City Finance (WA) Pty Limited v Murphy
[2014] WADC 176
•22 DECEMBER 2014
CITY FINANCE (WA) PTY LIMITED -v- MURPHY [2014] WADC 176
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WADC 176 | |
| Case No: | CIV:1254/2013 | 26 & 27 MARCH, 8 APRIL 2014 | |
| Coram: | BRADDOCK DCJ | 22/12/14 | |
| PERTH | |||
| 15 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for plaintiff in Civ 1254 of 2013 against third defendant Damages assessed in Civ 1254 of 2012 Damages assessed in Civ 2438 of 2012 | ||
| PDF Version |
| Parties: | CITY FINANCE (WA) PTY LIMITED ROBYN GRACE MURPHY BENJAMIN JOHN WHYTE HARBOUR FINANCE PTY LIMITED VERACITY CORPORATION PTY LTD |
Catchwords: | Breach of contract Default judgment Mortgage broker Clients diverted by employee to her own company Assessment of damages Liability of company Knowledge of director Imputed knowledge Recovery of benefits to company |
Legislation: | Evidence Act 1906 s 79C(2)(a) Rules of the Supreme Court 1971 O 20 r 14 |
Case References: | Barnes v Addy (1974) 9 LR Ch App 244 Hamilton v Whitehead (1968) 166 CLR 121 Tesco Supermarkets v Nattrass [1972] AC 153 WA Fork Truck Distributors Pty Ltd v Jones & Ors [2003] WASC 102 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
ROBYN GRACE MURPHY
First Defendant
BENJAMIN JOHN WHYTE
Second Defendant
HARBOUR FINANCE PTY LIMITED
Third Defendant
- Plaintiff
AND
ROBYN GRACE MURPHY
First Defendant
BENJAMIN JOHN WHYTE
Second Defendant
Catchwords:
Breach of contract - Default judgment - Mortgage broker - Clients diverted by employee to her own company - Assessment of damages - Liability of company - Knowledge of director - Imputed knowledge - Recovery of benefits to company
Legislation:
Evidence Act 1906 s 79C(2)(a)
Rules of the Supreme Court 1971 O 20 r 14
Result:
Judgment for plaintiff in Civ 1254 of 2013 against third defendant
Damages assessed in Civ 1254 of 2012
Damages assessed in Civ 2438 of 2012
Representation:
CIV 1254 of 2013
Counsel:
Plaintiff : Mr A Hershowitz
First Defendant : No appearance
Second Defendant : Mr Park
Third Defendant : No appearance
Solicitors:
Plaintiff : DLA Piper
First Defendant : Not applicable
Second Defendant : Park Linfoot Legal Solutions
Third Defendant : Not applicable
CIV 2438 of 2012
Counsel:
Plaintiff : Mr A Hershowitz
First Defendant : No appearance
Second Defendant : Mr Park
Solicitors:
Plaintiff : DLA Piper
First Defendant : Not applicable
Second Defendant : Park Linfoot Legal Solutions
Case(s) referred to in judgment(s):
Barnes v Addy (1874) 9 LR Ch App 244
Hamilton v Whitehead (1968) 166 CLR 121
Tesco Supermarkets v Nattrass [1972] AC 153
WA Fork Truck Distributors Pty Ltd v Jones & Ors [2003] WASC 102
- BRADDOCK DCJ:
Introduction
1 This matter concerns the wrongful diversion of clients' business from the two plaintiff companies by an employee of the two plaintiff companies to a third company, the third defendant in action 1254 of 2013.
2 City Finance (WA) Pty Limited (City Finance) is a company, duly incorporated, whose business was mortgage brokering and sourcing finance for clients who wished to borrow money. City Finance then set up loans in accordance with offers that were received from banks and other financiers. Robyn Grace Murphy (Murphy), the first defendant in both actions in this litigation, was employed by City Finance as an operations manager from 7 August 2006 until the middle of October 2007. From March 2007 until 24 October 2007, she was also employed as the general manager of Veracity Corporation Pty Ltd (Veracity). Veracity is the plaintiff in the second of the two actions generated by these events.
3 Benjamin John Whyte was employed by City Finance from 2003 until November 2007. He was also employed by Veracity, from March 2007 until November 2007. Mr Whyte is the second defendant in both actions. Harbour Finance Pty Limited (Harbour Finance) carries on business also as a mortgage broker. Murphy is and was at all relevant times a director of Harbour Finance. A current and historical extract of the ASIC records for Harbour Finance, dated 12 March 2014, shows that Murphy is currently a director, having been appointed on 21 April 2006. Former directors include Shaun Matthew Gibson, who was appointed on 2 March 2005 and ceased his directorship on 4 February 2014. Between those same dates, Mr Gibson held the role of secretary. A third director is shown as Troy John Simmonds who held the role of director from 2 March 2005 until 1 March 2008. The current shareholders are Murphy, with two shares; and Mr Gibson with two shares. Previously, Mr Simmonds held one share.
4 Murphy was employed by City Finance pursuant to a written contract containing detailed provisions concerning her obligations, in the terms that would be expected of a senior employee. She had the role of operations manager and in that capacity had access to the company's client base. She signed a non-disclosure agreement in addition to her contract. Her role was, amongst, other things, to pursue and write business on behalf of City Finance.
5 Veracity was a separate corporate entity with a different business operation. Its activities involved offering services of advice and assistance general business planning, management services and advice for people in planning their financial lives but not investment advice.
6 City Finance and Veracity were owned effectively by the Melotte family. Mr Iain Melotte was a director of both companies. In about October 2007, Mr Melotte became aware of Harbour Finance and Murphy's connection to it. He carried out investigations, interviewed the employees, and came to the conclusion that all was not as it should be. An agreement was reached with Murphy that she would depart in mid-October. She was paid four weeks' salary in lieu of notice and left. After her departure, Mr Melotte had full access to all faxes and emails and other records and communications. In perusing these, he realised that she had diverted business from City Finance to Harbour Finance and had been writing loans for Harbour Finance whilst employed by City Finance.
7 City Finance had a practice of referring clients to Veracity to receive further advice and services from that company. Analysis by Ms Yvonne Melotte, who was responsible for the financial records of both companies, reveals that of 96.6% of City Finance clients took up some services with Veracity. In her dual role as operations manager for City Finance and general manager of Veracity, Murphy was supposed to promote the business of Veracity to the clients of City Finance. So the diversion of business from City Finance to Harbour Finance had the potential also to diminish the business of Veracity.
Procedural history
8 The events with which this litigation is concerned took place in 2006 and 2007 and were concluded, save for subsequent investigations, by October/November 2007. Proceedings were commenced initially in the Supreme Court by City Finance against Murphy, Whyte and Harbour Finance (Supreme Court action CIV 2190 of 2009).
9 On 17 August 2012, Veracity filed a writ of summons in this court naming Murphy and Whyte as defendants. The Supreme Court action was remitted to this court on 15 April 2013 and consolidated, by order of the principal registrar, with Veracity's action on 17 April 2013. City Finance was ordered to be the lead action. On 22 May 2013, judgment was entered against Murphy in both actions, in default of defence, with damages to be assessed.
10 At that time, Park Linfoot Legal Solutions had instructions to represent both Mr Whyte and Harbour Finance. This matter was listed for trial on 26 March 2014. Prior to trial, Mr Whyte, Veracity and City Finance reached a settlement in relation to the claims against Mr Whyte.
11 On 18 February 2014 Park Linfoot Legal Solutions were granted leave to withdraw from the record on behalf of Harbour Finance.
12 On the first morning of trial Veracity and City Finance were represented by counsel, Mr Hershowitz, instructed by DLA Piper. Neither Murphy nor Harbour Finance appeared nor was either represented by counsel. Mr Brian Jackson, solicitor for the plaintiffs had filed an affidavit on 14 March 2014, setting out the efforts that had been made subsequent to 18 February to serve Harbour Finance with documents and to contact Murphy. These efforts were extensive and included all reasonable avenues but to no avail.
13 On 27 March 2014, I granted leave to proceed to the plaintiffs against both Murphy and Harbour Finance in their absence and gave oral reasons for that ruling. I was satisfied that Harbour Finance had been made aware of the trial date by their solicitors when they were acting and that the relevant documents had been communicated to Harbour Finance and Murphy so far as was possible. Furthermore, Murphy had taken no steps in the proceedings since Park Linfoot ceased to act for her on 14 January 2013, pursuant to an order of the Supreme Court on that date, culminating with the judgments being entered against her on 21 May 2013.
Issues at trial
14 In City Finance's action against Murphy, the only issue to be determined was the quantum of the damages. Those were particularised City Finance as comprising:
(a) upfront commissions;
(b) trail commissions (current);
(c) trail commissions (future);
(d) recovery of part wages paid;
(e) repayment of four weeks' salary in lieu of notice.
15 A schedule of damages dated 26 March 2014 read as follows:
Schedule of Damages
Assessed as at 14 March 2014
|
| Value |
|
| $41,117 |
|
| $25,176 |
|
| $28,642 |
|
| $90,298 |
|
| $22,140 |
|
| $5,000 |
| $212,373 | |
|
| $59,088 |
| $271,461 |
16 Veracity's claim against Murphy was argued at trial as damages for the loss of the opportunity to earn income from referred clients.
17 The liability of Harbour Finance was in issue. By its pleadings Harbour Finance denied the receipt of any commissions in breach of fiduciary duty, but admitted the receipt of some trailing commissions related to Mr Whyte. Harbour Finance denied knowledge of the breaches pleaded against Murphy. Damages were claimed, if liability were established, in relation to the upfront and trailing commissions earned by Harbour Finance as the consequence of the action of Murphy in diverting business to Harbour Finance. Harbour Finance stands to continue to receive trailing commissions on such business it wrote as a result of Murphy's actions.
Evidence at trial
18 The evidence at trial was focused upon proving the quantum of loss suffered by City Finance, and Veracity.
19 Ms Yvonne Melotte was called to give evidence. She had prepared a schedule of City Finance's business to show the links to Veracity's business, (exhibit 6). Ms Melotte had been a director of Veracity since 2004 and her role was to look after all financial records. She compared the clients who did business with both City Finance and Veracity in the period August 2006, to December 2007. The schedule established that over 96% of City Finance clients did business with Veracity in that period. Further, the average fee earned per client was $4,248, excluding GST.
20 I asked her directly about the trailing commissions and the effect, if any, of the global financial crisis would have had upon them. Her evidence was that the global financial crisis would have no effect upon trailing commissions, although it would potentially have effect of the ability to write fresh business with new clients. Trailing commissions are paid throughout the life of the loan granted to the client from the finance provider to the agent who affected the business. They continue unless and until the loan is paid out, for any reason. Therefore, should a client refinance the indebtedness, the trailing commission would come to an end.
21 I accept the evidence of Ms Melotte. She impressed me as a businesslike, thorough, and reliable witness.
22 Evidence was called from Mr Mark James Davidson, an accountant suitably qualified and experienced. He calculated and set out in schedules the losses suffered from the clients identified in the pleadings as diverted by Murphy from City Finance to Harbour Finance. He also calculated future trailing commissions and interest in relation to his various totals.
23 The documents received into evidence were:
1. A bundle of loan applications to various financial institutions including ANZ, the Macquarie Bank, AFG (Australian Finance Group), Westpac, made by Harbour Finance on behalf of clients named in the statement of claim. On a number of these Murphy signed as the authorised officer. Not all of these documents are in the same form. They were tendered to prove the terms of the loans for the purposes of the calculations of Mr Davidson. He had worked on the basis of a 30 year term. It would appear that all bar one of the loans were for that period (exhibit 1).
2. Mr Davidson's report (exhibit 2) dated 13 March 2014 including his curriculum vitae, and the schedules referred to above.
3. A bundle of AFG 'Recipient Created Tax Invoices'. These invoices concern business between AFG and Harbour Finance under the name of Murphy (exhibit 3).
4. A further bundle of the same type of documents from AFG showing business directed to the director of the trustee for the Whyte Family Trust (exhibit 4). These materials had no residual relevance, due to the settlement of Mr Whyte's action. Mr Davidson had reference to them for the purposes for the preparation of earlier reports.
5. A further bundle of similar materials directed to Harbour Finance showing other business written by Murphy producing trailing commissions (exhibit 5).
24 I was satisfied that all of these documents comprised business records genuinely compiled to track the commissions due to the agents or their employers, compiled by AFG and employees of Harbour Finance. They were accordingly admissible pursuant to s 79C(2)(a) of the Evidence Act 1906.
25 Mr Davidson used these materials and Ms Melotte's schedule, (exhibit 6) for the purposes of his report.
26 Mr Davidson was instructed to base his calculations specifically upon the loans which reflect those pleaded by City Finance as being clients diverted by Murphy to Harbour Finance. At the time of those instructions, Mr Whyte remained involved and a number of clients of his were also included. For trailing commissions, he was instructed to consider the loss of future commissions over the life of 30 year terms from November 2009 to 30 June 2036. His calculations for business lost to Harbour Finance, due to up-front commissions directed to Murphy, was $41,117 (report sch 2, exhibit 2). His calculation of (past) lost trailing commissions in respect of the same business was $25,176 (report sch 3, exhibit 2).
27 He calculated future lost trailing commissions from this business at $28,642. His projection was based upon the previous year and the decrease in commissions over that year. This was to take account of the decrease in commissions brought about by loans being repaid or refinanced by the clients. It also was sensitive to changes in interest rates. His evidence was that his method would slightly understate the claim over the period of these loans and he then further discounted the figure by the government bond interest rate for accelerated receipt.
28 Using Ms Melotte's analysis of client's referral rates to Velocity, Mr Davidson calculated the loss in fees by the diversion of the 22 clients named in the statement of claim against Murphy, applying the average fee earned, as $90,298 (Report sch 5, exhibit 2).
29 I accept the evidence calculations and methodology of Mr Davidson as conservative, careful and based upon the source documents specifically related to the clients diverted by Murphy.
30 In addition to these heads of damage, Murphy was paid wages in lieu of notice. I accept that had her true conduct been known she would have been dismissed without notice and that sum is a recoverable loss to City Finance resulting from Murphy's breach of contract.
31 Her full salary was paid during the period she was partially working for Harbour Finance. I will return to that aspect of the matter later.
Law
32 Order 20 r 14 of the Rules of the Supreme Court 1971 provides that, subject to O 20 r 14(4), any allegation of fact made by party in his pleading is deemed to be admitted by the opposite party unless it is traversed by that party in his pleading or a joinder of issue under r 15 operates as the denial of it.
33 Order 20 r 14(4) provides that any allegation that the party has suffered damage and any allegation as to the amount of the damages is deemed to be traversed unless specifically admitted.
34 Paragraph 13 of the statement of claim by City Finance against Murphy particularises the breaches of contract alleged against Murphy, including the diversion of business resulting in Harbour Finance receiving up front and trailing commissions instead of Harbour Finance. Details of the loans so brokered and diverted are set out in full par 13.2.3 of the statement of claim.
35 Paragraph 13.4 pleads that Murphy spent extensive amounts of time including during her hours of employment with Harbour Finance running the business of City Finance. It specifies sending large number of emails, including to the AFG, Gadens Lawyers, Macquarie Bank, and to and from clients in relation to broking services.
36 None of these pleaded facts have been denied by Murphy or are traversed by operation of the rules.
37 Judgment having been entered against her on these pleadings, they are deemed to be admitted and no further proof of those facts is required.
38 Paragraph 16 of the statement of claim is the plea of loss and damage. Order 20 r 14(4) applies. In relation to upfront commissions, the pleaded loss and damage is an assertion of a conclusion mathematically calculated from par 13.2.3. In relation to the trailing commissions, figures are set out per client. These also have been calculated by Mr Davidson and are in evidence.
39 Harbour Finance, as any corporate entity, acts through its officers, employees and servants. In this instance, Murphy as its director it was an officer. Additionally there is evidence to show that she was personally negotiating and writing business for financial products in the name of Harbour Finance, some of the application forms in exhibit 1 were signed by her. It may be that she was an agent or employee of Harbour Finance, but the claim is not pleaded on that basis.
Findings on liability of Harbour Finance
40 The claim against Harbour Finance is pleaded (in par 26 of the statement of claim) in terms of its receipt of commissions from the lenders specified in relation to the loans listed in par 13. Paragraph 28 pleads that Harbour Finance received these commission in the knowledge that the loans were brokered in breach of Murphy's fiduciary duties.
41 I am satisfied on the evidence, including the facts proved against Murphy, her directorship of Harbour Finance, her conduct whilst employed by City Finance in writing business for Harbour Finance that Harbour Finance was effectively under her control in relation to the matters the subject of this action.
42 The liability of a company for wrongful acts is to be established either vicariously or by proving that the entity had sufficient knowledge of the circumstances to be party to the actions alleged. I am satisfied that Harbour Finance can be fixed with the knowledge of Murphy all in the circumstances set out above: Tesco Supermarkets v Nattrass [1972] AC 153, 170 and Hamilton v Whitehead (1968) 166 CLR 121.
43 The actions of Murphy directly caused the loss of business to City Finance from which Harbour Finance benefited.
44 By the judgment entered against her, Murphy is proved to have diverted those named clients. The calculation of damages based upon those facts is provided by Mr Davidson's evidence.
45 I find that Murphy was the principal actor in the process of diverting business from City Finance to Harbour Finance. She was an employee of both City Finance and Veracity at all material times. She was a director of Harbour Finance, and she was also writing business as an agent for Harbour Finance. Thus she was directly acting in the name of Harbour Finance, representing herself as the agent of the company, and a director. (Mr Whyte also acted for the company, but it is not necessary now to consider his position. The business related to Mr Whyte has been excluded from the calculations). I find that Murphy was the directing mind of Harbour Finance in relation to the business the subject of this action and her knowledge and intention are to be attributed to Harbour Finance. Thus Harbour Finance knowingly received monies in breach of fiduciary duties owed by Murphy to City Finance.
46 The business diverted is that set out in par 13.3 of the statement of claim and is identical to the claim against Murphy. In this regard I find the case against Harbour Finance has been established.
Damages against Harbour Finance
47 The pleadings framed the claim as an account of profits. It was not pursued on this basis, rather as damages or equitable compensation.
48 Harbour Finance received various sums knowingly in breach of a fiduciary obligation that Murphy had to her employer City Finance. The remedy is repayment, properly described as equitable compensation. Equitable compensation may be awarded against a third party where that third party knowingly assists a fiduciary in breach the more so where it thereby benefits: Barnes v Addy (1874) 9 LR Ch App 244.
49 On the evidence of Mr Davidson I accept the quantification of the loss under each heading as per the schedule reproduced above.
Quantum of damages against Murphy
50 In addition to the commissions lost, both upfront and trailing City Finance also paid Murphy when she was not working in the interests of that company alone. She devoted a considerable amount of time and effort to the business of Harbour Finance. It is not feasible precisely to calculate the time spent on this relative to her other work for City Finance. There is no evidential basis to do so, save for the emails particularised at par 13.4 of the statement of claim.
51 In those circumstances, it was argued that the proper course is to adapt the approach taken in WA Fork Truck Distributors Pty Ltd v Jones& Ors [2003] WASC 102. Pullin J made an assessment of compensation at 25% of wages paid to the employee in similar circumstances in that case. From the judgment (par [29] – [39]) there were details of the employee's activities, but these did not provide a basis for precise calculations.
52 Pullin J clearly took a pragmatic view in the face of a claim for the full wages paid over the relevant period. His reasoning was that the employee had also worked for the plaintiff in that case in the relevant period also.
53 I consider I can do no better and would fix damages at a conservative assessment of 25% of the wages paid.
54 Further, on the basis of a gross breach of contract and duties by Murphy, she would have been liable to summary dismissal under her contract and at common law. Mr Melotte however paid her four weeks wages, at the time when he was not fully aware of the extent of her defaults.
55 She was not entitled to that sum and its repayment is due to recoup that loss for City Finance.
Veracity damages
56 Damages are claimed by Veracity on a different basis, against Murphy alone. Paragraph 10 of the statement of claim lists the specific named clients whose business was diverted from Harbour Finance and who were not solicited by Murphy to be advised as required by her employment with Veracity.
57 Damages are claimed as a loss of an opportunity to provide services to the persons listed in par 10 of the statement of claim.
58 I accept that this is an appropriate measure of the loss, as Veracity is to be placed in the same position as if the contract of employment had been honoured and duly performed by Murphy. Had that occurred 96% of clients would have done business with Veracity averaging $4,249 per client.
A. Damages assessed against Murphy and Harbour Finance payable to City Finance (CIV 1254 of 2013)
'Up front' commission $41,117.00
Trailing Commissions to trial date $25,176.00
Future trailing commissions $28,642.00
B. Damages against Murphy to City Finance (CIV 1254 of 2013)
4 weeks wages paid in lieu of notice $5,000.00
25% wages paid between August 2006 –
October 2007 $22,140.00
C. Damages against Murphy due to Veracity (CIV 2438 of 2012)
Loss of opportunity to earn fees from
Diverted clients $90,298.00
D. Interest
To March 2014 (on A & C) $59,088.00
(Calculated by Davidson) (includes both Murphy &
- Harbour Finance)
April to December 2014 (on A & C) $7,409.00
(includes both Murphy &
Harbour Finance)
From October 2007 to December 2014
(on B) $11,669.00 (Murphy)
Total interest $78,166.00
59 I will hear counsel as to the precise form of orders to be made and the division of or further calculation of interest.
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