Fortron Automotive Treatments Pty Ltd v Jones & Ors (No.3)
[2011] FMCA 467
•1 July 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FORTRON AUTOMOTIVE TREATMENTS PTY LTD v JONES & ORS (No.3) | [2011] FMCA 467 |
| CONSUMER LAW – Alleged misleading and deceptive conduct – alleged product substitution scheme. TORT – Alleged interference with contractual relations – elements – whether any damage proved. EQUITY – Fiduciary obligations – director – senior employee. CORPORATIONS – Duties of officers and employees. |
| Corporations Act 2001 (Cth), s.182 Evidence Act 1995 (Cth), ss.118, 119 Fair Trading Act 1987 (WA), ss.10, 68, 69 Trade Practices Act 1974 (Cth), s.52 |
| Allstate Life Insurance Co v ANZ Banking Group Ltd (1995) 58 FCR 26 Crawford Fitting v Sydney Valve and Fittings Pty Ltd (1988) 14 NSWLR 438 Daily Mirror Newspapers Ltd v Gardner [1968] 2 QB 762 Eden Construction Pty Ltd v New South Wales (No 2) [2007] FCA 689 Exchange Telegraph Co v Gregory & Co [1896] 1 QB 147 Western Power Corporation v Normandy Power Pty Ltd [2001] WASC 202 White v Riley [1921] Ch 1 |
| PD Finn, “The Fiduciary Principle”, TG Youdan (Ed) Equity, Fiduciaries and Trusts (Carswell: Toronto Canada, 1989 RP Balkin and JLR Davis, Law of Torts (3rd Edn) (2004, LexisNexis Butterworths, NSW) |
| Applicant: | FORTRON AUTOMOTIVE TREATMENTS PTY LTD |
| First Respondent: | KENNETH JOHN JONES |
| Second Respondent: | TREBLEX AUTOMOTIVE PRODUCTS PTY LTD |
| Third Respondent: | SHEILA MARY JONES |
| Fourth Respondent: | WILLIAM PATRICK TULLY |
| Fifth Respondent: | HELEN GEORGINA TULLY |
| Sixth Respondent: | GAMMAR GROUPS (THAILAND) CO LTD |
| File Number: | PEG 172 of 2007 |
| Judgment of: | Lucev FM |
| Hearing dates: | 25-27 February 2008, 12 & 14-16 May 2008, 17-20 November 2009 |
| Date of Last Submission: | 20 November 2009 |
| Delivered at: | Perth |
| Delivered on: | 1 July 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr M H Zilko SC and Mr G Rabe |
| Solicitors for the Applicant: | Stables Scott |
| Counsel for the First to Fifth Respondents: | Ms G A Archer SC |
| Solicitors for the First to Fifth Respondents: | Robert Grayden Legal |
| Sixth Respondent: | No appearance |
ORDERS
The application be adjourned to a directions hearing on a date to be fixed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 172 of 2007
| FORTRON AUTOMOTIVE TREATMENTS PTY LTD |
Applicant
And
| KENNETH JOHN JONES |
First Respondent
| TREBLEX AUTOMOTIVE PRODUCTS PTY LTD |
Second Respondent
| SHEILA MARY JONES |
Third Respondent
| WILLIAM PATRICK TULLY |
Fourth Respondent
| HELEN GEORGINA TULLY |
Fifth Respondent
| GAMMAR GROUP (THAILAND) CO LTD |
Sixth Respondent
REASONS FOR JUDGMENT
Introduction – the main players and causes of action
Fortron Automotive Treatments Pty Ltd,[1] the applicant in these proceedings, is a company which carries on business as a manufacturer and supplier of automotive treatment products in Western Australia.
It is part of a group of companies known as the Fortron Group.
[1] “Fortron”.
There is no dispute that Fortron has for many years formulated, manufactured and sold a range of high quality automotive treatment products under the name “Fortron” in Australia and internationally, including in Thailand, and has built up and owns valuable goodwill in the name “Fortron” when used in relation to automotive treatment products.[2]
[2] Mr Breck Hoffman’s Witness Statement at paras.3-6; Dr Tanan Wacharotayankura Witness Statement at para.21 (“Dr Wacharotayankura’s Witness Statement”) and First Transcript at 163; Hink Kiks, (“Mr Kiks”) Transcript at 172; Mr Kenneth John Jones’ First Witness Statement at para.36 and Second Transcript at 130. The First and Second Transcript refers to the transcript of the proceedings in 2008 (First Transcript) and 2009 (Second Transcript) which transcripts both commence at page 1.
Fortron was at all material times the registered proprietor of the registered trademark “Fortron” in both Australia and Thailand.[3]
[3] Mr Breck Hoffman’s Witness Statement, Annexures 1 and 2.
Mr Breck Ivan Hoffman[4] is the Managing Director of Fortron. Mr Ivan Charles Hoffman[5] is a director of Fortron, and related companies in the Fortron Group, and the controlling shareholder of the companies in the Fortron Group.
[4] “Mr Breck Hoffman”.
[5] “Mr Ivan Hoffman”.
Dr Tanan Wacharotayankura,[6] through his company Force International Co Ltd, was a sub-distributor of Fortron automotive products in Thailand from 2002 until March 2005 when he entered into an agreement to be the sole/exclusive distributor of Fortron automotive products in Thailand.
[6] “Dr Wacharotayankura”, but, as a matter of convenience, referred to at hearing as “Dr Tony”.
Kenneth John Jones,[7] who is the first respondent, had a long history with Fortron, including the following:
a)from 1988 to 17 April 2003 he was employed by Fortron in various senior sales and managerial capacities in which capacities he had full responsibility for the supply, marketing and distribution of Fortron’s products in Thailand from 1993 to April 2003;
b)from 18 April 2003 to January 2004 he was an employee of Fortron Insurance Agency Limited, another company within the Fortron Group;
c)he was a director of Fortron from 1 July 2000 to 29 January 2001 and again from 2 January 2002 to 5 September 2002; and
d)since 17 October 2003 he has been a director and shareholder of Treblex Automotive Products Pty Ltd,[8] the second respondent.
[7] “Mr Jones”.
[8] “Treblex”.
Treblex, which was registered as a company on 17 October 2003, carries on business within Western Australia as a supplier of automotive treatment and industrial products, including supply for export.
William Patrick Tully,[9] the fourth respondent, was from 17 April 1989 to 26 October 2004 employed by Fortron as Senior Accountant and Company Secretary, and was the Group Accountant for the Fortron Group during the same period. Since 17 October 2003 Mr Tully has been a director and shareholder of Treblex.
[9] “Mr Tully”.
Gammar Group (Thailand) Co Ltd,[10] the sixth respondent, is a company incorporated in Thailand which, during a period commencing in 1993 and terminating on or about 15 February 2005, carried on business in Thailand exclusively as the sole distributor for Fortron’s automotive products in Thailand. Dr Wacharotayankura was one of Gammar’s sub-distributors during the latter part of the above period.
[10] “Gammar”.
Goldleaf Enterprises Pty Ltd,[11] was until 18 February 2005 a business formulating and manufacturing specialty chemicals including a broad range of detergent concentrates, corrosion treatments and automotive products, and from time to time a supplier of certain chemicals to Fortron. Goldleaf Australia carried on its business within Western Australia.
[11] “Goldleaf Australia”. Goldleaf Australia is now a company known as Versalife Pty Ltd.
Goldleaf Products Co Ltd was a company originally incorporated on 30 March 1999 at which time its name was Fortron Treatment (Thailand) Co Ltd,[12] which name changed to Goldleaf Products Co Ltd on 29 June 1999.[13] Goldleaf Thailand has since March 1999 carried on business in Thailand as a trader in lubricants and automotive treatment products.
[12] “Fortron (Thailand)”.
[13] “Goldleaf Thailand”.
Ms Patchara Srikijkull[14] is the wife of Mr Phanu Changlor.[15]
Ms Srikijkull has throughout the relevant period been a director and shareholder of Treblex, Gammar and Goldleaf Thailand. Mr Changlor has at all relevant times been a director and Senior Manager of Gammar and the Senior Manager of Goldleaf Thailand.
[14] “Ms Srikijkull”.
[15] “Mr Changlor”.
In earlier proceedings it was held that the third respondent, Sheila Mary Jones, and the fifth respondent, Helen Georgina Tully, being the spouses of Mr Jones and Mr Tully respectively, had no case to answer, and the application as against them was dismissed.[16]
[16] Fortron Automotive Treatments Pty Ltd v Jones & Ors (No 2) [2009] FMCA 322.
Gammar took no part in these proceedings. Generally, therefore, where reference is made to “the respondents” in these Reasons for Judgment it is a reference to Treblex, Mr Jones and Mr Tully.
In the Statement of Claim[17] it was alleged that:
a)Gammar breached express terms of a distribution agreement by marketing and distributing for sale in Thailand substituted products for Fortron products; in essence, a breach of contract;
b)Mr Jones intentionally induced and procured Gammar’s breach of the distribution agreement, thereby committing the tort of interference with contractual relations;
c)by engaging in certain conduct between 1999 and 2005, Mr Jones engaged in misleading and deceptive conduct in contravention of s.10 of the Fair Trading Act 1987 (WA),[18] causing loss or damage to Fortron;
d)by engaging in certain conduct between 17 October 2003 and February 2005, Mr Tully aided and abetted Mr Jones’ contravention of s.10 of the FT Act, making Mr Tully jointly and severally liable under ss.68 and 79 of the FT Act to Fortron for loss or damage suffered by Fortron as a result of Mr Jones’ contravention of s.10 of the FT Act;
e)Mr Jones undertook his conduct in relation to the substituted products scheme in his capacity as a director of Treblex, and therefore for and on behalf of Treblex, and therefore Treblex has engaged in misleading and deceptive conduct contrary to s.52 of the Trade Practices Act 1974 (Cth);[19] and that Mr Jones aided, abetted, counselled or procured Treblex’ contravention, or induced it, or was, directly or indirectly, knowingly concerned in or a party to that contravention; and
f)Mr Tully owed fiduciary duties to Fortron as a consequence of his employment, and also duties imposed under s.182(1) of the Corporations Act 2001 (Cth)[20] to Fortron and that he breached those duties, causing Fortron loss and damage.
[17] As amended by leave by a Minute of Proposed Amended Statement of Claim on 26 February 2008.
[18] “FT Act”.
[19] “TP Act”.
[20] “Corporations Act”.
Credibility
It is necessary for the Court to express a view about the credibility of the principal witnesses in the proceedings.
It is convenient to start with Dr Wacharotayankura. The Court has dealt with Dr Wacharotayankura’s evidence at length below in relation to the alleged product substitution scheme which lies at the heart of the bulk of Fortron’s case. For the reasons which are set out in detail below the Court has concluded that Dr Wacharotayankura was not a credible witness in relation to the alleged product substitution scheme.
With respect to Mr Breck Hoffman the Court has no reason to doubt that he was a credible witness, by and large. His evidence in relation to relevant events was given in a straightforward manner, even where it did not necessarily assist Fortron’s case. There is no doubt that he had a slight propensity to draw a conclusion which was not necessarily supported by the facts on which he relied or which were evident, but those conclusions are easily excised by the Court, without affecting
Mr Breck Hoffman’s credibility in relation to those underlying facts.
Mr Ivan Hoffman was also a credible witness in relation to relevant facts. His role in the proceedings was not as central as that of Mr Breck Hoffman, or Dr Wacharotayankura, or Mr Tully and Mr Jones. There is no reason for the Court to cast doubt upon his credibility in this matter.
Mr Jones brought a salesman’s pitch to much of his evidence, and it is clear that throughout the period after October 2003 he was very keen to entrench Treblex’ place in the market in Thailand, and endeavoured to do so, sometimes without much thought as to the consequences and appearance of what he was doing. He did express some views about his duties as an employee of Fortron, and his obligations to Fortron, which a lawyer might find difficult to accept. However, in the Court’s experience, those views are not necessarily remarkable coming from a layman, and especially where coloured by his desire to promote or sell Treblex products.
The Court considered Mr Tully, whose evidence is set out in more detail below, to be a credible witness, and one who was, by and large, honest, often at his own expense. For such a senior employee that honesty revealed a degree of naivety in relation to business activities, and incompetence in relation to accounting activities, which was surprising. That however did not impinge upon his credibility.
Therefore, aside from the evidence of Dr Wacharotayankura in relation to the alleged product substitution scheme, which the Court found incredible, and some colourable evidence by Mr Jones, the remaining primary witnesses were essentially credible, and the Court’s task was the usual one of sorting, comparing and weighing the evidence of essentially credible witnesses.
Legal professional privilege – prior ruling
On day three of these proceedings the Court made a declaration and order with respect to legal professional privilege which had arisen.
At that time the Court declared that:
a)by reason of ss.118 and 119 of the Evidence Act 1995 (Cth)[21] the documents at Annexure A17 and pages:
i)223 and 224 headed Summary Dismissal WP Tully – Tuesday 25 October 2004; and
ii)225 and headed Other Ideas and Questions, of the Affidavit of Breck Hoffman,
and the same documents in electronic format in MFI 1, collectively the documents, cannot be adduced in evidence in these proceedings; and
b)in any event, the Court declares that legal professional privilege in the documents has not been waived by the fourth respondent [Mr Tully],
and therefore ordered that the documents be struck out from the Affidavit of Breck Hoffman and from the CD identified as MFI 1.
[21] “Evidence Act”.
The reference to the Affidavit of Breck Hoffman can be taken as a reference to the Witness Statement of Breck Hoffman. As a consequence of the ruling, MFI 1 with the relevant strike outs, is admissible and becomes Exhibit A35 in the proceedings.
Sections 118 and 119 of the Evidence Act provide as follows:
118. Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:
(a) a confidential communication made between the client and a lawyer; or
(b) a confidential communication made between 2 or more lawyers acting for the client; or
(c) the contents of a confidential document (whether delivered or not) prepared by the client, lawyer or another person;
for the dominant purpose of the lawyer, or one or more of the lawyers, providing legal advice to the client.
119. Evidence is not to be adduced if, on objection by a client, the court finds that adducing the evidence would result in disclosure of:
(a) a confidential communication between the client and another person, or between a lawyer acting for the client and another person, that was made; or
(b) the contents of a confidential document (whether delivered or not) that was prepared;
for the dominant purpose of the client being provided with professional legal services relating to an Australian or overseas proceeding (including the proceeding before the court), or an anticipated or pending Australian or overseas proceeding, in which the client is or may be, or was or might have been, a party.
In relation to the documents the Court considers that for the purposes of s.118 of the Evidence Act the documents prepared by Mr Tully were prepared for the purposes of obtaining advice from a lawyer in relation to Industrial Magistrates Court of Western Australia proceedings in relation to alleged underpayment by Fortron. The contents of the documents, which were inadvertently disclosed by Mr Tully to a person who provided them to Fortron, were manifestly for the dominant purpose of a lawyer providing legal advice to Mr Tully, and were therefore not admissible under s.118(1)(c) of the Evidence Act. Similarly, the contents of those documents were intended to be confidential and were prepared for the dominant purpose of Mr Tully being provided with professional legal services relating to an anticipated Australian proceeding, namely the anticipated proceeding before the Industrial Magistrates Court of Western Australia, and were therefore not admissible under s.119(b) of the Evidence Act.
Alleged breach of contract by Gammar
Fortron alleges that Gammar has breached the terms of a distribution agreement between Fortron and Gammar.
There is no dispute that two written distribution agreements, essentially in the same terms, were made between Fortron and Gammar on 20 August 1993 and 31 August 1998,[22] and that in relation to the 1998 Distribution Agreement it was an agreement executed by Ms Srikijkull for Gammar, whose signature was witnessed by Mr Jones, and executed for Fortron by Mr Tully.
[22] “1998 Distribution Agreement”.
The 1998 Distribution Agreement was for a term of five years.
Relevantly, the 1998 Distribution Agreement contained the following terms:
a)in clause 3.1:
… [Gammar] shall not, during the existence of the agreement, sell, distribute, manufacture or market in any manner in the territory [being Thailand], on its own account or otherwise, any products that can be used in substitution for or in competition with the products supplied by … [Fortron] to … [Gammar] without prior knowledge and discussion.
b)in clause 4.3:
The Agreement, notwithstanding the date hereof, shall commence upon the 20th August 1998 and shall continue for a term of 5 years. If at the expiration of the term of this agreement there shall be no subsisting breach by … [Gammar], … [Gammar] shall have the right to be granted a further agreement for the term of 5 years commencing the day after the expiration of the term hereof upon the same terms and conditions as are herein contained with the exception of this sub-clause.
c)in clause 8.1:
In the event that either party breaches any of the terms and provisions of this Agreement and fails to remedy such breach within 30 days notice of receiving written notice from the other party to do so, the party not in default may terminate this Agreement upon giving written notice to that effect to the other party.
d)in clause 8.2:
In the event of termination of the Agreement pursuant to Clause 8.1:
a. neither party shall be liable to pay to the other any compensation for loss of product, goodwill or otherwise howsoever arising;
e)in clause 10.1:
… [Gammar] is authorised to use … [Fortron’s] trademark solely in connection with the sale of products in the territory during the terms of the agreement.
f)in clause 10.2:
… [Gammar] shall not alter or substitute anything for the products furnished under the agreement or the labels that are fixed thereto or modify the trademarks in any way, or do anything that would in any way infringe, impeach, or lessen the value or integrity of the trademarks, or the goodwill associated with the trademarks.
g)in clause 11.3:
… [Gammar] undertakes to use its best endeavours to maximise the sales of the product in the territory from time to time.
h)in clause 12.5:
The agreement shall be subject to and construed in accordance with the laws of Western Australia and as a contract the proper law of which is the law of Western Australia.
i)in Schedule 1 the description of the products was defined as “Fortron Automotive Products” and “Fortron Industrial Products”.
Was there a distribution agreement between Fortron and Gammar following the expiry of the 1998 Distribution Agreement?
There does not appear to be any relevant dispute about the system adopted by Fortron in the implementation and administration of the distribution agreements with Gammar. Effectively, it seems that Gammar would place an order for Fortron product. Fortron would arrange for the product ordered by Gammar to be sourced from existing stock, and if there was no existing stock, arrange for the ordered product to be manufactured by one of Fortron’s usual suppliers, in accordance with instructions given to the suppliers by Fortron. Fortron would then arrange for the export of the Fortron product to Thailand, including responsibility for obtaining all necessary customers clearances and processing all requisite banking and shipping documentation. The Fortron product was shipped to Gammar in Thailand in bulk 200 litre drums. On receipt of the bulk Fortron product in Thailand, Gammar would arrange for the Fortron product to be bottled into 250 ml plastic bottles with the appropriate descriptive Fortron labels affixed, with instructions and specifications in the Thai language.
The Fortron product would then be distributed by the distribution network established by Fortron and Gammar in Thailand, and utilising marketing strategies devised by Fortron, in which Gammar and its employees had been trained by Fortron.[23][23] Mr Breck Hoffman’s Witness Statement, paras.27-30.
At the expiration of the term of the 1998 Distribution Agreement on or about 19 August 2003,[24] the parties intentions concerning another distribution agreement can be characterised as equivocal in view of
Mr Changlor’s alleged “hatred” of Fortron, the lack of a new formal or written distribution agreement, and Fortron’s evident desire to continue to have it’s products distributed in Thailand. Conduct or correspondence subsequent to the entering into of a contract can be used to show that a contract was (or was not) concluded between the parties, in this case Gammar and Fortron.[25] In this case, Gammar and Fortron continued to deal with each other, [26] save for the relationship between Treblex and Gammar, in the manner that they had previously done with respect to the distribution of Fortron product in Thailand. Thus, in relation to the actual supply and distribution of Fortron product ordered by Gammar ostensibly nothing changed until Gammar terminated the Distribution Agreement on 15 February 2005.
[24] 1998 Distribution Agreement, cl.4.3.
[25] Howard Smith & Co. Ltd. v Varawa (1907) 5 CLR 68 at 77 per Griffith CJ (“Howard Smith”); Barrier Wharfs Ltd. v W. Scott Fell & Co. Ltd. (1908) 5 CLR 647 at 668 and 669 per Griffith CJ. and 672 per Isaacs J (”Barrier Wharfs”); Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 163-164 per Heydon JA; [2001] NSWCA 61 at para.25 per Heydon JA (“Brambles Holdings”).
[26] Mr Tully, Second Transcript at 50.
On 15 February 2005 Gammar sent a facsimile letter, ironically on a joint Gammar Fortron letterhead, relevantly in the following terms:
This letter is to confirm that Gammar Group of Companies will resign as the distributor of Fortron Automotive Products in Thailand with effect from today’s [sic] date.[27]
[27] Mr Breck Hoffman’s Witness Statement, Annexure A18.
Resignation as a distributor from 15 February 2005 by Gammar would have been unnecessary unless there was an existing distribution agreement between Gammar and Fortron. Thus, the resignation letter of 15 February 2005, together with the conduct of:
a)Gammar in ordering from Fortron, and then distributing Fortron product; and
b)Fortron in supplying Fortron product to Gammar in Thailand for distribution,
during the period 30 August 2003 to 15 February 2005 indicates that there was an ongoing contractual relationship between Gammar and Fortron in relation to the distribution of Fortron product in Thailand.[28]
[28] 2003 Distribution Agreement.
The question arises however as to whether or not the 2003 Distribution Agreement was on the same or similar terms as the 1998 Distribution Agreement, or was the 2003 Distribution Agreement just a bare agreement to distribute, without any of the non-compete, non-substitution and sales maximisation clauses contained in the 1998 Distribution Agreement?
For Fortron the evidence given in relation to this issue was that of
Mr Breck Hoffman who said that:
The second distribution agreement [the 1998 Distribution Agreement] expired in August 2003. No further written distribution agreement was entered into between Fortron and Gammar. The parties thereafter continued their distribution relationship on a month by month basis on the same terms and conditions as the second distribution agreement.[29]
[29] Mr Breck Hoffman’s Witness Statement, para.9.
Mr Breck Hoffman’s evidence is inconsistent with the contract pleaded by Fortron. That plea was that on the expiration of the 1998 Distribution Agreement there was an implied contract to continue the Distribution Agreement in accordance with the terms and conditions stipulated in the 1998 Distribution Agreement for a further term of five years, and this is said to be implied from conduct, namely continuing to trade with one another until Gammar gave written notice terminating the 2003 Distribution Agreement in February 2005 on the identical basis upon which they had previously traded for 10 years.
There is no evidence that there were any discussions or negotiations concerning either a formal renewal or any variation of the 1998 Distribution Agreement, either as contemplated by clause 4.3 of the 1998 Distribution Agreement, or otherwise.
Mr Breck Hoffman’s assertion that the 1998 Distribution Agreement was continued on the same terms and conditions is not:
a)particularised by reference to any particular conduct of any person on behalf of either of the parties;
b)supported by any corroborative evidence; and
c)consistent with his evidence that:
i)he gave the 1998 Distribution Agreement “no thought” in discussions with Mr Changlor in the months immediately preceding the 1998 Distribution Agreement’s expiry;[30]
ii)signing a new distribution agreement with Gammar was not discussed with Mr Changlor;[31] and
iii)the evident strains in his relationship with Mr Changlor.[32]
[30] First Transcript at 133.
[31] First Transcript at 133.
[32] First Transcript at 132-134.
The above evidence is significant when examined in its totality in relation to the events leading up to August 2003, when the 1998 Distribution Agreement might have been renewed by Gammar, at its election, subject to there being no subsisting breach by Gammar, but was not renewed.[33] It is evidence which is more consistent with the terms of the 2003 Distribution Agreement not having being considered at all, and to the extent that they might have been considered, their not being the same as the those in the 1998 Distribution Agreement.
[33] 1998 Distribution Agreement, cl.4.3
The next issue to be determined is whether or not a term of five years duration for the 2003 Distribution Agreement can be implied from conduct as pleaded by Fortron.
Nothing in the conduct of Fortron indicates that the 2003 Distribution Agreement was to have a duration of five years. Mr Breck Hoffman’s evidence that it was to be “month by month” is wholly inconsistent with the implication of a term of five years duration.
The evidence overall is also consistent with there not being a term to be implied of five years duration for the 2003 Distribution Agreement. That evidence includes:
a)Mr Breck Hoffman’s assertion that the relationship was “month by month”;
b)Mr Breck Hoffman’s concessions in cross-examination that:
i)Mr Changlor did not want to deal with him in relation to Fortron;[34] and
ii)with whom Mr Changlor wanted to work was important, and that he thought he was aware that Mr Changlor had told his father, Mr Ivan Hoffman, that Mr Changlor wanted to deal with Mr Jones;[35]
c)Mr Ivan Hoffman’s statement, after Gammar had terminated the 2003 Distribution Agreement, that Gammar:
i)did not have a current distribution agreement with Fortron due to the expiry of the 1998 Distribution Agreement; and
ii)had not asked for a renewal of the 1998 Distribution Agreement, [36]
is evidence from which it might be inferred that a term of five years duration was unlikely in any event (but is not evidence that there was not actually a current distribution agreement).[37]
[34] First Transcript at 135.
[35] First Transcript at 135-136.
[36] Exhibit R5.
[37] Because “subsequent events cannot be used to show that there was no contract when the Court could otherwise conclude that there was one: Lennon v Scarlett & Co (1921) 29 CLR 499 at 509 per Knox CJ, Higgins and Starke JJ.
Whether a term ought to be implied into an unwritten contract, which the 2003 Distribution Agreement is, depends upon whether the term is “necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case”.[38]
[38] Hawkins v Clayton (1998) 164 CLR 539 at 573 per Deane J (“Hawkins”), approved in Byrne & Frew v Australian Airlines (1995) 185 CLR 410 at 422 per Brennan CJ, Dawson and Toohey JJ and 442 per McHugh and Gummow JJ (“Byrne & Frew”); followed in Miller and Anor v JLCS Pty Ltd & Ors (2007) 158 FCR 1 at 27 per Sundberg J; [2007] FCA 74 at paras.112-113 per Sundberg J (citing Byrne & Frew and Hawkins). See also Gel Holdings Pty Ltd v ACN 082310727 Pty Ltd & Anor [2008] FMCA 266 at para.7 per Lucev FM.
A term of five years duration for the 2003 Distribution Agreement was not necessary for the reasonable and effective operation of the 2003 Distribution Agreement. That is because the 2003 Distribution Agreement operated effectively without such a term. Product was ordered, supplied and distributed, just as it had been under the 1993 and 1998 Distribution Agreements, save for what is in issue in these proceedings.
A question then arises as to whether or not this is a contract of indefinite duration. A contract of indefinite duration implies a right of termination at will by reasonable notice. Indeed, such a provision is necessary because otherwise a party would never be able to end the contract, and its obligations would extend in perpetuity, whereas ordinarily the nature of a commercial contract leads to a conclusion that it is terminable on reasonable notice.[39]
[39] Crawford Fitting v Sydney Valve and Fittings Pty Ltd (1988) 14 NSWLR 438 at 444 per McHugh J (“Crawford Fitting”); Western Power Corporation v Normandy Power Pty Ltd [2001] WASC 202 at para.175 per McKechnie J; Eden Construction Pty Ltd v New South Wales (No 2) [2007] FCA 689 at paras.26-28 per Graham J.
Reasonable notice has to be assessed, and in a commercial context, reasonable notice is the time a party would take to make alternative contractual arrangements.[40]
[40] Crawford Fitting at 444-445 per McHugh J; and Maurice Hayes & Associates Pty Ltd v Energy World Corporation Ltd [2006] FCA 783 at para.183 per Siopis J.
In this case, it can be implied that the 2003 Distribution Agreement was a contract terminable on a month’s notice, such notice being consistent with the evidence that it was a month by month contract, and also being a period of time sufficient to properly bring to an end the contractual relationship between the parties. In that regard the Court also takes account of the fact that upon termination of the 2003 Distribution Agreement, a new distribution agreement was entered into between Fortron and Dr Wacharotayankura “within five weeks”.[41]
[41] First Transcript at 218.
In assessing a period of reasonable notice the Court has also taken account of the fact that the 1998 Distribution Agreement provided for any notified breaches to be remedied within 30 days, failing which written notice of termination could be given by the innocent party.[42] Although the 1998 Distribution Agreement does not provide for an express period in relation to that written notice, and therefore it too was probably a contract terminable on reasonable notice, the use of 30 days as a period in which to remedy any alleged breaches is, in the Court’s view, some indication (albeit slight) that that is a period of time (and a period of time equivalent essentially to one month) in which a party might make appropriate alternative arrangements (albeit in that case to fix an alleged breach).
[42] 1998 Distribution Agreement, cl.8.1.
The Court notes that no implied term of reasonable notice was pleaded in this case, however, in the absence of an implied term as to a fixed duration, and in the absence of any other term as to notice, it is necessary, to imply a term as to reasonable notice, and the Court finds that that term is one month. That one month’s notice was not given to Fortron by Gammar. The termination of the 2003 Distribution Agreement took immediate effect. To that extent there was a breach of contract by Gammar, but not one which is specifically pleaded.
As the Court has indicated above, the 2003 Distribution Agreement operated effectively as a distribution agreement. It is therefore not necessary to imply terms with respect to non-competition or exclusivity or maximisation of sales into the 2003 Distribution Agreement. There is nothing inherent in the process of order, supply, distribute and pay, which was the essential transaction chain in the 2003 Distribution Agreement, that required Gammar to agree in 2003, or for it to be implied, that it would only distribute Fortron automotive treatment products, or not deal with or distribute any competitors’ products, or which might oblige it to maximise Fortron’s sales. Where statements made by a distributor were held to be promissory in nature, and amounting to undertakings that the distributor would devote its best efforts to distributing the relevant products within Australia, and therefore not deal in other products in diminution of such efforts, the High Court rejected the implication of a further term that the distributor would not during the period of the distributorship do anything inimical to the market for the relevant products. The High Court did so on the basis that the agreement was efficacious without the implication of the further term because the commercial objectives sought to be achieved, that is that as many of its products be sold in Australia as was reasonably possible, was facilitated through the promissory obligation undertaken by the distributor to use its best efforts to promote the products in the market.[43]
[43] Hospital Products Ltdv United States Surgical Corporation (1984) 156 CLR 41 at 57 and 64-65 per Gibbs CJ (“Hospital Products”).
The question also arises as to what products were covered by the 2003 Distribution Agreement. There is no evidence of any express agreement as to what products were covered. The 1998 Distribution Agreement applied to “Fortron Automotive Products” and “Fortron Industrial Products”. Those descriptions were not however defined.[44]
[44] 1998 Distribution Agreement, sch.1.
The evidence indicates that the following products were distributed during the currency of the various distribution agreements between Fortron and Gammar:
a)Engine Flush;
b)Lifter Free;
c)Petrol Injector Cleaner;
d)Diesel Injector Treatment;
e)Total Fuel System Treatment (Truck Power, Marine Power/Dyna Fuel);
f)Octane Booster;
g)Total Fuel System Treatment and Octane Booster/Fuel System Booster Truck Power.[45]
[45] Mr Breck Hoffman’s Witness Statement, paras.22-23 and 25-26. See also Dr Wacharotayankura’s Witness Statement, para.9.
In the Court’s view in order to give the 2003 Distribution Agreement reasonable and effective operations it can be implied that the products listed above were distributed by Gammar in Thailand under the 2003 Distribution Agreement.
Summary re 2003 Distribution Agreement
In summary, the Court has concluded that:
a)the 2003 Distribution Agreement did not contain a term that it was of five years duration;
b)the 2003 Distribution Agreement did contain an implied term that it was terminable on a months notice by either party;
c)the products distributed under the 2003 Distribution Agreement were those Fortron products listed above;[46]
d)Gammar did not agree to exclusively distribute Fortron’s products in Thailand under the 2003 Distribution Agreement; and
e)there was no exclusivity or non-compete provision obliging Gammar not to distribute competing products, or to maximise Fortron’s sales under the 2003 Distribution Agreement.
[46] See para.53 above.
Alleged substituted product scheme
The alleged product substitution scheme lies at the heart of Fortron’s case, save for the alleged breach of duties by Mr Tully. And, as was recognised by all parties, Dr Wacharotayankura’s evidence and credibility on this issue is crucial to the Court’s determination as to whether or not a product substitution scheme was put in place by the respondents.
In 1999 Mr Changlor set up a company in Thailand called “Fortron Treatment (Thailand) Co Ltd”, and then changed the name of that company to “Goldleaf Products Co Ltd” (“Goldleaf Thailand”).
Mr Changlor did not obtain Fortron’s permission, and did not advise Fortron, and it did not come to Fortron’s knowledge until much later, that a company bearing its primary name had been established in Thailand in 1999.
There was also evidence from Ms Curline, a Fortron administrative/accounts employee that she had been asked by Mr Jones to provide Goldleaf Enterprises with a Quality Assurance Certificate in 1999 for Gammar.
There was a discussion referred to by Mr Tully in which “something” which was then rebuffed but later became serious was discussed, and Fortron suggested that what was originally not thought to be serious and later became serious was in fact the concept of product substitution, which only became serious when Mr Tully (and Mr Jones) realised that Mr Changlor and Parnu were serious about it.
The above evidence, and the evidence generally, is insufficient to establish a proper basis for the Court to conclude that there was, or was under consideration at any time in the period from 1999 to, at least a short time before, October 2003, a product substitution scheme by the respondents.
Treblex was formed in October 2003. Mr Jones and Mr Tully and
Ms Srikijkull were directors.[47] Ms Srikijkull had also at all material times been a director of Goldleaf Thailand.[48] Prior to Treblex being formed in October 2003 there had been a discussion in whichMr Changlor had told Mr Jones that he “hated” Fortron, was not going to deal with them any more and needed another supplier of automotive treatment products.[49][47] Exhibit A8.
[48] Exhibit A1.
[49] Mr Tully, First Transcript at 34.
At the time that Treblex was formed in October 2003:
a)Mr Jones was an employee of an entity other than Fortron within the Fortron Group;
b)Mr Tully was the financial controller and company secretary for Fortron;
c)Gammar was the distributor of Fortron automotive treatment products in Thailand; and
d)neither Mr Jones nor Mr Tully told Fortron about the formation of Treblex.
Shortly after Treblex was registered it used the logo of Goldleaf Enterprises in Australia without the permission of Goldleaf Enterprises.[50] Fortron argues that this demonstrates that Treblex, and those controlling it, namely Mr Jones and Mr Tully, exhibited a disregard for the intellectual property rights of others in the marketplace.
[50] Exhibit A13.
The first shipment of automotive treatment products to Gammar in Thailand by Treblex occurred in December 2003. At that time
Mr Jones was still employed by the Fortron Group and Mr Tully was still employed by Fortron.
On the facts there can be no doubt that Mr Jones and Mr Tully set up a company, Treblex, which operated in a market, automotive treatment products, and in a marketplace, Thailand, which competed directly, at least in part, with Fortron. Moreover, they did so in conjunction with Gammar (and through the officers of Gammar) which was Fortron’s distributor in Thailand at the time that Treblex was established.
Fortron argues that all of the automotive treatment product shipped by Treblex between December 2003 and January 2005 was bottled and marketed in Thailand by Gammar as Fortron labelled product.
During the calendar years 1998 to 2004 Fortron’s average monthly sales of 250 ml units of Fortron product to Gammar were as follows:
1998
1999
2000
2001
2002
2003
2004
Units
6,283
8,958
16,799
25,533
21,667
21,813
7,067
From December 2003 to February 2005 Gammar imported into Thailand automotive treatment products from Treblex the subject of the following commercial invoices rendered by Treblex to Gammar.
From October 2004 to February 2005 Gammar arranged for Goldleaf Thailand to import into Thailand automotive treatment products from Treblex.
During the period December 2003 to February 2005 Goldleaf Australia supplied automotive treatment products to Treblex.
The volume of automotive treatment product shipped to Thailand by Treblex for Gammar and Goldleaf Thailand from December 2003 to February 2005 was substantial.[51]
[51] Mr Breck Hoffman’s Witness Statement, Annexure 30.
There is no direct evidence before the Court that the product shipped to Thailand by Treblex was actually sold as Treblex labelled product. Fortron therefore relies on circumstantial evidence to prove its case of product substitution against Treblex, Jones and Tully.
The circumstantial evidence relied upon by Fortron to prove its case of product substitution against Treblex, Jones and Tulley is set out hereunder.
Fortron firstly relies upon the absence of any evidence, particularly documentary evidence, establishing that Treblex branded containers were sold in Thailand between December 2003 and February 2005 as a consequence of the export of Treblex product to Gammar during those times. Fortron says that a strong adverse inference should be drawn against the respondents arising from their failure to call any evidence to support assumptions referred to in evidence that the Treblex product was being sold in Treblex branded containers. Fortron says that both Mr Jones and Mr Tully were unable to give any explanation as to why they didn’t make any attempt to obtain any documentation from Gammar concerning the bottling of Treblex automotive treatment products in Treblex branded containers during the above period.
In that regard Fortron says that the following matters are relevant:
a)Mr Tully was in regular contact with Mr Changlor, and could have asked him to provide such information;[52]
[52] Mr Tully, Second Transcript at 61-62.
b)the statement by Mr Tully that Mr Changlor had no interest in the proceedings,[53] in circumstances where:
[53] Mr Tully, Second Transcript at 61.
i)Gammar is a respondent in the proceedings, but has not appeared, and on the face of it, Fortron is entitled to default judgment against it;
ii)Ms Srikijkull is a director of Treblex, owns shares to the value of $20,000 in Treblex, and loaned money to Treblex in 2004 and/or 2005;[54] and
[54] Exhibit R18.
iii)a judgment against Treblex in these proceedings could see Gammar’s principal supplier of automotive treatment products (Treblex) put into liquidation;
c)that although Mr Tully assumed that Treblex product was sold in Treblex bottles during the relevant period, he did not ask
Mr Changlor whether that was happening, because he “had no reason to ask”, but that this is surprising and inherently implausible;d)although Mr Jones and Mr Tully were given some documents, not relevant to the proceedings, by Mr Changlor in April 2008, they did not ask him for any documentation proving the existence of Treblex labelled containers in 2004;[55]
[55] Second Transcript at 73, 74 and 78.
e)Mr Tully conceded that he had no written evidence to support the claim that Treblex branded bottles were sold during 2004;[56]
[56] Second Transcript at 97.
f)despite their close friendship Mr Jones never asked Mr Changlor for evidence to support his defence by producing any evidence to show that Treblex branded bottles were sold in Thailand in 2004;[57]
[57] Second Transcript at 138-139 and 161-162.
g)in the respondents’ answers to a request for further and better particulars the respondents said that:
The Respondents do not know the product names on the labels of all products packed, labelled and distributed by Changlor. The Respondents supplied bulk product and have no control over the packing, labelling or distribution of product by Changlor.[58]
h)at hearing, under cross-examination, Mr Jones said:
It never entered my mind to ask him for labels. I could get labels. It was simple, he had labels. I had seen the labels.[59]
i)the insistence of both Mr Jones and Mr Tully that it never occurred to them to ask Mr Changlor for proof of labelling of Treblex branded containers during 2004 has to be assessed against:
i)Fortron’s discovery of the “Dear Valued Customer” letter of 1 February 2005;[60] and
ii)the amount of time that the respondents had between the adjournment of this hearing in May 2008 and its resumption in November 2009 to either have the importance of such evidence drawn to their attention or to appreciate it for themselves and to thereby obtain that evidence.
[58] Request for Further and Better Particulars of Amended Defence of First to Fifth Respondents, 31 August 2007.
[59] Second Transcript at 142.
[60] Dr Wacharotayankura’s Witness Statement, Annexure 12.
Second, Fortron points to what it says is the deceitful conduct of Mr Jones towards Gammar’s principal sub-distributor, Dr Wacharotayankura in 2004 and early 2005, as to who he was representing throughout 2004 when Mr Jones left the Fortron Group in January 2004. In this regard Fortron places reliance upon:
a)Dr Wacharotayankura’s evidence that the first time he saw any reference to the Treblex name was in an email discussed with Changlor in mid-2004, and that Changlor told him it referred to a change of shareholding in Fortron in Australia;[61]
[61] Dr Wacharotayankura’s Witness Statement, para.35; First Transcript at 211.
b)Dr Wacharotayankura’s refusal to accept under cross-examination that in 2004 Jones was trying to get him to use Treblex product as an in-house branded product for Shell;[62]
[62] First Transcript at 181-183.
c)Dr Wacharotayankura’s denial that in 2004 he knew that Jones was acting for a company other than Fortron;[63]
[63] First Transcript at 185.
d)Dr Wacharotayankura’s evidence that it was in December 2004 that he was forced by Mr Jones and Mr Changlor to change to Treblex;[64]
[64] First Transcript at 186.
e)Dr Wacharotayankura’s evidence that in all his dealing with Jones he believed Jones was acting for Fortron;[65]
[65] First Transcript at 194.
f)Dr Wacharotayankura’s evidence that the Treblex bottles referred to by Mr Threnoworth were only mock-ups;[66]
[66] First Transcript at 195.
g)Dr Wacharotayankura’s rejection of the proposition that he knew that when Mr Kiks agreed to take Fortron product he
(Dr Wacharotayankura) knew that Mr Jones was trying to get
Mr Kiks to take Treblex product;[67][67] First Transcript at 198.
h)Dr Wacharotayankura’s belief that when the change to Treblex took place in January 2005 it was a change in name only with the product in the bottle being of the same quality as the previous Fortron product, which is entirely consistent with the contents of the letter dated 1 February 2005 co-signed by Mr Changlor and Mr Jones, and email sent by Mr Jones to Dr Wacharotayankura;[68]
[68] FirstTranscript at 200-201 and Annexures 10, 11 and 12 of Dr Wacharotayankura’s Witness Statement.
i)Dr Wacharotayankura’s refusal to accept that there were Treblex bottles on the table at the October 2004 meeting;[69]
[69] First Transcript at 203-206.
j)the failure to cross-examination Dr Wacharotayankura on the photo of the October 2004 meeting;[70]
[70] Exhibit R 15.
k)Dr Wacharotayankura’s insistence that the product in the bottles
Mr Jones was talking about in early 2005, was still Fortron product;l)that when Dr Wacharotayankura met Mr Tully, which it was agreed was in January 2005, Mr Tully was introduced to him as Fortron’s financial director;[71]
[71] First Transcript at 214.
m)Dr Wacharotayankura’s evidence that at the late January 2005 meeting, which included Mr Jones and Mr Tully:
i)Mr Tully and Mr Changlor told Dr Wacharotayankura that Fortron had money problems;
ii)Mr Tully told Dr Wacharotayankura that Fortron had gone bankrupt; and
iii)someone at the meeting said that when Fortron disappeared from the market Treblex would be the only company selling similar product in the market.[72]
n)Dr Wacharotayankura’s denial that throughout 2004 Jones was representing Treblex and selling Treblex product;[73]
o)Dr Wacharotayankura’s evidence that the first time he introduced Treblex product to his customers was after the January 2005 meeting;[74]
p)Dr Wacharotayankura’s evidence that throughout 2004 he believed Jones was working for Fortron;[75] and
q)Dr Wacharotayankura’s evidence that at all times he believed that what Gammar was putting in Fortron bottles was Fortron product.[76]
[72] Dr Wacharotayankura’s Witness Statement, para.43-45; First Transcript at 214-215.
[73] First Transcript at 216.
[74] First Transcript at 216-217.
[75] First Transcript at 218.
[76] First Transcript at 219.
Fortron also relies on the fact that both Mr Tully and Mr Threnoworth say that the first time they saw a Treblex labelled bottle was in early 2005,[77] and that Threnoworth at an earlier time saw Fortron bottles being filled.[78]
[77] Mr Tully, Second Transcript at 64 and 65; Mr Threnoworth, Second Transcript at 197.
[78] Mr Threnoworth, Second Transcript at 197.
Fortron also relies upon the misleading character of the Dear Valued Customer letter of 1 February 2005 given to Dr Wacharotayankura by either Mr Jones or Mr Changlor,[79] Fortron argues that the misleading character of the Dear Valued Customer letter can be ascertained from:
[79] Dr Wacharotayankura’s Witness Statement, para.49; Mr Tully, Second Transcript at 99; Mr Jones, Second Transcript at 136.
a)Tully’s concession that a reasonable reader would conclude from the letter that Treblex and Fortron were jointly announcing what was in the body of the letter;[80]
[80] Second Transcript at 87 and 99.
b)Mr Jones signing the letter but being unable to give a plausible explanation as to why he did so despite its admittedly misleading character;[81]
[81] Second Transcript at 183.
c)the evidence that the letter was drafted in August 2004 by a man named Ruggerio in Thailand in Mr Jones’ presence;[82] together with the fact that Ruggerio’s travel expenses to and from Thailand were met by Treblex;[83]
[82] Second Transcript at 135 and 150.
[83] Exhibit R 18.
d)the fact that the respondents did not call Ruggerio to explain why he drafted the letter in the terms that he did notwithstanding evidence that he lived in Perth;
e)Mr Tully’s agreement that a draft of the Dear Valued Customer letter was on his home computer in August 2004, six months before it was handed to Dr Wacharotayankura by Mr Jones in February 2005;[84]
f)the timing of the drafting of the Dear Valued Customer letter in August 2004 supports a contention that the respondents needed a contingency plan in the event that Fortron noticed a sudden decline in its sales to Gammar during 1984 compared to earlier sales, which sales collapse is evident from the sales figures;[85]
g)alternatively, Fortron contends that the substituted product scheme was required to be in place until such time as Treblex and Gammar were able to launch the Treblex label, which took time and money, which money was generated by the sale of Treblex product in Fortron bottles during the previous 12 months;
h)both of the previous two contentions:
i)are supported by the timing of the Dear Valued Customer letter being handed to Dr Wacharotayankura in February 2005, the month that Mr Changlor terminated Gammar’s distribution agreement with Fortron;[86] and
ii)explain the confusion created by Mr Jones and Mr Changlor in the market place in late 2004 and early 2005 in relation to the introduction of the “new” Treblex product which was initially put forward by Mr Jones as a safer and better quality,[87] which, within a few days, became the same product simply with a new name;[88]
i)finally, Gammar’s Profit and Loss Statement for the year ended December 2004 contains no expenses in the nature of labelling at all.[89]
[84] Mr Breck Hoffman’s Witness Statement, Annexure 17 (page 226); Mr Tully, Transcript at 82.
[85] Mr Breck Hoffman’s Witness Statement, Annexure 14.
[86] Mr Breck Hoffman’s Witness Statement, Annexure 18.
[87] See Dr Wacharotayankura’s Witness Statement, Annexure 9.
[88] Dr Wacharotayankura’s Witness Statement, Annexures 10 and 11.
[89] Exhibit A3, page 10.
Respondents’ reply on alleged product substitution
The respondents recognise that much depended in this case upon the evidence of Dr Wacharotayankura. The respondents submitted that
Dr Wacharotayankura’s evidence should be rejected in its entirety because he:
a)was a person willing to lie to benefit himself;
b)had a motive to lie;
c)pretended that he did not speak English well, despite a wealth of evidence that his English was very good; and
d)was inherently incredible, particularly when regard was had to the fact that the evidence shows that his English was far better than he pretended in Court.
The respondents point to the fact that Dr Wacharotayankura stood to gain if Gammar lost the distribution rights for Fortron in Thailand, and, in particular, that it was Dr Wacharotayankura’s desire to be Fortron’s sole distributor in Thailand, and that he engaged in “an extensive and sustained course of dishonest conduct to achieve that.”[90]
[90] Respondents’ Final Submissions at para.80.
The respondents point to an email which Dr Wacharotayankura caused to be sent by a friend of his on 13 January 2005 in relation to whether or not Fortron were looking for a distributor in Thailand for their products.[91]
[91] Exhibit R1.
Subsequent to the email, Mr Breck Hoffman travelled to Thailand to meet the author of the email, Waranee Aneakpoonsinsuk, who had described herself as the Marketing Manager of a company called
PAP Energy Save Centre Co Ltd which had been established in Thailand since 1990. In the email, Ms Aneakpoonsinsuk indicated that “our cousins” were also interested in Fortron product as they distributed automotive products. That email was sent on 13 January 2005.After the termination of the 2003 Distribution Agreement on 15 February 2005, Mr Breck Hoffman went to Thailand, and met with Ms Aneakpoonsinsuk and another person. At this stage,
Mr Breck Hoffman did not know Dr Wacharotayankura, but it was
Dr Wacharotayankura who was the other person at the meeting. At that meeting Dr Wacharotayankura gave no indication that he spoke English. Ms Aneakpoonsinsuk interpreted what Dr Wacharotayankura said to Mr Breck Hoffman.[92] A few days later Mr Breck Hoffman was taken to Dr Wacharotayankura’s office to meet with him, and others, but primarily the discussion was between Dr Wacharotayankura and Mr Breck Hoffman. That discussion took place in English, and
[92] First Transcript at 142.
Dr Wacharotayankura admitted in the course of that discussion with
Mr Breck Hoffman that he spoke good English. Mr Breck Hoffman reached the same conclusion on the back of a meeting with
Dr Wacharotayankura that went for four to five hours.[93] Further,
Dr Wacharotayankura:
a)interpreted for Mr Jones during visits that he made to Thailand;[94]
b)interpreted for Mr Breck Hoffman;[95] and
c)wrote comprehensible emails in English.[96]
[93] Mr Breck Hoffman’s Witness Statement at paras.98-116.
[94] Dr Wacharotayankura’s Witness Statement at para.25.
[95] First Transcript at 144.
[96] Dr Wacharotayankura’s Witness Statement, Annexure 11 and Exhibit R12.
The way in which Dr Wacharotayankura approached the initial meeting with Mr Breck Hoffman, together with Ms Aneakpoonsinsuk, demonstrates a capacity to engage in pretence for his own purposes.
It is significant that at the initial meeting with Mr Breck Hoffman he did not elaborate upon what products he supplied to the automotive industry, or to whom he supplied them.[97]
[97] First Transcript at 210.
Dr Wacharotayankura claimed that he understood from Mr Changlor that Fortron was effectively changing its name to Treblex, and that he knew that from approximately mid-2004. He said that he knew about switching customers away from Fortron products, but claimed he thought it was for Fortron, and that even though he did not wish to do so he was forced into switching his customers, that is he was forced into doing something which he claimed he thought was for Fortron’s benefit.
The suggestion that it was merely a change of name is not consistent with the fact that Dr Wacharotayankura had been dealing with “Treblex” since at least August 2004. Furthermore, Treblex was supplying products which were not provided by Fortron at all, including products to be distributed as “Chemforce” products through Dr Wacharotayankura’s distribution company Force International.
In that regard it is evident from an email sent by Dr Wacharotayankura (and his spouse) on 17 January 2005 to “Treblex” (at a generic Treblex internet address) that this was a “very exciting” development and one that they had been “waiting for a long time” for. It is therefore evident that Dr Wacharotayankura knew that Treblex was separate to Fortron, and was making different automotive and industrial products to those that were being distributed by Fortron in Thailand. Yet, just four days beforehand, he had caused Ms Aneakpoonsinsuk to forward to Fortron an email inquiring about distributing its products in Thailand because Ms Aneakpoonsinsuk had “learnt from my friend that your company are looking for Thailand distributor of automotive and industrial market.”[98] In the Court’s view, it is apparent that Dr Wacharotayankura saw the opportunity which would present itself if Gammar overtly became the distributor of Treblex product in Thailand, that is, that he might become the distributor of Fortron which had a clearly established market presence. He admitted as much in cross-examination:
[98] Exhibit R1.
But that was why you wanted her to contact them, wasn’t it?
To see if you could take over from [Mr Changlor]? – Yes, because I am say that I am just check some information.
At that time – and I am talking about early January 2005 – you couldn’t be sure that you would end up the distributor you are? – No.
But you couldn’t know that in January 2005 could you? – No, as distributor.
That happened in March 2005? – Yes, yes.
In January 2005 you were just hoping that would happen? – Yes.[99]
[99] First Transcript at 207-208.
The various annexures to Dr Wacharotayankura’s Witness Statement also confirm that he was aware that Treblex was operating separately to Fortron in the marketplace for both automotive and industrial products. This awareness pre-dates any mention of Treblex in emails. Thus, for example, on 20 April 2004 Dr Wacharotayankura received an email from Mr Jones which:
a)asks whether there had been any replies at all from Cockpit regarding “the letter we sent to them”;
b)
suggests that an appointment be made with the Manager of Cockpit if no response has been received by the time that
Mr Jones was in Bangkok a couple of weeks later;
c)says that an appointment must be made with BQuik; and
d)asks whether Dr Wacharotayankura has read the information left with him by Mr Jones about water-based products for Mitsubishi, and suggests that competitive pricing can be arranged.
The 20 April 2004 email goes on then to indicate that Mr Jones “will deal direct with your company with these products.” Further, the email is sent from a personal email address, namely [email protected].
A further email from the same email address was sent by Mr Jones to Dr Wacharotayankura on 3 June 2004. That email indicates that:
a)Mr Jones thinks that Dr Wacharotayankura is getting a good response from Mitsubishi regarding the automotive products that Dr Wacharotayankura has been presenting to them;
b)inquires as to whether Dr Wacharotayankura has decided what types of products will be required for “Car Packs”;
c)indicates that Mr Jones is aware that there is an appointment with Shell Pro Serve the following Monday, and says that he “would be very excited to know if you were successful in procuring the business for a house branded product”;
d)indicates that every attempt ought to be made to see Cockpit and B-Quik in order to get their business; and
e)indicates that Mr Threnoworth is keen to come to Thailand to assist Dr Wacharotayankura to grow his business in the lubricants and industrial products range.[100]
[100] Dr Wacharotayankura’s Witness Statement, Annexure 4.
By 6 August 2004 emails were being sent by Mr Jones to
Dr Wacharotayankura from the Treblex generic email address, [email protected]. On 6 August 2004 Mr Jones wrote to
Dr Wacharotayankura as follows:
I am very pleased that … [B-Quik] have finally agreed to let us put product into their outlets, now all we need to do is find some very good SPG people and make sure they make the trial period very successful for us. I know Kathy will be able to train some very good people to make sure the trial will be successful.
I know that both you and Kathy will be able to make this trial a real winner and this should then double your sales.”[101]
[101] Dr Wacharotayankura’s Witness Statement, Annexure 7. The reference to “SPG” is an acronym for Sales Person Guys/Girls, and the reference to “Kathy” is a reference to Dr Wacharotayankura’s partner.
Whilst the above email is in general terms, it does not accord with a suggestion that Treblex product was being sold under Fortron labels, at least out of the B-Quick outlets. B-Quik was already selling Fortron labelled products, and it follows that the product which must have been going into their outlets was somehow differentiated from Fortron products, otherwise there would not be a need for a trial period.
The email clearly suggests that there was some form of product differentiation between Treblex product in these outlets and Fortron product in these outlets, and that Dr Wacharotayankura was aware of this.On 7 September 2004 Dr Wacharotayankura received two emails from the Treblex generic email, both from Mr Threnoworth. In the first of the emails that he sent on 7 September 2004 Mr Threnoworth congratulates Dr Wacharotayankura on his latest success with B-Quik, indicating that he deserves it because of his “persistence & professionalism”. Mr Threnoworth goes on to indicate that “all the labels for the seven CHEMFORCE products listed below” have been finished. The seven products listed below are:
a)400 ml Rust Breaker;
b)400 ml Foaming Interior Cleaner;
c)400 ml Electrical Contact Cleaner;
d)400 ml TAC 2000;
e)400 ml Silicon Lube;
f)400 ml Cavity Protection Wax;
g)400 ml Marine Guard.
Mr Threnoworth goes on to indicate that he also has the formulaes completed and the products ready to be manufactured, and then goes on to deal with ordering issues.
In the second September 2004 email, sent a week later on
14 September 2004, Mr Threnoworth tells Dr Wacharotayankura that:
The sooner you are able to let us have some volume requirements we shall be able to begin marketing through your distributors.[102]
[102] Dr Wacharotayankura’s Witness Statement, Annexure 7.
The September 2004 emails again indicate that Dr Wacharotayankura was, or ought to have been, aware that Treblex was operating separately from Fortron.
Even in Dr Wacharotayankura’s examination-in-chief he acknowledged that Treblex was supplying Chemforce (a distributorship
Dr Wacharotayankura was running) with product:[103] when asked about the Treblex bottled products by his Counsel, as follows:
[103] First Transcript at 167-168.
What about the Treblex bottled products? – At that time I – we tried to convince Partspoint to make a house band [brand] to Partspoint, not Treblex. We not show any bottled products in – at that time.
Well, were there Treblex bottled products at that meeting? –
I think that is – it is just a mock-up and artwork.[104]
[104] First Transcript at 168.
Again, this demonstrates that there was a distinction in
Dr Wacharotayankura’s mind between the Fortron and Treblex product, not only as to products not provided ordinarily by Fortron (such as the Treblex aerosol products) but also as to Treblex bottled products which Treblex were trying to put into new customers as house brands.
In cross-examination Dr Wacharotayankura agreed that B-Quik “agreed to change from Fortron to Treblex”.[105]
[105] First Transcript at 177.
Dr Wacharotayankura’s evidence about Mr Jones endeavouring to persuade other companies, primarily Shell, to change to a house brand, and that he thought that this was a Fortron house brand, was particularly unconvincing.[106]
[106] See especially First Transcript at 182-183.
By the time that Mr Jones came to write significant emails to
Dr Wacharotayankura in January 2005, the Court is of the view that it was, or ought to have been, readily apparent to Dr Wacharotayankura that Treblex was operating separately and on its own account in the market in Thailand for automotive and industrial products. There is nothing in the emails set out above which would suggest any linkage between Treblex and Fortron, and indeed the contrary is the case.
The email of 6 January 2005 from Mr Jones to Dr Wacharotayankura at the Treblex generic email address was relevantly in the following terms:
I will be coming back to Bangkok about the 16th of this month (this will be confirmed to you when I have booked). I shall come to Bangkok earlier than Garry so that we are able to have an appointment with both Shell Autoserve and B-Quik.
We need to have an appointment with these two companies so we are able to explain to them that we are changing from Fortron to Treblex. If you speak to Parnu he will be able to explain the reasons for this change so that everyone understands and everyone will be happy.
Parnu and I believe that it is important that we explain to these two customers that the changeover to Treblex will be better for them for a number of reasons.
1. The new product is safer.
2. The new product is environmentally safer.
3. It will perform better than Fortron.
4. Pricing will be the same.
5. The Force Company will still be controlling the training, sales, deliveries, marketing and SPGs.
6. We are consolidating our forces to enable us to continue servicing both of these companies far into the future.
7. This change to Treblex represents the latest technical upgrades for Automotive products and our chemists will always ensure that any technical improvements required will be incorporated into the products immediately.
We will need to write a letter to these customers explaining about the name change, Joint Venture etc.[107]
[107] Dr Wacharotayankura’s Witness Statement, Annexure 9.
On 17 January 2005 Mr Jones sent another email to
Dr Wacharotayankura which was relevantly in the following terms:
With regards to the Chemforce Catalogue we have everything ready to let Jojo put it together into Chemforce design.
The M.S.D.S.[108] are ready and can be printed in volume for the sales team to hand out as required. Garry was pleased to hear that Rat was ready to start with the four aerosols that are ready to go. As you would understand Garry now wants to get onto the next flight for Bangkok because he is so keen to help in any way he can. He will now come about the 29th of January.
As you know we need to make appointments with both Shell and B-Quik to explain very simply about the change of name from Fortron to Treblex.
I will be available to come to these appointments whenever you are able to arrange them. I understand that you and Kathy are a little concerned about changing the name but I am sure that it will not cause you any problems. What you must remember is that these companies are happy to deal with the Gammar Group and Force International who have been giving them (FIRST CLASS SERVICE AND BACKUP) for a long time. They will not be concerned that we are going to change the name of the product as long as they understand that your company will still be looking after them exactly as you have been from the beginning.
I am sure that with your business acumen and experience together with your marketing expertise you realise all that I have talked about with regard to the changeover is true.
Because I am a partner in Treblex I shall be able to assist you at all times to a much greater degree as I shall be available more often to help you and Kathy grow your business. I would appreciate very much your support and experience to assist in the smooth transition of this name change to Treblex.[109]
[108] M.S.D.S. are Material Safety Data Sheets.
[109] Dr Wacharotayankura’s Witness Statement, Annexure 10.
On 18 January 2005 there was a further email from Mr Jones to
Dr Wacharotayankura from Treblex’ generic email, in the following terms:I believe that our approach to both Shell and B-Quik about the change of name should be kept as simple as we possibly can. Parnu would just like to let all of his customers know about this change with the least possible confusion.
As you know we have decided to go down this path to allow both Parnu and you to expand your business into very many and varied areas without being held back by the uncertainty being felt by Parnu from Fortron.
By placing Treblex into the market we shall be able to really consolidate the future for everyone involved and this is very important long term.
The joint venture company will be able to react to all enquiries from the customers much quicker than the present time. As I mentioned to you before both Garry and I will be able to spend much more time with your people to help grow your business.
I know you will understand the reasons for this name change and both you and Kathy will be able to explain this to both Shell and B-Quik at the appointments when I am there next week. I know that we shall be able to answer any questions they may have regarding our plans.[110]
[110] Dr Wacharotayankura’s Witness Statement, Annexure 11.
On 1 February 2005 Mr Changlor and Mr Jones signed a letter which was in the following terms:
Dear Valued Customer,
This letter is to inform your company of a very exciting and significant development for the Gammar Groups(Thailand) Co., Ltd.
As a very loyal customer of the Gammar groups company we have been able to provide you with an extensive range of automotive treatment products, backed up by our professional service and support.
The Gammar Groups has established a Joint Venture Company based in Bangkok to enable us to ensure we continue to provide you with quality products, a first class service and support into the future. The Joint Venture Company has been established with Treblex Australia whose expertise and success in developing and marketing environmentally superior products for the automotive market had made formation for this joint venture very easy.
This Joint Venture Company will market the range of Automotive and Industrial Products under the name of “TREBLEX”.
The Gammar Groups has invested a large amount of capital to expand this business operation to ensure that the quality of the products and service you now receive will continue into the future.
The excellent standard of service you have been receiving through The Gammar Groups will continue as before. The only change you will notice will be the name “TREBLEX”.[111]
[111] Dr Wacharotayankura’s Witness Statement, Annexure 12.
The background to the above emails and letter also needs to be considered.
The 6 January 2005 email makes it clear that more than just a name change was being undertaken in the early part of 2005. Mr Jones wrote to Dr Wacharotayankura that “we are changing from Fortron to Treblex”. He wrote of the “changeover to Treblex”, of the “new product” and the fact that it “will perform better than Fortron”.
Mr Jones tells Dr Wacharotayankura that if he speaks to Mr Changlor “he will be able to explain the reasons for this change so that everyone understands and everyone will be happy.”[112]
[112] Dr Wacharotayankura’s Witness Statement, Annexure 9.
The terms of the 6 January 2005 letter are self-explanatory.
The distribution arrangements were changing so that Gammar distributed Treblex product, which was a new product, not Fortron product.Viewed in the context of the 6 January 2005 email the 17 and
18 January 2005 emails can readily be understood as suggestions as to how the changeover was to be managed. The strategy that was settled upon, namely to describe it as essentially the same product (which in a broad generic sense was true) with no change to distribution and marketing arrangements on the ground in Thailand (which was true) is marred only by the misleading suggestion that it is a “name change”.It was in fact a product brand change, but an awareness of market sensitivities meant that describing it as a change from Fortron to Treblex in the marketplace was not likely to maximise changeover from Fortron to Treblex product. And those customers who did change, for example B-Quik, knew that there was a change in product.[113][113] First Transcript at 173-174.
The Dear Valued Customer letter of 1 February 2005 does not advance Fortron’s argument with respect to alleged product substitution any more than the emails of 6, 17 and 18 January 2005. To the extent that the Fortron logo appears on the Dear Valued Customer letter, and the letter suggests that the only change that customers will notice in relation to the provision by Gammar of “an extensive range of automotive treatment products” will be the appearance of the name “TREBLEX”, the letter was misleading, and an endeavour to suggest that the forthcoming Treblex product was replacing Fortron product wherever Fortron product had previously been sold and was replaced by Treblex product.[114] The Dear Valued Customer letter was not separately pleaded as misleading or deceptive conduct, or conduct likely to mislead or deceive, but pleaded as a particular of the alleged product substitution scheme.
[114] Bearing in mind that Treblex provided a number of other automotive and industrial products which were not otherwise provided by Fortron.
The suggestion that Fortron’s case is in part proven by the failure of Treblex, Mr Jones or Mr Tully to produce labels from Treblex product prior to early 2005, is not as significant as it may first appear. On the evidence it is clear that there were no final Treblex labels until sometime in early 2005. The reason for that is perfectly explicable. Firstly, there is some evidence which indicates that the distributors (Gammar and Force International) were endeavouring to sell Treblex’ automotive products which equated to the Fortron automotive products as in-house brands. The in-house brands would not have had Treblex labels. Treblex was not able to sell Fortron equivalent automotive products as separate Treblex products because, as late as 29 September 2004, on Fortron’s own evidence through Dr Wacharotayankura, the labels for those Treblex products were no further advanced than being mock-ups and artwork.[115] The fact that there were no labels as late as September 2004, and that at that stage the labels were only in mock-up or artwork form, together with the evidence that Treblex was endeavouring to sell its Fortron equivalent automotive product as house brand, sufficiently explains why there were no Treblex labels for the year 2004 able to be produced. There were none, and there were none until the significant change in marketing and distribution strategy came into effect in early 2005.
[115] First Transcript at 168.
A draft of the Dear Valued Customer letter of 1 February 2005 had been prepared as early as August 2004. There is no dispute about that. However, Fortron argues that it is yet another indicator of an alleged product substitution scheme. Equally, however, it can be argued that it is no more than a draft of the letter which became the Dear Valued Customer letter of 1 February 2005. That is the way in which the Court views it. It was no more than preparation for what was to come with what, even at that stage, was an anticipated release of separately branded Treblex product in its own right. Thus, an appropriate letter to customers was prepared, and the artwork for, and mock-ups of, labels were also in preparation at or about the same time. Those matters are consistent with the intention to launch a product. They are more consistent with that scenario than the alleged product substitution scheme scenario posited by Fortron. Consequently, the failure to call the author of the August 2004 draft is not of any consequence.
The Court is mindful that substantial quantities of Treblex product were being shipped to Thailand at a time when the quantity of Fortron product was declining. In that regard, and having regard for the findings that the Court makes below with respect to
Dr Wacharotayankura’s evidence, there is little by way of fact, either actual or properly able to be inferred, which explains why that was so. Given the tenuous relationship between Gammar and Fortron, and in particular between Mr Changlor and Mr Breck Hoffman, and probably exacerbated by Mr Ivan Hoffman’s insistence that Mr Changlor deal with Mr Breck Hoffman, it would not be surprising if the quantity of Fortron automotive product ordered by Gammar declined, and less strenuous efforts were made by Gammar, and its sub-distributors, to market Fortron’s product. Certainly, Dr Wacharotayankura seems to have spent a considerable amount of time from at least mid-2004 engaged in the marketing of Treblex product (both industrial and automotive) rather than Fortron automotive products. Because Gammar has not taken part in these proceedings there is a lack of evidence about the amount of Fortron automotive product that Gammar may have had in stock, and no evidence as to what Gammar was doing with both the Fortron automotive product and Treblex automotive product that it was ordering, and whether that was being distributed, and if so how, or stockpiled. In those circumstances, no adverse inference is able to be drawn from the quantity of Treblex product shipped to Thailand during this period.
The Court is not prepared to draw any adverse inferences, or to impugn the credibility of Mr Jones or Mr Tully, by reason of Gammar’s failure to participate in these proceedings. Whilst there is evidently a close commercial relationship between Mr Changlor as an officer of Gammar, and Mr Jones as an officer of Treblex, that is no reason to suppose that Gammar was prepared to provide documents upon request to Treblex, or Mr Jones or Mr Tully. It is simply not possible to determine whether Gammar has made a strategic decision not to participate in the litigation because it has decided that, for example, its exposure might be limited (for example to damages for the failure to give one month’s notice of termination of the 2003 Distribution Agreement, which was not however a matter specifically pleaded), or whether the difficulties of enforcing any order that the Court might make against an overseas corporation, whether practically, or by reason of any limitation of company liability or limited assets of the company, might make enforcement impracticable or futile.
The Court has also had regard to the submissions concerning credibility in relation to Mr Jones and Mr Tully by reason of the various failures to produce documents. However, the failure to produce documents is not limited to Treblex, Mr Jones and Mr Tully. There was also late production of documents by Fortron.
Mr Tully’s aiding or abetting of Mr Jones’ misleading or deceptive conduct
Fortron says that the evidence and circumstances involving Mr Tully’s involvement in the implementation of the product substitution proves Mr Tully’s liability for aiding or abetting Mr Jones in misleading or deceptive conduct under ss.68 and 79 of the FT Act.
As Fortron’s claim of misleading or deceptive conduct against
Mr Jones has not been made out Mr Tully cannot be said to have aided or abetted Mr Jones in that non-existent conduct. Fortron’s claim against Mr Tully for aiding or abetting Mr Jones’ misleading and deceptive conduct must therefore fail.
Misleading or deceptive conduct – Treblex
The evidence and circumstances involving Mr Jones in relation to the alleged product substitution scheme are also relied upon to prove the claim against Treblex on the basis that at all material times Mr Jones, as a director of Treblex, acted on behalf of Treblex. Further, the evidence and circumstances involving Mr Jones and Mr Tully is relied upon to support an allegation that Treblex was incorporated, amongst other things, for the purpose of implementing a scheme to substitute Fortron product with Treblex product in Thailand, and therefore it is said that Jones aided, abetted, counselled or procured Treblexs’ contravention of s.52 of the TP Act and or alternatively, induced the contravention, further and or alternatively was, directly or indirectly knowingly concerned in or a party to Treblexs’ alleged contravention.
The allegation of misleading or deceptive conduct against Treblex, again depends upon the alleged product substitution scheme, which scheme Fortron has failed to prove. The claim of misleading and deceptive conduct against Treblex founded on the alleged product substitution scheme must therefore fail. The claim against Mr Jones for aiding, abetting, counselling and procuring a contravention by Treblex must therefore also fail.
Mr Tully’s duties
Applicant’s submissions
Fortron’s submissions are that the evidence supporting Mr Tully’s breach of fiduciary duty is compelling. It is alleged that Mr Tully conceded both the existence of his fiduciary duties and the breach of them. Fortron says that the evidence shows that Mr Tully:
a)held a senior position within Fortron at all material times – namely that of Company Secretary – and was on a salary package worth approximately $100,000 a year;[147]
[147] Second Transcript at 38 and 39.
b)signed Fortron’s Code of Conduct which expressed all of the fiduciary duties pleaded by Fortron;[148]
[148] Mr Breck Hoffman’s Witness Statement, Annexure 8; Second Transcript at 39 and 40.
c)
took annual leave for a day to meet with Mr Jones and
Mr Changlor to set up Treblex in competition with Fortron in clear breach of his duty of loyalty;
d)reaffirmed the Fortron Code of Conduct at a time after he had helped set up and become a director and shareholder of Treblex;[149]
e)was privy to all minutes of directors’ meetings, and to price lists for Fortron’s automotive treatment products and their profit margins;[150]
f)agreed his involvement with Treblex while employed by Fortron amounted to disloyalty;[151]
g)accepted that he took the view that because he thought that Fortron was in financial difficulties he had the right to act disloyally;[152]
h)accepted that he was adducing no independent evidence to support his view that Fortron was in financial difficulty;[153]
i)agreed that what he told Ms Curline about Fortron going broke was the wrong thing to have done;[154]
j)agreed that he had a clear conflict of interest by being director of Treblex which was in competition with Fortron;[155]
k)agreed his conduct was in breach of the duty of honesty owed to his employer, and that he set about planning to create Treblex to take business away from his employer;[156]
l)agreed he took leave from Fortron to arrange shipments of product to Gammar in direct competition with his employer;[157] and
m)conceded that the loss he was referring to was a loss to himself, and that he was looking to benefit personally from his breaches of fiduciary duty.
[149] Second Transcript at 40.
[150] Second Transcript at 30.
[151] Second Transcript at 41.
[152] Second Transcript at 42.
[153] Second Transcript at 42.
[154] Second Transcript at 48.
[155] Second Transcript at 48.
[156] Second Transcript at 49-50.
[157] Second Transcript at 67.
The applicant submits that there was a fiduciary relationship between Fortron and Mr Tully.
The applicant asserts that the relationship of employer and employee is one of the accepted fiduciary relationships.[158] Fortron argues that the breach is more serious when the position involves high levels of discretion and trust.[159]
[158] Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97 per Mason J; Pilmer v Duke Group Ltd (In liq) (2001) 207 CLR 165 at 196-197 per McHugh, Gummow Hayne and Callinan JJ; [2001] HCA 31 at paras.70-72 per McHugh, Gummow Hayne and Callinan JJ.
[159] Co-ordinated Industries Ltd v Elliott (1998) 43 NSWLR 282 at 288 (Project Manager); Warman International Ltd v Dwyer (1995) 182 CLR 544 (Branch Manager).
Fortron also claims against Mr Tully under s.182 of the Corporations Act which provides as follows:
Use of position--directors, other officers and employees
(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
Note: This subsection is a civil penalty provision (see section 1317E).
(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: This subsection is a civil penalty provision (see section 1317E).
Fortron argues that s.182 of the Corporations Act generally reflects the content of the common law duty of loyalty and good faith.[160] In this regard, Fortron argues that Mr Tully was under a duty to act in Fortron’s interests with good faith and fidelity, and that that was a term implied in every contract of employment if not otherwise imposed by an express term. The duty, Fortron argues, governs all the activities of the employee, whether undertaken within working hours or not, which are within the sphere of the employer’s business operations, and which could materially affect the employer’s business interests.[161]
[160] Digital Pulse Ltd v Harris (2002) 166 FLR 421 at 425-426 per Palmer J; [2002] NSWSC 33 at paras.27-32 per Palmer J (“Digital Pulse”).
[161] Digital Pulse FLR at 424-425 per Palmer J; NSWSC at paras.19-26 per Palmer J.
Respondents’ submissions
The respondents submitted that there was a significant difference between a contractual duty of fidelity in an employment context and a fiduciary duty of an employee. The respondents argued that the Court must determine the scope of the employee’s duties, and in that context, the scope of the, or any, undertaking as to fiduciary duties.
The respondents argue that in assessing Mr Tully’s fiduciary duty it was necessary to:
a)establish what the scope of the undertaking was;
b)then determine whether there was a real and sensible possibility of conflict; and
c)only then should there have been a necessity for Mr Tully to make any relevant disclosure.
The respondents submit that the purpose behind there being a fiduciary duty is to ensure that in carrying out duties the fiduciary, in this case an employee, is not influenced by personal interests.
The respondents argued that Mr Tully’s duties to Fortron were solely on the accounting and financial side of the business, and that there was no conflict in relation to the business established by Treblex.
Critically, the respondents say that the issue of whether or not Mr Tully was influenced by his own personal interests in Treblex so as to conflict with his fiduciary duty (if he had one) to Fortron was not a matter which was put to him, and is a matter upon which there is no evidence. There is, the respondents argue, no evidence that Mr Tully had any obligation, or any involvement, in the sales and marketing promotion of Treblex products, and no evidence that anything he had undertaken to do for Fortron was in any way at risk.
The respondents also argued that there was no suggestion that
Mr Tully’s position as Group Secretary (or Company Accountant or Accountant) for Fortron was used in order to start up the business involving Mr Changlor. Mr Tully became involved through Mr Jones, and it was nothing to do with his duties as Group Secretary at Fortron.
Moreover, the respondents also argue that Mr Tully became involved, because Fortron, through Mr Ivan Hoffman, made a decision to involve Mr Breck Hoffman in his part of the business, contrary to
Mr Changlor’s wishes.
The respondents also argue that it is for Fortron to prove what duties Mr Tully undertook to perform, and the extent of his fiduciary obligations, if any, to Fortron as an employee in relation to those duties. The respondents say that Fortron has failed to establish or prove its case in this respect.
Consideration – Mr Tully’s duties
Mr Tully’s duties were outlined by Mr Ivan Hoffman as follows:
a)Group Accountant for the Fortron Group;
b)Company Secretary for all companies within the Fortron Group;
c)being privy to the most confidential financial and trading information concerning the Fortron Group’s business, including its logo and international distributors, all sales volumes, prices and contractual arrangements;
d)liaison with bankers, auditors and statutory regulators, including the Australian Taxation Office and Australian Prudential Regulations Authority; and
e)as part of his duties as Company Secretary, sitting in on all Fortron Group board meetings and preparing the Minutes of those board meetings.[162]
[162] Mr Ivan Hoffman’s Witness Statement, paras.3-6.
Mr Tully was a senior employee within the Fortron Group and within Fortron itself, and his remuneration package exceeded $100,000 a year.
Mr Tully also signed the Fortron Group Code of Conduct on
23 January 2002, and again (electronically) on 27 July 2004.
Under the heading “Ethics” the Fortron Group Code of Conduct relevantly provided as follows:
All Fortron Group employees will operate in accordance with the legal and professional requirements stipulated by relevant State and Federal legislation, the industry and the company.
They will demonstrate honesty and integrity at all times when dealing with customers, the business community, members of the public, suppliers and regulatory authorities, as well as other employees.
Employees are expected to be faithful to the company’s interests by not passing on information to competitors or denigrating the company or its products.
Employees will not commit fraud, theft, embezzlement, forgery, misappropriate company or related assets, or falsify company records for personal or other reasons.
Confidential or proprietary information will not be disclosed outside the company, either during or after employment with the company, without company authorisation.
Where an employee encounters a conflict of interest in their role as an employee and their personal affairs, this should be divulged to their manager.[163]
[163] Mr Ivan Hoffman’s Witness Statement, Annexure 8.
On the facts, there can be no doubt that whilst Treblex was engaged in marketing and distributing a range of industrial and/or automotive products in Thailand, it was a direct competitor with Fortron, particularly in the automotive products, including Engine Flush, market in Thailand. In that regard, and in respect of a major product range for both Treblex and Fortron, there was direct competition between them in the market in Thailand.
Mr Tully was a senior employee at Fortron. Seniority of itself is not sufficient to found a fiduciary duty. However, he undertook duties at that senior level in relation to matters of significant importance and in respect of which significant trust was reposed in him as a senior employee. Setting aside his role with the Fortron Group as a whole, his role as a Senior Accountant and Company Secretary with Fortron meant that he had access to all of Fortron’s confidential information in relation to its product ranges and costs. Mr Tully was, as Company Secretary, was responsible, together with others, for the financial and regulatory health of Fortron. Fortron paid him for this, relied upon him to carry out his duties, and to conduct himself in a manner appropriate to the level of trust reposed in him. That level of trust, and the nature of his duties and responsibilities, was such as to give rise to a fiduciary relationship between Mr Tully and Fortron.
In circumstances where Mr Tully was a director of a company which competed in exactly the same market as Fortron there can be little doubt that he had, in relation to a matter within the scope of his service, a personal interest or inconsistent engagement with a third party, namely Treblex.[164] Mr Tully was in a position where his interest in Treblex and his duty to Fortron conflicted, which was a position that he was not allowed to put himself into.[165] As a fiduciary Mr Tully was not in a position to promote his personal interests in Treblex by making or pursuing a gain through Treblex in circumstances where there was a conflict or a real or substantial conflict between his interests in Treblex and those interests in Fortron which he was required to protect.[166]
In the circumstances, it is plain that Mr Tully was an employee of Fortron who owed them a fiduciary duty, but saw a business opportunity arising, and diverted that business opportunity from Fortron. This is not a case, as Senior Counsel for Mr Tully endeavoured to persuade the Court, of a person engaging in a business outside of the scope of the business to which the fiduciary obligation was owed. This was not a new or separate business. The business of Treblex was, in relevant part, the business of Fortron in the Thailand market. This is a clear case of a breach of fiduciary duty by Mr Tully.
[164] See PD Finn, “The Fiduciary Principle”, TG Youdan (Ed) Equity, Fiduciaries and Trusts (Carswell: Toronto Canada, 1989), page 27.
[165] Bray v Ford [1896] AC 44 at 51 per Lord Hershell.
[166] Hospital Products at 103 per Mason J.
For present purposes, the principles relating to the application of s.182(1) of the Corporations Act have been adequately summarised by the Federal Court in Diakyne Pty Ltd v Ralph,[167] where the Federal Court said as follows:
[167] (2009) 72 ACSR 450; [2009] FCA 721 (“Diakyne”).
84 The principles relating to the application of these statutory provisions were also largely agreed. Those principles have been identified on numerous occasions. The parties in the present case referred particularly to the observations in Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler and Others (2002) 41 ACSR 72; [2002] NSWSC 171 at [372], [458] and [735], Australian Securities and Investments Commission v Macdonald (No 11) (2009) 71 ACSR 368; [2009] NSWSC 287 at [236]-[257] and Vrisakis v Australian Securities Commission (1993) 11 ACSR 162. Amongst other matters, those decisions identify that:
(1) Sections 180, 181 and 182 involve duties owed to the corporation.
(2) The requirement of reasonable care and diligence is objective in the sense that it involves asking what an ordinary person of ordinary prudence, with the knowledge and experience of the director, might be expected to have done in all of the circumstances at the relevant time of the conduct if he or she were acting on his or her own behalf.
(3) Putting the test another way, was the director cognisant of circumstances of “such a character, so plain, so manifest, and so simple of appreciation, that no men with any ordinary degree of prudence, acting on their own behalf, would have entered into such a transaction as they entered into” (Vrisakis at 212 citing Overend & Gurney Co v Gibb (1872) LR 5 HL 480 at 486-487).
(4) The circumstances of the corporation at the time are thus relevant to the content of the duty to act with reasonable care and diligence.
(5) Directors are not required to exhibit a greater degree of skill than may reasonably be expected from persons of commensurate knowledge and experience in the circumstances and are entitled to rely on others except where an exercise of ordinary care would deny reliance.
(6) There can be no failure to exercise reasonable care and diligence unless at the relevant time harm to the interests of the corporation is reasonably foreseeable by reason of the conduct and, to determine breach, the foreseeable risk of harm must be balanced against the potential benefits which might be expected to accrue to the corporation.
(7) Where the matter involves a potential conflict between the director’s duties to the corporation and a personal interest, “the duty of care and diligence falls to be exercised in a context requiring special vigilance…” (Adler at [372(14)]).[168]
[168] Diakyne ACSR at 469 per Jagot J; FCA at para.84 per Jagot J.
For all of his years of experience Mr Tully, although in the Court’s view not dishonest, was remarkably naïve about the scope of his duties and responsibilities, and perhaps also his accounting competency.[169] The test however is an objective one involving an ordinary person of ordinary prudence with the knowledge and experience that Mr Tully had as a senior employee of Fortron. For reasons set out above there can be no doubt that his being a director of Treblex, and engaging in financial and marketing activities for Treblex as he did, involved reasonably foreseeable harm to the interests of Fortron, and an outright conflict between his duties as a senior employee, and Company Secretary, of Fortron, and his personal interest as a director of Treblex. Mr Tully simply could not travel both the Fortron and Treblex paths at once, as he endeavoured to do for approximately a year. By going down the Treblex path he breached his duty under s.182(1) of the Corporations Act to Fortron by gaining an advantage for himself (various remuneration was paid to him by Treblex in relation to his duties as a director), and arguably providing for an advantage to be gained by Mr Jones and Gammar in relation to the provision of Treblex product.
[169] See the trenchant criticisms by Senior Counsel for Fortron in the Applicant’s Closing Submissions, and the criticism in relation to accounting competence by the Court during the giving of Mr Tully’s evidence. See Second Transcript at 239.
At the same time that Mr Tully was telling other employees that Fortron was going to fail financially, he was effectively endeavouring to contribute to that financial failure by conducting himself in a manner, and making arrangements with Treblex, Fortron’s competitor in Thailand, which diverted a commercial opportunity from Fortron. Even if, as Mr Tully believed, Fortron was in financial difficulties it was still his duty not to do anything contrary to his duty of loyalty.
Notwithstanding the valiant efforts of Senior Counsel for Mr Tully to persuade the Court otherwise, the Court has concluded that Mr Tully did breach:
a)his fiduciary duty to Fortron; and
b)his duty under s.182(1) of the Corporations Act.
Damages and other remedies
The parties agreed that the Court need only determine liability at this stage.
Conclusion and Orders
The Court has concluded that:
a)the claim of breach of duty, both fiduciary and under s.182(1) of the Corporations Act, against Mr Tully is upheld;
b)although not specifically pleaded:
i)there was a breach of contract by Gammar by reason of its failure to provide reasonable notice of termination, of one month, of the 2003 Distribution Agreement to Fortron; and
ii)the Dear Valued Customer letter of 1 February 2005 was of itself misleading, although its being misleading was not pleaded separate from the alleged product substitution scheme;
c)otherwise the application will be dismissed, save that the Court will hear from the parties as to:
i)whether anything arises in relation to the findings in sub-paragraph (b) above; and
ii)the appropriate order to be made against Gammar, in light of the finding in sub-paragraph (b)(i) above and its non-appearance and non-participation in these proceedings.
In the circumstances, the matter will be adjourned to a directions hearing on a date to be fixed.
I certify that the preceding one hundred and eighty-two (182) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate:
Date: 1 July 2011
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