Griffiths & Beerens Pty Ltd v Duggan

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 2114 of 2005

GRIFFITHS & BEERENS PTY LTD AND ORS	Plaintiffs
v
PAUL DUGGAN AND ORS	Defendants

---

JUDGE:	PAGONE J
WHERE HELD:	Melbourne
DATE OF HEARING:	3-7, 11-14, 17-19, 26-28, 31 March, 1-4, 7-11, 14-16, 28-30 April, 1-2 May 2008.
DATE OF JUDGMENT:	11 June 2008
CASE MAY BE CITED AS:	Griffiths & Beerens Pty Ltd and ors v Duggan and ors
MEDIUM NEUTRAL CITATION:	[2008] VSC 201

---

CONTRACT – Restraint of trade covenant – Enforceability – Reasonableness of restraint –Privity – Meaning of ‘same as’ or ‘substantially similar’ – Preparatory acts – Meaning of ‘involved in any way’ – Provision of financial assistance – Canvassing of customers and suppliers – Interference with business relationships

CORPORTATIONS LAW – Director’s duties – Whether breach – Improper use of position – Improper use of information – ss 182-183 Corporations Act 2001

EMPLOYMENT LAW — Duty to employer – Duty of fidelity – Whether preparatory steps taken in setting up a competing business – Confidential information – Breach of confidence – Customer and supplier details

EQUITY – Fiduciary duties – Directors – Whether breach – Diversion of corporate opportunity – Whether steps taken towards and assistance provided in the establishment of a competing business

PRACTICE AND PROCEDURE – Anton Piller order – Whether execution improper

REMEDIES – Damages – Quantum – Method of assessment

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr G.D. Dalton with Ms R.B. Sion	Foster Harris
For the Defendants	Mr P.G. Cawthorn S.C. with Mr R.G. Craig and Mr J.R. Werner	GSM Lawyers

TABLE OF CONTENTS

A. Liability of Paul Duggan............................................................................................................ 3

(a) Alleged diversion of corporate opportunities by Paul Duggan...................................... 3
(b) Establishing a business in competition with the plaintiffs.............................................. 7

(i).. Jak Max (M) Sen. Bhd...................................................................................................... 8
(ii). Bigpond email account...................................................................................................... 9
(iii)Sample guide bars to Wang Wei Ming........................................................................... 14
(iv)Email to Dartong............................................................................................................ 18
(v). Poulan email................................................................................................................... 19
(vi)Breach of duties............................................................................................................... 24

(c) Breach of restraint and share sale deed............................................................................. 25

(i).. Legal principles............................................................................................................... 25
(ii). Contacting customers and suppliers on behalf of Jak Max............................................. 50
(iii)Other assistance to Jak Max........................................................................................... 65
(iv)Other facts from which involvement may be inferred.................................................... 66

(d) Interference with the plaintiffs' business relationships.................................................. 70

B. Liability of Adam Duggan........................................................................................................ 72

C. Damages....................................................................................................................................... 85

D. Anton Piller order.................................................................................................................... 100

E. Orders.......................................................................................................................................... 103

HIS HONOUR:

The plaintiffs in this proceeding are Griffiths & Beerens Pty Ltd (“GB”), GB Products Pty Ltd (“GB Products”), Somers Engineering Pty Ltd (“Somers”) and GB Accessories Pty Ltd (“GB Accessories”), who claim to have suffered loss and damage arising from the alleged wrongful conduct of one or more of the defendants, namely, Paul Duggan, Jak Max Pty Ltd (“Jak Max”) and Adam Duggan. The latter, in turn, counterclaim for loss and damage said to arise from a wrongful exercise of an Anton Piller order granted on 31 October 2005 by Whelan J. Paul Duggan also claims, and the plaintiffs admit, an entitlement to be paid of an amount of $91,104.18 as an outstanding payment due under the share sale deed to which I will refer later.

I shall avoid a lengthy recitation of the facts other than to give context to these reasons, to explain my reasons and, where necessary, to state my findings on disputed facts relevant to my conclusions. The proceeding occupied 33 hearing days. The transcript of evidence spans 3,368 pages. The Court Book is made up of over 21 arch‑lever folders, and 270 separate exhibits were tendered. A combined narrative of facts of 65 pages was filed setting out agreed facts as well as others contended for, or disputed by, either party. The defendants’ primary written submissions was 247 pages in length plus four shorter annexures. The plaintiffs’ primary written submissions were 91 pages in length plus annexures and tables. Each handed up other written submissions, annexures and calculations during the course of argument.

The primary area of dispute is a share sale deed dated 22 April 2005 (“the share sale deed”), completed on 29 June 2005, made between Paul Duggan, Garcia Duggan Nominees Pty Ltd (“Garcia Duggan”), of the first part, the plaintiffs of the second part, and Thomas Beerens and Windtest Pty Ltd (“Windtest”), of the third part. By the share sale deed Paul Duggan and Garcia Duggan agreed to sell all of their shares in the plaintiffs to Thomas Beerens and Windtest for $4.5 million. Before the time of making the share sale deed, and until its completion on 29 June 2005, Paul Duggan had been a director of each of the plaintiff companies and was employed as the managing director of the business which they collectively conducted. He personally owned 5% of all of the shares in each plaintiff and together with his wife, Violetta Duggan, owned and directed Garcia Duggan, which owned 40% of the shares in each of the plaintiff companies. Adam Duggan is the eldest son of Paul Duggan and Violetta Duggan, and was employed by GB from 5 January 2000 until 24 August 2005. Since 7 September 2005 he had been a director, shareholder and employee of Jak Max.

Both Paul Duggan and Adam Duggan owed employment duties to their employer. In addition, Paul Duggan agreed in the share sale deed to be bound by a two year restraint from competition against the plaintiffs. On 22 April 2005 Paul Duggan also entered into a deed of confidentiality with the plaintiffs (“the confidentiality deed”) by which he agreed to keep confidential certain information.

A. Liability of Paul Duggan

The first allegation against Paul Duggan is that he, whilst still a director of each of the plaintiffs and the managing director of the plaintiffs’ business, breached his fiduciary and statutory obligations to the plaintiffs by diverting business opportunities and by taking steps to establish (or assisting his son Adam Duggan to establish) a business in competition with the plaintiffs. The plaintiffs further alleged that after completion of the share sale deed on 29 June 2005, Paul Duggan breached the restraint covenant in the share sale deed by being involved in a substantially similar business, namely, the business which became that of Jak Max, and by interfering with the plaintiffs’ relationships with their customers, suppliers and employees.

(a) Alleged diversion of corporate opportunities by Paul Duggan

The plaintiffs pleaded a number of particulars in support of their allegations that Paul Duggan had diverted corporate opportunities but, in final submissions, they pursued only one of the four particulars in the statement of claim. The opportunity said to have been diverted by Paul Duggan away from the plaintiffs was an opportunity for them to supply Sunvic portable generators to Elfving, a Finnish customer of the plaintiffs. The contention was put on behalf of the plaintiffs in their final submission as being that Paul Duggan had breached his employment duties by knowingly allowing his son Adam Duggan, in April 2005, to impose a 30% profit mark-up on Sunvic generators to be supplied to Elfving to be made by some person other than the plaintiffs.

On 31 March 2005, Elfving requested information from Paul Duggan about Sunvic generators. By that date the share sale deed had not yet been executed but it had been agreed that Paul Duggan would sell his shares in the plaintiffs to Thomas Beerens and Windtest for $4.5 million. The request on 31 March 2005 from Elfving came by email from Antti Berkan referring to a Sunvic brochure and, amongst other things, asked to be sent a price list for the products. The plaintiffs concede that Sunvic was never part of the plaintiffs’ core business but it is clear that the plaintiffs had sought to sell such products. It is common ground that they did sell generators at least until April 2005, although the plaintiffs may never have sold any single generator with the Sunvic brand name. Nonetheless, they did attempt to do so, and did so to the knowledge of Paul Duggan. More importantly, however, whether that product range was or was not successful, the email request from Elfving to Paul Duggan on 31 March 2005 plainly sought details of items in a brochure produced for the plaintiffs and requested samples and a price list from the plaintiffs. Elfving was a customer of the plaintiffs at the time and the email is fairly to be regarded as an opportunity for the plaintiffs’ benefit.

The email request from Elfving was referred by Paul Duggan to Dean Stubbs who at the time was the plaintiffs’ product manager. Dean Stubbs had been a school friend of Adam Duggan and commenced employment with the plaintiffs in early 2001. In about mid‑2001 he became the product manager for the plaintiffs. He resigned on 27 July 2005 and his last day at work was on 17 August 2005.

On Tuesday, 5 April 2005, Dean Stubbs sent an email to Paul Duggan setting out the answers to the questions which had been asked by Antti Berkan. A copy of that email was also sent to Adam Duggan. On 10 April 2005 Paul Duggan sent an email to Adam Duggan with copies to Dean Stubbs and Kua Si Lin. Kua Si Lin, through his company Proline Private Limited (“Proline”), had been a commissioned agent for the plaintiffs since 1985. The initial connection between Kua Si Lin’s business and the plaintiffs’ business had been made between Kua Si Lin’s father and Jack Griffiths, one of two founders of the business. Kua Si Lin later met Paul Duggan when the latter was still an accountant in the plaintiffs’ business (as it then was) and over the years developed a close working, social, business, and family relationship.

The email which Paul Duggan sent on 10 April 2005 asked his son to answer Antti at Elfving, suggested that Dean Stubbs could help, and that Elfving could “deal direct with LiXia or KSL” and “pay them direct”. The reference to “KSL” is to Kua Si Lin and the reference to “LiXia” is to Li Xia who is the majority owner of a company which, at the time, had been a significant supplier to the plaintiffs, namely, Yangpu Dartong Industrial and Commercial Company Ltd (“Dartong”). On 11 April 2005, Adam Duggan sent an email to Elfving with the answers that Dean Stubbs had prepared together with the price list which had been requested. The price list marked up the cost price of generators by about 30% and indicated that orders could be placed through GB’s Chinese agent, Li Xia, or through Kua Si Lin (Proline). Thus, Elfving was being invited by the plaintiffs (through Adam Duggan) to obtain product directly through Dartong (the manufacturer) or Kua Si Lin (the commissioned agent) rather than the plaintiffs. The plaintiffs’ involvement (through Adam Duggan) had apparently come to an end, but a 30% mark‑up on prices was quoted. The oral testimony of Thomas Anderson (on behalf of Elfving) was that no purchases were made of the product and, indeed, that it was never his intention to purchase Chinese made generators through the plaintiffs. However, from the plaintiffs’ point of view, the opportunity presented by the enquiry by Elfving on 31 March 2005 had been dealt with by suggesting to the potential customer that orders be placed other than through the plaintiffs.

The plaintiffs contended that this profit was to be enjoyed by Adam Duggan upon the hypothesis that it would be he, rather than the plaintiffs, who would benefit by any sales. I accept that the response to Elfving from Adam Duggan had the effect of diverting an opportunity away from the plaintiffs. In April 2005 Adam Duggan purported to impose a profit mark‑up of 30% on the Sunvic generators to be made by some unidentified person other than the plaintiffs. In August 2005 Adam Duggan resumed contact with Elfving for the supply of Sunvic generators for the benefit of the proposed new business that soon after became that of Jak Max.

The Elfving request on 31 March 2005 was for information from Paul Duggan (on behalf of the plaintiffs) about Sunvic generators. It was he who referred the query to Dean Stubbs to answer. It was Paul Duggan who on 10 April 2005 forwarded the email from Dean Stubbs with the attached pricing spreadsheet to Adam Duggan and sent a copy of his email to Dean Stubbs and to Kua Si Lin. It was Paul Duggan who asked Adam Duggan to answer Elfving and to tell them to deal directly with Li Xia or Kua Si Lin and “pay them direct”.

The email sent on 11 April 2005 by Adam Duggan to Elfving with the answers proposed by Dean Stubbs and price list (marking up the cost price of the generators by about 30%) was not for the benefit of the plaintiffs. I infer, as the plaintiffs contended, that any profit from the transaction was not intended to be realised by the plaintiffs but to be realised by the Duggans, Kua Si Lin or Li Xia. I do not accept the defendants’ explanation that the dealing was intended to assist Elfving. The most effective way to have assisted Elfving would have been for Paul Duggan to have instructed Adam Duggan to provide Elfving with the contact details of the supplier. Moreover, there would have been no need for Adam Duggan to set a price. Indeed, on 12 April 2005 Antti Berkan replied to Adam Duggan specifically stating that he did not have contacts with “Lixia” and asked Adam Duggan if he could pass on the order to her. There was no evidence that he passed on Li Xia’s contact details to anyone at Elfving. The suggestion that Elfving could deal directly with Li Xia or Kua Si Lin and pay them direct indicates that the plaintiffs were to be excluded from the transaction both in bringing it about and in receiving payment. The 30% profit mark‑up was, therefore, to be received by someone other than the plaintiffs.

Paul Duggan denied that there would have been a profit in the transaction, but that denial is contrary to my reading of the emails and I do not accept the denial. On 12 April 2005 Elfving sought three samples. They were not provided between April 2005 and mid‑August 2005. Ultimately, Elfving did not follow through with the generators through Jak Max, the plaintiffs or anyone else. This may be relevant to any quantum of damages or to an account of profits but not to whether there was a breach of duty. I reject the denial by Paul Duggan that he was involved in any way or paid attention to the transaction. In cross‑examination Paul Duggan sought expressly to distance himself from involvement in or knowledge of the dealings between his son, Dean Stubbs and Elfving, but it is clear from an email dated 26 April 2005 from father to son about the subject matter of Sunvic generators for Elfving that Paul Duggan did pay attention to the matter. Indeed, on the very next day Adam Duggan emailed his father on the same subject matter specifically asking that he (Paul Duggan) deal with the matter with Dean Stubbs because he, Adam Duggan, would be away until the following week.

(b) Establishing a business in competition with the plaintiffs

The next claim against Paul Duggan was that he breached his duties of employment as director of the plaintiffs by taking steps against their interests to establish or to assist Adam Duggan to establish a business in competition with the plaintiffs. The evidence, if not the particulars, relevant to this allegation overlap with at least one of the other allegations the plaintiffs make against Paul Duggan. The pleading in paragraph 8(b) of the second further amended statement of claim is that Paul Duggan wrongfully “took steps against the interests of the plaintiffs to establish or to assist Adam [Duggan] to establish a business in competition with the plaintiffs”. Paragraph 14(b) alleges against Paul Duggan a breach of the restraint given by him under the share sale deed as being that he had wrongfully “been involved in a business that is the same or is substantially similar to the Business” of the plaintiffs.

(i) Jak Max (M) Sen. Bhd

The first of the particulars relied upon against Paul Duggan in support of the allegation that he took steps against the interests of the plaintiffs “to establish or to assist Adam [Duggan] to establish a business in competition with the plaintiffs”, is that on or about 27 April 2005 he formed, or assisted with the formation of, Jak Max (M) Sen. Bhb., a company registered in Malaysia, to compete with the plaintiffs. The defendants maintain that the striking similarity in name between the Malaysian company and the second defendant was a “mere coincidence”. I assume that the coincidence asserted on their behalf was intended to extend as to a coincidence of name, date and location: the “Jak” in the name of the second defendant is a combination of the first letters of the given names of each of Paul Duggan’s three children (John, Adam and Kylie), and Maxwell (for which “Max” might be thought to be a common abbreviation) happens to be Paul Duggan’s middle name; Malaysia is a country with which Paul Duggan had a connection (it appears that he owned an apartment in Kuala Lumpur); and 27 April 2005 is, of course, within the month of the email concerning the Elfving requests about Sunvic generators. However, the only evidence about this matter ultimately came from the examination‑in‑chief of Paul Duggan by his counsel. In that evidence Paul Duggan denied any knowledge of the Malaysian company or of its directors or of what the company does. He was not, as counsel for the defendants pointed out in their written submissions, cross‑examined on this evidence and no other witness gave evidence on this subject. The plaintiffs’ written submissions expressly state that they did not pursue this particular and, counsel for the defendants submitted that “there is no evidence on which the Court could conclude [that] the allegation is made out”. I doubt this to be correct but, despite my considerable reservation about the reliability of the evidence of Paul Duggan, I will proceed upon the assumption that the particular is not relied upon by the plaintiffs and that, therefore, I do not need to decide whether Paul Duggan formed or assisted with the formation of the Malaysian company with a strikingly similar name to that of the second defendant in a place in which Paul Duggan had an apartment at about the same time as Adam Duggan was writing to a customer suggesting that the customer should deal direct with Li Xia or Kua Si Lin.

(ii) Bigpond email account

There were other particulars set out under this allegation which were also not pursued by the plaintiff. The particulars which were pursued by the plaintiffs were largely concerned with the creation and use of what was said to be a secret email account of Paul Duggan to gain advantage for himself or for one of the other defendants.

The significance of the email account needs to be understood in the context of the circumstances in which Paul Duggan, and not Thomas Beerens, came to be selling the shares in the business. The share sale deed was not made until 22 April 2005 but it was known to the parties by mid‑February 2005 that Paul Duggan would, eventually, leave the business. There was at least some, if not considerable, surprise about this outcome because there had been some expectation that it would be Paul Duggan who would acquire the interests of Thomas Beerens rather than vice versa. However, the offer made by Paul Duggan on 3 February 2005 was one which, as had been agreed between them that it should, permitted Thomas Beerens either to sell or to buy upon the terms of the offer. On 3 February 2005 Paul Duggan made three alternative offers in writing to Thomas Beerens. The first was that he would buy the shares held by Thomas Beerens for $4.5 million; the second was that Thomas Beerens could buy his shares for $4.5 million; and the third was that he would take ownership of GB Products and that Thomas Beerens would take ownership of GB and Somers (with some adjustments). On 10 February 2005 Thomas Beerens, perhaps to the surprise of many, accepted Paul Duggan’s offer to sell his shares.

Not long after the “informal” agreement for Thomas Beerens to buy Paul Duggan’s interest in the plaintiffs, the former arranged for his brother‑in‑law, Mark Gwynne, to be engaged by the plaintiffs as a consultant. Mark Gwynne commenced acting as a consultant to the plaintiffs on or about 14 February 2005 (only some four days after Thomas Beerens had accepted Paul Duggan’s offer). Initially the role for Mark Gwynne was to prepare a business plan for the business, to assist Thomas Beerens and the plaintiffs with obtaining finance to purchase Paul Duggan’s shares, and to assist in the appointment of a new CEO to replace Paul Duggan. A business plan was prepared some time in March and April 2005.

Paul Duggan had started working for GB in 1974 as the company accountant. The business had been founded in 1959 with the incorporation of GB by Jack Griffiths and Neil Beerens. It started as a manufacturer of chainsaw guide bars for sale in Australia and subsequently grew through expansion and the acquisition in the mid‑1980s of Somers (a sprocket manufacturing company) and GB Products (then called Chainsaw Products Pty Ltd), a distributor of chainsaw accessories and equipment. In mid‑1978 Neil Beerens bought Jack Griffiths’ shares in GB and appointed Paul Duggan as the general manager. Neil Beerens also gave Paul Duggan 10% of the shares in GB, and in January 1980 Paul Duggan was appointed a director of GB. After the acquisition of Somers and GB Products in the mid‑1980s, Paul Duggan had become a director of those companies and owner of 40% of the shares in GB, Somers and GB Products. In 1993 he also became a director of GB Accessories at its incorporation. In 2000 Paul Duggan purchased a further 5% of the shares in the plaintiffs and from that time he owned 45% of the shares in each of the plaintiffs, 5% in his own name and 40% in the name of his family company, Garcia Duggan. From 1980 until 29 June 2005 he was the managing director and international sales manager of the plaintiffs’ business.

Thomas Beerens is the son of Neil Beerens. He graduated from the University of Melbourne with a Bachelor of Engineering degree in 1987 and started work for GB as an engineer assisting his father in late 1987. From about the early 1990s, Neil Beerens gradually transferred ownership of his shares in the plaintiffs to his son, Thomas Beerens. In 1999 Thomas Beerens became a director of each of the plaintiffs and by about 2000 he owned 55% of the shares in the plaintiffs, 5% in his own name and 50% through his family company, Windtest.

From about 2004 the relationship between Paul Duggan and Thomas Beerens deteriorated, coinciding with Thomas Beerens playing a more active role in the management of the plaintiffs’ business. In late 2004 Thomas Beerens told Paul Duggan that he wanted to introduce more formal planning into the management of the business. A good deal of the evidence showed that there was substantial disharmony between Paul Duggan and Thomas Beerens in connection with the business by late 2004. In January 2005 Paul Duggan indicated that he may make an offer to buy out Thomas Beerens’ interest in the plaintiffs. In either January or early February 2005, Thomas Beerens told Paul Duggan that any offer to buy the shares should be made on the basis that Thomas Beerens could either sell his own shares or buy Paul Duggan’s shares at the same price per share. It was on that basis that the offer was made on 3 February 2005 and accepted on 10 February 2005 by Thomas Beerens to buy rather than to sell.

The circumstance that Paul Duggan had become bound to sell his shares and to relinquish his role in the business, was not by any desire, or intention, he had to retire. Indeed, not long after reaching the in principle agreement in mid‑February 2005 for him to sell his shares, Paul Duggan planned to start a business of his own and discussed with Thomas Beerens the possibility of a limited restraint that would allow him to start a business of his own supplying spare parts for chainsaws, lawn mowers and other small engines. Ultimately that was not included in the share sale deed because the parties could not reach agreement on the wording of a limited restraint that would satisfy each party.

It was in that context that Paul Duggan began to use an email address other than the one at the plaintiffs. There was considerable evidence given about the email account set up for Paul Duggan which the plaintiffs described as “secret” and which the defendants described as “a common bigpond address”. Little turns on the use of the adjective “secret” since the critical question is whether the establishment and use of the email address without the knowledge of the plaintiffs (and in that sense “secret”) was relevantly a step against the plaintiffs’ interest to establish or to assist Adam Duggan to establish a business in competition with the plaintiffs.

Some time in March 2005 Paul Duggan’s other son, John Duggan, opened the bigpond email account for his father. It is probable that this occurred after 29 March 2005 being the date on which Paul Duggan purchased four Dell computers. It was not until the end of March 2005 that Paul Duggan’s plan to start a business of his own supplying spare parts for chainsaws, lawn mowers and other small engines was no longer open to him in negotiations with Thomas Beerens. The plaintiffs contended that the establishment and use of this email address was evidence of Paul Duggan’s intention to correspond either in relation to his proposed business in spare parts or a business in competition with the plaintiffs.

The need for Paul Duggan to use or access his bigpond account until completion of the share sale deed in July is, even upon his evidence, curious. It was his evidence that he was only able to access his bigpond account from home, or from the house next door which he also owned, and not from his office at the plaintiffs’ premises. Paul Duggan was employed at the plaintiffs until the date of the completion of the share sale agreement in early July and, therefore, had no compelling need to use the home office email account rather than his GB email account. Until the establishment of the bigpond account it seems that Paul Duggan never had any email account other than the one at work. However, in March 2005 Paul Duggan set up a home office from which he could operate a business; he acquired computers, and had his son John Duggan establish the bigpond email account. It is clear that Paul Duggan notified some people of his bigpond email account, including Chris Fehn, by about April 2005. Chris Fehn, at the time, was employed by GB America (then a company within the plaintiffs’ corporate group) as international sales manager. He had held that position from April 2001 until 20 April 2007 when GB America was sold to an unrelated third party. It is also clear that Paul Duggan did not give a general or circular notification of his bigpond email address, and at no time informed any of the plaintiffs of its existence.

I accept the submission made on behalf of Paul Duggan that the establishment of an email address cannot, of itself, constitute a breach of Paul Duggan’s employment duties and that there was no legal basis upon which Paul Duggan was under an obligation to disclose to the plaintiffs the fact that he had a private email address. I accept that Paul Duggan was entitled to establish a personal email address and that he was especially able to do so in circumstances where his role at the plaintiffs was being reduced. These submissions, however, fail to deal with the point of the allegation, namely, that the use and establishment of the bigpond email address was a step in an activity in breach of his duties to the plaintiffs.

Chris Fehn was given Paul Duggan’s bigpond email address and was using it to communicate with Paul Duggan at a time when the latter was still employed by the plaintiffs and his GB email account. On 25 May 2005, Chris Fehn sent an email to Paul Duggan at the latter’s bigpond email address referring to a then recent trip and asking for confirmation that the email address was the correct one. Paul Duggan had then recently travelled to America and the tenor of the email suggests that Chris Fehn had been given the bigpond email address personally in May in America rather than by other email correspondence from Paul Duggan. Later on the same day Chris Fehn wrote to Paul Duggan at his bigpond email address discussing what, on its face, could have been innocuous business with Paul Duggan on behalf of the plaintiffs. What is curious about this, however, is that Paul Duggan was, at the time, still with the plaintiffs, continued at the time to have his office, continued at the time to have his GB email address and (as Paul Duggan himself said in evidence) could only access his bigpond address from home.

The content of the email is also curious given that it was about the retention by Chris Fehn of an interest in a new company in China in relation to sabre tooth blades; something which might more naturally be of interest to the ongoing managers of the plaintiffs rather than the outgoing one. The email related to sabre tooth blades which was a product that GB used to sell. Chris Fehn was proposing that a business be set up in China and wanted to receive 50% of anything that might be made through that venture. In May 2005 Paul Duggan’s future role with the plaintiffs was, at best, going to be as a consultant. This was known both to Paul Duggan and to Chris Fehn. Paul Duggan may then still have been managing director of the plaintiffs’ business, and if Chris Fehn needed the plaintiffs’ approval for his plans, it may be that Paul Duggan was the person who was then still formally able to give their approval. It is, however, curious that a matter Chris Fehn thought sufficiently important to raise with the plaintiffs was done only with the outgoing managing director at the latter’s “non plaintiff” email address with no mention, reference or copy to the ongoing managers and owners.

Chris Fehn sent a third email on 25 May 2005 to Paul Duggan at his bigpond account. This one related to an opportunity to supply or to continue supplying bar and chain combinations to a company called Qualitas. Apparently there had been some discussion in Las Vegas between Chris Fehn, Paul Duggan and a man from Qualitas known as Roberto. Some product was needed by Qualitas which, in the usual course of events, would have been supplied directly by GB America without reference to the plaintiffs in Australia. This email to Paul Duggan, however, concluded with the curious words that the 16 inch bars were needed “immediately so I [Chris Fehn] will quote regular channels”. Paul Duggan gave no explanation for the remark and Chris Fehn’s evidence was, in effect, that by “regular channels” he meant the stock of bars on hand at GB America. So much may be accepted and still be left wondering why the email was sent to Paul Duggan at his bigpond address. In my view the establishment and use of the bigpond email account was a step by Paul Duggan in breach of his duties to the plaintiffs. The correspondence with Chris Fehn was one instance of that.

(iii) Sample guide bars to Wang Wei Ming

The next particular relied upon under this heading is the supply by Dean Stubbs of sample guide bars to Wang Wei Ming in April 2005 under instructions from Paul Duggan to enable Wang Wei Ming to manufacture them. Wang Wei Ming was the managing director of Qirui Tools in Hang Xiao in China. Qirui Tools manufactured, and continues to manufacture, laminated guide bars and components for guide bars for the plaintiffs. The sending of sample guide bars had been the subject of correspondence between Paul Duggan and Wang Wei Ming on 9 December 2004 and 22 January 2005. Those dates were before any acceptance by Thomas Beerens to buy Paul Duggan’s shares. I accept that at that date the suggestion about the sending of sample guide bars was for the benefit of the plaintiffs in Paul Duggan’s role as managing director of the plaintiffs at the time. On 22 January 2005 Paul Duggan wrote to Wang Wei Ming saying, in part, that “more bars and drawings” would be sent to him to quote on. Thomas Beerens, however, was reluctant to send the drawings to Wang Wei Ming and said in evidence that he informed Paul Duggan of this expressly in early 2005. His reason, understandably enough, was that the designs took time to develop and he was reluctant for the information to become generally available.

Drawings, however, were sent to Wang Wei Ming in April 2005 after the “in principle” agreement by which ownership and management of the plaintiffs was to be relinquished by Paul Duggan. Whatever Paul Duggan’s view about the desirability of sending the drawings to Wang Wei Ming in December 2004 or January 2005, by mid‑February it was clear that his view was unlikely to represent the long term view or interests of the plaintiffs. Indeed, as I have said, it was Thomas Beerens’ evidence that he had informed Paul Duggan of his opposition to the sending of drawings to Wang Wei Ming. The drawings were, nonetheless, sent. The evidence of Dean Stubbs was that there was a meeting in early 2005 attended by him, Nick Loschiavo and Paul Duggan at which, according to Dean Stubbs, he suggested sending samples and that everyone agreed to that suggestion. The “agreement” of Thomas Beerens was, according to the evidence of Dean Stubbs, that he took Thomas Beerens to have agreed from the fact that Thomas Beerens did not tell him not to send the sample bars. Paul Duggan gave evidence that the sample bars were packaged in a prominent place in the factory and therefore that Thomas Beerens knew that the sample bars were going to China because of the discussions. Thomas Beerens’ evidence was that he was not told that Dean Stubbs was intending to send sample guide bars to Wang Wei Ming and that he was not told that he had done so.

In relation to this matter I prefer, and accept, the evidence of Thomas Beerens. He denied having had discussions with Dean Stubbs, Nick Loschiavo and Paul Duggan about the possibility of sending sample bars to Wang Wei Ming. Nick Loschiavo gave no evidence of an alleged meeting and, if it be necessary, I would infer from the lack of evidence from him on that point that his evidence would not have assisted the defendants. Paul Duggan gave no detailed evidence about a meeting or discussion or recollection of any unequivocal statement by Thomas Beerens indicating his consent to the sending of drawings to Wang Wei Ming.

Dean Stubbs was the only person who referred expressly to a meeting and, at its highest, his evidence about consent by Thomas Beerens depends upon an inference of consent from a lack of objection to Dean Stubbs at the proposal to send the bars to China. I have found the evidence of Dean Stubbs largely unreliable (for reasons which I will explain later) and on almost any point of contest between his evidence and that of any other person, I have come to prefer the evidence of the other person. It was not put in cross‑examination to Thomas Beerens that he knew that Dean Stubbs was sending sample guide bars to Wang Wei Ming and his consent is inherently unlikely. Paul Duggan knew that Thomas Beerens was opposed to sending drawings to China. It is, therefore, inherently unlikely that Thomas Beerens would allow sample bars to be sent instead of drawings. Thomas Beerens’ evidence was that sending sample bars was a worse option than sending drawings and that he did not consider it desirable. His evidence, as may be self‑evident, was that to ensure quality of Chinese manufacturing, it was in GB’s interest to provide drawings where needed for production rather than rely upon reverse engineering from samples. Sending samples, where there were drawings, made little sense and, it was Thomas Beerens’ view that reverse engineering from samples was undesirable and to be avoided.

The “evidence” of Paul Duggan concerning the packaging of the bars is an insecure foundation upon which to draw inferences against Thomas Beerens. There was no evidence given that Thomas Beerens actually witnessed the sample bars being packaged nor any evidence that he would have recognised a package as one containing sample guide bars to be sent to Wang Wei Ming. Nor was it put to Thomas Beerens that he did, or must have, witnessed the samples being packaged in the factory, either generally or specifically, for sending to Wang Wei Ming.

The significance of this issue may be seen in the correspondence in April 2005 with Wang Wei Ming leading, as it is alleged, to the first Jak Max order numbered JM0001. On 6 April 2005 Dean Stubbs sent an email to Wang Wei Ming telling him that on that day he sent 36 different guide bars and that Paul Duggan would discuss these with him on his “upcoming visit”. A note made by Wang Wei Ming’s secretary in April 2005 listed a series of parts which were sent from GB. On 31 August 2005 Jak Max placed an order with Dartong for a series of products by reference to part numbers that are similar to those apparently received by Wang Wei Ming. The defendants’ submissions note that only one of the bars listed in purchase order JM0001 is “the same” as the 36 sample bars sent to Wang Wei Ming on April 2005. That may be, however the fact that only one may have been ordered is hardly an answer to whether the samples had been sent as part of the preparations for subsequent production and availability.

The sending of the sample bars for a purpose other than the plaintiffs’ business may also be inferred from the evidence of Wang Wei Ming concerning his cancellation of a proposed visit to travel to Australia. In June 2005 Wang Wei Ming had received an invitation from Paul Duggan to travel to Australia for the purpose of learning the technical know‑how behind manufacturing pro bars. He gave evidence that he subsequently cancelled his visit because “at that stage the company had been separating” and that it was inconvenient for him to visit GB under those circumstances. I accept the plaintiffs’ contention that there was no reason for him to cancel his trip because of a concern of “separation” of GB if the purpose of his visit had been to learn the technical know‑how behind the manufacturing of the bars; that is, if his role in the production of the bars was at all times for GB, then the departure of Paul Duggan from GB would have presented no relevant occasion for him to cancel a visit. It was not put either to Thomas Beerens or to Mark Gwynne that it was an inconvenient time for them to receive Wang Wei Ming as a visitor to the factory. Indeed, Mark Gwynne gave evidence that he was not even aware that Wang Wei Ming had been invited to visit. On 16 June 2005 Wang Wei Ming wrote to Paul Duggan enquiring about the letter of invitation which had, at that date, not yet arrived. Paul Duggan wrote back the following morning saying that it had been sent the previous week but that another would be sent. In July, Paul Duggan emailed Wang Wei Ming giving him his email address specifically requesting that the GB email address be deleted and, the following day, expressly asking that no further emails be sent to him at GB or to the old email address. Subsequently, meetings were arranged between the two, and with Li Xia, in September in China.

(iv) Email to Dartong

The plaintiffs next point to an email of 25 May 2005 from Paul Duggan to Dartong requesting that Dartong “be patient for the moment”. It is the plaintiffs’ contention that these words ask Dartong to be patient while a business was set up in competition with the plaintiffs. The defendants contended that the words “please be patient for the moment” meant nothing more than that everything would be alright in the context of an engineer, a man called Jun, who was leaving Dartong to start a business of his own.

The email from Paul Duggan dated 25 May 2005 to Dartong had “business” as its subject matter. It was sent in response to an email from a person called “Joan” who at the time worked at Dartong. Her email was sent on 23 May 2005 and also had as its subject matter “business”. The primary wording of her email was directed to how Dartong might seek to secure business from a company called Stens who, she feared, would be contacted by the departing purchasing colleague, Jun, and who might supply Stens with products that Dartong had exported to GB before. In that context Joan expressed some uncertainty about how “to cooperate with GB in the future” given that it was now “in a precarious status [sic]”. Paul Duggan’s response included an expression of sympathy about Jun having left and disappointment if he tried to “steal” Dartong’s business. It also noted that GB would “still be buying all the products” from Dartong and requested that those products not be offered to any other customers like Stens. He then said that when next in Shenzhen he would be able to help Dartong with new customers and, therefore, “please be patient for the moment”.

It seems to me that either of the two contending readings of Paul Duggan’s email of 25 May 2005 is reasonably open. Which of them is the correct one depends upon a broader context. I do not think the reading contended for by the plaintiffs should be preferred if I were to confine my attention solely to the text of the two emails. Indeed, their contention fundamentally depends upon the hypothesis that there had already been discussions with Dartong about future business involving Paul Duggan. I think that was likely and therefore do not accept the evidence of Paul Duggan that the words “please be patient for the moment” meant nothing more than that everything would be alright for Dartong without reference to some prior knowledge of an intention to secure supply from Dartong for a business other than for that of the plaintiffs. In that context the opening words of the email from Joan to Paul Duggan remarking on not having heard from him “for a long time” is I think, to be seen as an enquiry into how previously discussed plans were developing.

(v) Poulan email

The last of the particulars relied upon under this heading is an email dated 8 June 2005 from Kua Si Lin attaching a file of the “Poulan” products price list which Paul Duggan then forwarded to his sons Adam Duggan and John Duggan, and also to Dean Stubbs. The significance which the plaintiffs put upon this email, and attached price list, is that its contents were of no use to the plaintiffs’ business but shed light on the intention and actions of the defendants, and others said to be assisting them, as at early June 2005.

Poulan is a large manufacturing company in the United States of America. It makes ride‑on mowers, lawn mowers, tillers, trimmers, blowers, snow throwers and chainsaws. Poulan products were not sold by the plaintiffs in June 2005 but Jak Max did ultimately receive supply of some push mowers and ride‑on mowers.

The first step in the chain of emails occurred when Kua Si Lin sent an email to Paul Duggan attaching the Poulan price list. That was on 8 June 2005 and the importance was described as “high”. Kua Si Lin gave evidence that from time to time he received Poulan price lists and that in the ordinary course of business, when he received such price lists, he would always update his friends all over the world and routinely sent this sort of pricing compilation to a number of his contacts in the industry. That evidence is to be assessed in light of the fact that Kua Si Lin has had a long and intimate knowledge of the plaintiffs’ business as its commissioned agent for very many years.

The email sent by Kua Si Lin to Paul Duggan was an individual one to him and not an email sent to many people. Perhaps nothing should be made of that circumstance other than to note that it was not on its face sent by Kua Si Lin to his contacts generally or to a group of them. In any event, what happened next was that Paul Duggan at 7.41 am on 9 June 2005 forwarded the email to Dean Stubbs, Adam Duggan and John Duggan. Twenty five minutes later John Duggan sent the email to himself at his own bigpond email address.

The defendants contended that this email is not pleaded as a diversion of a corporate opportunity and that for a variety of reasons it could not be construed as a breach of any employment duty. The submission, however, misconceives the plaintiffs’ pleading. The email is relied upon as a particular of the taking of steps against the interests of the plaintiffs “to establish or to assist Adam [Duggan] to establish a business in competition with the plaintiffs”. The point, therefore, is not whether there was a diversion of a corporate opportunity or a breach of employment duty by the email, but rather, whether it sheds light on conduct as early as 8 June 2005 indicative of the establishment of a competing business which the defendants contended did not occur (assuming that the business of Jak Max may be regarded as competing) until September 2005 at the earliest. I accept the plaintiffs’ submission in this regard.

The email, as I have said, was sent by Paul Duggan to, amongst others, his youngest son John Duggan who emailed it to his own bigpond email address. John Duggan was employed by the plaintiffs from about mid-2003 and his last position was in telephone sales for GB products. He is the youngest son of Paul Duggan and Violetta Duggan and was about 20 years old in 2005. He joined GB in about mid‑2003 on a casual basis and commenced full time employment only in January 2005 for GB products as part of the telephone sales team. He had previously had an “assignment” in America for six months which, on his own evidence, was “more fun than business”. He returned from America in December 2004 and began his first fulltime job in January 2005. Paul Duggan said that his son John was one of the recipients of the email as part of the general circulation of such a price list as simply the information process that was done by many people around the world. However, by June 2005, there had already been in circulation an organisational structure proposed for the business (from at least 21 May 2005) which identified others within the plaintiffs structure to whom the Poulan list should have been sent either by Paul Duggan or by any of the other three recipients. It was not sent to Mark Gwynne who was known to be taking over as the chief operating officer from Paul Duggan and identified in the organisational structure as the team leader for the sales division of the business.

I do not accept the evidence of Paul Duggan that the receipt of the Poulan price list, and more importantly its subsequent distribution by Paul Duggan, was no more than the circulation of generic information regularly sent to people. If that was so I would have thought that Paul Duggan would have included others in the plaintiffs’ organisation to send on the information. Indeed, if the information were of a kind which a man in his position would regard as sufficiently appropriate for him to receive and then to send on, I would expect that he would have sent a message to Kua Si Lin to indicate that any such future general information for the plaintiffs should be forwarded to others at GB. I accept the plaintiffs’ further submission that there was no reason whatsoever to include John Duggan in the “clan of people” to whom information of this kind should have been forwarded at that time. He was hardly part of the established “clan of people” and to the extent that Paul Duggan turned his mind to who else should have been added to the distribution list of information of this kind, he seemingly, and strikingly, failed to include any of the people within the plaintiffs’ proposed new organisational chart who, like he in the past, might have benefited from receipt of such information on behalf of the plaintiffs.

Although the plaintiffs’ business did not include the sale of Poulan products (a fact which may be assumed to have been known to Kua Si Lin), Kua Si Lin did have a number of ride‑on mowers sitting on the docks in the United States which ultimately came to be made available for sale by Jak Max in Australia. The ride‑on lawn mowers had been ordered by Kua Si Lin in early 2005 and were to be shipped from the United States to China but got held up in the United States by local Customs officials. The reason for this was not fully explored but appears to have been due to some error which caused the American Customs officials to think that the mowers were being shipped to Cuba rather than to China. In any event, the delay in shipment to China meant that they would not reach China in time to be sold for the relevant season in China. Kua Si Lin’s evidence was that he originally expected that the goods would reach China by July. He did not concede that he knew by early June that the Poulan ride‑on mowers would not reach China in time for the Chinese summer of 2005 (namely, June to August), but by early June he must have had at least some doubt about when they would reach China and may reasonably have begun to explore other options to offload a shipment of goods that might, if not would, not reach their intended market by the intended time. Kua Si Lin did say that the transit time from the United States to China was about two to three weeks and that the unloading of goods through Customs in China takes a few days to a week. On that evidence alone the best that he could have expected in early June was that the ride‑on mowers he had ordered at the beginning of the year for China would, at best, reach its intended destination well into the Chinese summer.

In these circumstances I accept the plaintiffs’ submission that Kua Si Lin sent the price list to Paul Duggan in an email marked as of “high” importance to have the Poulan ride‑on mowers sold in the Australian summer of 2005-2006. I do not accept either his evidence or the evidence of Paul Duggan to the contrary. The two are close friends and have been so for very many years. The evidence is that Kua Si Lin has been a supporter of Jak Max and, if that evidence is to be accepted at face value, he has been the provider of finance to enable Jak Max to trade. The balance sheet for Jak Max as at 30 June 2006 shows Kua Si Lin as its largest unsecured creditor ($296,876) after a commercial bill from its bank. I do not accept his evidence as that of a disinterested party and regard his evidence on this point as inherently unlikely in view of the facts as they were at the beginning of June 2005 and as they subsequently transpired.

In fact Jak Max ultimately did receive supply of Poulan mowers. Adam Duggan’s evidence in this regard was that Jak Max took these mowers only as a favour to Kua Si Lin and that in the ordinary course of business Jak Max would not have placed an order for the three containers of Poulan mowers. The evidence of Nick Loschiavo was that the Poulan mowers were placed outside the premises for sale to anyone who drove down the street. Only one or two were sold in December 2005 and of the total value of goods, of about $90,000, the gross profit made by Jak Max from the shipment was only between about $20,000 to $22,000. Whether or not the transaction was a success is, in my view, not to the point. What is to the point is that by June 2005 the probabilities were that, at the very least, Paul Duggan was taking steps to establish or to assist Adam Duggan to establish a business contrary to the interests of the plaintiffs and contrary to their assertions to the contrary.

The defendants point to two tax invoices from Proline (Kua Si Lin’s company) to Jak Max to demonstrate that some of the Poulan mowers which were purchased by Jak Max were not listed on the price list that had been sent in the email to Paul Duggan. I do not regard that submission as relevant to the contention as pleaded or put. It matters not whether there were some items sold to Jak Max that were not on the price list or that the plaintiffs never sold Poulan products or ever intended to sell them. What is relevant is that by June 2005 steps were being taken to establish a business and that however marginal to that business (or however marginal to direct competition with the plaintiffs’ business) those products might have been, steps were taken in early June 2005 to establish a business.

(vi) Breach of duties

The conduct I have described above is alleged by the plaintiffs to be a breach by Paul Duggan of his employment duties causing damage to the plaintiffs or through which Paul Duggan has made a profit. The pleading of employment duties makes clear that three separate bases in law are relied upon by the plaintiffs: contractual terms of employment; the fiduciary relationship between Paul Duggan and each of the plaintiffs (fiduciary duties); and the duties imposed by ss 182 and 183 of the Corporations Act 2001 (statutory duties).

There is no doubt that Paul Duggan owed duties to the plaintiffs of the kinds alleged in the statement of claim. The enquiry thus to be undertaken is whether the conduct I have described amounts to a breach of any one or more of the duties and, if so, whether it has caused loss or damage to the plaintiffs. Although three different bases are relied upon, there is substantial overlap between them. Paul Duggan was a director of each of the plaintiffs during the time of the events to which I have referred. As a director he had strict fiduciary and statutory duties[1]. The main function of duties imposed upon a director is to ensure the loyalty of directors to their company[2]. The standard of loyalty required of a director is reflected in both positive and negative obligations. Section 182 of the Corporations Act2001 provides, amongst other things, that a director must not improperly use his or her position either to gain an advantage for himself, herself or someone else, or to cause detriment to the corporation. Section 183 provides, amongst other things, that a director who obtains information because they are or have been a director must not improperly use that information to gain a like advantage or cause a like detriment.
[1]Butterworths, Ford’s Principles of Corporations Law, vol 1 (at Service 45) Part III The Law of Corporate Governance, ‘Chapter 8, Acting Property and with Care’ [8.010].
[2]Ibid, [8.015].

The meaning of improper use has been considered in several cases including Chew v The Queen[3] and R v Byrnes[4]. In Byrnes it was said:

Impropriety does not depend on an alleged offender’s consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case.[5]

It does not matter that the advantage may not have been available to the plaintiffs[6]. Critically what is to be enquired into is whether Paul Duggan’s behaviour breached the norm of conduct thought necessary for the proper conduct of commercial life so that people will have confidence that the running of the marketplace is in safe hands[7]. In my view he has done just that: whilst still director of the companies Paul Duggan was actively involved in assisting in the creation of a business using in that endeavour his position as director of the plaintiffs and information he was obtaining in that capacity.

[3](1992) 173 CLR 626.

[4](1995) 183 CLR 501.

[5](1995) 183 CLR 501, 514-515 (Brennan , Deane , Toohey and Gaudron JJ).

[6]Warman International Ltd v Dwyer (1995) 182 CLR 544, 558; Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672, 692-3 (Spigelman CJ).

[7]ASIC v Vizard (2005) 54 ACSR 394, 402 (Finkelstein J).

(c) Breach of restraint and share sale deed

What is next pleaded against Paul Duggan is that he was in breach of various provisions under the share sale deed, the confidentiality deed and, in particular, in breach of the restraint given by him to the plaintiffs under cl 13 of the share sale deed. These pleadings, although separate, overlap substantially as did the respective submissions in final address. The parties’ submissions followed an agreed template for final addresses and submissions. I will follow the order of the template as adopted in the submissions in dealing with these allegations.

(i) Legal principles

Clause 13 of the share sale deed contained a restraint of trade given by the people described as the “sellers”, namely, those identified in Item 5 to Schedule 1, that is, Paul Duggan and Garcia Duggan (the latter both in its own capacity and in its capacity as trustee of the Duggan Family Trust).

The restraint clause given by Paul Duggan in the share sale deed was preceded by specific negotiations and discussions. The minutes of a meeting of directors of GB dated 25 January 2005 recorded that Paul Duggan intended to make an offer to purchase Thomas Beerens’ shares. The minutes recorded Paul Duggan’s explanation based upon a comment by Thomas Beerens that the latter intended to withdraw from the company in three to five years and that, in those circumstances, it might be appropriate for Paul Duggan to make an offer to purchase Thomas Beerens’ shares. The specific matters referred to in the minutes as relevant to the proposal included “different management styles of Tom and Paul, the ownership of the new factory, and the loan accounts of Neil and Paul”. The minutes also recorded Paul Duggan’s feeling that the business required one shareholder and that in his opinion the existing scenario could not continue because the environment was “not conducive to good cooperation and [was] leading to the confusion of staff”. The minutes recorded a request to the company’s accountants, Overmans, to provide a valuation and strategy whereby one “partner” could buy out the other. A “valuation” (of sorts) was prepared by Overmans and on 3 February 2005 Paul Duggan made an offer which, as had been agreed, provided for Paul Duggan to make an offer to buy out Thomas Beerens’ interest (direct and indirect) and vice versa.

On 10 February 2005 Thomas Beerens accepted the alternative offer to purchase the interests of Paul Duggan (direct and indirect). In the third paragraph of Thomas Beerens’ letter of acceptance there was reference to it being made on the understanding that they would then prepare a formal written agreement “including a restrictive covenant”. On the very next day Paul Duggan wrote to Thomas Beerens indicating that his offer did not involve “a restrictive covenant either way” and stated that it was never his intention that that would be the case. That communication went on to suggest that Thomas Beerens was not really accepting the offer but was rather making an alternative offer. It went on to indicate, however, that Paul Duggan would consider what he described as the alternative offer if Thomas Beerens could provide the “precise terms” of the restrictive covenant sought.

On 14 February 2005 Thomas Beerens replied to Paul Duggan taking issue with the 11 February 2005 communication and stated, in relation to the proposed restraint, that:

In my layman’s terms, you cannot be paid for your interest in the business but take away the right to set up a rival business. Otherwise there is no point in paying you for your share of the good will.

Obviously, I do not seek to restrain your ability to work in the future should you so desire, simply to protect what I have paid for.

On 9 March 2005 Thomas Beerens wrote again to Paul Duggan. It is obvious that there had been some further discussions after this correspondence and, it seems, there was some agreement about how matters stood as at 9 March 2005. In any event, as at that date Thomas Beerens set out his position concerning any limitation to a general restraint of trade covenant. In paragraph numbered 3 of a letter from Thomas Beerens to Paul Duggan the former indicated his willingness to agree to an amended or limited restrictive covenant to the effect that Paul Duggan would have the right to engage in industries or fields which would be in competition with the plaintiffs, namely, “lawn mower engine parts and chain saw engine parts, but not otherwise”. The letter went on to assert that “obviously” Paul Duggan could not engage in these activities whilst working for the plaintiffs without the written consent of Thomas Beerens.

Also on 9 March 2005 John Morrow, solicitor, wrote to both Paul Duggan and Thomas Beerens confirming his instructions to act for the former and Garcia Duggan. John Morrow had been a solicitor for the plaintiffs from time to time and in his letter of 9 March 2005 expressed his discomfort in acting for both parties and confirmed that he would proceed to draw the sale of shares agreement on the basis that he was acting for the sellers and that Thomas Beerens and his company would be seeking separate and independent legal advice. It was John Morrow, as solicitor for the sellers (including Paul Duggan), who drafted the proposed contract with the restraint of trade clause albeit not in the exact form in which the share sale deed was ultimately executed.

On 6 April 2005 John Morrow wrote to Keith Hoban, the solicitor who was then acting for Thomas Beerens (and, it seems, all parties other than the sellers), and (in a lengthy and detailed letter) touched upon the position in relation to the restraint clause. In paragraph 15 of the letter from John Morrow to Keith Hoban, the former, as solicitor for Paul Duggan and Garcia Duggan, set out that what had been agreed between the parties was that any restraint was to be quite specific as a restraint “on the sale of the products sold by the company as at the time of the agreement, being the catalogue items only”. John Morrow went on to explain that for this reason the agreement was quite specific in its terms. One of the other matters considered in the correspondence between the solicitors was the possible acquisition by Paul Duggan of the business name “Sunvic” which Mr Beerens did not agree to and which did not occur. It will be remembered, of course, that it is at about this time that there occurred correspondence between Paul Duggan and Antti Berkan concerning Sunvic generators which, in evidence, Paul Duggan sought to minimise in significance.

In any event, by 22 April 2005 formal agreement was reached between the parties, each having separate legal representation, with the final document including a restraint of trade provision but no exception to permit Paul Duggan to engage in the limited competition which Thomas Beerens had previously indicated he would accept. The reason being that final agreement on the formulation of the exception was not reached.

The restraint provision in clause 13 of the deed of sale provided that the sellers, that is Paul Duggan and Garcia Duggan, could not be involved in any way in the retail or wholesale sale of what were described as the catalogue items in a schedule to the share sale deed, or, except as provided, be involved in any business that was the same or substantially similar to the businesses (as defined) within a period of two years anywhere in the world. The defendants contended that, as a matter of construction, clause 13 of the share sale deed was unenforceable as being an unreasonable restraint. They also contended that the defined sense of the words “involved in any way” restricted the meaning to give to those words, and that the plaintiffs are not, as a matter of construction, entitled to enforce clause 13 because its provision was given for the benefit of Thomas Beerens and Windtest only.

Clause 13 provides:

13. RESTRAINT OF TRADE

(a)The Sellers must not be involved in any way in the retail or wholesale sale of the Catalogue Items described in Item 6 of Schedule One or, except as herein provided, be involved in any business that is the same as or is substantially similar to the Businesses (“Competing Business”), within the time period and within the territory specified in Item 7 of Schedule One without the prior written consent of the Buyers.
“involved in any way” includes being involved in the business alone or as a partner, manager, agent, clerk, or assistant of any person or corporation, or as a director or a majority shareholder or shareholder who has the capacity to exercise substantial control of any corporation.

(b)The Seller, if a corporation, must ensure that each officer, majority shareholder or shareholder who has a capacity to exercise substantial control of the corporation enters into a written agreement with the Buyers in the same terms as the restraint of trade in 12 (a) hereof and produce such written agreement by no later than the Completion Date.
(c)The Sellers will not, within the time period and within the territory specified in Item 7 of Schedule One, without the prior written consent of the Buyers:
i.canvass, solicit, induce or encourage clients, customers or current suppliers of the Companies to leave the Companies with a view to obtaining the custom of that person in a Competing Business;
ii.canvass, solicit, induce or encourage employees to leave the Companies with a view to being employed by the Sellers or their Related Entities;
iii.interfere in any way with the relationship between the Companies and their clients, customers, suppliers or employees.

(d)This restraint of trade provision is for the benefit of the Buyers, their legal personal representatives and transferees, and the Sellers acknowledge that each restriction is in the circumstances reasonable and necessary to protect the goodwill of the Companies.

A restraint clause is, in my view, to be interpreted like any commercial agreement giving the words and their operation a reasonable and common sense interpretation. Fundamentally the task of construction is one of ascertaining the intention of the parties and of applying that intention[8]. Reading a restraint “in a sensible fashion”[9] will involve avoiding unreasonable constructions and unreasonable applications of them. Similarly, if the language of a provision is open to two constructions, a court should prefer the one which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust[10]. But, in the end, my task is to determine the true intention of the parties and to give effect to that intention to the extent to which the law allows.
[8]Upper Hunter County District Council v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429, 437 (Barwick CJ).
[9]Rentokil v Lee (1995) 66 SASR 301, 305 (Doyle CJ).
[10]Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99, 109 (Gibbs J).

I do not accept that this restraint, which operating upon Paul Duggan worldwide, was too wide to be enforceable. The defendants sought to make some point of the proposition that “the Plaintiffs sold product into only 46 countries” (my emphasis) and, therefore, that it has not been shown that the plaintiffs “have an interest in a business worldwide” (my emphasis). The 46 countries referred to are in addition to Australia (thereby making a business of “only” 47 countries) and were in every continent in the world (except the two polar caps), and included the United States of America, China, countries in Europe, countries in South East Asia, Argentina, and very many more. The parties agreed (as a matter of evidence) that as at 22 April 2005 and 29 June 2005 the world had a total of 191 countries. A comparison of the list of 191 countries with the list of the 47 countries in which the plaintiffs had an interest to restrict competition, in my view, makes good the proposition that a worldwide restraint upon Paul Duggan was justified in this case.

The reasonableness of a restraint requires a consideration of how the restraint will operate both by geography and time. In Fitch v Dewes[11] Lord Birkenhead LC said:

But it is to be noticed here, as has been said in more than one of the earlier cases, that guidance may be derived in dealing with a restriction relating to time from an examination of the restriction which is made in respect of space. And the converse remark is of course equally true. For instance, if the restriction in respect of space is extremely limited, it is evident that a very considerable restriction in respect of time may be more acceptable than would otherwise have been the case.[12]

In this case the two year restraint period is quite short. Paul Duggan had been in business for the plaintiffs since 1974 and, in a real and substantial way, came to embody the goodwill of the plaintiffs’ business. He was the managing director and the person responsible for international marketing and contacts. He travelled overseas for three to four months each year over 25 years in that role for the plaintiffs and in the course of his employment, developed extremely close links with some the plaintiffs’ suppliers and customers, including Kua Si Lin, Dartong, Speed France and Elfving. He also developed close relationships with the plaintiffs’ commissioned agents and the management and employees of GB America. He was uniquely placed to be able to damage the plaintiffs’ business spanning as it did 47 countries (including Australia) covering what may be regarded as essentially the industrialised world. The dealings between GB (in Australia) and Elfving (in Finland) via the emails to which I have already referred is but one example to illustrate the point. The actual penetration of the plaintiffs into America and the intimate dealings with major industrialised countries in Europe as well as China and South East Asia clearly established for the plaintiffs a link significantly identified with Paul Duggan which the plaintiffs, as a group, wished to preserve upon his departure.

[11][1921] 2 AC 158.

[12]Ibid, 163; see also 168 (Viscount Cave).

It is not necessary for the plaintiffs to establish that its business was carried on in every part of the world in order to justify its restraint[13]. In this case the reasonableness of the worldwide restraint can be seen by the breadth of the area legitimately to be protected throughout the world. That is, that the 47 countries in which the plaintiffs did trade represented a substantial part (if not most) of a truly worldwide business.
[13]Connors Brothers Ltd v Connors [1940] 4 All ER 179, 194 (Viscount Maugham); Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd [1894] AC 535.

The defendants next contended that the specific definition of the phrase “involved in any way” in clause 13(a) had the effect of both defining and confining the expressions “involved in any way” and “involved in”. I do not accept that construction because if, for no other reason, the defined phrase expressly uses the word “includes”. The ordinary and natural meaning of the word “includes” is to ensure that something is within a class or phrase in case it might not otherwise have been there or, perhaps, to remove doubt. I can see no reason to give the word “includes” the restrictive and unnatural construction for which the defendants contended. The word “includes” is a standard word well recognised amongst the drafters of legislation, instruments and contracts as generally used to enlarge the meaning of a word or expression described[14]. There may be circumstances where the word “includes” should be read more narrowly but I cannot see in this case any reason why I should exclude from the meaning of the words “involved in any way” anything which would ordinarily come within that phrase.
[14]Cohns Industries v Deputy Federal Commissioner of Taxation (1979) 37 FLR 508, 510 (Young CJ, Starke and Gray JJ).

I also reject the defendants’ argument that the restraint cannot be relied upon by the plaintiffs; that is, that it cannot be relied upon by any contracting party other than Thomas Beerens and Windtest. The argument here depends upon the meaning and effect of clause 13(d), which is said to sever any consideration that might have moved from the plaintiffs for the goodwill, and, it is said, to make clear that it was only the buyers (that is, the executing parties excluding the plaintiffs) for whose benefit the restraint of trade provision existed.

Whatever the effect of clause 13(d) may have been intended to have, I cannot read it as a limitation on the right in the plaintiffs to sue upon the share sale deed. The giving of the restraint may well be for the benefit of the buyers, and of the others identified in clause 13(d), but it was given under the share sale deed without restriction. The insertion of clause 13(d) may have been no more than an attempt to overcome the inevitable legal conundrum arising when shares are traded between shareholders in a company for a price which includes the value of the goodwill owned by the company itself. In Pioneer Concrete Services Ltd v Galli[15] Brooking J said:

Where the sale of a business carried on by a company is effected by means of a sale, not of the business itself, but of the issued capital of the company, it is commonplace for businessmen and their advisers to require that promises on the part of the vendors be given, not only to the purchaser, but also to the company whose shares are the subject of the sale. This is done, in part at all events, in an endeavour to avoid difficulties which may arise in relation to damages if the business is injured or found to be less valuable and the only covenantee is, not the owner of the business, but the parent of the owner.[16]

What clause 13(d) does, in my view, is simply effect, for completeness and prudence, the other side of the coin described by his Honour. In this case clause 13(d) sought to ensure that the buyers (that is, Thomas Beerens and Windtest) could sue and recover damages notwithstanding that any damage might be suffered by the company whose shares had been sold (that is, the plaintiffs). Here the promise is given as a covenant under seal[17]. That clause 13(d) identifies the person for whose benefit the covenant may be given does not prevent it from being a covenant given to all of the parties to the share sale deed. Furthermore, the construction urged upon me by the defendants would have the entirely capricious and absurd (not to say unjust) result that the plaintiffs (whose goodwill is sought to be protected) would be the only legal persons who would not be entitled to enforce the restraint. Ordinarily a director or shareholder of a company operating a business has no proprietary interest in the business and therefore lacks the interest that a covenantee must have to justify enforcing a restraint provision[18].

[15][1985] VR 675.

[16]Ibid, 693.

[17]David Securities v Commonwealth Bank of Australia (1992) 175 CLR 353, 363 (Mason CJ, Deane , Toohey , Gaudron and McHugh JJ).

[18]Aloha Shangri-la Atlas Cruises Pty Ltd v Gaven [1970] Qd R 438, 448 (Wanstall J); Berry v Wong [2000] NSWSC 1002, (Unreported, Young J, 16 October 2000) [11], [28], [40].

A number of other construction arguments were put on behalf of the defendants in support of the proposition that clause 13 of the share sale deed was unenforceable as an unreasonable restraint of trade. Specifically it is said that the sum paid for the shares of Paul Duggan and Garcia Duggan were wholly referrable to the value of real property, plant and machinery and the first defendant’s loan account, and included no component referrable to goodwill. It is also said that the sale of chainsaws, lawn mowers, brush cutters and large 500 KVA generators cannot breach the restraint when the plaintiffs did not sell such products.

I accept the plaintiffs’ submission that it is wrong both in law and in fact to contend that the sale price was based on the value of property, plant and machinery and Paul Duggan’s loan account and not on account of goodwill. The plain terms of the share sale deed make it clear that a restraint was required to protect goodwill and the consideration was not made specifically referrable by the share sale deed to items excluding goodwill. There is no foundation to construe the share sale deed in any way that would justify a conclusion that no part of the consideration was referrable to the goodwill. At best, and only by reference to extraneous material, the defendants might conceivably establish that the consideration was inadequate for all that was secured upon payment of the consideration for the purchase of the shares, but the question for me is not the adequacy of the consideration but rather whether I should conclude that there was insufficient consideration to enable the covenant to be enforced. Clause 13(d) specifically provided that the parties agreed that the restraint clause was “reasonable and necessary to protect the goodwill of the Companies” (my emphasis).

A consideration of the evidence apart from the share sale deed, however, leads to the opposite conclusion to the one contended for by the defendants. It was Paul Duggan who set the sale price and there was no evidence of the basis of his calculation of the price nor that he communicated a basis of the price to Thomas Beerens. The parties may have had different views about the value of the goodwill and of the other assets of the business. Thomas Beerens and Windtest paid Paul Duggan and Garcia Duggan $4.5 million for their combined 45% interests in the plaintiffs. That effectively valued the plaintiffs at $10 million. According to the plaintiffs’ balance sheets as at 30 June 2004, their total net assets were only $6,344,427. The plaintiffs also paid to Paul Duggan a number of other benefits under the share sale deed, including the transfer of a golf club membership, the transfer of ownership of three cars and the payment of the lease and transfer of a Porsche motor vehicle. No formal valuation of the plaintiffs’ business was undertaken prior to the price being set by Paul Duggan. Such “valuation” as was prepared by Overmans in late January 2005 was very general. However, the “valuation” (such as it was) was undertaken on alternative bases. One basis was on net assets as per the balance sheet; but the other basis was upon a capitalisation of the value of the business calculated by reference to the expected return on investment (and thus including some value for goodwill) plus the value of land surplus to production requirements. The alternative bases both produced figures over $11 million with an overall valuation of the average of the two methods at $11,185,714. There is, therefore, in my view, no foundation to say that the amount paid was not in fact referrable to goodwill; the evidence is rather to the contrary.

The defendants’ assertion that the restraint is unreasonable because the plaintiffs did not sell chainsaws, lawn mowers, brush cutters and large 500 KVA generators may also be dismissed as a response to a misunderstanding of the plaintiffs’ claim. I do not understand the plaintiffs to have alleged that the sale of those items was a breach of the restraint but, rather, that an allegation that Paul Duggan’s involvement in the Jak Max business is evidenced in part by his involvement in correspondence about such products.

I am left with no doubt that the drought had an impact in reducing the plaintiffs’ sales of their products. They admitted in their submissions that it is impossible to accurately quantify the extent to which the sales were reduced by reason of the drought. Nonetheless they contended that the evidence allows a rough estimation to be made of an impact of not greater than $200,000. They contended that the drought affected only the Australian GB products business and that that business was seasonal, with sales of chainsaw parts and accessories made mainly in winter, and with sales of brush cutter and lawn mower parts and accessories mainly in summer. The drought, on this view, affected the lawn mower and brush cutter part sales considerably more than the chainsaw parts. In the 2006 financial year it is said that there was little difference in the percentage loss of sales between the two categories. The total GB products sales fell by 16.1% while sales of brush cutter products fell 5.2% and the sales of lawn mower products by 17.8%. The drought did affect their sales in the 2007 financial years. In that year the total GB products sales fell by 15.9% while the sales of brush cutter products fell 34.6% and the sales of lawn mower products by 43.2%. The total dollar value of the loss of sales between 2006 and 2007 for both lawn mower and brush cutter products was $585,000, being 43% of the total lost sales for GB products. In 2005, lawn mower and brush cutter sales represented 22% of total sales. Assuming, therefore, that without the drought there would have been no difference between chainsaw products and lawn mower and brush cutter products, the total loss due to the drought would be about $292,500. To that figure, however, I was told that I should take into account the impact of the drought on aqua spikes. I was told that in times of drought the plaintiffs’ sales of aqua spikes increased. In the 2007 year the sales of aqua spikes increased by $180,000. If 2005 is taken as the appropriate base, aqua spike sales increased by $95,000. It is by that calculation that the plaintiffs estimated that the impact on the plaintiffs’ sales of the drought could be no greater than about $200,000.

The defendants undertook a different calculation with a different end result. They also point to the impact of the drought upon the plaintiffs’ sales of lawn and brush cutter related products. They said that this had an impact since 30 June 2005 and not only from after the subsequent financial year. They pointed to the products contained in the blue and dark green sections of the GB catalogue and noted that the value of the decline of brush cutter sales between 30 June 2005 and 30 June 2007 was calculated to have been $300,000. The value of lawn mower product sales declined on one calculation during that same period by $489,000.

Two other factors are admitted (in my view correctly) by the plaintiffs as having an impact upon their profitability which were described as “staff relations” and “exodus of staff”. The plaintiffs attempted to link the impact of these factors to the wrongful conduct of the defendants, but the evidence points to much deeper problems within the plaintiffs’ business that was unrelated to the defendants’ conduct. The departure of Paul Duggan from the plaintiffs’ business would probably always have had a significant impact on the fortune of the plaintiffs. Even Thomas Beerens described the strengths of Paul Duggan as being in “sales and leadership”: his departure was, therefore, always likely to have an impact on the plaintiffs’ business.

The assumption of managerial control by Thomas Beerens and Mark Gwynne had a significant detrimental effect on the plaintiffs’ business in many ways. Ros Ferguson gave some illustrations of the negative impact of the new management following the departure of Paul Duggan. She had been employed as the receptionist and invoice clerk for GB Products for about eight years until April 2006. She first tendered her resignation from GB Products in December 2005 but was persuaded to stay on in the expectation that things might improve. Her account of the work environment after Paul Duggan’s departure was of management making deleterious decisions which might have seemed rational in theory or in abstract, but which failed to take account of the reality of the business needs and practises of the plaintiffs as they had developed over many years. One management decision had been to move the sales team into a different building, making her role as invoice clerk inefficient and difficult. Her role, as invoice clerk, included sending out invoices, controlling stock and processing the invoicing for the sales representatives. She also took and processed orders placed by telephone and helped out in the finance department. She enjoyed her work until Paul Duggan’s departure in a place that had a system that seemed to have been governed by the actual needs and practises of the business rather than by theoretical considerations of how they might work better in abstract.

At some stage Ros Ferguson learned that the sales staff were to be moved to a different building from the one in which she worked. She learnt this secondhand and assumed that it was a decision made by Mark Gwynne, who by then was the CEO. A consequence of the decision was that wrong products were being delivered to customers and that some products were being delivered to the wrong customers. A reason for that seems to have been that the change in location had an impact upon the way in which the paperwork for orders was managed. Under the old system one of her tasks had been to match the internal paperwork with sales orders sent by fax. A fax would arrive with an order which would be stapled to the back of the internal order or have some annotation made to it. The order received from the customer would thus be kept with the sales order produced for the internal purposes of the plaintiffs. Under the new systems created by management, orders arrived to a printer and stored separately from the sales orders so that the necessary paperwork was not matched. Orders sent to her arrived without any way of her being able to check whether the goods sent were those ordered. An example she gave was that many customers had different delivery addresses so that without what she described as a backing sheet she could not tell which state in Australia the goods were intended for delivery to the customer. Under the old system she would always check the back of the sales order and would be able to intercept any wrong product or wrong delivery address before the goods were sent. Thus, in one instance, a customer who had warehouses in Western Australia, New South Wales and Victoria ordered goods which were sent to the wrong state. Ros Ferguson was not able to quantify the increase in such occurrences after the commencement of the new system but identified it as “more often than it had ever” been before.

Another, and probably more serious, problem arose from a decrease in stock holdings which lead to an increase in back orders and an inability to supply upon orders. Thomas Beerens had wanted to reduce the level of stock, at least in some areas, and it is plain that the levels of stock did decrease after Paul Duggan left. A consequence, on Ros Ferguson’s evidence, was that some orders were not able to be filled immediately and that other orders could not be filled fully. Thus, customers were in part dissatisfied by an order not being met in the required time, and the plaintiffs’ business costs increased because there were more freight costs involved by filling an order by more than one delivery on the one order.

Ros Ferguson gave evidence about other matters relevant to the damages claimed by the plaintiffs which was corroborated by other witnesses who, like her, I accept to be reliable and truthful. There seems to have been a general feeling of concern amongst the plaintiffs’ staff when they learned that Paul Duggan was to leave. She described the work environment after his departure as “terrible”. She described, and others corroborated, a sense of insecurity of their employment positions (a circumstance which might perhaps easily have been allayed), and of customers being dissatisfied with the business then being offered by the plaintiffs. The new management had visions for the business to grow into one turning over $100 million per annum. Mark Gwynne produced a business plan to serve as a structure that might achieve the new long term vision and ambition of new management.

One direct and clear casualty of the new style of management was the departure of Steve Stannard who gave evidence for the defendants. Steve Stannard had been the general manager of GB Products and had occupied a senior managerial position. Thomas Beerens had identified him as a “key employee” who had been “head-hunted” in 2002 from a rival business, Bynorm, to develop the sale of lawnmower parts as an arm of the business. He had brought significant and important knowledge of the Australian lawnmower business to the plaintiffs which it did not previously enjoy. Ros Ferguson considered Steve Stannard to be a really good manager and a good “people person”. He included his staff in every aspect of what was happening in the business so that they knew what was going on. He was approachable and easy to talk to. He had a complete knowledge of the products and was well regarded by the sales team. However, he left GB Products, although not to work for Jak Max, but for another rival company, Gripske.

Steve Stannard impressed me as a diligent and reliable worker giving evidence impartially. He had feared that the new management structure, and the goals they were seeking to achieve, was “an attempt at setting unachievable goals for [him] to attain so that [he] might be sacked”. On no view of the evidence was Steve Stannard in any way involved with the defendants’ attempts to establish a new business. His reaction to events leading to his resignation in June 2005 is telling of the atmosphere which must have existed in the plaintiffs’ business as early as then. The new title he was offered by Mark Gwynne was one which he considered to be a demotion, coming not long after he had been asked to accept a reduction in pay (which he had not accepted). When asked why he left the plaintiffs, he said that he was scared that he was going to be sacked and did not want to be demoted to a position which he considered to be that of a glorified warehouse manager and felt that he was being threatened into signing a contract.

The loss of some customers was directly attributable to the change in management style, practises and procedures unrelated to the conduct of the defendants. Laurie Tickell was a sales representative for GB Products between 1989 and April 2007. His evidence was of a significant reduction in sales in his territory after Paul Duggan left for reasons which I cannot connect to the conduct of the defendants. The sales in his territory reduced between $50,000 and $100,000 in the period between 30 June 2005 and the end of March 2007. Two majors customers whose sales declined were Fitzgerald Motors and Bathurst Mowerland. The restructure in the plaintiffs separating the sales and warehouse staff led to a reduction in liaison between internal sales staff and external sales staff. Stock was not delivered when it was supposed to be delivered. There was an inability to secure stock for the customers being serviced by Laurie Tickell including small line products and after market parts for mowers. This obviously had a big impact in the territory he serviced in New South Wales where quick delivery was needed and could not be provided. Laurie Tickell’s evidence was that business he previously had for GB Products was being taken up by the local major opposition, Gripske. This was due to what he described as “ hiccups” in the plaintiffs’ warehouse in Melbourne, a lack of product knowledge in the sales team, low levels of stock held in the business making quick supply impossible. Such consequences are attributable to new management decisions.

Neville Lee-Archer gave evidence about the experience in his business. For some 27 years he has been involved in the wholesale supply to businesses in the powered lawn mowing and gardening industry. In the financial year ending 30 June 2005 his company purchased from GB Products chainsaw bars, chainsaws, saw chains and sprockets to the value of about $55,000. Two years later they were still purchasing products from GB Products but by 2007 it had gone down to $13,000 in value. A business decision was then made to exit what he described as the after market for some of the products he had previously sourced from GB Products. A factor in reducing the level of these purchases from GB Products was the perception of lack of support and inconsistency of supply by the plaintiffs. He gave evidence of placing orders and of being given a time frame for delivery that was either not met or too long for the customer. The departure of Dean Whitmore as a representative for GB Products meant that the Lee‑Archer business was not being serviced as well as it had been for very many years previously. According to Neville Lee‑Archer, he had known Dean Whitmore for many years and that the latter had made it a point to call in on a regular basis. Since Dean Whitmore’s departure he had not seen a representative from the plaintiffs for what he thought was about two years.

Bradley Baber was another former sales representative of GB Products in New South Wales. He was first employed in that capacity in 1992 and described his role as creating new business, maintaining existing business that GB Products already had, and selling products in outdoor power equipment to specialist dealers. He had about 250 dealers whom he had to service in his territory. From time to time he would need to telephone the plaintiffs to make enquiries about the products and would deal either with Paul Duggan or the telephone sales staff. Bradley Baber’s evidence was that after Paul Duggan left and Mark Gwynne took over the latter “changed the way that the whole company was going. He employed other people in the sales department that personally [he] didn’t think were suited to the position because of the way that they wanted to take the company.”

He gave an example of selling to a customer in New South Wales where, because of the distance, he needed to ring the then phone sales person (Leigh Meadows) to check some stock whilst he (Bradley Baber) was standing with a customer needing information. The response from Leigh Meadows was that he would ring him back the next day because he was then too busy. Naturally Bradley Baber, and representatives like him, would fail to secure sales when stock could not be checked, or stock could not be secured, or when it was uncertain whether stock was available.

He also had some dealing with Veronica Chua whom he described as not very helpful (a negative view about her abilities shared by Thomas Beerens and Mark Gwynne). Her role was as person in charge of the plaintiffs’ accounts after Paul Duggan’s departure and, in that capacity, adopted a practice which, according to Bradley Baber, which I fully accept, was neither helpful nor calculated to increase customers. His evidence was that she “made it impossible to open accounts and to get people to deal with” the representatives. He gave as one example a new customer who had no trading reference or trading history. Because of that she insisted that before opening an account she would need a credit card number, create a debit against the account, and only once that debit was processed would regard the person as a reliable credit risk. This requirement was imposed upon the prospective new customer notwithstanding the fact that the person’s family was known to Baber and had owned businesses in Newcastle before. Eventually an account was opened for this customer but only because Bradley Baber rang Mark Gwynne and “pleaded with him to give this guy an account” and “after a lot of pleading he [Mark Gwynne] did relent”.

He gave evidence of another customer who had been spending between $1,500 and $2,000 a month who also experienced a delay in the opening of an account. That customer would not agree to a $500 debit coming off a credit card and again, Bradley Baber sought the intervention of Mark Gwynne. He also gave evidence about complaints from customers about their dealings with GB Products account staff concerning what he described as “petty amounts”. Small amounts due to the plaintiffs under $100 might sometimes not be paid by customers until a subsequent month when other items would combine to increase the total amount for which a cheque would be written in payment. In some cases the plaintiffs’ new accounts staff would put these customers on “stop credit” preventing new parts being supplied to them with the consequence that customers would secure supply from other sources and, naturally, the plaintiffs would lose sales. One example he gave was of a certain David Jones who had been placing regular orders of about $1,000 to $1,500 who had been given a credit limit of $500 notwithstanding a pattern of trading for the preceding six years. The response of that customer was to cancel the order and he took his business elsewhere.

I do not attempt to recount all of the evidence about the loss of custom that I do not attribute to the wrongful conduct of the defendants. These examples illustrate the difficulty I have in being confident about the quantification of damage referable to what on some view might be regarded as well intentioned but ill‑informed management based upon theory and learning rather than practise and experience. Another major loss of business to the plaintiffs may have been due to the loss of the Carlton dealership, the seeds of which pre‑dated the creation of Jak Max and, I infer, pre‑dated even the contemplation of the departure of Paul Duggan.

Another impact on the plaintiffs’ sales was the unrelated and independent change of Oregon’s practice of selling its product in Australia which had the effect of substantially reducing the price of its competing Oregon bar. Glen Campbell was a purchasing officer for a Victorian business sourcing products of the kind sold by the plaintiffs. GB Products sold a bar and chainsaw bar at a price substantially lower than the equivalent Oregon bar which Glenn Campbell regarded as being of a better quality. Some time after 30 June 2005 Oregon’s practise of selling in Australia through a third party changed with the result that the Oregon product came down in price and some purchasers switched products from the GB product to the Oregon bar, which they considered better than the GB Products equivalent. The evidence of Glenn Campbell was that the impact of the change in practise by Oregon was that his purchases from GB Products were reduced by some 90%. In fact the figures appeared to be a drop from just under $52,000 in the 2005 financial year to just over $3,500 in the 2007 financial year.

These factors have an important impact upon the assessment of any damages claimed by the plaintiffs. It would be wrong to consider these factors as evidence of the plaintiffs being in the position of having suffered loss and damage which is impossible to ascertain in the sense in which that expression is sometimes used. It is sometimes the case that a person has suffered loss or damage but that that damage is impossible to ascertain. However, the existence of the factors which I have set out above do something more to the plaintiffs’ claim: they undermine the confidence with which to conclude that any diminution in the plaintiffs’ business was caused by or was referrable to any loss or damage caused by the wrongful conduct of the defendants. In other words, the existence of these factors do not simply point to the difficulty of ascertaining an amount but, more fundamentally, point to the breaking of a causal nexus between the loss and the breach.

I can readily accept that the conduct of the defendants has caused some loss or damage to the plaintiffs. Thus I accept that their conduct may have interfered with employees, suppliers and customers. I can also readily accept that the connection between Jak Max and Paul Duggan may have caused the plaintiffs to suffer a competitor that it would not otherwise have faced during the restraint period. I can even accept as a matter of general principle that the expected, natural and direct consequence of what happened to the plaintiffs’ business as a result of Paul Duggan’s conduct was a loss of sales. But the fact is that there are other supervening factors which are equally attributable to a loss to the plaintiffs’ business which may have occurred in any event.

The second of the two alternative bases on which I was urged to calculate the quantum of loss is one, therefore, which I am unable to adopt. Under it the plaintiffs claim $1,102,000 upon the assumption that the amounts I should allow as the loss attributable to other causes is $3,786,000 plus some such amount as I may determine for the loss referable to “staff relations” and “exodus of staff”. The evidence before me indicates that the impact of the change in management style was a significant contributing factor to a major loss suffered by the plaintiffs. Counsel for the plaintiffs candidly said that he was unable to assist me in determining what percentage I should attribute to those causes. Even a modest figure of 5% for each would wipe out the claim and I do not see how I could not allow an amount of at least 10% for what might be described as the consequence of unfortunate, if not bad, business practises upon a change of management. I also accept the submission of the plaintiffs’ counsel that I should also err on the side of caution in determining the amount attributable to the impact of the drought and the loss of customers so that, in the end, if I were to determine damages on the second basis urged upon me I would reduce the loss by estimating at least a combined 10% impact for “staff relations” and “exodus of staff” and would increase the quantum referrable to “drought” and “loss of customers” to the midway point between the amounts urged upon me by the plaintiffs and those urged upon me by the defendants. The net effect would be that no damages would be payable under this method of calculation.

The first basis upon which I was urged to calculate the loss has some merit. The theory behind it is an assumption that the measure of the plaintiffs’ loss is a proportion of the sales made by Jak Max to the former customers of the plaintiffs of products of the kind which they had been purchasing from the plaintiffs in the past. The most significant variable in its calculation by the plaintiffs is the assumption that 70% of the Jak Max sales would have been retained by the plaintiffs.

A 70% assumed retention is not appropriate in this case given the impact of the change to the plaintiffs’ management practises with its impact upon representatives. That was a significant factor and its impact would reduce the percentage of customers that I can safely assume that the plaintiffs would have retained. What that percentage should be is largely a matter of impression and on the material available to me I assess the negative impact of matters other than the defendants’ conduct upon the plaintiffs’ business to be more than 50% of any loss: that is, that the impact upon the plaintiffs’ business of its new management style and practises was a negative impact of more than half of what it lost. Erring on the side of caution, I will, therefore, assume that the plaintiffs would only have retained an amount of 45% of the sales which went to Jak Max during the 2006 and 2007 financial year. Assuming, therefore, the facts as set out above about the sales made by Jak Max to the former customers of the plaintiffs in respect of the products sold by the plaintiffs, I calculate that upon the assumption that the plaintiffs would have retained 45% of those sales, it lost sales to Jak Max of $103,348 in the 2006 financial year and $716,363 in the 2007 financial year. Applying the plaintiffs’ actual gross margin of 38%, the lost gross profit for the combined years is $311,490.52. From that I need to deduct the increase in variable costs of freight and discounts of some amount which, I assume, is some figure less than the 75% previously proffered by the plaintiffs. In fairness to the defendants I will assume the same figure giving a total loss of net profits of $236,490. However, I accept the plaintiffs’ submission that no further allowance is appropriate or needed for such matters on depreciation as had been made by the defendant’s expert (Mr Clovis Bonner).

D. Anton Piller order

The defendants’ counterclaim was for an amount of $91,104.18 due to Paul Duggan under the share sale deed and for damages for physical inconvenience, distress, vexation and humiliation arising from what they describe in their submissions as the execution of an Anton Piller order on the premises of Paul Duggan in a “high‑handed and unwarranted intrusion of a private home”. The first of the claims is admitted by the plaintiffs and Paul Duggan is, therefore, entitled to an order in the sum of $91,104.18.

On 31 October 2005 Whelan J granted an ex parte order upon counsel for the plaintiffs, on instructions, giving an undertaking to the Court that they would pay to the defendants any damages which the Court or a Judge may be of the opinion ought to be paid to cover any loss or damage sustained by reason of the order. In Columbia Pictures Industries v Robinson[69] Scott J said:

Damages for breach of a cross-undertaking ought, in my judgment, to be primarily compensatory. But I do not think, in the present case, that is the whole of the basis on which damages can be granted. It is well settled that an increased level of damages, sometimes described as aggravated damages, can be awarded where trespass to land or trespass to goods has been accompanied by circumstances of contumely or affront ... That has been so in the present case by reason, in my judgment, of the excessive and oppressive manner in which the Anton Piller order was executed. There is not, in terms at least, any claim for exemplary damages in the present case. One of the categories of cases identified by the judgment of Lord Devlin in Rookes v. Barnard [1964] A.C. 1129 in which exemplary damages may be claimed is that of cases which involve oppressive, arbitrary or unconstitutional action by servants of the government. Solicitors who execute an Anton Piller order do so, in important part, as officers of the court. It is the court which places them in a position to do that which would, without the court authority, be a flagrant and inexcusable trespass. They are placed in a position in which their actions are likely to cause shock, distress and often outrage to those against whom the orders are executed. If, in execution of these orders, they act outside the terms of the order oppressively or excessively, I am disposed to think that Lord Devlin would have included the case in the category to which I have referred.[70]

In that case Scott J ordered that damages of £10,000 be paid in damages by the plaintiffs to the defendants under the cross‑undertakings. That amount was, in effect, £2,500 to the company and £7,500 to Mr Robinson reflecting the fact that individuals are affected by contumely and affront whilst inanimate corporations are not.

[69][1987] Ch 38.

[70]Ibid, 87.

The decision was referred to with approval in Flocast Australia Pty Ltd v Purcell (No. 2)[71] where Heerey J added:

I do not think this Court should wash its hands and decline to adjudicate on the respondent’s complaint that the applicant abused the exceptional power which the Court gave it.[72]

In this case the defendants pointed to the matters which were put to Whelan J in support of the Anton Piller order which they say have been shown to be wrong. One matter which was put, and has since been found to be wrong, was an important element of the expert evidence given by Marco Gallichio suggesting that Paul Duggan’s email files had been overwritten. In subsequent expert evidence given to me by Marco Gallichio he accepted that there was no overwriting of emails and both he, and the expert witness called for the defendants on this point, both agreed that there was no overwriting of emails.

[71][1999] FCA 309 (Unreported, Heerey J, 31 March 1999).

[72]Ibid, [20].

In granting the order sought Whelan J said:

It is alleged against Mr Adam Duggan that he breached his duty of loyalty before he left employment by undertaking preparations to establish a competing business. The affidavits depose to a number of matters said to be relevant to this allegation. It seems to me that the material which is most compelling in this respect concerns the dealings with Elfving, a Finnish company interested in obtaining generators. It appears from the emails that have been produced to me that the business opportunity represented by this company’s interests was diverted from GB in a manner involving Mr Adam Duggan at a time when he was still employed by the plaintiffs or one of them.
There were other circumstances which also give rise to concern but the emails concerning the generators appear to me to establish the sort of strong prima facie case which is necessary before an order of this kind can be made.

It may be, as the defendants contended, that some of the material relied upon in support of the Anton Piller order was inaccurate or incomplete. However I do not find any of the material to have been inaccurate in any culpable sense. The evidence of Marco Gallichio explained any error in his conclusions by the limited information then available to him and the limited time he had to complete his tasks. He gave evidence as an independent witness with no interest in the outcome or in seeing either side prevail. His evidence was given fairly and helpfully and I accept that the material available to him at the time of the evidence given in support of the Anton Piller order honestly and fairly permitted him to reach the conclusions which he reached at that time. More importantly, the prima facie conclusion reached by his Honour concerning the Elfving emails, accords with my own conclusions after having heard all of the evidence. In the circumstances I do not find that the execution of the Anton Piller order was improperly sought, improperly obtained or improperly executed. I therefore dismiss the claim for damages. If, contrary to the view I reached on this matter, I had found that the claim had been made out, I would award only nominal damages of $1 in view of the conclusions I have reached more generally about the conduct and evidence of the defendants.

E. Orders

The parties have asked that I not make any cost order until they have had the opportunity to put other matters before me. The findings I have made, and the conclusions I have reached about damages, may also have an impact upon what, if any, costs should be awarded. In the circumstances, I will decline to order any costs until hearing further submissions from the parties. Those submissions should deal also with the potential application of r 63.23 Supreme Court (General Civil Procedure) Rules 2005.

The parties also agreed that any judgment order in favour of the plaintiffs should simply be set off by the amount admitted to be due to Paul Duggan. I should also add, for completeness, that I consider the separate liability of the defendants interwoven and impossible to disentangle. Accordingly, on the claim and counterclaim I will order that the defendants pay to the plaintiffs the sum of $145,385.82.

---

[2008] VSC 201

11 June 2008