of the respondent and he wanted to address
Messieurs Zeldenryk, Hilton, Reid and the applicant on the issue.
Mr Gordijn said, as did the applicant, that the purpose of the meeting was to discuss the respondent’s future and the steps that could be taken by them to minimise the risk of the financial difficulties the respondent then faced. The applicant said in paragraph 11 of his affidavit sworn
20 October 2015 that at that meeting those present discussed how the principals of the respondent would probably leave the respondent if the respondent did not pay bonuses in the 2014 financial year or, if paid, the bonuses were low. Mr Gordijn did not address the issue of bonuses in his recital of the events at that meeting.
The applicant said in paragraph 12 of his affidavit sworn
20 October 2015 that those present at the meeting discussed briefly what they might do if the business of the respondent were to collapse. Mr Gordijn disagreed that any such thing was said. Mr Gordijn said in paragraph 15 of his affidavit affirmed 13 November 2015 that the meeting was not about exit planning but rather the meeting concerned fixing the financial difficulties that the respondent was then facing.
He said those present were attempting to ensure that the respondent did not collapse. Mr Gordijn was not cross-examined on his version of the meeting at the Warragul Cricket Club.
In his cross-examination, the applicant agreed that those present at the November 2013 meeting at the Warragul Cricket Club discussed ensuring that the respondent did not collapse. The applicant also agreed that those present at the meeting discussed ways to minimise the risk of financial difficulties to the respondent and to develop strategies to overcome those risks. The applicant admitted that, in passing, those present at the meeting discussed what others might do if the respondent were to collapse. It is fair to say that the applicant and Mr Gordijn gave evidence that largely corresponded in the sense that the meeting in November 2013 at the Warragul Cricket Club was called by
Mr Gordijn, that its substantial purpose was to canvass ways of ensuring that the risk of the financial difficulties to the respondent were minimised and that those present discussed the development of strategies to overcome those risks. It is also fair to conclude that any discussions about the things people might have done had the respondent collapsed was very much peripheral to the main purpose of the meeting and the subject matter of discussions.
Events between late 2013 and March 2014
The applicant gave evidence of other meetings he had with fellow staff members of the respondent in late 2013. In his affidavit sworn
20 October 2015, he gave evidence of conversations with a junior colleague called James Patterson to the effect that the applicant and
Mr Patterson may have gone into business with Mr Nantes if the respondent went into administration. The applicant gave evidence that as a result of that conversation, Mr Patterson sent an email to the applicant on about 18 November 2013 which contained a detailed business model setting out what the applicant, Mr Nantes and
Mr Patterson would do if the respondent was placed in administration. The applicant gave evidence that the model formulated by
Mr Patterson was too detailed so he deleted the email. The applicant did not produce a copy of the email at trial.
The applicant gave evidence that he met with Mr Nantes, Mr Patterson and Paul Bryant at the applicant’s home on 19 November 2013.
The applicant gave evidence that he told those present that he had spoken with other employees of the respondent (although he did not say to whom he had spoken) who were considering resigning from the respondent. The applicant said the conversation then turned to the possibility of a mass exodus from the respondent and how the respondent may have been placed in administration. Mr Bryant did not give evidence at the trial of this proceeding.
Mr Nantes gave evidence about discussions at the applicant’s home on 19 November 2013. He said that, as at 19 November 2013, a private equity offer was under consideration. Mr Nantes said the respondent was “in bad shape”[20] although Mr Nantes did not explain what that phrase meant or whether he spoke from personal knowledge about the respondent’s financial condition. In passing, I observe that no financial evidence of any description was adduced before me to support the suggestion that the applicant was, as Mr Nantes said, “in bad shape” [21] or that someone (creditors or otherwise) were poised, ready to place the respondent into administration. The evidence of the applicant and
Mr Nantes was replete with references to the alleged imminence of the respondent’s collapse yet no financial evidence to support that assertion was adduced. As at the date of the trial of this proceeding, the respondent was not in administration.
[20] Affidavit of John Nantes sworn 20 October 2015 at [13(a)].
[21] Ibid.
To resume with Mr Nantes’s version of the meeting of
19 November 2013, he said the discussions were at a “high level”.[22] Mr Nantes said those present asked what would happen if the respondent went into liquidation or if parts of the respondent were sold. Neither the applicant nor Mr Nantes spoke of any concrete proposal emerging from the discussions on 19 November 2013. A reasonable construction of the meeting of 19 November 2013 was a group of the respondent’s employees who gathered in social circumstances and who spoke in broad and unspecific terms about their interpretation of the
so-called malaise in which their employer then found itself.
[22] Affidavit of John Nantes sworn 20 October 2015 at [13(b)].
The applicant gave evidence that in December 2013, he and Mr Nantes spoke about the possibility of the respondent’s collapse and their personal futures in that eventuality. The applicant swore in his affidavit of 20 October 2015 that he and Mr Nantes discussed forming a business together. He said those discussions were broad.
In late December 2013, Mr Nantes came up with the notion of involving Macquarie Bank (“Macquarie”) in purchasing part of the respondent’s business. As part of the narrative of the events leading to this litigation, it is important to keep in mind that the applicant and
Mr Nantes were, as at December 2013, middle-management employees of the respondent. Their discussions of engaging with a major financial institution such as Macquarie were not sanctioned by the owners or controllers of the respondent. To the contrary, the respondent’s owners and controllers did not even know that two of the respondent’s employees were involved in formulating ways to offer one or more parts of the respondent to a prospective purchaser. The applicant admitted in cross-examination that he did not discuss with his superiors the fact of there being communications with Macquarie between himself and Mr Nantes.
The concept formulated by Mr Nantes was recorded in an email sent by Mr Nantes to the applicant at 10.39 a.m. on 22 September 2013.[23]
[23] Affidavit of John Nantes sworn 20 October 2015 at annexure ‘JN-1’.
In that email Mr Nantes put forward a five-point set of assumptions and a collection of six questions for the applicant and Mr Nantes to address –
Hi,
Potential thinking:
1. Market cap sits around $80m. Call it $100m to make simple. Equation is $400m for $100m market cap made up of $100m FS, $50m Audit, remainder Accounting and Tax.
2. Assume requires $130m to complete deal based upon some premium.
3. Audit is an issue for risk management, as such sell audit to partners as follows (consider):
a. Price at 70c so $35m price.
b. It is a separate entity currently.
c. Vendor finance provided.
d. Audit remains within Crowe Horwath as a service provider via referral and pays overhead costs using GSS/Infrastructure, term 5 years.
*Therefore audit risk removed going forward.
4. Allow Principals of FS and BS to then buy back equity, 60% to 70%. At 80c, even vendor funded, results in:
a. $350m @ 80c = $280m payment back to Macquarie.
b. Vendor terms at 6% finance, margin on the amount.
c. Do firm by firm and Macquarie keep higher stake where Principals not participate.
d. All firms must use GSS, cannot create cost impacts on Group, eg move to different office and leave group with burden of rent.
*Results in equity for staff meaning no loss of fees and absconding behaviour. Replicates Count and Easton approach.
5. Macquarie result:
a. $130m down however Capital return first 2 years on transition to 70:30 of $$330m (sic).
b. 30% ownership and income flow from GSS and profit pools each firm.
c. Cash and related revenue synergies from product, eg CMA, Insurance, Debt, Corporate Finance.
d. Further synergies from FS alignment to Macquarie.
e. Vendor financing margin, securing entities within the ownership structure.
Question for us:
1. How do Andrew and John ‘win’ out of this directly from the deal? Do we become Macquarie employees day 1 and then turn around and take company back through this structure? Thereby securing success fees and equity?
2. Peter Warne on both boards, how do we ensure we are not impacted from this personally?
3. Can we receive equity on favourable terms?
4. Do we structure it differently to create win? Eg, John receives 10% equity FS component day 1 (Auld), Andrew x% EV day 1?
*In SFG merger JC worked for SFG then came back. We could do same potentially, sign on fee to Macquarie and then make deal happen?
5. We are being circled, Macquarie will miss opportunity if does not act as same for others.
6. Cost synergies exist for Macquarie, need someone to run company however to make it work.
What do you think?[24]
[24] Affidavit of John Nantes sworn 20 October 2015 at annexure ‘JN-1’.
Of particular relevance in that proposal were the following matters. The deal under consideration required $130 million to complete. Next, audit was an issue for risk management so Mr Nantes proposed that audit would be sold to “partners” on the basis recorded in paragraphs 3(a) to (d). Going forward, that had the effect of removing the risk posed by audit. So far as questions for the applicant and Mr Nantes were concerned, the first was important in its reference to -
How do Andrew and John ‘win’ out of this directly from the deal? Do we become Macquarie employees day 1 and then turn around and take company back through this structure? Thereby securing success fees and equity?[25]
In a similar vein, question three was “[c]an we receive equity on favourable terms?”[26]
[25] Ibid.
[26] Ibid.
The applicant confirmed in cross-examination that the email recorded a proposal by which he intended to deal with Macquarie. The applicant also confirmed in cross-examination that by that proposal, he and
Mr Nantes were taking an opportunity to Macquarie. When asked whose opportunity it was – his or his employer’s – the applicant said “it would be … an opportunity for me to make some money… From a proposed management buyout”. [27]
[27] Transcript of Proceedings, 2 December 2015, p.30 at lines 1-2 and 6.
As to whether the applicant should have informed the respondent about this proposal, the following was the applicant’s response –
Now, that is the sort of thing that your employer might have wanted to know about, don’t you agree?‑‑‑Potentially.
Well, it’s more than potentially. It is very much in their interests to know about it, isn’t it?‑‑‑Sure. Yes.
You didn’t think it was appropriate to talk to them about that, particularly given the fact that you were going to obtain for your personal benefit an opportunity that arose out of your employment contract?‑‑‑Yes, yes.
Well, what’s your answer to my question?‑‑‑That I should have – sorry, what’s the question again, sorry?
Did it not cross your mind to take to your employer the fact that you personally would benefit from an opportunity that ought to have been conferred on your employer?‑‑‑It didn’t at the time, no.
Has it any time since?‑‑‑No.[28]
[28] Transcript of Proceedings, 2 December 2015, p.30 at lines 8-25.
The events of January 2014
In January 2014 the applicant met with Tim Joyce, executive director of Macquarie Capital. Mr Nantes accompanied the applicant to the meeting with Mr Joyce. The meeting was preceded by an email sent by the applicant to Mr Joyce from the applicant’s private email address.[29] That email was dated 22 December 2013 at 8.06 p.m. The email was similar to but not identical with the email bearing the same date sent earlier that day by Mr Nantes to the applicant. The email was in the following terms –
[29] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-5’.
Hi Joycey,
Great to see you and Jane on Friday night. I want to run past you some thinking about where our business is at. I know you're flat out this week, but any chance you have time to talk tomorrow in confidence?
Me and a good mate (who runs the financia1 services division of the whole Crowe Horwath business) have been talking about the opportunity to make some money here given the current state of the business. And importantly set it right for the future.
Basically the market cap is at $80m, and the value of the individual businesses is around $315m. There is an appetite for Principals to buy majority stakes in their individual businesses/offices/regions, especially if it were vendor financed. Long story short I think there is an opportunity here to make around $100m, plus get some value back into the business with a model that sets it up for the future.
The key points are as follows:
1. Market cap sits around $80m. Call it $100m to make simple. Equation is $400m revenue for $100m market cap made up of $100m Financial services (financial planning, lending, insurance, SMSF), $50m Audit, remainder Accounting and Tax (Business services - BS).
2. Assume a requirement of $130m to complete a deal based upon some premium.
3. Audit is an issue for risk management, as such sell audit to partners as follows (consider):
a. Price at 70c so $35m price.
b. It is a separate entity currently.
c. Vendor finance provided.
d. Audit remains within Crowe Horwath as a service provider via referral and pays overhead costs using Group shared services (GSS)/Infrastructure, term 5 years.
*Therefore audit risk removed going forward.
4. Allow Principals of FS and BS to then buy back equity, 60% to 70% of their respective businesses/offices/regions. At a price of 80c per dollar of revenue, vendor funded, results in:
a. $350m @ 80c x 70% = $196m payment back.
b. Vendor terms at 6% finance, margin on the amount.
c. Do firm by firm and we keep higher stake where Principals not participate.
d. All firms must use GSS, cannot create cost impacts on Group, eg move to different office and leave group with burden of rent.
*Results in equity for staff meaning no loss of fees and absconding behaviour. Replicates Count and Easton approach.
5. Overall result:
a. $130m down initially however Capital return first 2 – 3 years on transition to 70:30 of $230m.
b. 30% ownership and income flow from GSS and profit pools from each firm.
c. Cash and related revenue synergies from product, eg CMA, Insurance, Debt, Corporate Finance.
d. If we partnered with Macquarie or another bank, then further synergies with product.
e. Vendor financing margin, securing entities within the ownership structure.
So some questions that I’d like to discuss with you:
- How hard would it be to raise $130m for a deal like this? Take CH private, and re-work our operating model to realise value.
- Is this something you would be interested in driving, given the potential upside? I have no idea how to make something like this fly, but I expect you do? I know its (sic) a small deal in the scheme of things, but the profit potential could be significant?
- How would we partner with a bank or other funder, to ensure we are cut in on the deal in the best way ($100m + to be made if done well)
- Macquarie and Crowe Horwath have a common director,
Peter Warne, is this an issue?
- Changing the business model to the above where the Principals own 70% of their individual businesses would fix a whole range of issues in the business
- I expect that others would be looking at the same sort of deal (SFG, WBC through BT, IOOF, Easton) so my sense is time is of the essence.
- Is it beneficial to be working from the inside as this type of deal played out? Me operating in the field as a
Managing Principal, influencing Principals on the ground, with another at an Exec level?
Are we able to have a chat about it tomorrow afternoon?
Cheers!
Bairdy[30]
[30] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-5’.
Of significance was the second paragraph of the email. It read –
Me and a good mate (who runs the financia1 services division of the whole Crowe Horwath business) have been talking about the opportunity to make some money here given the current state of the business. [31]
Further, under the entry “[s]o some questions that I’d like to discuss with you” were the following –
[31] Ibid.
- How hard would it be to raise $130m for a deal like this? Take CH private, and re-work our operating model to realise value.
…
- How would we partner with a bank or other funder, to ensure we are cut in on the deal in the best way ($100m + to be made if done well)
- Macquarie and Crowe Horwath have a common director,
Peter Warne, is this an issue?
…
- Is it beneficial to be working from the inside as this type of deal played out? Me operating in the field as a
Managing Principal, influencing Principals on the ground, with another at an Exec level?[32]
[32] Ibid.
It will be remembered that the respondent was not the applicant’s to sell or to even negotiate over. He was an employee of the respondent when he wrote that email to a financier. The applicant had no authority to be purporting to pledge the business of his employer to a financier.
Next, it will be observed that the applicant, by that email,
was purporting to ensure that he was “cut in on the deal in the best way ($100m + to be made if done well)”.[33] Next, the applicant recognised that the deal had complications, not the least of which was the fact that a person common to the boards of both the respondent and Macquarie was involved. The applicant posed the question for Mr Joyce, “is this an issue?”[34]
[33] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-5’.
[34] Ibid.
Next, the applicant asked Mr Joyce whether it was beneficial for him to be “working from the inside”[35] by, among other things, influencing principals on the ground.
[35] Ibid.
The applicant confirmed in cross-examination that his personal aims of the time were recorded in the sentence of that email –
Me and a good mate (who runs the financia1 services division of the whole Crowe Horwath business) have been talking about the opportunity to make some money here given the current state of the business. And importantly set it right for the future.[36]
[36] Ibid.
There is no leap in logic to deduce that the email from the applicant to Mr Joyce was a proposal by which the applicant intended to personally benefit (significantly, as it happened) from the sale of aspects of his employer’s business.
Upon meeting Mr Joyce in January 2014, it seems that Macquarie was not interested in the proposal advocated by the applicant.
In cross-examination, the applicant admitted that he divulged confidential information owned and belonging to the respondent to Macquarie when revealing to Macquarie the value of the respondent’s business as approximately $315 million. The applicant also admitted that he was not permitted to divulge that confidential information.
He further admitted that he did not reveal to anyone at the respondent that he had in fact divulged his employer’s confidential information. The applicant further admitted that divulging confidential information belonging to his employer struck at the heart of his employment contract, a matter of which he was aware.
In notes that the applicant prepared in his meeting with Mr Joyce,[37]
the applicant recorded that he and Mr Nantes each stood to gain
$5 million from the sale of the respondent’s business to Macquarie.
The applicant admitted in cross-examination that he intended to personally derive $5 million from the Macquarie transaction, as did
Mr Nantes.
[37] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-6’.
The applicant said in cross-examination that he did not report to anyone at the respondent that the proposal with Macquarie did not proceed.
The government tender
It was common ground in this litigation that prior to the events of March 2014, the respondent won a successful tender from the
Victorian government. The precise date on which the respondent was awarded that tender was not given in evidence. However, several witnesses referred to the date of the award being December 2013.
The applicant gave evidence that between Christmas 2013 and
New Year 2014 when the respondent’s offices were closed,
the respondent was notified that the Department of State Development and Business Innovation (“DSDBI”), a state government department, was soon to let in the respondent’s favour a contract
worth approximately $3.5 million, work on which was to commence in February 2014. The applicant gave evidence that he and his fellow employees were counting on the fact that the DSDBI contract would ensure that they were paid bonuses. The applicant said that the DSDBI contract was the largest single contract that the respondent had won, led by him and his team at Mulgrave.
By March 2014, Mr Nantes who had from May 2012
been the respondent’s head of financial services, was made
redundant. His contract came to an end on 31 March 2014. Between
21 and 31 March 2014, Mr Nantes was employed by the respondent but he was on gardening leave. He said he feared for his job from November 2013.
The events of March 2014
One of the more important events of this case occurred at a meeting held in Bairnsdale on 26 March 2014. Several witnesses deposed to the events of that meeting. It is important for me to address the events that led to the meeting held on 26 March 2014. In the passages below I also canvass the events of the meeting itself.
Four people attended the meeting – the applicant, Mr Nantes,
Scott Ashley and Timothy Morrison. Each gave evidence at length about the meeting, especially who said what to whom. The meeting was held at The River Grill restaurant in Bairnsdale. The applicant described the meeting as a “social lunch”.[38] Mr Nantes described the meeting as “a lunch … a social catch up in light of my departure”.[39]
[38] Affidavit of Andrew Baird sworn 20 October 2015 at [21].
[39] Affidavit of John Nantes sworn 20 October 2015 at [21].
In these reasons I have described the events on 26 March 2014 during the meeting at The River Grill restaurant in Bairnsdale as
‘the Bairnsdale meeting’. While the gathering began as a social
get-together among four fellow employees of the respondent, and to that extent it was casual, the subject matter discussed at the
Bairnsdale meeting was very much businesslike. It is appropriate therefore to accord it the status of the meeting even though it did not proceed according to an agenda nor were minutes of its resolutions kept.
The Bairnsdale meeting originated from a telephone conversation between Mr Morrison and Mr Nantes on or about 18 March 2014.
Mr Morrison gave evidence that he called Mr Nantes after he had learnt that Mr Nantes had been made redundant. Mr Morrison said that during that telephone conversation Mr Nantes proposed lunch in the following week to which Mr Morrison agreed. Mr Morrison gave evidence that Mr Nantes later called him back to say that he
(Mr Nantes) had reserved a table at The River Grill restaurant on Wednesday 26 March 2014. Mr Morrison gave evidence that
Mr Nantes told Mr Morrison that Mr Nantes would bring a friend, although the identity of the friend who Mr Nantes said he would bring was not given to Mr Morrison. According to Mr Morrison, Mr Nantes requested Mr Morrison to see if Mr Ashley was available to attend.
Mr Morrison gave evidence that Mr Nantes told Mr Morrison that
Mr Nantes and his friend wanted to chat to Mr Morrison and
Mr Ashley about something. According to Mr Morrison, Mr Nantes then said “[l]et’s just keep it to the four of us”.[40] Mr Morrison gave evidence that on the same day, 18 March 2014 or thereabouts,
he contacted Mr Ashley who agreed to attend the Bairnsdale meeting and that Mr Morrison sent a text to Mr Nantes confirming the time and place of the Bairnsdale meeting.
[40] Affidavit of Timothy Morrison affirmed 11 November 2015 at [9].
The version given by Mr Nantes of the way the Bairnsdale meeting came about was more perfunctory than was the version given by
Mr Morrison. Mr Nantes gave evidence that he sent a text to each of Mr Morrison, Mr Ashley and the applicant to organise a lunch as a social catch up in view of his departure from the respondent.
Mr Nantes gave evidence that in the text message he said the lunch should be kept to those four persons. Mr Nantes gave evidence that he mentioned in the text message keeping the lunch to those four persons because he did not want to invite any other employee in the respondent’s Bairnsdale office with whom Mr Nantes did not get along.
Mr Nantes did not produce a copy of the text message he said he sent on 22 March 2014 to Mr Morrison, Mr Ashley and the applicant.
The applicant did not refer to any contact from anyone as the precursor to the Bairnsdale meeting. Instead the applicant gave evidence that he attended a social lunch on 26 March 2014, the lunch having been organised by Mr Nantes as an opportunity for Mr Morrison, Mr Ashley the applicant and Mr Nantes to catch up following the departure of
Mr Nantes from the respondent.
Mr Ashley’s version of the events prior to the Bairnsdale meeting more closely corresponded with the version given by Mr Morrison of the same event than it did with the version given by either the applicant or Mr Nantes. Mr Ashley gave evidence that in about March 2014 he received a telephone call from Mr Morrison telling him that Mr Nantes had contacted Mr Morrison wanting to catch up “with us”,[41] meaning with Mr Morrison and Mr Ashley. During that telephone conversation between Mr Morrison and Mr Ashley, Mr Ashley told Mr Morrison that he would attend that meeting. Mr Ashley gave evidence that he later received another telephone call from Mr Morrison to confirm
the details of the Bairnsdale meeting, namely 12.30 p.m. on
26 March 2014 at The River Grill restaurant in Bairnsdale.
[41] Affidavit of Scott Ashley sworn 11 November 2015 at [6].
In my view, the most accurate version of events leading to each party’s attendance at the Bairnsdale meeting was that of Mr Morrison. Conversely, the version most bereft of detail was that of the applicant. Mr Nantes swore a second affidavit on 27 November 2015. However Mr Nantes did not respond to the versions given of the events by
Mr Morrison or by Mr Ashley in the lead up to the Bairnsdale meeting. Mr Morrison’s version of the way the Bairnsdale meeting came about accorded most probably with the way events are likely to have transpired. On the balance of probabilities, it seems to me that the Bairnsdale meeting was arranged by an initial phone call, as
Mr Morrison said in his evidence. True, the Bairnsdale meeting could well have been arranged by text message in the way Mr Nantes said. However, Mr Nantes gave a precise date on which he said he sent a text to three specific persons, none of whom corroborated receiving any such text message as Mr Nantes said, let alone on the day
Mr Nantes said. Further, Mr Nantes did not produce the text message he said he sent to the applicant, Mr Ashley and Mr Morrison.
Further, Mr Ashley gave evidence that he became involved in attending the Bairnsdale meeting upon being contacted by Mr Morrison.
In this case no records were created by anyone of the discussions at the Bairnsdale meeting. That may be hardly surprising given that, according to one version, the meeting was largely social. That said,
I am required to make findings of fact about who said what to whom at the Bairnsdale meeting. The versions given by the applicant and
Mr Nantes of the conversation at the Bairnsdale meeting differed from the version given of the same conversation by Mr Morrison and
Mr Ashley. In view of the seriousness of the matters alleged by
Mr Morrison and Mr Ashley as having been said by the applicant at the Bairnsdale meeting, I am required to carefully assess whether the version given of the meeting by the applicant and Mr Nantes is to be preferred over the version given by Mr Morrison and Mr Ashley.
Let me take each in turn.
The applicant’s version
The applicant gave evidence that he was on annual leave on
26 March 2014. He said he drove over three hours in the company of Mr Nantes to attend the meeting. The applicant said all present drank alcohol during the meeting, with the exception of Mr Ashley.
The applicant said he was the most senior employee of the respondent at that meeting. He gave evidence that he did not bring any documents to the meeting, whether in the nature of a spreadsheet or otherwise.
The applicant also gave evidence that there was a brief discussion about Mr Joyce and Macquarie. The applicant gave evidence that all present discussed how the respondent was facing financial difficulties and that the future of the respondent was uncertain. The applicant stated in his affidavit sworn 20 October 2015 that he told the other three present at the meeting that it would be good if all four went into business together if the respondent collapsed. He also gave evidence that he told the other three that if the respondent was taken over or if the respondent collapsed, that would be a good opportunity for the applicant to buy some of the respondent’s fees. The applicant also gave evidence that he discussed with Mr Nantes, Mr Morrison and
Mr Ashley that work on the contract with DSDBI indicated that profit would be available for distribution in July 2014.
The details recorded in the preceding paragraph are paraphrasings of the whole of the applicant’s evidence-in-chief on the subject of the conversation at the Bairnsdale meeting. His evidence was not at all expansive. It amounted to little more than the applicant and the others discussing the respondent’s financial predicament, what the applicant would do in the event of the respondent’s takeover or collapse and the fact that the DSDBI contract was likely to produce a profit.
To my mind it is highly unlikely that the conversation at the
Bairnsdale meeting was as perfunctory as the applicant indicated in his evidence-in-chief.
The applicant denied saying an array of propositions, whether at the Bairnsdale meeting or otherwise. Mostly, those denials concerned the applicant’s establishment of a business in competition with his employer, the respondent.
Very little insight was offered in the applicant’s evidence-in-chief of his version of the Bairnsdale meeting.
In his cross-examination, the applicant denied most matters put to him as representing the evidence to be adduced through Mr Morrison and Mr Ashley concerning the Bairnsdale meeting.
The complexion the applicant put on the Bairnsdale meeting was that “[t]here were a whole range of hypothetical discussions at this lunch”.[42] He said that “[t]here was no discussion about a business or a business proposal or a business structure”.[43] The applicant said the lunch was “a good fun catch up”.[44]
[42] Transcript of Proceedings, 2 December 2015, p.41 at lines 15-16.
[43] Transcript of Proceedings, 2 December 2015, p.41 at lines 16-17.
[44] Transcript of Proceedings, 2 December 2015, p.41 at line 21.
When it was put to the applicant that he had driven for three hours to get to the Bairnsdale meeting, that he was facing a three-hour drive to get back and that six hours were spent for very little outcome, the applicant said he and the others “spoke about a whole range of aspects of the business but there was no business proposal”.[45]
[45] Transcript of Proceedings, 2 December 2015, p.41 at lines 23-24.
At its core, the applicant invited me to find that the Bairnsdale meeting was social in nature, bearing no legal significance. This was set against a backdrop in which, according to the applicant, he was concerned about the respondent’s overall financial viability, if not its survival. He had expressed his concerns on that issue since September of the previous year. The applicant had also privately and publically expressed his concerns about the possibility that the respondent might be placed in administration. The applicant’s assertions about the social nature of the Bairnsdale meeting were also set against a backdrop that he had undertaken his own modelling of various scenarios if he were to establish a new business, consequent upon the collapse of the respondent, at least one consequence of which involved the transition of several of the respondent’s existing clients to the applicant’s new business. The applicant’s assertion that the Bairnsdale meeting was largely social is also set against a backdrop in which the applicant and Mr Nantes had travelled to Sydney to discuss with Macquarie Capital the feasibility of Macquarie acquiring some or part of the business of the respondent. It will also be recalled that under the proposal with Macquarie, both Mr Nantes and the applicant were to each receive the sum of $5 million. On any view, that was a very considerable sum. During the six-hour return drive from Bairnsdale it was most unlikely that the applicant and Mr Nantes did not discuss aspects of the business proposal then under consideration between them.
Further, the applicant was, by March 2014, concerned about the likelihood of being paid what he said was an entitlement to a bonus.
Up to very late 2013 or early 2014, prior to the award of the DSDBI contract, there was no certainty that any bonus would have been paid. It is likely that the applicant was focused on the prospect of receiving a profit in relation of the period ended 31 December 2013.
The matters recorded in the preceding few paragraphs indicated to me that the applicant had not been fully frank in his evidence that the Bairnsdale meeting was largely social in nature and that no business proposal was discussed at the Bairnsdale meeting. I formed the view that it was necessary for me to carefully scrutinise the evidence given about the Bairnsdale meeting by the applicant and to compare and contrast it with the evidence given by those others present at the Bairnsdale meeting. The passages set out below record that comparison.
Mr Nantes’ version
In paragraph 23 of his affidavit sworn 20 October 2015, Mr Nantes paraphrased the conversation held at the Bairnsdale meeting.
He did not purport to express in his affidavit that the discussion proceeded on the basis of who said what to whom. Instead Mr Nantes recounted the effect of the words spoken.
In paragraph 22 of his affidavit sworn 20 October 2015, Mr Nantes recorded what clothes he wore to the Bairnsdale meeting and that he brought to the meeting a gift for Mr Morrison’s newborn son. Mr Nantes also recorded how he consumed alcohol at the Bairnsdale meeting, that the applicant did not, that Mr Ashley was in training for a sporting event and therefore did not consume alcohol and that Mr Morrison drank but not to excess. While useful in painting a picture that his recall of the detail of the Bairnsdale meeting may have been good, the information given by Mr Nantes about his clothing, the gift and the consumption of alcohol was not as helpful as might have been evidence, in terms, concerning who said what to whom at the Bairnsdale meeting.
Be that as it may, Mr Nantes gave evidence that all four persons present at the Bairnsdale meeting discussed how there was no profit pool, no bonuses and how the respondent was likely to be placed in administration, liquidation or be acquired. Mr Nantes said Mr Morrison and Mr Ashley said they had discussed with Mr Gordijn going into business together. Mr Nantes said the applicant spoke of a company for which he and Mr Ashley worked prior to it being placed into administration. That company was Stockford. It is noteworthy that the applicant said nothing in his evidence about Stockford.
In his affidavit sworn 20 October 2015, Mr Nantes said that he discussed different equity structures. Mr Nantes said he spoke of a model in which 30% of the equity was owned by an individual whereas the other 70% was owned by what Mr Nantes said was “the rest of the firm”.[46] Mr Nantes said further that he discussed at the Bairnsdale meeting how less than 11% of the respondent’s employees owned shares in the respondent. Mr Nantes said further that he told the others at the Bairnsdale meeting that the best way to ensure growth was by giving equity ownership to principals. He also said that he told those present at the Bairnsdale meeting that they could perhaps work together if the respondent “were to go under”.[47]
[46] Affidavit of John Nantes sworn 20 October 2015 at [23(f)].
[47] Affidavit of John Nantes sworn 20 October 2015 at [23(g)].
In paragraphs 24 and 25 of his affidavit of 20 October 2015,
Mr Nantes recorded a collection of denials. Those denials related to the things he asserted he did not say at the Bairnsdale meeting.
Those denials also related to the things he said he denied the applicant saying at the Bairnsdale meeting. When paragraphs 24 and 25 of
Mr Nantes’s affidavit sworn 20 October 2015 are compared with paragraph 25 of the applicant’s affidavit sworn the same day,
the substance is identical and in many instances the wording itself is identical. Mr Nantes used a particular phrase “Competitive Business” - a phrase coined in the applicant’s affidavit yet Mr Nantes did not define the phrase as the applicant had done in his affidavit. I was suspicious by that seemingly careless transposition of language in those three paragraphs (paragraphs 24 and 25 of Mr Nantes’s affidavit and paragraph 25 of the applicant’s affidavit). It struck me that either the applicant and Mr Nantes had not described from their own recollection the full and exhaustive telling of events at the Bairnsdale meeting or worse, that they had colluded in the telling of their versions.
Mr Nantes’ narration of the conversation at the Bairnsdale meeting descended into some little detail about business having been discussed at the Bairnsdale meeting. Specifically, he spoke of the meeting discussing the 30%/70% equity model, the fact of less than 11% of the respondent’s staff owning shares in the respondent, the benefits of principals having equity ownership and the benefit, in event of the respondent’s collapse, the four of them going into business together. Those particulars were to be contrasted with the applicant’s statement that at the Bairnsdale meeting there was “no discussion about a business or a business proposal or a business structure”.[48] If
Mr Nantes’ evidence of discussions at the Bairnsdale meeting were to be accepted, the applicant was wrong in his evidence on that point.
[48] Transcript of Proceedings, 2 December 2015, p.41 at lines 16-17.
Mr Nantes was challenged about his evidence concerning the Bairnsdale meeting. Mr J. Tracey, counsel for the respondent, challenged Mr Nantes on his memory of the conversation as well as on the substance of the conversation.
Mr Nantes admitted to being confused about aspects of how the Bairnsdale meeting was set up. In the context that Mr Nantes told
Mr Morrison that Mr Nantes would bring a friend to the lunch, and that the friend of whom Mr Nantes spoke was the applicant, Mr Tracey asked Mr Nantes why Mr Nantes did not simply tell Mr Morrison that Mr Nantes was bringing the applicant. Mr Nantes stated “I don’t really have a sound reasoning other than that”.[49]
[49] Transcript of Proceedings, 2 December 2015, p.68 at lines 15-16.
Having admitted confusion and the lack of sound reasoning in relation to one issue, Mr Nantes during his cross-examination was emphatic in his denial of other issues. For example, Mr Nantes said he “definitely”[50] denied he discussed a proposal that he and the applicant would be 50% owners of an accountancy business with Mr Morrison and Mr Ashley being 50% owners of the same business. He also denied (again, “definitely”) that he told Mr Morrison and Mr Ashley that a separate financial planning business would be formed and owned as to 30% by Mr Morrison and Mr Ashley and as to the other 70% by
Mr Nantes and the applicant.[51] Mr Nantes denied that at the Bairnsdale meeting he and the applicant suggested to Mr Morrison and Mr Ashley that they should resign from the respondent. Mr Nantes denied
(using the words, “absolutely not”) that he told Mr Ashley to ask the clients of the respondent to whom Mr Ashley was responsible whether those clients would follow Mr Ashley or remain with the respondent.[52]
[50] Transcript of Proceedings, 2 December 2015, p.69 at line 18.
[51] Transcript of Proceedings, 2 December 2015, p.70 at lines 5-7.
[52] Transcript of Proceedings, 2 December 2015, p.71 at lines 16-18.
Mr Nantes admitted that those present at the Bairnsdale meeting discussed the restraint provisions in their employment contracts.
Mr Nantes denied that he and the applicant told Mr Morrison and
Mr Ashley that Mr Nantes and the applicant intended to approach key staff to take across to the new business. Mr Nantes denied he told the others to keep the matters discussed confidential.
According to Mr Nantes, the conversation at the Bairnsdale meeting was very different to the version given by others. The evidence-in-chief in his affidavit sworn 20 October 2015 was not especially expansive and the evidence given in his cross-examination consisted of a large number of denials. Towards the end of his cross-examination, I asked Mr Nantes to encapsulate from his version of the Bairnsdale meeting the key points discussed. Mr Nantes said the key points related to –
a)the formula for the calculation of bonuses for principals had changed meaning that principals received less, making it more difficult for them;
b)a private equity deal in respect of the respondent was under discussion;
c)the equity composition of the respondent:
d)the role of the managing principal;
e)that Mr Nantes intended to start his own private wealth creation business;
f)how disengaged the principals of the respondent were; and
g)how Mr Price, managing director of the respondent, was regularly emailing the principals.[53]
[53] Transcript of Proceedings, 2 December 2015 at pp.73-74.
Of course, that encapsulation did not recognise the admissions
Mr Nantes otherwise made nor how the evidence Mr Nantes there gave differed so markedly to the version of the Bairnsdale meeting about which Mr Nantes gave evidence in paragraph 23 of his affidavit sworn 20 October 2015.
I formed the view that Mr Nantes’s evidence of the Bairnsdale meeting was less than reliable.
Mr Morrison’s version
Between paragraphs 12 to 22 of his affidavit affirmed 11 November 2015, Mr Morrison deposed to the discussions at the Bairnsdale meeting. He said Mr Nantes stated that he (Mr Nantes) and the applicant were intending to set up a financial planning business
in competition with the respondent. Mr Morrison stated that
Mr Nantes asked him and Mr Ashley whether they would leave the respondent so as to join the applicant’s and Mr Nantes’ new business. At paragraph 15, Mr Morrison affirmed that Mr Nantes said that the business model involved Mr Morrison and Mr Ashley having a 50% interest in an accountancy business with the applicant and Mr Nantes owning the other 50%. Mr Morrison stated that Mr Nantes said at the Bairnsdale meeting that there would also be a separate financial planning business which Mr Morrison and Mr Ashley would own as to 30% with the applicant and Mr Nantes owning 70%. Mr Morrison further stated that Mr Nantes said at the Bairnsdale meeting that he
(Mr Nantes) told those present that he and the applicant had been working on that business model for some time. Mr Morrison also stated that Mr Nantes suggested that Mr Morrison and Mr Ashley should resign from the respondent and that the applicant said that he
(the applicant) had spoken with clients who had indicated they would follow him. Mr Morrison further stated in his affidavit that Mr Nantes said at the Bairnsdale meeting that Mr Nantes and the applicant told those present at the meeting to approach key staff to take across their business.
It will be immediately apparent that the gravamen of Mr Morrison’s evidence on this issue lays in his evidence that the applicant stated –
a)he and Mr Nantes intended to set up a financial planning business in competition with the respondent;
b)under the proposal a new accountancy business would be formed owned as to half by the applicant and Mr Nantes and as to the other half by Mr Morrison and Mr Ashley;
c)under the proposal a new financial planning business would be formed owned as to 70% by the applicant and Mr Nantes and as to 30% by Mr Morrison and Mr Ashley;
d)the applicant and Mr Nantes both suggested that Mr Morrison and Mr Ashley should resign from the respondent so as to join the applicant and Mr Nantes; and
e)the applicant and Mr Nantes said they would approach key staff of the respondent to take to the new business.
Aside from the fact that the version given by Mr Morrison of the discussions at the Bairnsdale meeting was very different to the versions given by the applicant and also by Mr Nantes, the version given by
Mr Morrison squarely attested to the applicant being involved in the establishment of and ownership in a business that would operate in competition with his employer, the respondent.
Mr Morrison was cross-examined about the matters in his affidavit affirmed 11 November 2015. He gave evidence that profit had historically been distributed in the period between August and December in any given year. Counsel for the applicant,
Mr D. Bongiorno, put to Mr Morrison that the applicant did not ask
Mr Morrison to resign nor did the applicant indicate to
Mr Morrison that he would himself resign. Mr Morrison disagreed.
He said:
Andrew indicated that he was – he was planning to – to set up a business and he was planning to resign in July or August and he would like Mr Ashley and myself to resign sometime thereafter and join them in their – their business.[54]
[54] Transcript of Proceedings, 3 December 2015, p.116 at lines 12-15.
Mr Bongiorno put to Mr Morrison that such discussion as there was about resigning, there was general discussion on point and it was mostly because of the profit pool. In response Mr Morrison said there was also extensive discussion about business models. Mr Morrison was challenged about his evidence concerning the 30%/70% split in ownership of the financial planning business but Mr Morrison maintained that he did not confuse the discussions about that split in relation to the applicant’s proposal with discussions about Mr White’s equity structure. Mr Morrison gave evidence that the discussions concerning equity ownership in the proposed accountancy business and in the proposed financial planning business were what he called “[h]igh level discussion with detail”.[55]
[55] Transcript of Proceedings, 3 December 2015, p.124 at line 24.
Mr Morrison said in answers to questions put to him in
cross-examination that the DSDBI contract was relevant only to the respondent’s eastern business and that it did not have a material impact on the respondent’s global contract.
Mr Morrison gave evidence that he told Mr Gordijn during his annual review that an offer had been put to Mr Morrison and to Mr Ashley to go and join a business that competed with the respondent and to go and join Mr Nantes and the applicant in an accountancy practice to which they were bolting on a financial planning business.
Mr Bongiorno attempted to secure agreement from Mr Morrison that the Bairnsdale meeting was a conversation over drinks, between colleagues in casual clothing. Mr Morrison agreed. When it was then put that the conversation was “entirely hypothetical” Mr Morrison disagreed.[56] He said “[i]t was a casual meeting, but there was …
a business plan structure proposal discussed at the lunch”.[57][56] Transcript of Proceedings, 3 December 2015, p.129 at line 34.
[57] Transcript of Proceedings, 3 December 2015, p.129 at lines 37-38.
Mr Morrison’s evidence survived a confronting assault in
cross-examination. He disagreed with many of the propositions put to him in cross-examination by which attempts were made to cause him to alter his evidence. His evidence was consistent and unwavering throughout on key issues. I was very impressed by Mr Morrison as a witness.
Mr Ashley’s version
Mr Ashley, an employee of the respondent since 2008, gave evidence of the events at the Bairnsdale meeting.
In his affidavit sworn 11 November 2015, Mr Ashley stated that he met Mr Morrison, Mr Nantes and the applicant at The River Grill restaurant in Bairnsdale. Mr Ashley stated that he did not know that the applicant was Mr Nantes’s friend who would be also attending.
[58] Affidavit of Scott Ashley sworn 11 November 2015 at [14].
Mr Ashley stated in his affidavit at paragraphs 10 to 14 that Mr Nantes opened the discussion at the Bairnsdale meeting by saying that he and the applicant were setting up a business together and they wanted
Mr Morrison and Mr Ashley to join them. Mr Ashley stated that
Mr Nantes went on, saying the business would be a 50/50 joint-venture with Mr Morrison and Mr Ashley managing the client relationships and the applicant and Mr Nantes managing the back office. Mr Ashley stated that Mr Nantes said at the Bairnsdale meeting that Mr Nantes and the applicant had been working on the business model for some time and that they were considering starting up around August 2014 and that Mr Morrison and Mr Ashley ought to ascertain whether their clients would follow and join the new business. Mr Ashley said the applicant spoke in support of the proposal put by Mr Nantes and that many of the applicant’s clients were keen to come with him. Mr Ashley stated that Mr Nantes said he (Mr Nantes) would approach clients as he was not constrained by restraints. Mr Ashley stated that at the conclusion of his attendance at the Bairnsdale meeting, Mr Nantes requested Mr Ashley to reflect on the proposal, describing it as
“water tight”[58]and that they all needed to keep the discussions and the proposal confidential.
The request to Mr Ashley to keep discussions confidential largely corresponded with Mr Morrison’s evidence to similar effect, although Mr Morrison was requested to keep it “under [his] hat”.[59]
[59] Affidavit of Timothy Morrison affirmed 11 November 2015 at [22].
During his cross-examination, Mr Ashley was firm in his evidence that Mr Nantes and the applicant put to Mr Ashley and Mr Morrison how Mr Ashley and Mr Morrison should resign from the respondent so as to join the applicant and Mr Nantes in their business proposal. Mr Ashley also was firm in his evidence that Mr Nantes told the Bairnsdale meeting that he was not bound by restraints so he could approach the respondent’s clients directly. Mr Ashley was also firm in his evidence that a 50/50 joint-venture in the accountancy practice was put to him and that a 30/70 split in relation to the financial planning business was also put to him.
Mr Ashley rejected the suggestion put to him by Mr Bongiorno to the effect that much of Mr Ashley’s evidence was based on impression or feeling as opposed to (as Mr Bongiorno expressed it) “concrete words”.[60] In response to that suggestion, Mr Ashley emphatically gave evidence “[n]o. No. That’s obviously not right”.[61] Mr Ashley also rejected the suggestion that the discussion about a business plan devised by the applicant and Mr Nantes was no more than inconsequential banter. Mr Ashley used the phrase “corridor chatter”[62] whereas Mr Bongiorno used the phrase “pub chatter”[63] in response to both of which Mr Ashley said “I didn’t believe that this lunch was pub chatter … there was (sic) specifics discussed in regards to a business plan going forward … it was a serious conversation”.[64]
[60] Transcript of Proceedings, 3 December 2015, p.140 at line 44.
[61] Transcript of Proceedings, 3 December 2015, p.140 at lines 44-45.
[62] Transcript of Proceedings, 3 December 2015, p.142 at line 27.
[63] Transcript of Proceedings, 3 December 2015, p.142 at line 29.
[64] Transcript of Proceedings, 3 December 2015, p.142 at lines 40-41 and 43-44.
Mr Ashley was challenged about deficiencies in his affidavit in that he did not mention the 30/70 split in relation to the proposed financial planning business. In answer, Mr Ashley explained that he had not put together many affidavits so he was not aware of the order in which information was to be set out. He also said the crux of the discussions about the accounting business was that profit share would be 50%.
Mr Bongiorno put to Mr Ashley that aspects of his affidavit had been manufactured for him but Mr Ashley disagreed with that suggestion.
Quite properly, as was to be expected in a case in which one verbal version of events was pitted against a diametrically different version of events, Mr Bongiorno subjected the versions of the Bairnsdale meeting given by Mr Morrison and Mr Ashley to thorough, vigorous and searching cross-examination. Mr Bongiorno’s conduct of that aspect of the case was professionally impeccable.
Despite the thorough, vigorous and searching cross-examination of
Mr Ashley, in my view his evidence survived, essentially, wholly intact. Here I speak of Mr Ashley’s evidence of the discussions about Mr Ashley and Mr Morrison joining the applicant’s and Mr Nantes’ new business, Mr Ashley’s evidence that the applicant’s and
Mr Nantes’ proposal was through a 50%/50% split in the accountancy business with 30%/70% split in the financial planning business.
I also speak of Mr Nantes’s volunteering to approach the respondent’s clients, Mr Nantes being free to do so as he was not bound by contractual and other restraints that otherwise inhibited him from approaching the respondent’s clients. Mr Ashley was firm in his evidence that the discussions with the applicant and with Mr Nantes were not casual, informal, inconsequential, “corridor chatter”[65] or even “pub chatter”.[66] He gave evidence that the discussions were serious.
[65] Transcript of Proceedings, 3 December 2015, p.142 at line 27.
[66] Transcript of Proceedings, 3 December 2015, p.142 at line 29.
As is recorded above, in this proceeding I was required to reach a conclusion and therefore make findings of fact about who said what to whom at the Bairnsdale meeting and to make those factual findings upon the balance of probabilities.
Four witnesses gave evidence about the discussions at the Bairnsdale meeting. Each of those four witnesses was cross-examined not only about the discussions on 26 March 2014 but also about the chronological and factual setting in which those discussions took place. Throughout, the applicant advanced the proposition that the events at the Bairnsdale lunch were social, casual and inconsequential. The respondent, through its witnesses, on the other hand advanced the proposition that the discussions at the Bairnsdale meeting were serious, formal and very significantly consequential. Were it not for a line of cross-examination adopted by Mr Bongiorno (again, perfectly properly) I would have rested my consideration of the evidence of the events at the Bairnsdale meeting upon an examination of who said what to whom at The River Grill restaurant. However, as events unfolded chronologically, Mr Morrison provided a file note about the Bairnsdale meeting.[67] That file note set out Mr Morrison’s recollection of the discussions at the Bairnsdale meeting. Mr Bongiorno challenged Mr Morrison about the contents of the file note. Ms Clerici provided a file note also.
[67] Affidavit of Timothy Morrison affirmed 11 November 2015 at annexure ‘TM-1’.
Let me now turn to those file notes.
Mr Morrison’s file note
In his affidavit affirmed 11 November 2015, Mr Morrison stated that he discussed with Mr Ashley the proposal put by the applicant and by Mr Nantes at the Bairnsdale meeting. He stated that neither he nor
Mr Ashley was interested in the proposal. Mr Morrison stated that he spoke again to Mr Nantes on 31 March 2014 in non-committal terms.
Mr Morrison gave evidence of a conversation between him and
Mr Gordijn in relation to the Bairnsdale meeting, such conversation occurring on 31 March 2014. Mr Morrison gave evidence that at that meeting with Mr Gordijn, Mr Morrison explained to him what was said by whom during the Bairnsdale meeting. Mr Morrison stated in his affidavit at paragraphs 27 to 29 that on 31 March 2014 he made a file note of the events at the Bairnsdale meeting and of the events leading to that meeting. Mr Morrison affirmed that on 2 April 2014 he met with the respondent’s Chief Operating Officer for the eastern Victorian region, Ms Clerici, about the Bairnsdale meeting. Mr Morrison affirmed that he met with Scott Alomes on 8 May 2014 in relation to the Bairnsdale meeting, Mr Alomes being the respondent’s southern region Human Resources Leader.
The file note prepared by Mr Morrison consisted of an A4 sheet of paper with a three-line additional paragraph on the second page. In that file note, Mr Morrison recorded that:
a)the Bairnsdale meeting was held on 26 March 2014;
b)
it was attended by Mr Morrison, Mr Ashley, the applicant and
Mr Nantes;
c)at the meeting the applicant stated he intended to resign in July or August 2014 to start a new accounting and financial planning business together with Mr Nantes;
d)
the applicant and Mr Nantes proposed Mr Morrison and
Mr Ashley join them;
e)Mr Morrison and Mr Ashley would own 50% of the accounting business with the applicant and Mr Nantes owning the other 50% of the accounting business; and
f)a separate financial planning business would be established to be owned as to 30% by Mr Morrison and Mr Ashley and as to 70% by the applicant and Mr Nantes.
The file note also recorded that the process was for Mr Ashley and
Mr Morrison to resign and “set up shop next door and expect our clients to follow in to the new business”.[68] In the file note, Mr Morrison recorded that the applicant indicated that he had already tested his clients’ willingness to join the proposed new business and that they had said they would follow him, although the file note recorded that the applicant did not identify any of those clients by name. In the file note, Mr Morrison further recorded that the applicant and Mr Nantes indicated that they planned to approach key staff of the respondent to take them to their business.
[68] Affidavit of Timothy Morrison affirmed 11 November 2015 at annexure ‘TM-1’.
Having carefully read the transcript of Mr Bongiorno’s
cross-examination of Mr Morrison in relation to the file note that
he prepared on 31 March 2014, in my view no meaningful concessions, admissions, corrections or capitulations were made by Mr Morrison in respect of the contents of his file note. I also take the view that the
file note corroborates substantially, if not fully, the substance of
Mr Morrison’s other evidence in relation to the matters discussed at the Bairnsdale meeting.
Mr Ashley did not provide a file note of the events at the Bairnsdale meeting.
Mr Alomes did not give evidence in this litigation. However, Ms Clerici did.
Ms Clerici’s evidence
Ms Clerici gave evidence that she had been employed by the respondent for approximately 15 years. Her role involved managing the financial side of the respondent’s business, developing strategic and operational plans, running executive and principals meetings and reporting to the corporate group of the respondent.
Ms Clerici gave evidence that Mr Nantes told her on 19 March 2014 that the respondent was in a deal of trouble and that she should
leave the respondent. In paragraph 8 of her affidavit affirmed
11 November 2015, Ms Clerici gave evidence that Mr Nantes offered to coach her on how to get a redundancy (her words). Ms Clerici gave evidence that she telephoned Mr Morrison on 2 April 2014. She said that during that call Mr Morrison reported to her on the substance of the Bairnsdale meeting. Ms Clerici gave evidence that on the same day and shortly after the call with Mr Morrison, she telephoned Mr Ashley. She said that Mr Ashley narrated the substance of the conversation that occurred at the Bairnsdale meeting. She said Mr Ashley described the proposal put to him during the Bairnsdale meeting as being unethical.
Ms Clerici produced notes prepared by Mr Alomes.[69] Those notes were admitted into evidence without objection. The notes corresponded in large measure with the version of the Bairnsdale meeting given by
Mr Morrison in his evidence. My reading of those notes confirmed in my mind the fact that the version of the Bairnsdale meeting as was deposed to by Mr Morrison and Mr Ashley was reliable and that their version should be preferred over the less detailed, less consistent and less accurate versions given by the applicant and by Mr Nantes.
[69] Affidavit of Karen Clerici affirmed 11 November 2015 at annexure ‘KC-2’.
Ms Clerici also separately produced notes prepared by Mr Alomes of an interview between Mr Alomes and Mr Ashley on 8 May 2014.[70] Those notes were adduced into evidence without objection. In large measure the notes prepared by Mr Alomes that recorded Mr Ashley’s version of the discussions at the Bairnsdale meeting corresponded very closely with the version of the same discussion given by Mr Ashley in his evidence. My reading of those notes taken by Mr Alomes of the conversation between himself and Mr Ashley confirmed that the version of events at the Bairnsdale meeting as given by Mr Ashley in his evidence was also reliable.
[70] Affidavit of Karen Clerici affirmed 11 November 2015 at annexure ‘KC-3’.
Mr Ashley was recorded in Mr Alomes’s notes as having stated that
“it became obvious that the proposal was a serious breach of restraints and confidentiality”.[71] Aside from the fact that such a statement purported to intrude into a conclusion of law or of fact and law, that statement gave voice to concerns of a layperson about the dubious ethical behaviour in which Mr Ashley considered the applicant and
Mr Nantes had engaged. So far as Mr Alomes’s notes of the discussion with Mr Morrison were concerned, they recorded that Mr Morrison “was extremely conflicted and believed that the deal was not in line with his values, the company’s values and was a definite breach of his restraints”.[72]
[71] Ibid.
[72] Affidavit of Karen Clerici affirmed 11 November 2015 at annexure ‘KC-2’.
Termination of Mr Baird’s employment with the respondent
Mr Gordijn formally terminated the applicant’s employment with the respondent on 8 April 2014. That much was common ground.
Findings of fact concerning the Bairnsdale meeting
Some of the matters discussed at the Bairnsdale meeting were not in dispute. Let me turn to those matters that were in dispute and to my resolution of the contested factual position posed by them.
The Bairnsdale meeting was not merely casual
Both the applicant and Mr Nantes attempted to neutralise the significance of the things they said at the Bairnsdale meeting by stating in the course of their evidence that the Bairnsdale meeting was social in nature, that it was casual and that it did not bear the character of a business meeting. Mr Morrison and Mr Ashley maintained to the contrary.
In my judgment, the Bairnsdale meeting was in fact a business meeting at which serious business issues were discussed. I reject the characterisation given to the Bairnsdale meeting by the applicant and Mr Nantes to the effect that the Bairnsdale meeting was purely social. It was not. Mr Morrison and Mr Ashley regarded the meeting as being of a business nature. The fact that some of the participants at the Bairnsdale meeting were dressed casually or even consumed alcohol did not alter the character of the meeting itself. While I accept that the four people who participated in the Bairnsdale meeting were work colleagues who knew each other and that some social discussion took place during the lunch itself, I am nevertheless of the view that serious matters were discussed at the Bairnsdale meeting.
In addition, the Bairnsdale meeting did not materialise out of the ether. The applicant had, for up to six months earlier, been examining some specific aspects of the business proposal on which the applicant and
Mr Nantes had been working. The two spreadsheets the applicant prepared were replete with very precise, carefully crafted items of information. I reject the applicant’s assertion that he prepared each in a matter of minutes only. The document the applicant produced showing salaries, a gross margin, overheads and a net profit was similarly prepared with a degree of care, skill and attention.[73] The document showing “JN salary” and “AB salary” at $375,000.00 and “profit per partner of $706,861” was likewise prepared with precision and planning.[74] I reject the applicant’s attempts to slough it off as being somehow trivial or irrelevant or as having no business consequence at all.
[73] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-3’.
[74] Affidavit of Andrew Baird sworn 20 October 2015 at annexure ‘AB-3’.
It must also be kept in mind that the applicant was concerned with the respondent’s solvency. That view seems to have been shared by some other staff in the period between September 2013 and March 2014. That said, in my view the applicant injected into discussions about the respondent’s solvency an alarmist perspective by speaking seemingly interchangeably about his fears of the likelihood of the impending appointment of administrators or liquidators to the respondent.
Had there been any real substance in the respondent’s alleged insolvency crisis in the period September 2013 to March 2014, independent evidence of the imminence of the respondent’s collapse would have and should have been adduced. None was so adduced.
It seemed to me that the applicant proceeded in that period
(September 2013 to March 2014) fostering an atmosphere of crisis in relation to the respondent’s financial health. While I was not in a position to determine on the evidence whether the respondent was solvent, borderline insolvent or insolvent in fact, equally I was not in a position to find that the respondent’s financial condition in that period was as parlous as the applicant asserted. By the same token, I did not find the tags given to the respondent’s solvency by Mr Nantes helpful when he described the respondent’s solvency in scathing terms without explaining the factual basis for those comments. The applicant admitted that the respondent did not go into administration.
It must also be kept in mind that without the respondent’s knowledge or approval, the applicant and Mr Nantes travelled to Sydney where they met with Mr Joyce, a representative of Macquarie Capital, and discussed the prospects of taking the respondent private. They had no power or authority to do that. They were on a frolic of their own. Moreover, the applicant and Mr Nantes expected to personally profit on the transaction had it come to pass.
The applicant admitted to anticipating receiving $5 million himself if the Macquarie Capital transaction went ahead. Mr Nantes was to receive a comparable sum. Each was to receive a staggeringly large amount, essentially, from a transaction about which their employer, the respondent, knew nothing and for which their employer did not give them authority into which to enter.
In my judgment, the applicant was not open and frank in his evidence. On occasions his evidence was given in a manner that attempted to cast the most favourable light on the particular issue to hand. For example, in relation to the spreadsheets, rather than answering directly what his purpose was in creating them and what he was seeking to convey by them, the applicant used the peculiar wording that the spreadsheets “contemplated” a particular event. He was the author of those spreadsheets. The applicant was giving effect to a particular set of circumstances by making the entries that he made on the spreadsheets. The spreadsheets “contemplated” nothing. The applicant contemplated advancing his personal interests by the creation of those spreadsheets.
I did not find the applicant to have been an impressive witness. I was not willing to prefer his evidence on key issues over the evidence of
Mr Ashley or Mr Morrison.
Summary dismissal
The respondent relied on what it contended were common law rights to dismiss the applicant summarily.
No dispute existed between the parties that the respondent bore the burden of proving that the respondent had a proper basis for terminating the applicant’s employment. That has been the law since the decision of the High Court of Australia in Blyth Chemicals Ltd v Bushnell[75] (“Blyth Chemicals”) A more recent statement on point was provided by Gillard J of the Supreme Court of Victoria in Rankin v Marine Power International Pty Ltd[76] (“Rankin”). Jessup J proceeded to similar effect in Hansen v Mount Martha Community Learning Centre Inc.[77] The Full Court of the Federal Court of Australia
(Tracey, Gilmore, Jagot, White and Beach JJ) in Melbourne Stadiums Ltd v Sautner[78] made observations to the same effect. The genesis of the learning can be traced to the English decision in Boston Deep Sea Fishing & Ice Co v Ansell[79] and to English & Australian Copper Co Ltd v Johnson.[80]
[75] (1933) 49 CLR 66.
[76] (2001) 107 IR 117.
[77] [2015] FCA 1099.
[78] [2015] FCAFC 20 at [87]-[88].
[79] (1888) 39 Ch. D. 399.
[80] (1911) 13 CLR 490.
In this case, the applicant’s employment was terminated without notice. One of the more important issues in this case was whether the respondent was entitled at law to summarily terminate the applicant’s employment. Another issue was whether the respondent proved its entitlement at a factual level, assuming such an entitlement existed in the first place.
In my judgment, the respondent was entitled at law to summarily terminate the applicant’s employment in the circumstances of this case. Further, I am satisfied on the balance of probabilities that the respondent demonstrated to me that the applicant conducted himself in such manner as justified the respondent summarily terminating his employment. I take that view for three main reasons:
a)first, without the respondent’s knowledge or approval, in early 2014 the applicant, in the company of Mr Nantes, travelled to Sydney where they spoke to Macquarie Capital with a view to persuading Macquarie Capital to acquire part of the respondent’s business;
b)
second, the applicant actively solicited Mr Morrison and
Mr Ashley, who then were existing employees of the respondent, to cease working for the respondent and to join the applicant and Mr Nantes at a business that would operate in competition with the respondent; and
c)
third, in actively soliciting Mr Morrison and Mr Ashley to join
the applicant and Mr Nantes in the manner described in the immediately preceding paragraph, the applicant requested
Mr Morrison and Mr Ashley to bring with them existing clients of the respondent.
Whether taken individually or in combination, the matters recorded in paragraph 138 above represent conduct that is, to use the words of Dixon and McTiernan JJ in Blyth Chemicals, “incompatible with the fulfilment of an employee’s duty”.[81] Such conduct involved a “conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee”.[82] In my judgment, each of the three matters that I have recorded in paragraph 138 above involves incompatibility, conflict or impediment or it is destructive of confidence that ought to have been reposed in the fiduciary relationship between employer and employee.
[81] (1933) 49 CLR 66 at 81.
[82] Ibid.
Before examining those three bases in greater detail, let me record some of the more important legal, equitable and statutory principles that bear upon this case.
Fiduciary relationship between employer and employee
For well over a century, Anglo Australian jurisprudence has recognised that the relationship between an employer and his or her employee is a fiduciary relationship. In more recent times the point was restated by Mason J in Hospital Products Ltd v United States Surgical Corporation.[83] More recently again, in the decision of the High Court of Australia in Concut Pty Ltd v Worrell,[84] (“Concut”) Gleeson CJ, Gaudron and Gummow JJ held that a critical feature of a fiduciary relationship is that the fiduciary (here, the applicant) undertakes or agrees to act for or on behalf of, or in the interests of another person (here, the respondent) in the exercise of a power or discretion that will affect the interests of that other person (the respondent) in a legal or practical sense. By reason of the existence of that fiduciary relationship, principles of equity have imposed certain duties upon the fiduciary (here, the applicant) that command him or her to act in a certain manner in certain circumstances and that forbid him or her from acting in a particular manner in other circumstances.
[83] (1984) 156 CLR 41.
[84] (2000) 103 IR 160.
Among the more important fiduciary obligations is the obligation that forbids an employee from diverting the business of the fiduciary’s employer to the fiduciary,[85] but the rule that prevents a fiduciary from preferring his own interests over those of the person he is bound to protect is of very considerable veneration dating back to the 1700s decision in Keech v Sandford.[86]
[85] See Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488.
[86] (1726) Cas. Temp. King 61 and see also P.D. Finn, Fiduciary Obligations (1977).
A fiduciary’s failure to comply with the obligations that govern his fiduciary office will give rise to an array of remedies including injunctions, declarations and equitable compensation.
In Concut,[87] Kirby J held that employment relationships give rise to statutory obligations and fiduciary obligations as well as contractual obligations. In some respects the obligations overlap. For example,
the equitable duties that arise out of an employment relationship can be implied terms of the contract of employment. So much was stated by Gleeson CJ, Gaudron and Gummow JJ in Concut.[88]
[87] (2000) 103 IR 160 at [17].
[88] (2000) 103 IR 160 at [26].
In my view, during such time as the applicant remained an employee of the respondent and relevantly for present purposes I speak of the period between September 2013 and March 2014, the applicant owed fiduciary duties to the respondent that required him to conduct himself in a particular manner, one of which required him to refrain from preferring his personal interests over the interests of the employer he served and to whom he owed fiduciary obligations, the respondent.
At common law, the respondent was entitled to dismiss the applicant for acts done that were incompatible with the due or faithful discharge of his duty to his employer. That proposition is traceable to the 1886 decision of Lord Esher MR in Pearce v Foster.[89] That thread of reasoning was repeated in Blyth Chemicals where Starke and Evatt JJ held that an employee might be dismissed without notice or compensation if he acted in a manner incompatible with the due and faithful performance of his duty or inconsistent with the confidential relation between employee and employer.[90]
[89] (1886) 17 QBD 536.
[90] (1933) 49 CLR 66 at 72-73.
Acts of dishonesty by an employee or similar conduct, destructive of the mutual trust between employer and employee, once discovered ordinarily fall within the class of conduct which would, without more, authorise summary dismissal. Naturally, trivial breaches of express or implied terms of contracts of employment do not justify summary dismissal. Breaches that had been waived will usually not authorise summary dismissal. In Concut,[91] Kirby J catalogued the sorts of instances in which an employer would ordinarily be entitled to summarily terminate the employment of an employee. That list is not exhaustive, however.
[91] (2000) 103 IR 160.
An employee is subject to a duty of loyalty. That duty imposes on an employee an obligation such that the employee may not take for himself or herself an opportunity within the sphere of the employee’s business operation without the employer’s informed consent. The law on this point is ancient but it was reasonably recently restated by Palmer J in Digital Pulse Pty Ltd v Harris[92] (“Digital Pulse”).
In the decision of Tracey J in Labelmakers Group Pty Ltd v LL Force Pty Ltd[93] (“Labelmakers”), the decision of Palmer J in Digital Pulse[94] was referred to, there in connection with s.182 of the Corporations Act 2001 (Cth) (“Corporations Act”), a point not presently relevant as the respondent did not cast its case on the basis that the applicant owed duties to the respondent under the Corporations Act.
[92] (2002) 166 FLR 421, 424 at [22].
[93] [2012] FCA 512.
[94] (2002) 166 FLR 421.
The degree of conduct justifying summary termination
In the 1906 decision of the Privy Council in Clouston & Co Ltd v Corry[95] it was held that there is no fixed rule of law that defines the degree of misconduct that will justify dismissal. Since that date, it has been held that the question whether a breach of contract justifies dismissal without notice is a question of fact.[96]
[95] [1906] AC 122.
[96] See Rankin v Marine Power International Pty Ltd (2001) 107 IR 117.
Before an employee’s contract of employment may be summarily terminated, the employee’s breach of that employment contract must be of a serious nature involving, among other things, actual conduct that is repugnant to the relationship of employer/employee. Gillard J held so much in Rankin.[97] There, his Honour held as follows -
Each case must be considered in the light of its particular circumstances, but nevertheless, the seriousness of the act of termination and the effect of summary dismissal are factors which place a heavy burden on the employer to justify dismissal without notice. The circumstances do not have to be exceptional, but nevertheless, must establish that the breach was of a serious nature.[98]
[97] (2001) 107 IR 117 at [250].
[98] (2001) 107 IR 117 at [250].
One of the issues in this case was whether the conduct of the applicant referred to in paragraph 138 above established that those breaches individually or collectively were “of a serious nature”.[99] In my judgment, they were.
[99] Ibid.
Before turning to the specific three areas in which the applicant breached his employment contract, those breaches being of a serious nature, let me make three observations -
a)
first, an employee who approaches clients of his/her or its employer attempting to have them become customers of the proposed new business will ordinarily be found to have acted in conflict with the employee’s contract and fiduciary obligations.
A considerable body of authority exists on that issue including the decision of Lord Greene MR in Hivac Ltd v Park Royal Scientific Instruments Ltd;[100] Wessex Dairies Ltd v Smith;[101] AMP Services Ltd v Manning;[102] Deeson Heavy Haulage Pty Ltd v Cox;[103] and Labelmakers.[104] As Tracey J held in Labelmakers,[105] it is not to the point whether it was the employee or prospective customer who initiated the discussion in which the employee seeks to obtain the customer’s business for the new enterprise as was held in Sanders v Parry[106] and Dinte v Hales;[107]
b)second, an employee breaches his duty not to improperly use his or her position so as to cause detriment to his or her employer if the employee seeks to persuade fellow employees to resign their employment in order to accept positions in some new enterprise. So much was held in Warman International Ltd v Dwyer.[108] Similar holdings were made in WA Fork Truck Distributors Pty Ltd v Jones.[109] Tracey J made similar observations in Labelmakers;[110] and
c)third, the law recognises that an employee is entitled to make preparations for the establishment of a competitive business even while still an employee of the employer against whom the employee will lead to compete. That entitlement is not unconstrained, however. In Victoria University of Technology v Wilson,[111] it was held that a more senior departing employee is more heavily restricted in what he may do by way of preparation for his departure from his employers than is a more junior departing employee. Tracey J touched upon that issue in Labelmakers.[112] So did the Full Court of the Federal Court of Australia in Blackmagic Design Pty Ltd v Overliese.[113] Even preparatory work done outside normal business hours is permitted in some circumstances, as Tracey J observed in Labelmakers.[114] In those circumstances the issue to be determined is whether particular activities, undertaken by the particular employee in relation to the establishment of a competitive business, could materially affect the employer’s business interests. The answer to this question involves matters of fact and degree.
[100] [1946] Ch. 169, 177.
[101] [1935] 2 KB 80, 85.
[102] [2006] FCA 256 at [60].
[103] (2009) 82 IPR 521 at [101].
[104] [2012] FCA 512.
[105] [2012] FCA 512 at [114].
[106] [1967] 2 All ER 803, 808-809.
[107] [2009] QSC 63 at [24].
[108] (1995) 182 CLR 544, 556 and 566.
[109] [2003] WASC 102 at [67].
[110] [2012] FCA 512 at [115].
[111] (2004) 60 IPR 392.
[112] [2012] FCA 512 at [111].
[113] (2011) 191 FCR 1.
[114] [2012] FCA 512 at [112].
Incompatibility of duty and confidence
It seems to me that the various legal principles set out above may be compendiously synthesised in the following way -
a)one, the respondent was entitled to terminate the employment of the applicant if it proved that the applicant engaged in conduct amounting to serious misconduct;
b)two, if the applicant’s actual conduct was repugnant to the relationship of employer and employee, the respondent was entitled to terminate his employment; and
c)three, conduct that was incompatible with the fulfilment of the applicant’s duties as an employee, conduct that impeded the faithful performance of his obligations or conduct that was destructive of the necessary confidence between the applicant and the respondent sufficed for the respondent to terminate his employment.
On the facts of this case as I have found them in my judgment the respondent was entitled to summarily terminate the applicant’s employment.
It is difficult to imagine conduct that so comprehensively struck at the heart of the relationship of trust and confidence that ought to have pervaded the applicant’s employment with the respondent. The applicant’s conduct in treating with, then discussing with a commercial lender such as Macquarie Capital, ways for the applicant to acquire his employer’s business was abhorrent. That nefarious conduct was all the more egregious when the same employee, then bound to his employer (the respondent) in contract and in equity to show good faith and fidelity to the respondent, sought $5 million (with another $5 million going to Mr Nantes) if the transaction had come to pass. All that, set as it was against a backdrop in which the respondent’s senior people neither knew of nor approved the applicant’s approaches to Macquarie. The applicant’s conduct in approaching Macquarie in that manner, self-evidently, represented a plan, concealed from the party to whom the applicant owed an array of fiduciary duties not the least of which was fidelity, by which the applicant intended to profit very handsomely at the expense of his employer. To my mind, it was immaterial that the Macquarie transaction did not come to pass. The applicant committed breaches of contract and of fiduciary obligations merely by approaching Macquarie. I entertain no doubt whatsoever that, had the respondent known of the applicant’s impropriety in meeting with Macquarie, the respondent would have been able to enjoin the applicant from further advancing his improper design.
There is then the impropriety of the applicant actively seeking to persuade Mr Morrison and Mr Ashley to leave the respondent so as to join the applicant and Mr Nantes with a view to operating a business in competition with the respondent.
An employee who engages in that conduct, as did the applicant, strikes at the heart of the relationship of employer and employee.
A diligent employee, a dutiful employee, an employee attuned to his fiduciary obligations to faithfully advance the interests of his employer, does not engage with current fellow employees to enlist their services under employment contracts with his employer’s actual or prospective competitors. Put differently, by the applicant engaging in the conduct as he did at the Bairnsdale meeting of seeking to persuade Mr Morrison and Mr Ashley to resign from the respondent so as to join the applicant and Mr Nantes, the applicant engaged in conduct incompatible with the fulfilment of his duties to the respondent.
Then there was the solicitation of the respondent’s clients to join the new venture. While it was true that Mr Nantes was to approach those clients, it was also true that the applicant recommended to Mr Morrison and Mr Ashley that each should explore with their clients the concept of enticing those clients to the new venture. The applicant’s job was to serve the respondent’s clients, not to persuade other employees of the respondent to take those clients to a competitor.
It is worthy of consideration that the hatching of the plan by the applicant to create the new venture did not happen quickly, as the applicant told me in evidence. I reject altogether his evidence that he spent little more than a matter of minutes formulating spreadsheets by which the financial viability of a new proposed venture was to be assessed. I find on the balance of probabilities that the spreadsheet took a considerable amount of the applicant’s time and intellectual input to create. The creation of spreadsheets by an employee to assess the financial viability of the business operating in competition with his employer’s is not an act consistent with the due performance of that employee’s contractual and fiduciary obligations.
I must also mention the information that the applicant and Mr Nantes took and gave to Macquarie at the meeting in Sydney. Secret and confidential information owned by the respondent was improperly divulged by the applicant and Mr Nantes to Macquarie at that meeting. That information was not in the public domain. It was confidential to the respondent. The dissemination to Macquarie of that confidential information was not an act consistent with the respondent’s contractual and fiduciary obligations of confidentiality. The applicant had no greater mandate from the respondent to divulge that confidential information than he had a mandate to be talking at all to Macquarie about selling parts of the respondent’s business.
I must also mention how the applicant inappropriately exploited his personal fears of the respondent’s financial condition. Although the applicant said in evidence many times he believed over a sustained period that the respondent was at risk of being placed in administration, the fact remained that the respondent was not so placed in administration. No accounting evidence was adduced even approximating the respondent’s financial distress over the period September 2013 to March 2014. True, bonuses had not been paid and it is also true that some other employees (Mr Nantes especially) spoke vociferously about the respondent’s impending financial gloom.
But the respondent was not placed into administration, receivership or voluntary or compulsory liquidation. In so far as the applicant sought to justify his conduct of approaching Macquarie, of seeking to ‘poach’ Mr Morrison and Mr Ashley and of enticing the respondent’s clients to the new venture on the basis that the respondent was irreparably financially doomed, I reject any such justification. On the evidence before me, the respondent was not so financially doomed in the period where the applicant engaged in conduct described above that amounted to a serious breach of his contractual and equitable obligations to the respondent. In short, in my judgment the applicant committed a serious breach of his employment contract thereby entitling the respondent to summarily dismiss him. The respondent summarily dismissed the applicant on 8 April 2014, as it was entitled to do. The respondent was not required to wait, as Kirby J in Concut[115] recognised.
The Fair Work case
[115] (2000) 103 IR 160.
The applicant commenced this litigation by bringing a proceeding for the respondent’s contravention of the Act. Specifically, the applicant contended that the respondent contravened s.117(2) of the Act by failing to give the applicant at least four weeks’ notice of termination of employment or payment in lieu thereof. The respondent contended that the applicant’s conduct constituted serious misconduct for the purposes of s.123(1)(b) of the Act.
It seems to me that serious misconduct has been proved. I reject the contention that s.117(2) of the Act was contravened.
That is sufficient to dispose of the applicant’s primary and alternative claim in that regard. Lest it be necessary to state as much in terms, in my view the applicant’s serious misconduct amounted to his repudiation of his employment contract with the result that the applicant became disentitled to rely on the provisions of cl.16.2(b) of the contract of employment. I do not accept that the respondent contravened s.323(1) of the Act, as the applicant said.
For reasons already canvassed, the main arena of debate in this litigation was the respondent’s entitlement to dismiss the applicant for serious misconduct. I have held that the respondent was so entitled.
It follows that I reject the applicant’s claims that the respondent contravened the Act.
Conclusions and orders
I dismiss the applicant’s claim and invite the parties to make submissions in writing within 14 days as to costs.
I certify that the preceding one hundred and sixty-six (166) paragraphs are a true copy of the reasons for judgment of Judge Wilson
Associate:
Date: 10 June 2016
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