Enervite Export Pty Ltd v Carsten Pty Ltd

[1997] FCA 1536

ENERVITE EXPORT PTY LIMITED v CARSTEN PTY LIMITED AND ORS
No. NG 759 of 1997
FED No. 1536
Number of pages - 12
Corporations

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

LEHANE J

CORPORATIONS - whether authority to incur obligations on behalf of a company may derive from a shareholder, not being a majority or sole shareholder.

TRUSTS - circumstances in which contracting party holds the benefit of a contract on trust for a third party - whether listings and registrations under the Therapeutic Goods Act 1989 (Cth) constitute property and can be the subject of a constructive or other trust.

Therapeutic Goods Act 1989 (Cth)

Trade Practices Act 1974 (Cth) s 52, s 80, s 82

Herrman v Simon (1990 - 1991) 4 ACSR 81, referred to

Sycotex v Baseler (1994) 13 ACSR 766, referred to

Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41, distinguished

Winterton Constructions Pty Limited v Hambros Australia Limited (1991) 101 ALR 363, distinguished

Eslea Holdings Limited v Butts (1986) 6 NSWLR 175, distinguished

Marks v CCH Australia Limited, (Mandie J, 12 December 1996, unreported), distinguished

Susan Pender Jewellery Pty Ltd v Mirage (Operations) Pty Limited (Spender J, 5 August 1996, unreported), distinguished

Kelly v Kitty O'Shea's Pty Limited, (Cohen J, 21 August 1995, unreported), applied

SYDNEY, 24 December 1997 (hearing and decision)

#DATE 24:12:1997

#ADD 21:01:1998

Appearances

Counsel for the Applicant:	M. Walton
Solicitor for the Applicant:	Abbott Tout
Counsel for the Respondent:	S. Jacobs
Solicitor for the Respondent:	Stewart Levitt & Company

Order:

THE COURT DECLARES THAT:

1. The third respondent has breached the fiduciary duties he owes to the applicant as a director of the applicant.

2. The second respondent has participated with knowledge in the third respondent's breach of his fiduciary obligations.

3. The first respondent holds the assets, undertakings and goodwill of the business of supplying and distributing vitamins and other health supplements known as Enervite Australia as constructive trustee for the applicant.

THE COURT ORDERS THAT:

1. The first respondent is to take all steps required by the applicant for the purpose of enabling the applicant to be listed as sponsor in relation to the products distributed in the course of the business of Enervite Australia registered under the Therapeutic Goods Act 1989 (Cth).

2. There be an enquiry into the amount of any benefit derived by the respondents or any of them by reason of any breach of the fiduciary and statutory duties owed by the second and the third respondent to the applicant.

3. The first respondent, its servants and agents, are restrained from trading or carrying on a business under the name "Enervite Australia" or from representing that the first respondent or its business has any sponsorship or approval of, or any affiliation or connection with, the applicant or the applicant's business.

4. The respondents pay the applicant's costs of the proceedings.

5. The applicant have liberty to apply in relation to its claim for damages on seven days' notice.

6. The parties have liberty to apply on two days' notice in relation to any matter arising out of the relief granted by the previous orders.

LEHANE J

The applicant, which I shall call "the company", has for about seven years carried on a business of arranging the manufacture of, and supplying and distributing, vitamins and what are described as other health supplements under a brand name "Enervite". At all material times the third respondent, Mr Shotam, has been a director of the company and has been principally responsible for its management. The second respondent, Mr Premraj, was a director of the company between a date in 1994 and at least 26 February 1997. The respondents, although admitting on the pleadings that Mr Premraj remains a director of the company, now assert that in fact he resigned on 26 February and both Mr Premraj himself and Mr Shotam gave evidence to that effect. For reasons which will appear, it is unnecessary for me to decide whether Mr Premraj resigned or in fact remains a director and I need say no more about that topic.

The company banked with the Commonwealth Bank of Australia, to which I shall refer as "the bank". In early 1997 it had a facility from the bank of rather more than $1.2 million. That, at least, was then the approximate balance of the facility. The company's liabilities to the bank were secured by a charge over its undertaking and assets. That charge was registered in 1994; it was in a conventional form, fixed as to certain assets and floating as to others; it empowered the bank to require payment of the moneys secured by the charge in certain events and provided that, should the charge become enforceable, the bank might appoint a receiver - or, if it chose, appoint two or more persons jointly or severally or jointly and severally to be receivers - of the property charged.

By the beginning of 1997 it is clear, on the evidence, that the relationship between the company and the bank, which had earlier been harmonious, had become at least somewhat strained. As a condition of certain extensions of the facilities granted to the company, the bank arranged for an investigation of the financial condition of the company to be made at the company's expense by a firm of chartered accountants, Prentice Parbery Barilla.

The accountants' report was delivered in February 1997. It bears the date 7 February. It is unnecessary to describe the report in detail and it is sufficient for present purposes to say that it indicated that the financial condition of the company, though not hopeless, at the very least was somewhat precarious. It is clear from their evidence that both Mr Premraj and Mr Shotam took that as being the substantial effect of the report. It is equally evident that the bank took a similar view.

The events next to be described are those which occurred in May and June, 1997 (I shall return later to some substantially earlier history). On 28 May 1997, registrations under the Therapeutic Goods Act 1989 (Cth) ("Therapeutic Goods Act"), in relation to which the company was sponsor, were transferred to the first respondent, Carsten. I use the word "registrations"; by that I intend to refer to the fact that a substantial number of products supplied by the company were products of a kind to which the Therapeutic Goods Act applied and were, in some cases, listed under that Act and, in other cases, registered under it. The listings and registrations had been made by the authority administering the Act on the application of the company and on the footing that the company was the sponsor for the purposes of the Act.

During June 1997, the following additional events occurred. Notice was given to the landlord of premises occupied by the company that the company proposed to vacate, as in fact it did, at the end of that month. Secondly, property comprising, among other things, packaging, letterhead and records was taken from those premises to other premises apparently occupied by Carsten Pty Limited. Thirdly, stocks of products held at warehouses were, in effect, transferred to Carsten under arrangements, so it appears, by which the warehouses, or their proprietors, were directed to hold for Carsten stock formerly held for the company. The precise detail of what happened in relation to the stock is unclear, and again, for reasons which will appear, it is unnecessary for me to come to a definite conclusion as to precisely what happened.

At this point in the narrative, it is appropriate to pause in order to describe the situation of Carsten in slightly more detail. Carsten is a company of which the sole director is Mr Premraj. There was somewhat conflicting evidence given as to its management. The evidence of Mr Premraj was that he took no part in the management of Carsten at all, but that its management was controlled entirely by Mr Shotam. Mr Shotam's evidence was somewhat different. It was to the effect that he was responsible for sales of product; that Mr Premraj was the managing director, who signed Carsten's cheques; and that there was another employee of Carsten who was responsible for financial and accounting matters. There was evidence that Mr Shotam's salary, as at least a senior employee of Carsten, was of the order of $600 a week. Carsten is now, and has been since a date in June 1997, the registered proprietor of a business name, "Enervite Australia". That name had previously been registered (on 27 May 1997) by Mr Premraj, as a name of which he was the proprietor.

On 1 July 1997, the bank, which had previously made demand for the payment of moneys owing by the company and secured by the charge, appointed two partners of Prentice Parbery Barilla to be jointly and severally receivers and managers of the undertaking and assets, the subject of the charge. The company, under the control of those receivers, has brought these proceedings, in which it claims declarations that both Mr Premraj and Mr Shotam have breached fiduciary duties owed to the company and that Carsten holds, as constructive trustee for the company, the name Enervite Australia, the registrations under the Therapeutic Goods Act, stocks of product, and the whole of the assets, undertaking and goodwill of the business of supplying and distributing vitamins and other health supplements known as Enervite Australia.

Additionallyan inquiry as to profits is sought. Damages are sought also, particularly under s 82 of the Trade Practices Act, 1974 (Cth) ("Trade Practices Act"). Finally, an injunction is sought under s 80 of the Trade Practices Act, restraining Carsten from trading or carrying on business under the name Enervite Australia, or from representing that Carsten or its business has any sponsorship or approval of, or any affiliation or connection with, the applicant or the applicant's business.

It is unnecessary, I think, to go in detail to the amended statement of claim. It is sufficient, I think, to say that the company seeks the relief, which I have described, on the footing of breaches by Mr Premraj and Mr Shotam, of fiduciary obligations owed to the company and of obligations arising under the Corporations Law. It is also claimed that by trading, as it now does, under the name, Enervite Australia, in a business substantially indistinguishable from that previously carried on by the company, Carsten has engaged in conduct that is misleading and deceptive, in contravention of s 52 of the Trade Practices Act, resulting in loss or damage to the company. It is said that each of Mr Premraj and Mr Shotam was a person involved in the contraventions of the Trade Practices Act.

It is appropriate now to turn to the defence of each of the three respondents, and to the evidence on which the respondents rely. The respondents sought leave during the hearing to file an amended defence. A draft of such a defence was handed up, but it was said to be incomplete in at least one respect: that was that in addition to the amendments set out in the document handed up, there was to be an amendment intended to raise, by way of defence, circumstances which indicated that Mr Premraj did not owe fiduciary obligations to the company at the relevant time: as it was put to me, that defence was to be based on the allegation that Mr Premraj had resigned as a director on 26 February 1997.

A final form of the amended defence is yet to be engrossed, but the trial has been conducted upon the footing that the amendments, both those set out in the document handed up and that which I have just described, have been made. On that basis, the substantial defence of the respondents is founded upon a document described as a distribution agreement. It is necessary to describe that document, and the circumstances in which it came into existence, in a little detail.

The document is stated to have come into effect on 21 July 1990, and the evidence suggests that that is approximately the date on which it was signed. It is on letterhead headed Enervite Agencies. It is described (and I shall use that description) as a distribution agreement between Enervite Agencies and Enervite Export Pty Limited, the company. It recites the change of the company's name from the name under which it was incorporated (Glowale Pty Limited) to its present name. It then provides that the company is to obtain product information and product formulae for certain, particular items, which are then listed, from Enervite Agencies. The products listed are among those which, until the events with which these proceedings are concerned, were distributed by the company. The document then provides that Enervite Agencies is on an ongoing basis to continue to create products and supply to the company product knowledge and product design information.

The distribution agreement then provides that the company will, on behalf of Enervite Agencies, comply with all government regulations in Australia for the manufacture, sale and promotion of the products. It provides for a continuing entitlement on the part of Enervite Agencies to sell the products and then, importantly, it provides that the company must at all times be financially sound if it is to continue to manufacture and market the Enervite range of products, both at the date of the distribution agreement and in the future. It provides that if the company is not in a financial position so to continue, then Enervite Agencies can, without any notice, appoint a new distributor in Australia on certain conditions. Those conditions include that the new distributor may register a business name including the word "Enervite", the surrender by the company of the word "Enervite", as used in its own name, delivery by the company of unsold stock, brochures, promotional materials, labels and so forth, and then finally, payment to the company by the new distributor within six months for the stocks and materials received from the company on what is described as a "cost price basis". The company is in those circumstances to provide a client list to the new distributor and a list of suppliers, and will refrain from slandering the Enervite business.

I have mentioned that the parties to the distribution agreement are described as the company and Enervite Agencies. Enervite Agencies was, and still is, a business name registered in New South Wales of which Mr Shotam then was, and has at all times remained, the proprietor. Thus the agreement is expressed to be one between Mr Shotam on the one hand (as the party who is to supply the products and product information and formulae) and, on the other hand, the company.

The distribution agreement is executed by Mr Shotam, as representing the business name Enervite Agencies. It is signed on the other hand by a Mr de Bernis, who is described as General Manager, Bista Corporation Private Limited, Singapore. Thus the agreement, though expressed to be one to which the company is a party, is not apparently executed by the company or on its behalf. The question, then, is how did that come about and what are its consequences.

The circumstances in which it came about are deposed to in undisputed evidence of Mr Shotam. That evidence may be summarised as follows: Mr Shotam in the 1970s, and possibly the earlier part of the 1980s, secured rights to distribute in Malaysia products of an American corporation, substantially similar to the products later distributed by the company.

The American corporation, however, fell into financial difficulties and supply of the products ceased. Mr Shotam decided in those circumstances to create his own brand of similar products so that he would not encounter similar problems in the future. Mr Shotam's aim was to sell these products in supermarkets (as, it may be interpolated, the company's products have largely been sold). Mr Shotam had met the managing director of an Australian company which manufactured vitamin products. He discussed with that managing director the possibility of creating a new brand of such products aimed at the high quality or upper end of the market.

Mr Shotam thought of the name Enervite as one containing the elements of energy and vitamins. He caused a company called Enervite Agencies Private Limited to be registered in Singapore and commenced arrangements with the Australian company for the manufacture of product and its distribution in Singapore. Mr Shotam gave quite detailed evidence as to the provenance of certain of the products which are listed in the distribution agreement and came to be distributed by the company. The business conducted in Singapore through Enervite Agencies Private Limited in Singapore expanded. By July 1990 its turnover, according to Mr Shotam's evidence, was about $1 million per annum. Enervite Agencies Private Limited traded with a company in Singapore known as Bista Corporation Private Limited, of which Mr de Bernis and certain other people were directors.

Mr Shotam had discussions during the early part of 1990 about marketing the Enervite product range in Australia with a view, according to his evidence, to obtaining financial backing from Bista Corporation in order to do so. Mr Shotam gave evidence before me of arrangements made, and conversations which took place, between, among other people, Mr Shotam and officers of Bista Corporation under which an Australian company was to be purchased and the operations of which Mr Shotam was to control. The company, then known as Glowale Pty Limited, was acquired.

The conversations to which I have referred included arrangements under which Mr Shotam was to retain rights in relation to the products which he had developed. His evidence was that in order to protect those rights he drafted the distribution agreement which he initialled and handed to Mr de Bernis, asking Mr de Bernis to sign it. Mr de Bernis then did so. It may be noted that although a Mr Baptista, a director of Bista Corporation, was for a time a director of the company, Mr de Bernis has never, on the evidence, been a director of the company. Bista Corporation is, and has for some considerable time been, a shareholder in the company. It has never, however, been the sole shareholder or even the majority shareholder.

The contentions made on the part of the respondents are that the distribution agreement was an agreement of the company by which it was bound and has been performed as such. It is then said that because as evidenced by the accountants' report, delivered in February 1997, the company ceased to be financially sound. Mr Shotam thus, as Enervite Agencies, became entitled to exercise his rights under the distribution agreement, to terminate it and to appoint a new distributor on the footing that that new distributor would acquire, as against the company, the rights provided for in those circumstances by the distribution agreement. It is said that Mr Shotam exercised his rights by appointing Carsten as distributor, so that what followed in the events of May and June, as I have described them, was what was required to follow, no more and no less, under the distribution agreement. Thus, the principal defence of the respondents is that what the company asserts to have been a breach of fiduciary and statutory duties, was in fact no more than a proper exercise of the rights of Mr Shotam under the distribution agreement.

I have little doubt that what has been put to me on behalf of the respondents accords with Mr Shotam's genuine wish, from the outset, to protect himself against a loss, in circumstances where a distribution business was failing, of the benefit of the brand name and goodwill which he regarded himself as having developed. But to say that is not to answer the essential question favourably to the respondents. The first part of that question is whether the distribution agreement does indeed give rise to obligations binding upon the company.

The company's argument was simple. A company under the Corporations Law may bind itself to obligations, such as those provided in the distribution agreement, only by the execution of the agreement giving rise to the obligations by a person authorised to do so by a resolution of the only body competent to give that authority, that is, the board of directors. Here Mr Shotam conceded in evidence that the question of the execution of the agreement was not referred to the directors of the company. Secondly, the company said, even if such an agreement might properly be authorised by a resolution of the members of the company in general meeting (so that the so called Duomatic principle applied), there being no evidence of a resolution actually passed by a general meeting, effective authority to incur the obligations under the distribution agreement could come only from a unanimous decision of the shareholders (or a decision of a sole shareholder); but here, all that appears is that the distribution agreement is signed by an officer of Bista Corporation Private Limited which, though a shareholder, was not the sole or even the majority shareholder.

Accordingly, so it was said, there was no scope for the application of the Duomatic principle and therefore that possible basis upon which the company might have been held bound by the agreement failed also. I was referred particularly to the discussions of the principle by the Court of Appeal in Herrman v Simon (1990 - 1991) 4 ACSR 81 at 82 and 83, and by Gummow J in Sycotex v Baseler (1994) 13 ACSR 766, especially at 780 and 781.

The basis upon which the respondents sought to overcome the apparent difficulty of lack of authority was founded in the evidence given by Mr Shotam of the circumstances surrounding the drafting and execution of the distribution agreement. The argument was, as I understood it, that the distribution agreement should be regarded as authorised because the substance of what was done was assented to in a series of conversations involving Mr Shotam, Mr de Bernis, Mr Baptista and a representative of the Australian company from whom the company was originally acquired. The argument was that the persons between whom those discussions occurred comprised between them the then directing minds of the company. Therefore, it was said, the execution by Mr de Bernis ought to be regarded as execution on behalf of the company authorised by those, connected with the company, empowered to give the authority.

I do not think, however, that the evidence enables me to take that step. The difficulty with it is that the company was in existence; it had directors, it had shareholders. If it was to incur obligations, particularly in favour of one who might reasonably be regarded as a promoter, then it is not easy to see how it could do so other than by proper consideration and decision of its directors or possibly of its shareholders. But neither of these things happened. Conversations occurred between representatives of a shareholder on the one hand, Mr Shotam on another and on a third a representative in Australia of what may be described as the shelf company supplier. It is not easy to see how that amounts to authority to execute the document and incur the obligations for which it provides, particularly once it is appreciated that on Mr Shotam's evidence the agreement actually to execute the particular document was one arrived at in a conversation between Mr Shotam and Mr de Bernis, in which Mr Shotam presented to Mr de Bernis the document which he had prepared and initialled and requested Mr de Bernis to execute it, not explicitly on behalf of the company but on behalf of the Singapore corporation, Bista Corporation Private Limited, of which he was general manager.

There was I think a second string to the respondents' bow in relation to the binding effect, as it was contended, of the distribution agreement. That was to the effect that the agreement should be regarded as adopted because once Mr Shotam came to Australia and assumed control of the company, its terms were substantially put into effect. That is to say, the company did distribute the particular products listed in the document, more products were created, more information was given to the company by Mr Shotam and the company did apply for approvals under Australian legislation.

It is well established, certainly, in the case of pre-incorporation contracts (and leaving the provisions of the Corporations Law on one side) that an adoption or novation of a pre-incorporation contract may occur in relatively informal ways. In this case, however, it seems to me difficult to maintain that what happened is by any means necessarily explicable by reference to performance of the agreement. It is difficult also, in my view, to point to anything in the evidence which amounts to its unequivocal adoption. And there is at least one significant consideration in my view militating against it. It is to be recalled that, under the distribution agreement, compliance with government regulations is to be attended to by the company on behalf of Enervite Agencies, that is, on behalf of Mr Shotam. Thus, for example, the listing and registration of products under the Therapeutic Goods Act would, if the agreement were to be put into effect, be applied for by the company as sponsor on behalf of Mr Shotam.

Audited accounts, albeit special purpose accounts, of the company as at 30 June 1995 are in evidence and have been the subject of much discussion in argument. Those accounts show, as an asset of the company, intangibles valued at $1,295,129. It is apparent from the schedule of intangibles forming part of the accounts that the registrations and listings under the Therapeutic Goods Act account for $492,000 of that total sum. If it were the case that the company had applied for the registrations and listings on behalf of Enervite Agencies, that is Mr Shotam, one would hardly expect an unqualified assertion in accounts of the company, signed by the directors, that among its assets were product registrations (as they are described) having that value, and amortised, as they were, at a rate which assumed the continued enjoyment by the company of the benefit of the listings and registrations over a period of 40 years.

It may be, as Mr Shotam's evidence was, that as at 30 June 1995 he believed that the company was in a sound financial condition and that the future was rosy; but, nevertheless, the accounting treatment to which I have referred is hardly consistent with action of the sort provided for in the agreement on behalf of Mr Shotam rather than for the benefit of the company itself.

I should refer briefly to some authorities which were relied upon by the respondents on this aspect of the case. They relied first upon the decision of the High Court in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41. That case decided, at least that in the particular circumstances with which the court was concerned, that no fiduciary relationship arose between a sole distributor and a manufacturer. It says nothing as to whether fiduciary obligations arise, as plainly they do, between a director and a company, nor for that matter - although this was an issue not substantially canvassed in argument - does it say anything as to whether fiduciary relationships exist, as commonly they do, between the promoters of a company and the company. The case was relied upon, as I understood it, principally in support of a proposition that, the distribution agreement having been entered into at a time when no fiduciary relationship existed between Mr Shotam and the company and entered into at arm's length, it should be regarded as effective; but the case has nothing to say, in my view, about the circumstance in which a director, as the company alleges here, allows personal interest to conflict with the director's duty to have regard to the benefit of the company.

I was referred also to some other authorities. One group of them is a series of well-known authorities concerning the circumstances in which it will be held that a contracting party holds the benefit of a contract on trust for a third party. I was referred, for example, to Winterton Constructions Pty Limited v Hambros Australia Limited (1991) 101 ALR 363, particularly at 370 and 371, and to the discussion of the topic by the New South Wales Court of Appeal in Eslea Holdings Limited v Butts (1986) 6 NSWLR 175, especially at 188 and 189. Counsel referred me also to the decision of Marks v CCH Australia Limited (Mandie J, 12 December 1996, unreported). Those cases, I think, are of very little assistance in the present context for one principal reason: it is one thing to say that in certain circumstances a party to a contract may contract as agent for a third person; it is quite another, and it is a leap which authority does not permit me to take, to hold that in circumstances of that kind the third party becomes bound by the obligations which the contract purports to impose upon the party which is trustee.

The other line of authority to which I was referred was that which is represented by the decision of Spender J in Susan Pender Jewellery Pty Limited v Mirage (Operations) Pty Limited (5 August 1996, unreported), where an applicant may be entitled to damages for breach of s 52 of the Trade Practices Act where the applicant was not a person to whom representations, held to constitute misleading or deceptive conduct, were made, or indeed was not in existence at the time when the representations were made. Again however that principle, which is really only one as to whether a particular loss results from a particular infringement of s 52, says nothing as to the circumstances in which somebody not a party to an agreement or who has not agreed to become bound by its terms, may have obligations under it.

A number of other points were made in submission by counsel for the respondents. It was argued particularly, and it is pleaded in the respondent's foreshadowed, amended defence, that listings and registrations under the Therapeutic Goods Act, do not constitute property and therefore are incapable of being the subject of a constructive or other trust. Strictly speaking, I think that argument may well be correct. It is important, however, to recognise its limitations. It is clear enough that the assets of a company may include goodwill, and where reputation is established and goodwill can be said to have some value, the name associated with the goodwill and licenses of the kind here in question, which must be held in order that the goodwill may be exploited, may be regarded effectively as part of the company's goodwill. That, if authority were needed for what seems to me a reasonably elementary proposition, is supported by the decision of Cohen J, to which I was referred, in Kelly v Kitty O'Shea's Pty Limited (21 August 1995, unreported).

It may well be that it would be inappropriate to make a declaration to the effect that particular licenses are held upon trust. Nevertheless, in my view, a declaration may be made that the assets, including goodwill of a business, are held upon trust, and, where the goodwill depends upon the ability to use a name or take advantage of a licence, appropriate consequential orders may be made in order to ensure that a successful applicant obtains the benefit of the name or licence. That is, in effect, what Cohen J did in relation to a name in Kelly.

There was also argument to the effect that the receivers had acted unreasonably. It was said that reasonableness was an important factor in relation to the awarding of particular remedies, particularly, no doubt, where remedies are discretionary. It was said that the receivers had been unreasonable because they were to be treated as responsible for what was described as a refusal by the bank to meet Mr Premraj and Mr Shotam for the purpose of discussing a proposal to pay the debt owed to the bank. It is sufficient, I think, to say as to that, that whether or not what the bank did was reasonable, and that is not a question which arises here, the company, as applicant, in seeking remedies against directors or former directors in breach of fiduciary obligations is not to be deprived of remedies as a result of any conduct that may be attributable to the bank.

The other alleged unreasonableness was what was said to be a refusal of the receiver to sell to a particular purchaser certain stock, the use-by date of which was rapidly approaching, even at a mark up of 50 per cent. A representative of the receivers, Mr Laird, who gave evidence, gave two reasons for the receiver's refusal to sell all of that stock to the particular purchaser. One had to do with a suspected connection between the purchaser and the respondents; the other, more substantial, reason had to do with a fear, which appeared to have some foundation, that the purchaser was proposing to compete in the market with the company in relation to the sale of the particular goods. A suggestion was made in argument that the attitude taken by the receivers in this respect was vindictive or malicious. It is sufficient to say that there is in my view no foundation in the evidence for such a suggestion and that the suggestion was not put to Mr Laird when he gave evidence.

The result of what I have said so far is, in my view, that the events in which Mr Shotam as managing director of the company participated, and Mr Premraj, at least as proprietor of the business name, Enervite Australia, and as managing director of Carsten, participated, are not to be justified by reference to the distribution agreement nor, I think, except perhaps as to the detail of the way in which remedies are worked out, is it to the point to say that some of the assets of which Carsten took control have been or are to be paid for.

Clearly, to the extent that Carsten has sought, as plainly it has, to take the benefit of the registrations and listings under the Therapeutic Goods Act, to use in trade the Enervite name and to conduct a business substantially identical to that of the company, using packaging and getup, again substantially identical, to those previously used by the company,Carsten's conduct amounts, if the conduct of Mr Shotam is to be sheeted home toit, to a breach of duty owed to the applicant. Because Mr Shotam's conduct in relation to the transactions is not to be justified by reference to the distribution agreement, he clearly in my view has breached both his fiduciary duties to the company and (although it is unnecessary to consider this in detail) probably statutory duties as well.

Whether or not Mr Premraj was a director of the company at the time of the relevant events, he had been a director of the company at least up to a time shortly after the accountants' report was delivered in February 1997. His evidence was that he was at all times merely a silent director and took no part in the management or control of the company. That may be accepted; nevertheless, he was a director; he owed the company fiduciary and statutory duties while he remained a director and, while he remained a director, among other things, he signed the 1995 accounts and read (on his evidence, somewhat to his dismay) the accountants' report. I must infer that he had at least a clear general understanding of the nature of the business in which the company was involved. He must be taken to have known that the transactions into which he entered in May and June, whether as proprietor of the business name, Enervite Australia, or as sole and managing director of Carsten, amounted to an assumption of the undertaking and business previously owned and conducted by the company. It seems to me, therefore, that even if he was not a director he is chargeable as a participant with knowledge in the breach of duty by Mr Shotam.

As for Carsten itself, plainly Mr Premraj's knowledge is to be attributed to it and, given the degree of control which even on his own evidence Mr Shotam exercises over the affairs of Carsten, in my view Mr Shotam's knowledge as well. Carsten has, plainly on the evidence, whatever the precise detail of some of the transactions, received property of the applicant as a result of a breach at least by a director, Mr Shotam, of fiduciary obligations. In those circumstances it is a necessary step in my view to hold that Carsten is liable as constructive trustee.

Accordingly there should be a declaration that the third respondent has breached the fiduciary duties which he owes to the applicant as a director of the applicant. There should also be a declaration that the second respondent has participated with knowledge in the third respondent's breach of his fiduciary obligations. There should be a declaration that the first respondent holds the assets, undertaking and goodwill of the business of supplying and distributing vitamins and other health supplements known as Enervite Australia as constructive trustee for the applicant. It may be that consequential orders should be made also in relation to the name Enervite Australia and in relation to the registrations and listings under the Therapeutic Goods Act and I shall hear counsel in relation to those in a few minutes.

It will be noted that I have not found it necessary to deal explicitly with statutory duties and, unless it is to be suggested to me that substantial results would follow from my considering that matter, I think it is unnecessary for me to do so. As for the question of relief under the Trade Practices Act, it follows from the conclusions I have already reached that the carrying on of the business of distributing vitamins and other health supplements under the name Enervite Australia, using packaging and get up of the kind in evidence before me, amounts to an infringement at least of s 52 of the Trade Practices Act and it seems plain enough that that infringement should properly be restrained by injunction.

The applicant is in any event in my view the beneficiary of a constructive trust entitled to an account of profits. An order will need to be made for the taking of the account of profits. If, in addition to an account, the applicant seeks damages then I think it will be necessary to relist the matter for further hearing on that aspect of the case.

[Argument ensued as to the form of the orders to be made.]

The appropriate orders, then, in addition to the declarations I have already indicated, are an order in terms of para 4(b) of the application, an order in terms of para 6 of the application, an order that the respondents pay the applicant's costs of the proceeding to date, an order that the applicant has liberty to apply in relation to its claim for damages on seven days' notice, and an order that the parties have liberty to apply on two days' notice in relation to any matter arising out of the relief granted by the previous orders.