Chaffey Services Pty Ltd as trustee for Cataby Services Trust, T/A Cataby Services v Doble [No 2]

[2022] WASC 258

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   CHAFFEY SERVICES PTY LTD AS TRUSTEE FOR CATABY SERVICES TRUST, T/A CATABY SERVICES -v- DOBLE [No 2] [2022] WASC 258

CORAM:   TOTTLE J

HEARD:   9 AUGUST 2022

DELIVERED          :   10 AUGUST 2022

PUBLISHED           :   10 AUGUST 2022

FILE NO/S:   CIV 1854 of 2020

BETWEEN:   CHAFFEY SERVICES PTY LTD AS TRUSTEE FOR CATABY SERVICES TRUST, T/A CATABY SERVICES

Plaintiff

AND

MICHAEL PAUL DOBLE

First Defendant

KIRAHNLEY PTY LTD T/A KTR SERVICES

Second Defendant

Catchwords:

Practice and procedure - Expert evidence - Whether expert evidence should be adduced prior to trial or after a determination of the plaintiff's entitlement to remedies - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 1317H
Rules of the Supreme Court 1971 (WA), O 1 r 4B

Result:

Application dismissed
The defendants pay the plaintiff's costs fixed in the sum of $2,227

Category:    B

Representation:

Counsel:

Plaintiff	:	J Schoombee
First Defendant	:	D H Solomon
Second Defendant	:	D H Solomon

Solicitors:

Plaintiff	:	Bennett
First Defendant	:	Solomon Brothers
Second Defendant	:	Solomon Brothers

Case(s) referred to in decision(s):

Island Records Ltd v Tring International Pty Ltd [1996] 1 WLR 1256

Landsdale Pty Ltd v Moore [2009] WASCA 176

Vasco Investment Managers Ltd v Morgan Stanley Australia Ltd [2015] VSCA 260

TOTTLE J:

Introduction

1. In this action, the plaintiff, a supplier of labour and equipment to the mining industry, claims that the first defendant, who was formerly employed by it as a site supervisor, diverted the opportunity to obtain a contract for mine rehabilitation services to the second defendant, a company incorporated by him.  Further, the plaintiff claims the first defendant used its confidential information to obtain finance for the second defendant and to enable the second defendant to establish a business to compete with the plaintiff by providing its services to one of the plaintiff's customers, sooner than otherwise would have been possible.

2. The plaintiff claims the first defendant's alleged conduct involved breaches of fiduciary, contractual and statutory duties owed by the first defendant to it. The plaintiff claims equitable compensation alternatively an order that the defendants account to the plaintiff for any benefits obtained by the alleged breaches of fiduciary duties, alternatively the plaintiff seeks damages at common law and in the further alternative, compensation under s 1317H of the Corporations Act 2001 (Cth).

3. The action has been case managed by Allanson J.  Two aspects of the procedural history must be mentioned.  The first is that orders were made on 4 August 2021 permitting the parties to adduce expert evidence and making provision for conferral between the experts.  The time for compliance with those orders was extended on various occasions and recently the orders were stayed.  The second procedural matter is that an order was made on 20 September 2021 requiring the second defendant to provide discovery on a quarterly basis of relevant invoices, purchase orders, remittance notices and end of month financial records. 

4. Against that background an issue arose as to the stage at which expert accounting evidence relevant to the quantification of the benefits obtained by the defendants or the loss suffered by the plaintiff should be adduced.  This evidence has been described as embracing evidence concerning the capital value, revenue, profits and profit margins of the second defendant.  The issue crystallised at a strategic conference held before Allanson J on 18 May 2022.

5. By a minute of orders filed on 29 July 2022 the defendants sought orders as follows:

   1.Any expert evidence concerning the:

   1.1. capital value;

   1.2. revenue; and

   1.3. profits and profit margins,

   of the second defendant shall be adduced by the parties after trial on the taking of an account of profits by the second defendant, if that remedy is ordered at trial.

6. At the hearing of the application, counsel for the defendants, Mr Solomon, explained that the proposed orders were framed in these terms because they reflected the defendants' understanding of the scope of the expert evidence the plaintiff wished to adduce.  Mr Solomon explained that the object of the defendants' application was to ensure that all expert evidence necessary to assess the losses claimed by the plaintiff or the benefits obtained by the defendants was adduced at one hearing that was to take place after any entitlement to any such relief on the part of the plaintiff had been established.  The defendants sought orders that the earlier orders made by Allanson J regarding expert evidence be vacated.

7. At the conclusion of the argument, I dismissed the application and said I would publish my reasons later.  These are those reasons.

The opposing arguments

1. The defendants argued that it is not the usual practice for a plaintiff to adduce evidence to assist in making an election between an account of profits and equitable compensation before trial, that is before an entitlement to those remedies is established.  Rather they contended the usual practice is to provide a successful plaintiff, after trial but before entry of judgment, with sufficient information to make an informed election between remedies.  Thus, the defendants argued any exchange of expert accounting evidence should be deferred and should only take place if the plaintiff establishes an entitlement to an account, or to equitable compensation or to damages.

2. The defendants argued their approach is consistent with the objects of positive case flow management embodied in O 1 r 4B of the Rules of the Supreme Court 1971 (WA). They argued that adducing expert accounting evidence to quantify losses or profits before an entitlement to such losses or profits is established will extend the length of the trial, take up valuable court time, and impose a considerable costs burden on the parties, and all of these resources will be wasted if the plaintiff does not establish an entitlement to the remedies.

3. The plaintiff contended there should be one hearing at which all lay and expert evidence should be adduced.  The plaintiff contended that the effect of the defendants' approach is to split the trial between issues of liability and those of quantum when not only has no application for a split trial been made but directions were given in August 2021 permitting the parties to adduce expert evidence.  The plaintiff argued the defendants have left it too late to argue that the approach to the issues should be altered and it adduced evidence to the effect that it took steps to prepare a brief to a forensic accountant in September 2021.[1]  The plaintiff contended that the accounting evidence it proposes to adduce will be relevant to other pleaded issues and not merely to the question of remedies. 

   [1] Affidavit of Rachel Megan Ross sworn 8 August 2022 [9].

Analysis and disposition

1. It is convenient to begin by referring to some general propositions which provide the framework for analysis.[2]

   (a)Equitable compensation and an account of profits are inconsistent remedies, a plaintiff cannot enjoy both but must elect between the two.

   (b)A plaintiff entitled to an election is not usually required to make an election until the moment of judgment.

   (c)A plaintiff is entitled to make an informed election between the remedies.

   (d)A plaintiff's election should not be unreasonably delayed.

   [2] Vasco Investment Managers Ltd v Morgan Stanley Australia Ltd [2015] VSCA 260 [294] - [297] (Vickery J); Island Records Ltd v Tring International Pty Ltd [1996] 1 WLR 1256, 1258 - 1259 (Lightman J).

2. In the broader procedural context in which the issue in this case has arisen reference is often made to the following observations of Lightman J in Island Records Ltd v Tring International Pty Ltd:[3]

   In proceedings in which the plaintiff claims in the alternative damages or an account of profits, the plaintiff may seek and obtain a trial at which will be determined all issues of liability, of the assessment of damages and of calculation of profits.  In such a case full discovery will include all documents relevant to the assessment and calculation, and the plaintiff can make an informed election between damages and profits in the course of the trial in the light of the information revealed on discovery and in the evidence at the trial.  With a view to the saving of costs, the practice has developed, in particular in intellectual property cases, when this is practicable, to have "split trial."  The action is divided into two stages. The first stage is the trial at which the issue is limited to that of liability, i.e. whether the plaintiff's rights have been infringed.  The second stage, which is contingent upon liability being established at the first stage, is concerned with the question of assessment of damages and calculation of profits.  In this way, the costs of exploring the issue of damages and profits are put off until it is clear that the defendant is liable and the issue really arises and requires determination.  As a concomitant with this practice, there has likewise developed the practice of limiting discovery at the first stage to documents relevant to the issue of liability and excluding documents relevant only to the second stage.  In this way the burden of discovery at the first stage is reduced, and the invasion of confidence necessarily involved in discovery is postponed and (if liability is not established) entirely obviated: see Baldock v. Addison [1995] I W.L.R. 158.  (It may be noted that this practice was, in appropriate cases, adopted by the courts of Equity in the nineteenth century: see Benbow v. Low (1880) 16 Ch.D. 93, 98 and Fennessy v. Clark (1887) 37 Ch.D. 184). The price at which this cost and time saving is achieved is that the plaintiff will not before judgment at the first stage on the issue of liability have the benefit by means of discovery or otherwise of the information otherwise available on which the plaintiff is able to make an informed election as to remedy between an assessment of damages and an account of profits. The question which arises is whether in this situation (as in the case of a motion for judgment where likewise the plaintiff is deprived of the opportunity to obtain such information before judgment) in the course or at the conclusion of the hearing the plaintiff must elect between the two remedies or is entitled first to sufficient information to make an informed election.

   [3] Island Records Ltd v Tring International Pty Ltd (1258) (Lightman J).

3. The plaintiff has approached this case on the basis that the trial will be an 'all issues trial' and not a 'split trial'.  The directions made to date reflect this approach.  Although not formulated as such in the minute of orders, the defendants' application is in substance an application to split the trial between a trial of 'liability issues' and a trial or 'remedy issues'.

4. While it may be accepted that there are cases in which the positive case flow management objects are better served by separating issues of liability from issues of remedy, the plaintiff's approach is the orthodox approach.  The orthodox approach carries with it the risk that costs may be incurred in preparing and adducing evidence going to remedies that may be wasted because a plaintiff does not establish an entitlement to one or more of the remedies sought but this risk must be balanced against the risk of delays, inefficiencies and uncertainty inherent in splitting trials.  The attraction of splitting issues is 'often illusory'.[4]

   [4] Landsdale Pty Ltd v Moore [2009] WASCA 176 [20] (Newnes JA), [1] (Buss JA).

5. I am not persuaded that the matters relied on by the defendants justify a departure from the orthodox approach of an 'all issues' trial as sought by the plaintiff and as is contemplated by the case management directions which have been made to date.  In my assessment the most efficient and cost‑effective method of resolving the issues between the parties is to have a single trial of all issues.  Properly managed, adducing expert evidence on the quantification of losses, profits and just allowances should not extend the duration of the trial to the burdensome extent foreshadowed by the defendants in their submissions.

Conclusion

1. The defendants' application will be dismissed.

2. The defendants are ordered to pay the plaintiff's costs fixed in the sum of $2,227.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

OK

Associate to the Honourable Justice Tottle

10 AUGUST 2022