Gunasegaram v Blue Visions Management Pty Ltd

[2018] NSWCA 179

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Gunasegaram v Blue Visions Management Pty Ltd; Blue Visions Management Pty Ltd v Chidiac [2018] NSWCA 179

Hearing dates:

16 and 17 November 2017

Decision date:

14 August 2018

Before:

Basten JA at [1]
Meagher JA at [52]
Gleeson JA at [82]

Decision:

CA 2017/168664 (Mr Gunasegaram’s appeal)

 

(1)   Appeal dismissed.
(2)   Appellant to pay the respondent’s costs.
(3)   Discharge orders (1) and (2) made by Leeming JA on 24 July 2017, staying the enforcement of the judgment in par 7 and the orders in pars 8, 9 and 13 of the Orders made on 10 May 2017 in proceedings 2014/192899.
(4)   Order that the amount of $400,000 paid into court by Mr Gunasegaram pursuant to order (3) made by Leeming JA on 24 July 2017 be paid out to Blue Visions Management Pty Ltd.
(5)   Grant liberty to apply, if necessary, to a single Judge of Appeal on 3 days’ notice in respect of the implementation of order (4) above.

 

CA 2017/168769 (Blue Visions’ appeal)

 (1)   Appeal dismissed.
(2)   Appellant to pay the respondents’ costs.

Catchwords:

EQUITY – fiduciary duties – conflict of interest and duty – where two senior employees give notice of resignation – where employer subsequently agreed to novation of part of existing contract with client to company in which the two employees had an interest – whether employees preferred their personal interests to the interests of their employer – whether employees improperly diverted part of their employer’s business when in a position of conflict
CORPORATIONS – Corporations Act 2001 (Cth), s 182 – whether employees improperly used their position to divert part of their employer’s business
PRACTICE AND PROCEDURE – pleadings and particulars – whether the defence of informed consent was properly pleaded – whether new point could be raised on appeal
EQUITY – fiduciary duties – breach – causation – whether sufficient causal relationship between the alleged breach of fiduciary duties and profit earned by employees in relation to new contract obtained after competitive tender process
TORTS – liability in deceit – whether employee found liable in deceit in respect of representations that were not pleaded or raised at trial
EQUITY – remedies – calculation of damages in deceit – whether errors in assessment of damages

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 100
Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law, s 18
Corporations Act 2001 (Cth), ss 79, 181, 182, 183, 1317E, 1317H
Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited:

Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507; [2005] HCA 23
Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347; (2016) 116 ACSR 566
Banque Commerciale SA (En liqn) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408
Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356; [2010] FCAFC 133
Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1; [2011] FCAFC 24
BLB Corporation of Australia Establishment v Jacobsen (1974) 48 ALJR 372
Boardman v Phipps [1967] 2 AC 46
Bolton Gems Pty Ltd v Gregoire (Supreme Court (NSW), Young J, 10 November 1995, unrep)
Bray v Ford [1896] AC 44
Breen v Williams 91996) 186 CLR 71; [1996] HCA 57
Brookfield Multiplex Ltd v Owners SP61288 (2014) 254 CLR 185; [2014] HCA 36
Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371
Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Chew v The Queen (1992) 173 CLR 626; [1992] HCA 18
Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25
Colour Control Centre Pty Ltd v Ty [1995] NSWSC 96
Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8
Cook v Deeks [1916] 1 AC 554
Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70
Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101
Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397
Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78
Duncan v Independent Commission Against Corruption [2016] NSWCA 143
Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21
Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 6
Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Grove v Flavel (1986) 43 SASR 410
Gunasegaram v Blue Visions Management Pty Ltd [2017] NSWCA 187
Hart Security Australia Pty Ltd v Boucousis [2106] NSWCA 307
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21
Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19
Keech v Sandford (1796) Sel Cas t King 61; (1796) 25 ER 223
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
Krupace Holdings Pty Limited v China Hotel Investments Pty Limited [2018] NSWSC 862
Kuringai Council v Chan [2017] NSWCA 226
Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26
Lifeplan Australia Friendly Society Ltd (ACN 087 649 492) v Ancient Order of Foresters in Victoria Friendly Society Ltd (ACN 087 648 842) [2017] FCAFC 74; [2017] 120 ACSR 421
Magill v Magill (2006) 226 CLR 551; [2006] HCA 51
Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987
Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68
Phipps v Boardman [1967] 2 AC 46
Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31
Queensland Mines Ltd v Hudson (1978) 52 ALJR 399
SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079
Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303; (2016) 114 ACSR 1
Tepko Pty Ltd v Water Board (2001) 206 CLR 1; [2001] HCA 19
The Queen v Byrnes (1995) 183 CLR 501; [1995] HCA 1
V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418; [2013] FCAFC 16
Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18
Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272
Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157

Texts Cited:

J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (5th ed, Lexis Nexis Butterworths, 2015) at [5-055]

Category:

Principal judgment

Parties:

2017/168664
Arun Gunasegaram (Appellant)
Blue Visions Management Pty Ltd (Respondent)

  2017/168769
Blue Visions Management Pty Ltd (Appellant)
Sam Chidiac (First Respondent)
Arun Gunasegaram (Second Respondent)
Aspire Corporation Pty Ltd (Third Respondent)

Representation:

Counsel:
2017/168664
Mr MR Hall SC / Mr WH Wu (Appellant)
Mr J Giles SC / Mr A Byrne (Respondent)

 

2017/168769
Mr J Giles SC / Mr A Byrne (Appellant)
Mr AJ McInerney SC / Ms EL Beechey (First and Third Respondents)
Mr MR Hall SC / Mr WH Wu (Second Respondent)

 

Solicitors:
2017/168664
Brown Wright Stein Lawyers (Appellant)
Somerville Legal (Respondent)

  2017/168769
Somerville Legal (Appellant)
Fox & Staniland Lawyers (First and Third Respondents)
Brown Wright Stein Lawyers (Second Respondent)

File Number(s):

2017/1686642017/168769

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity Division

Citation:

[2017] NSWSC 255

Date of Decision:

10 May 2017

Before:

Ball J

File Number(s):

2014/192899

HEADNOTE

[This headnote is not to be read as part of the judgment.]

Blue Visions Management Pty Ltd (“Blue Visions”) was engaged under a major contract with the West Australian Department of Treasury and Finance (via the Department of the Office of Strategic Projects) to provide it with programming services for the development of the Perth Children’s Hospital. Mr Chidiac, the third most senior employee of Blue Visions, was responsible for the management of that project. Mr Gunasegaram, the second most senior employee, had national responsibility for Blue Visions’ project and services area. In March 2014, Mr Chidiac and Mr Gunasegaram gave notice of their resignation.

On or about 25 March 2014, Mr Chidiac informed Mr Hamilton of Strategic Projects of his resignation. In response to Mr Hamilton’s question, Mr Chidiac indicated that he would be “interested” to continue to provide services on the project after his employment with Blue Visions ended. Mr Hamilton said he would look into it. On 30 March, Mr Gunasegaram advised Mr Parkhouse against nominating himself a potential replacement.

On 31 March, Mr Hamilton presented three options to Blue Visions’ managing director, Mr Khreich, to accommodate Mr Chidiac’s resignation: his immediate replacement with a strategic programmer of at least equal ability; termination of the contract; or a novation of the strategic programming component of that contract to Mr Chidiac. Mr Khreich agreed to the third option. Mr Khreich then informed Mr Chidiac of that decision. On 3 April 2014, Mr Chidiac and Mr Gunasegaram incorporated Aspire, becoming its sole directors and shareholders. The novation occurred on 15 April 2014, before Mr Chidiac’s notice period had expired.

Blue Visions commenced proceedings against Mr Chidiac and Mr Gunasegaram, alleging that by establishing Aspire and entering into the novation, they had breached their fiduciary duties, employment contracts and certain Corporations Act 2001 (Cth) provisions. Aspire was said to be liable as an accessory. Blue Visions also claimed that Mr Gunasegaram was liable for misrepresenting that he had secured a contract for Blue Visions to provide services to Woolworths for the rollout of the Masters hardware stores, leading it to unnecessarily retain staff and suffer loss.

The primary judge (Ball J) dismissed Blue Visions’ claim against each defendant in relation to the novation; and upheld the misrepresentation claim against Mr Gunasegaram insofar as it related to the Masters project, and accordingly ordered him to pay damages. Blue Visions appealed against the dismissal of its claims, and Mr Gunasegaram against his liability for his misrepresentations, and the primary judge’s quantification of damages.

The Court (Meagher and Gleeson JJA, Basten JA dissenting in part) dismissed each appeal:

Meagher JA and Gleeson JA dismissed Blue Vision’s appeal against Mr Chidiac:

1.    Mr Chidiac did not pursue any particular interest which could give rise to a real or sensible possibility of a conflict. His functions and responsibilities did not extend to considering whether all or part of the contract should be surrendered, or its benefit made available to him: at [72], [74] (Meagher JA); [222]-[224] (Gleeson JA);

2.    Mr Hamilton’s question posed on or about 25 March 2014 did not carry an opportunity capable of being pursued by Mr Chidiac. His truthful response did not advance the matter. Further, the benefit ultimately received depended on the concurrence of Blue Visions, which Mr Chidiac did not procure, or attempt to procure: at [70]-[71] (Meagher JA);

Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8; Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; Cook v Deeks [1916] AC 555; Keech v Sandford (1726) Sel Cas 61; 25 ER 223, considered.

3.    Mr Chidiac did not solicit work from, or make any commitment to, Mr Hamilton. Mr Chidiac left him to speak to Mr Khreich about the possibility that he would continue to work on the project. His answer reflected the commercial context that there were no post-employment restraints. He did not cause Aspire to enter into the novation until Blue Visions had agreed to it: at [194]-[196], [201]-[202] (Gleeson JA);

Cook v Deeks; Industrial Development Consultants Ltd v Cooley; Ex parte James (1874) 9 Ch App 609; Keech v Sandford; Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18; Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272, considered.

4.    Mr Chidiac did not breach Corporations Act, s 182(1). He did not misuse his position as an employee in responding to Mr Hamilton’s enquiry or in causing Aspire to enter into the novation: at [216]-[219], [228]-[231] (Gleeson JA), [80] (Meagher JA).

Basten JA held, in dissent:

5.    Mr Chidiac was in breach of his fiduciary duty and Corporations Act, s 182. He obtained the benefit of the very contract under which he had established the relationship with the third party, whilst a senior manager for his employer. Mr Chidiac’s conduct in making himself available to continue working on the project, though not as an employee of Blue Visions, resulted in Blue Visions losing that part of the contract which he was obliged to execute: at [27], [43] (Basten JA).

Cook v Deeks; Industrial Development Consultants Ltd v Cooley; Keech v Sandford, considered.

Gleeson JA (Basten and Meagher JJA agreeing) dismissed Blue Visions’ appeal against Mr Gunasegaram:

6.    Whilst advising Mr Parkhouse against proposing himself as a replacement for Mr Chidiac was a breach of fiduciary duty, there was no evidence that it had any effect on Mr Khreich’s actions. His act of obtaining advice concerning a corporate structure which may be used after his notice period expired did not amount to a breach of fiduciary duty: at [243], [245]-[247] (Gleeson JA).

Gleeson JA (Basten and Meagher JJA agreeing) dismissed Mr Gunasegaram’s appeal:

7.    The primary judge did not find Mr Gunasegaram liable in respect of misrepresentations that were not pleaded or raised at trial. Mr Gunasegaram was not denied natural justice; he was on notice in the pleading of the particular allegations of deceit and acts of reliance which he had to meet: at [298] (Gleeson JA).

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, applied.

8.    The primary judge did not err in his assessment of damages: at [316]-[351] (Gleeson JA).

Judgment

1. BASTEN JA: The circumstances of this appeal are fully recounted in the judgment of Gleeson JA, and indeed in the judgment of the trial judge, Ball J. [1] In brief, they concern the circumstances in which a project management contract being carried out by the appellant (“Blue Visions”) for the development of Perth Children’s Hospital came to be novated in favour of a third party, Aspire Corporation Pty Ltd (“Aspire”) established by two senior employees of Blue Visions, being Sam Chidiac and Arun Gunasegaram. Blue Visions claimed damages and an account of profits resulting from the novated portion of its contract. It invoked both breach of fiduciary duties owed by its senior employees to the company and improper use of position by each, in breach of s 182(1) of the Corporations Act 2001 (Cth). For the reasons set out below, in my view Aspire and Mr Chidiac were liable to account to Blue Visions for the profits derived from the novated contract. That was not the view taken by the trial judge; accordingly, I would allow Blue Visions’ appeal. To the extent the claim was based on the separate conduct of Mr Gunasegaram, I agree with Gleeson JA that that basis of the claim was not made out.

   1. See Blue Visions Management Pty Ltd v Chidiac [2017] NSWSC 255 (“Blue Visions Management”).

2. There was a second appeal arising out of a finding that Mr Gunasegaram made misrepresentations to Blue Visions in relation to other matters, as a result of which Blue Visions incurred wasted expenditure. The trial judge upheld Blue Visions’ claims in this regard and awarded Blue Visions damages of $1.4 million, in round figures. For the reasons given by Gleeson JA, I agree that Mr Gunasegaram’s appeal should be dismissed.

Blue Visions appeal – background

3. Mr Chidiac and Mr Gunasegaram were the senior officers of Blue Visions responsible for programming management on a project for the construction of Perth Children’s Hospital under the auspices of a Western Australian State Government agency referred to in the proceedings as “Strategic Projects”. Although formally Mr Chidiac reported to the managing director and founder of Blue Visions, Adel Khreich, Mr Khreich was based in Sydney and was not active in the management of the project. It was common ground that Mr Chidiac was responsible for managing Blue Visions’ team working on the Perth Children’s Hospital project. In that capacity he worked closely with the senior officer in charge of the construction for Strategic Projects, John Hamilton.

4. On 20 May 2010 the State accepted Blue Visions’ tender to provide programming services to Strategic Projects. The contract was for a period of three years with two options, each for a further year, both of which were exercised. Accordingly, the contract was due to expire on 20 May 2015, although work had not been completed at that time and a further tender was issued. [2] Although the contract in its original form provided for the employment of three consultants, up to six people worked on the project at any given time, and approximately 26 employees or consultants employed by Blue Visions worked on the project during the four years to March 2014. [3]

   2. Blue Visions Management at [72].

   3. Blue Visions Management at [53].

5. On 19 March 2014 Mr Chidiac gave Mr Khreich four weeks’ notice of his resignation from Blue Visions which would occur on 15 April 2014. He informed Mr Khreich that he was tired of travelling from Sydney to Perth and wanted to start a new business in Sydney. Mr Chidiac informed Mr Hamilton of his resignation no later than 26 March 2014. As the trial judge found:[4]

“Mr Chidiac says that during the course of their conversation Mr Hamilton asked him whether he was interested in continuing to assist with the project. Mr Chidiac replied in effect that he was and Mr Hamilton said that ‘I’ll go and look into it’. I accept that evidence.”

Mr Chidiac’s response to Mr Hamilton was inconsistent with the reasons given to Mr Khreich for his resignation, namely that he was tired of travelling from Sydney to Perth.

4. Blue Visions Management at [64].

6. On 28 March 2014, Mr Gunasegaram sent an email to Mr Khreich stating that Mr Hamilton, knowing of Mr Chidiac’s resignation, had put three options to Blue Visions, namely:[5]

“1.   Immediately produce a strategic programmer equal to or better than Sam [Chidiac].

2.   He [Hamilton] immediately terminates Bluevisions engagement at NCH for breach.

3.   Bluevisions agrees to novate the existing contract to remove strategic programming which he will give to another company and Bluevisions keeps the technical planning, design management and transition management roles.”

5. Blue Visions Management at [65].

7. After setting out the full content of the email, and expressing some doubts as to aspects of its contents, the trial judge found:

“The likelihood is that Mr Hamilton formulated the three options after speaking to Mr Chidiac and put those three options to Mr Gunasegaram, as the most senior executive in Perth, only to be told that Mr Gunasegaram had resigned. It was then that Mr Hamilton said that he wanted to speak to Mr Khreich.”

The trial judge continued:

“[66]   Mr Hamilton and Mr Khreich spoke on 31 March 2014. They give somewhat different accounts of the conversation. However, both agree that Mr Hamilton made it clear that he wanted Mr Chidiac to continue to work on the project and that he thought that Mr Chidiac’s departure would cause significant problems for the project. Both agree that Mr Hamilton put forward a proposal in which the strategic planning aspect of the contract would be novated to a company associated with Mr Chidiac. … Both agree that Mr Khreich said ‘If you can get [Mr Chidiac] to agree I will do it’. … At the time, [Mr Khreich] says that he did not believe that Mr Chidiac would accept what was proposed and he said so to Mr Hamilton. Mr Khreich accepts that he did not put forward any alternatives.”

8. On 3 April 2014 Mr Chidiac and Mr Gunasegaram incorporated Aspire. [6] Aspire was identified by the trial judge as “the entity through which Mr Chidiac and Mr Gunasegaram provide their services to clients.”[7]

   6. Blue Visions Management at [7].

   7. Blue Visions Management at [7].

9. On 8 April 2014 there was a partial novation of Blue Visions’ contract in favour of Aspire. In the result Aspire agreed to provide Mr Chidiac to continue the services he had performed for Blue Visions. When the contract came up for renewal, in May 2015, both Blue Visions and Aspire tendered for a new contract. The incumbent service provider, Aspire, was successful.

Issues on appeal

10. In the form in which they went to trial, Blue Visions’ claims were identified in a second further amended statement of claim filed on 2 February 2017. The defendants were Mr Gunasegaram, Mr Chidiac and Aspire. Relevantly for present purposes, Blue Visions sought damages or equitable compensation from all defendants, an account of profits from Aspire, or both Chidiac and Gunasegaram, and a declaration that Chidiac and Gunasegaram held on constructive trust for Blue Visions their shares in Aspire, together with any dividends or payments received from Aspire.

11. If the appellant is to succeed in its claim for relief in this appeal, it must do so in the following circumstances:

1. Blue Visions could not stop Mr Chidiac resigning from his employment;

2. nor could Blue Visions stop Mr Chidiac competing with Blue Visions after he left;

3. if Mr Chidiac left, Blue Visions had no equivalent strategic programmer to provide services under its contract with the State Government;

4. Mr Chidiac did not resign in order to take over Blue Visions’ contract, and

5. the proposal for Mr Chidiac to carry on the contract through his own vehicle, in place of Blue Visions, came from Mr Hamilton.

12. The factors upon which Blue Visions must rely are that Mr Chidiac:

1. owed a fiduciary obligation to Blue Visions not to allow his personal interests to conflict with the interests of his employer;

2. was subject to a statutory obligation not improperly to use his position as an employee of Blue Visions to gain an advantage for himself or others;

3. enjoyed an advantage over any other candidate to carry on the project, arising from his knowledge of the project and his relationship with Mr Hamilton, both of which were acquired in the course of his duties as a senior employee of Blue Visions;

4. created the opportunity for obtaining an advantage by his resignation from his employment with Blue Visions, and

5. agreed to accept a continuing role as programming manager through his engagement by Aspire whilst still employed by Blue Visions, though during the period of his notice of resignation.

13. It is possible that a fiduciary may not breach his or her duties where a proposed course of conduct involving the pursuit of personal interests has the fully informed consent of those to whom the duty is owed. Such a defence was sought to be raised by the defendants at trial, but belatedly and was not allowed by the trial judge. That ruling was challenged in this Court but, for the reasons given by Gleeson JA, I agree the trial judge did not err. That meant that the defendants could not place reliance on Mr Khreich’s acceptance of the novated agreement as satisfying this defence. The defence was, in any event, not available in relation to a breach of s 182 of the Corporations Act 2001 (Cth), though Blue Visions’ conduct could be relevant in assessing impropriety.

Determination of appeal

14. Blue Visions’ claims were pleaded by reference to contraventions of s 182 of the Corporations Act and of the fiduciary duty owed by Mr Chidiac to Blue Visions. The trial judge dealt with the matter primarily on the basis of a breach of fiduciary duty, finding that the reasons for rejecting that basis of liability resolved the statutory claim. [8] That will often be the case; however, as discussed below, s 182 is not in its terms constrained by principles delineating the scope of the fiduciary duty. [9] Nor is it limited to those who would owe a fiduciary duty to a corporation.

    8. Blue Visions Management at [156].

    9. Cf Manildra Laboratories v Campbell [2009] NSWSC 987 at [131]-[133] (McDougall J); SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079 at [38] (Wigney J); Krupace Holdings Pty Limited v China Hotel Investments Pty Limited [2018] NSWSC 862 at [97] (Rein J).

15. Section 182 provides:

182   Use of position—civil obligations

Use of position—directors, other officers and employees

(1)   A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a)   gain an advantage for themselves or someone else; or

(b)   cause detriment to the corporation.

Note: This subsection is a civil penalty provision (see section 1317E).

(2)   A person who is involved in a contravention of subsection (1) contravenes this subsection.

Note 1: Section 79 defines involved.

Note 2: This subsection is a civil penalty provision (see section 1317E).

Section 182 is a penalty provision identified in s 1317E(1), in respect of a contravention of which compensation may be claimed by a corporation for damage suffered as a result of the contravention, pursuant to s 1317H(1).

16. Blue Visions pleaded a case based on paragraph (a) in s 182(1); the advantage sought was, relevantly, for the benefit of Messrs Chidiac and Gunasegaram and Aspire. The critical question is whether Mr Chidiac “improperly” used his position as an employee of Blue Visions to gain such an advantage. That requires that his purpose was to gain the identified advantage. [10]

    10. Chew v The Queen (1992) 173 CLR 626 at 632-633 (Mason CJ, Brennan, Gaudron and McHugh JJ); [1992] HCA 18.

17. As Jacobs J said in Grove v Flavel,[11] in a passage cited with approval in The Queen v Byrnes, [12] “what is ‘improper’ for the purposes of [a predecessor to s 182] cannot be determined by reference to some common, uniform or inflexible standard which applies equally to every person who is an officer, but rather must be determined by reference to the particular duties and responsibilities of the particular officer whose conduct is impugned.” The joint judgment in Byrnes continued:

“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.”

11. (1986) 43 SASR 410 at 420.

12. (1995) 183 CLR 501 at 514 (Brennan, Deane, Toohey and Gaudron JJ); [1995] HCA 1.

18. The legislative history of s 182 was considered by Gummow and Hayne JJ in Angas Law Services Pty Ltd (In liq) v Carabelas, [13] leading to acceptance of the passage from Byrnes set out above. [14]

    13. (2005) 226 CLR 507; [2005] HCA 23 at [55]-[64].

    14. Angas Law Services at [65].

19. Subject to a notice of contention, there was no dispute that Mr Chidiac owed fiduciary obligations to Blue Visions, nor as to the facts set out above. Accordingly, Mr Chidiac was under an obligation not to prefer his interests to those of Blue Visions. That included an obligation not to profit from his relationship with Blue Visions’ contractor. The duties of a fiduciary require that, within the scope of the fiduciary relationship, the fiduciary is required to act solely in the interests of the person to whom the duty is owed and not to obtain a profit or advantage from the relationship. Although there are circumstances in which it will be helpful to distinguish between the proscription on a fiduciary placing himself or herself in a position where his or her own interests will conflict with the duties owed to the other party to the relationship (the no conflict principle) and the situation where the fiduciary obtains a benefit or advantage from the exercise of powers or functions arising within the scope of the relationship (the no profit principle), the present case does not fit squarely within one principle or the other. Further, s 182(1) of the Corporations Act is not based on such a distinction.

20. No doubt the engagement of s 182(1)(a) will depend in part on the scope of the general law principles of fiduciary obligations. Thus, it seems unlikely that conduct of a company officer in breach of his or her fiduciary obligations to the company would not constitute improper use of his or her position for the purposes of s 182(1). [15] On the other hand, s 182(1) potentially extends to employees who may not be fiduciaries. The challenge to the finding of the trial judge that Mr Chidiac owed fiduciary obligations to Blue Visions is thus of limited significance; if indeed Mr Chidiac was not a fiduciary, there was no submission that conduct which would have been a breach of duty had he been a fiduciary would not involve an improper use of his position contrary to s 182(1).

    15. Cf Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 2 at [36] (Tamberlin, Finn and Sundberg JJ).

21. With respect to claims involving the conduct of senior employees, it will often be important to identify the scope of the fiduciary relationship. That may well involve functional and temporal elements.

22. The functions which were the subject of the relationship are simply stated. Blue Visions had a contractual relationship with the entity responsible for constructing the Perth hospital. Mr Chidiac’s role was to supervise an important aspect of the construction. His duty of loyalty to Blue Visions did not concern any putative obligation not to compete in relation to other contracts or other clients, but only to execute Blue Visions’ obligations under the contract then on foot. Had he attempted, during the course of his employment with Blue Visions, to divert the benefit of the contract to an entity in which he had a personal interest, there would have been a clear breach of an obligation of loyalty and the obtaining of an improper advantage for himself.

23. On one view, that is precisely what he did; on another view, the only step he took in the course of his employment was to resign, in circumstances where the resignation was not intended to be the vehicle for diverting the benefit of the contract to himself.

24. The latter approach engages the temporal element of the relationship. Thus, Mr Chidiac was under no contractual obligation to remain with Blue Visions until the Perth hospital contract was completed; with appropriate notice, he was entitled to resign at any stage. Once he had resigned, he was not under any obligation not to compete with Blue Visions in relation to other work. On the other hand, he entered into the arrangement involving a novation of Blue Visions’ contract to his company, Aspire, whilst he remained an employee of Blue Visions, albeit pending his resignation of which he had given notice. The relevant questions are whether that conduct breached his fiduciary duty to Blue Visions, or contravened s 182(1)(a) of the Corporations Act.

25. There were similarities between the circumstances in this case and those of the defendants in Cook v Deeks. [16] The plaintiff Cook was a shareholder in the Toronto Construction Company, of which the respondents were directors. As directors, the respondents had established a favourable relationship with the Canadian Pacific Railway (“CPR”), for which the Toronto Construction Company had undertaken a number of projects. There was a falling out between the plaintiff and the respondents, as a result of which the respondents tendered for a further construction contract with the CPR, but expressly not in the name of the Toronto Construction Company. Having obtained confirmation of their successful tender, they informed the plaintiff of the outcome, but ignored his protests, instead setting up the Dominion Construction Company to which the contract was duly assigned. The Privy Council was satisfied that the Dominion Construction Company and the directors could not obtain the benefit of the contract for themselves, but ought to have dealt with it as an asset of the Toronto Construction Company. They were required to account to the Toronto Construction Company for the profits made out of the transaction.

    16. [1916] 1 AC 554 (Privy Council).

26. In explaining the Privy Council’s reasons, Lord Buckmaster LC stated: [17]

“The management of [the respondents] of the affairs of the construction company was eminently satisfactory; but so far as railway construction was concerned the whole of their reputation for the efficient conduct of their business had been gained by them while acting as directors of the Toronto Construction Company. … There was nothing to compel them to work with or for the plaintiff, and it is impossible to see that they were bound to continue their relationship with him by any legal or moral consideration. They were, however, involved with him in different reciprocal duties, by reason of their relationship in connection with the Toronto Construction Company, and if they desired freedom to act, without regard to the restrictions that those relationships imposed, it was necessary that they should terminate their position as directors and shareholders in the company and place it in dissolution. … While still retaining their positions as directors, while still actually acting as managers of the company, and with their duties to the company of which the plaintiff was a shareholder entirely unchanged, they proceeded to negotiate [the new contract], in reality on their own behalf, but in exactly the same manner as they had always acted for the company, and doubtless with their claims enforced by the expeditious manner in which they, while acting for the company, had caused the last contract to be carried through.”

17.    Cook v Deeks at 559.

27. There were two significant points of distinction between the position of Mr Chidiac and that of the two Mr Deeks. The first point of distinction is not favourable to Mr Chidiac. Mr Chidiac did not obtain a contract for a new project by exploiting his relationship with the contractor, based on work done with the party to which he owed a fiduciary obligation; rather, he obtained the benefit of the very contract under which he had established the relationship with the third party contractor, whilst a senior manager for his employer. By doing so, he deprived his employer of the benefit of an extant contract, whilst in the course of his employment.

28. On the other hand, it can be said that what led to Blue Visions’ loss of the contract was not the negotiation of a novated contract with Mr Chidiac, but Mr Chidiac’s resignation, which was not a breach of any contractual or fiduciary obligation owed by Mr Chidiac to Blue Visions. Further, Mr Chidiac had not initiated the negotiation of the novated agreement on behalf of himself or Aspire. Rather, the offer came from Mr Hamilton. Nevertheless, by advising Mr Hamilton of his resignation, Mr Chidiac triggered Mr Hamilton’s offer, which he in turn accepted, whilst still working for Blue Visions.

29. The use of an advantage gained as a fiduciary may lead to an obligation to account for the profits thus acquired, even though there is no loss to the beneficiary of the relationship, and even potentially a gain. So much is established by Boardman v Phipps. [18] Two persons standing in a fiduciary relationship to the beneficiaries of a distributed trust had used their own funds to make an investment in a company (Lester & Harris Ltd ) partly owned by the trust, so as to take control of the company and achieve a significant profit, which both they and the beneficiaries shared. The House of Lords held that they had to account to the beneficiaries for the profit made from their own investments. As explained by Lord Hodson, [19] Mr Boardman, the solicitor appointed by the trustees, had obtained “knowledge of a most extensive and valuable character …, which was the foundation upon which a decision could [be] and was taken to buy the shares in Lester & Harris Ltd”. Lord Hodson continued:

“This information was obtained on behalf of the trustees, most of it at a time during the history of the negotiations when the proposition was to divide the assets of the company between two groups of shareholders. This object could not have been effected without a reconstruction of the company and Mr Boardman used the strong minority share holding which the trustees held …, wielding this holding as a weapon to enable him to obtain the information of which he subsequently made use.

… I agree with the learned judge and with the Court of Appeal that the confidential information acquired in this case which was capable of being and was turned to account can be properly regarded as the property of the trust. It was obtained by Mr Boardman by reason of the opportunity which he was given as solicitor acting for the trustees in the negotiations with the chairman of the company …. The end result was that out of the special position in which they were standing in the course of the negotiations the appellants got the opportunity to make a profit and the knowledge that it was there to be made.”

The present case differed in that Mr Chidiac did not exploit confidential information which was the property of a trust.

18. [1967] 2 AC 46.

19.    Boardman at 106-107.

30. Shortly stated, the respondents’ contention in the present case is that once Mr Chidiac gave notice of his resignation (which he was legally entitled to do) Blue Visions, as Mr Khreich realised, was in danger of losing its contract for the hospital project. At least that was so unless Mr Chidiac could be persuaded to stay with Blue Visions (he refused even a two week extension of the notice period) or a replacement could be found (Mr Khreich in effect accepted he had no alternative key person to carry out the contract). In those circumstances, the respondents submitted, there could be no breach of any fiduciary duties owed by Mr Chidiac to Blue Visions.

31. Acceptance of that contention would be inconsistent with the principle stated in Keech v Sandford. [20] As concisely explained in Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies: [21]

“The great case of Keech v Sandford involved a lease held on trust. Upon the expiration of the lease, the trustee sought a renewal of it for the benefit of the beneficiary. The lessor refused. The trustee then sought and obtained a renewal of the lease for his own benefit. Lord King LC held that the trustee, notwithstanding that the lessor had refused to renew for the benefit of the beneficiary, held the new lease upon the same trust as the old:

‘Though I do not say there is a fraud in this case, yet he should rather have let it run out than to have the lease to himself. This may seem hard, that the trustee is the only person of all mankind who might not have the lease; but it is very proper that the rule should be strictly pursued, and not in the least relaxed; for it is very obvious what would be the consequence of letting trustee have the lease on refusal to renew to cestui que use.’

If trustees might, on refusal to renew for the benefit of their beneficiaries, apply to have new leases themselves, their interest in obtaining leases for themselves would be in conflict with their duty to do their best to obtain a renewal for the trust. The trustee was therefore under a duty which is now (though not in the time of Lord King LC) described as fiduciary, not to seek a lease for himself, whether he could obtain one for the trust or not. And the trustee, having obtained a lease in breach of that duty, was deemed to hold it on constructive trust for the beneficiaries.”

20. (1726) 25 ER 223; (1726) Sel Cas t King 61.

21.    J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (5th ed, Lexis Nexis Butterworths, 2015) at [5-055].

32. Keech v Sandford involved a trustee, whose position cannot necessarily be equated with that of other classes of fiduciary. [22] Nevertheless, in Chan v Zacharia, a case dealing with the renewal of a lease of partnership premises held by two medical practitioners, Brennan J stated: [23]

“A new lease of the Mansfield Park premises could be obtained only if the partnership's option of renewal were not exercised. Though Dr Chan was not bound to join in the exercise of that option, he could not take advantage of his refusal to secure the benefit of a renewal of the lease for the partnership in order to secure the benefit of a new lease for himself. There was a misuse of his position as a former partner to obtain a personal benefit and that, as Deane J points out, was a breach of his fiduciary duty.”

22. Chan v Zacharia (1984) 154 CLR 178 at 181 (Gibbs CJ), 200-202 (Deane J); [1984] HCA 36.

23.    Chan at 186.

33. Deane J in Chan stated:

“The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement ‘in which he has, or can have, a personal interest conflicting … with the interests of those whom he is bound to protect’ (per Lord Cranworth LC, Aberdeen Railway Co v Blaikie Brothers [24] ) or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed.”

24. (1854) 1 Macq 461 at 471.

34. Thus, Mr Chidiac, (a) owed a duty of loyalty to Blue Visions to execute its contractual obligations, through his position as a senior employee, and (b) could not accept a contract to stand in the shoes of his employer without being liable to account to his employer for the benefits under the newly acquired contract.

35. Importantly, this position avoids any nice question as to whether the fiduciary in fact sought to obtain a benefit at the expense of his employer or merely accepted the benefit; the requirement to avoid conflicts of self-interest and the duty to one’s principal involves a deliberate deterrent. As explained by Deane J in Chan v Zacharia: [25]

“There is a wide variety of formulations, of the general principle of equity requiring a person in a fiduciary relationship to account for personal benefit or gain. …

The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one ‘fundamental rule’ embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage.”

One point of distinction from the present case is that Mr Chidiac had already tendered his resignation when offered the position personally; however, he also declined to delay his resignation to allow Mr Khreich time to find an alternative supervisor.

25.    Chan at 198-199.

36. Deane J applied the themes so identified to a number of cases, including Keech v Sandford. He noted that Keech involved renewal of trust property by a trustee, which is not the present case, but continued: [26]

“The rule has been extended, either in its strict or in a modified form, to persons under obligations arising from certain other fiduciary relationships (eg, executor or agent) and to certain other relationships which are not fiduciary but are said to be special ….”

26.    Chan at 200.

37. Deane J also stated that “[t]he principle is not … completely unqualified”; however, the examples of qualification are not readily applied in the present case. In particular, the defence of fully informed consent was not available, for the reasons noted above.

38. The respondents’ case addressed the matter by isolating the specific elements of Mr Chidiac’s conduct and concluding that none involved a breach of his fiduciary duty. The submissions then asserted that “[i]f none of the steps individually involve[s] a breach of fiduciary obligation, then collectively they will not do so.” [27]

    27.    First and Third respondents summary of argument, 7 November 2017, par 44.

39. In principle, there is no reason why a course of conduct may not give rise to a breach of duty, although individual steps taken in isolation were not themselves breaches. The separate elements identified by the respondents were as follows:

1. after telling Mr Hamilton that he had given notice of his resignation, answering Mr Hamilton’s question by indicating that he was interested in continuing to work on the project;

2. not telling Mr Khreich about his conversation with Mr Hamilton;

3. telling Mr Khreich that he was unable to extend the period of his notice due to other commitments;

4. setting up Aspire, and

5. signing the novation agreement whilst employed by Blue Visions.

40. Two points which appear to be implicit in the appellant’s case may readily be rejected. First, there was no breach of duty on the part of Mr Chidiac in setting up a corporate vehicle through which he could undertake work after his resignation from Blue Visions. Whatever work he had in mind at that stage, his preparation for his resignation was a neutral activity. That activity could only have involved a breach of duty if the sole (or perhaps, primary) purpose for setting up the new vehicle was to take over Blue Visions’ contract; the evidence did not establish that purpose.

41. Secondly, there was no necessary breach involved in telling Mr Khreich that he did not wish to continue working in Perth, whilst contemporaneously telling Mr Hamilton that he would be happy to keep working on the project in Perth. Even assuming that his statement to Mr Khreich was less than the whole truth, he was under no obligation to give a truthful reason for his resignation. Nor was he under any obligation to extend the period of his notice, nor to give a truthful explanation for his refusal to do so.

42. However, the appropriate inferences from the events, taken in combination, do not end there. The critical conduct to be assessed involved the following elements, namely that:

1. Blue Visions’ contract had two years to run at the date of Mr Chidiac’s resignation;

2. Mr Hamilton wanted Mr Chidiac to continue to work on the project;

3. Mr Khreich had no person available with equivalent qualifications and experience to compete with Mr Chidiac in the eyes of Mr Hamilton, so that Blue Visions had no way of retaining that part of its contract for the execution of which Mr Chidiac was responsible.

The counterfactual situation involved Mr Chidiac not making himself available to Mr Hamilton to continue working on the project. What Mr Hamilton would have done in that situation is not known, but he had no apparent basis for terminating part or all of Blue Visions’ contract. It follows that it was Mr Chidiac’s willingness to continue to work on the project, though not for Blue Visions, which had the practical effect of forcing Mr Khreich to relinquish part of the contract in order to retain the balance.

43. Viewed in the totality of the circumstances at the relevant time, it was Mr Chidiac’s conduct in making himself available to continue working on the project, though not as an employee of Blue Visions which resulted in Blue Visions losing that part of the contract which it was Mr Chidiac’s obligation to execute. The circumstances in which Mr Khreich agreed to novate Blue Visions’ contract resulted in reluctant acceptance of what he saw as inevitable. Although Mr Chidiac was under no contractual obligation not to compete with Blue Visions after the termination of his employment, he put in train the events leading to the novation in the course of his employment. [28] In my view those circumstances involved a breach of the fiduciary duty owed by him to Blue Visions. There is no reason why equity should hold its hand in such circumstances and withhold the protection of a constructive trust.

    28. See Warman International Ltd v Dwyer (1995) 182 CLR 544 at 556 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ); [1995] HCA 18.

44. If the foregoing analysis involves an extension of general law principles, it is nevertheless relevant to the question of improper use of position under s 182(1) of the Corporations Act. That requires that the court place itself in the shoes of the reasonable person with knowledge of the duties, powers and authority of Mr Chidiac, and the circumstances of the case, and ask whether his conduct was a breach of the standards that would be expected of such a person.

45. Mr Chidiac could properly refuse to continue to work for Blue Visions, but he could not properly continue to execute the contract for his own personal benefit. It is clear that his purpose in accepting Mr Hamilton’s offer was to gain the identified advantage. In my view that conduct was an improper use of his position with Blue Visions and thus a contravention of s 182(1)(a).

46. Further, although it is significant that the new contract was entered into during the term of Mr Chidiac’s employment with Blue Visions, the obligation not to benefit from the advantages he had acquired in the course of his employment would extend beyond the termination of the employment in circumstances where the novated contract was obtained in breach of duty. So much was accepted by the trial judge in assessing compensation.

Conclusions

47. In the event that Mr Chidiac and Aspire were found liable, as in my view they should be, Blue Visions sought a judgment in the amount of $1,240,912, being the amount assessed by the trial judge against the event that he was wrong in rejecting the claim. [29]

    29.    Blue Visions Management at [162]-[166].

48. Mr Chidiac and Aspire accepted that, in the event that Mr Chidiac was liable, Aspire would also be liable. [30] That approach reflected the relationship of Mr Chidiac and Aspire and should be accepted. [31] Relief based on contravention of s 182(1)(a) of the Corporations Act may include compensation for any damage suffered by the company resulting from the breach. [32] Damage may include profits made by any person resulting from the contravention. [33]

    30.    First and third respondents’ summary of argument, par 75.

    31. Cf Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [21] (Finn, Stone and Perram JJ).

    32. Corporations Act, s 1317H(1).

    33. Corporations Act, s 1317H(2); Grimaldi v Chameleon Mining at [635], [640]; V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418; [2013] FCAFC 16 at [54]-[58] (Emmett, Edmonds and Rares JJ).

49. However, Mr Chidiac and Aspire further submitted that equitable compensation, or an account, should be limited to the period from 15 April 2014 (the date of the novation) to 10 July 2015 (the date when a fresh tender was issued). The limitation on the period should not be accepted. The trial judge found that, in the event that Blue Visions was entitled to an account of profits obtained by Aspire, it was entitled to the extended term. It is clear that, for the same reason that Mr Chidiac was able to obtain the benefit of the contract when he left Blue Visions, he was able to obtain the tender, in the face of a competitive tender from Blue Visions. As at the time of the novation, Mr Chidiac had the great advantage of incumbency, on which his relationship with Mr Hamilton and his knowledge of the project were based.

50. Blue Visions is entitled to the judgment it seeks, including pre-judgment interest.

51. I would propose the following orders in Blue Visions’ appeal:

1. Allow the appeal in part and set aside orders 2, 3 and 4, and 5 in relation to the first and third defendants, made in the Equity Division on 10 May 2017 in matter 2014/192899.

2. In place thereof,

1. give judgment for the plaintiff (Blue Visions) against the first defendant (Chidiac) and third defendant (Aspire) in the sum of $1,240,912 plus interest in accordance with s 100 of the Civil Procedure Act 2005 (NSW);

2. order that the first and third defendants pay two thirds of the plaintiff’s costs of the trial of matter 2014/192899 plus interest calculated in accordance with order 9 below.

3. Order that the first and third respondents pay two thirds of the appellant’s costs of its appeal.

4. Direct that any disagreement as to the calculations required to give effect to orders 2(a) and (b) be determined by a judge in the Equity Division.

52. MEAGHER JA: I have had the benefit of reading in draft the judgments of Basten JA and Gleeson JA. There are two appeals from a decision of the primary judge (Ball J) in the Equity Division of the Supreme Court: Blue Visions Management Pty Ltd v Chidiac [2017] NSWSC 255. The appeal brought by Mr Gunasegaram relates to his misrepresentations to Blue Visions. Like Basten JA, I agree for the reasons given by Gleeson JA that it should be dismissed with costs, and consequential orders made as proposed by Gleeson JA.

53. Blue Visions’ appeal, on the other hand, agitates claims to equitable relief for alleged breaches of fiduciary duty by Mr Chidiac and Mr Gunasegaram in diverting business (specifically, the strategic programming part of Blue Visions’ contract with Strategic Projects) to their company, Aspire, which was also said to be liable by reason of those breaches. The primary judge held that no breach of fiduciary duty was established against Mr Chidiac and that the only established breach by Mr Gunasegaram did not result in any loss to Blue Visions or gain to the fiduciaries or to Aspire. Ground 2 challenges the latter conclusion but, for the reasons given by Gleeson JA, is not made out. Ground 1 presses the allegations of breach of fiduciary duty by Mr Chidiac. Like Gleeson JA, I would dismiss this ground, for the reasons appearing below, which also consider Basten JA’s conclusion otherwise.

54. Grounds 3 and 4, concerning the scope of relief, do not arise. Nevertheless, ground 4 is addressed, assuming a different outcome to ground 1, at the conclusion of these reasons.

The conflict rule

55. It is not in issue that Mr Chidiac was a fiduciary. That status arose from the responsibilities and functions as a senior employee that he had undertaken to discharge in the interests, and on behalf, of Blue Visions. Those responsibilities and functions also defined the ambit of his fiduciary responsibility: Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 96–97, 103 (Mason J). As Lord Cranworth LC explained in Aberdeen Railway Company v Blaikie Brothers (1854) 1 Macq 461 at 471; [1843-60] All ER Rep 249:

A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such an agent has duties to discharge of a fiduciary character towards his principal, and it is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect.

56. The “representative” character in which the fiduciary acts and the concomitant vulnerability of the beneficiary or principal give rise to a specific liability to account for personal benefits or gains according to two “rules” extracted by Deane J in Chan v Zacharia (1984) 154 CLR 178 at 198-199; [1984] HCA 36 from “themes” in earlier cases. In Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557; [1995] HCA 18 in the unanimous judgment of the Court those rules were said to be:

A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position.

57. Importantly for the outcome of this appeal, Blue Visions relied before the primary judge and in its appeal only on the first rule above, described as the conflict rule (as distinct from the profit rule). In this respect, Blue Visions’ claim was limited in the same way as that in Howard v Federal Commissioner of Taxation (2014) 253 CLR 83 at [33], [109], cf [58]; [2014] HCA 21.

58. Citing Mason J’s influential dissent in Hospital Products Limited v United States Surgical Corporation at 103, the majority (McHugh, Gummow, Hayne and Callinan JJ) in Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at [78] adopted the following formulation of the conflict rule:

… the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is "a conflict or a real or substantial possibility of a conflict" between personal interests of the fiduciary and those to whom the duty is owed.

59. As Deane J emphasised in Chan v Zacharia at 198, the principle of equity underlying the conflict rule is concerned:

… not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement “in which he has, or can have, a personal interest conflicting … with the interests of those whom he is bound to protect” (per Lord Cranworth L.C., Aberdeen Railway Co. v. Blaikie Brothers) or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed. (Footnote omitted)

60. But the rule is not unlimited in its operation. Lord Upjohn (dissenting on the facts but not on the law) observed in Phipps v Boardman [1967] 2 AC 46 at 127 that the analysis required to identify a breach of the conflict rule in particular circumstances includes the following:

2. Once it is established that there is such a [fiduciary] relationship, that relationship must be examined to see what duties are thereby imposed upon the agent, to see what is the scope and ambit of the duties charged upon him.

3. Having defined the scope of those duties one must see whether he has committed some breach thereof and by placing himself within the scope and ambit of those duties in a position where his duty and interest may possibly conflict. It is only at this stage that any question of accountability arises.

61. In this context, as the Full Court of the Federal Court (Finn, Stone and Perram JJ) explained in Grimaldi v Chameleon Mining NL (No. 2) (2012) 200 FCR 296 at [179]; [2012] FCAFC 6, in a passage cited by Gageler J in Howard v Commissioner of Taxation at [110]:

The concept of “duty” in the “conflict of duty and interest” formula of the first of these is convenient shorthand. It refers simply to the function, the responsibility, the fiduciary has assumed or undertaken to perform for, or on behalf of, his or her beneficiary. What that function or responsibility is, is a question of fact. It may be narrow and circumscribed, as is often the case with specific agencies; it may be broad and general, as is characteristically the case with the functions of company directors; its scope may have been antecedently defined or determined; it may have been ordained by past practice; it may be left to the fiduciary’s discretion to determine; and it may evolve over time as is commonly the case with partnerships.

62. In Grimaldi at [181] the Court noted the overlap between the conflict and profit rules but continued:

Importantly, though, misuse of position has an area of independent operation – an area which does not require it to be shown that the fiduciary has assumed some responsibility to his or her beneficiary in relation to the matter in issue. Its concern, as Deane J indicated, is to preclude the misuse of the position the fiduciary has, or of knowledge or opportunity derived from it.

63. The significance for this appeal of Blue Visions’ reliance only on a breach of the conflict rule is that it must establish that Mr Chidiac undertook faithfully to perform, for or on behalf of Blue Visions, some function or responsibility engaged in the circumstances in which he pursued a relevant opportunity with Strategic Projects.

64. The facts in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8 supply two examples of the application of these principles. Grey was an employee and director of DPC, a company engaged in property development, which was in turn controlled by a solicitor, Walton. Grey’s duties involved advising the company on the availability and acquisition of properties. At the same time, Clowes, whose family owned company, Consul, was engaged in property development, was an articled clerk employed in Walton’s law practice. Grey and Clowes agreed that Grey would make recommendations to Clowes as to properties for purchase and development by Consul, and that in return they would share equally any profits or losses from the projects undertaken by Consul. In the proceedings, DPC claimed that properties acquired in this way were held by Consul on trust for it. Gibbs J’s analysis of Grey’s breaches of the conflict rule was as follows (at 394-395):

… a person who though irregularly appointed assumes the position of director and on behalf of the company performs the tasks of finding, investigating and reporting upon properties suitable for purchase by the company owes a fiduciary duty to the company with which his private interests cannot be allowed to conflict. I consider, therefore, that it was a breach of the duty which was owed by Grey to D.P.C. to buy for himself properties suitable for purchase by that company and which the company might have wished to purchase.

65. His Honour also dealt with the alleged breaches by Clowes of the conflict rule with respect to DPC, and his solicitor employer, Walton (at 395):

Clowes owed no fiduciary duty to D.P.C. and any fiduciary duty which he may have owed to his employer Walton was not broken by his taking part in the purchase of the properties: his employment did not extend to finding properties for purchase and no conflict between his interest and his duty to Walton was involved if he acquired a property for himself.

The claim against Mr Chidiac for breach of fiduciary duty

66. Blue Visions alleged that by engaging in discussions with Mr Hamilton in mid and late March 2014 and agreeing, whilst an employee, to continue to provide the strategic programming services to that time provided by Blue Visions, Mr Chidiac pursued an opportunity to obtain work from Strategic Projects in circumstances where his personal interest in doing so conflicted with his fiduciary obligation as a senior employee to preserve that opportunity for its benefit. The primary judge addressed this case at Judgment [136]–[144]. His Honour rejected an allegation that Mr Chidiac had pursued that personal interest before his resignation; rejected an allegation that Mr Chidiac had resigned so as to pursue the opportunity; and held that Mr Chidiac did not breach any fiduciary duty by pursuing and securing the opportunity for Aspire. Ground 1 of Blue Visions’ appeal is directed to this last conclusion. The primary judge’s rejection of the earlier allegations is not challenged.

67. Blue Visions’ case depends on its establishing that at the time of Mr Chidiac’s conversation with Mr Hamilton (on about 25 March 2014), or his agreement in principle to enter into the novation agreement (on 31 March 2014), there was a conflict, or real or substantial possibility of a conflict, between his pursuit of that opportunity and the discharge of a function or responsibility to which his fiduciary obligation attached.

68. Importantly, though Mr Chidiac was the third most senior employee of Blue Visions, he was not a director, in either name or substance; and he was not charged with the general management of its affairs. In that respect, his position was to be contrasted with that of Mr Khreich. Instead, Mr Chidiac’s position as “Group Manager Planning” encompassed responsibility for the performance of a number of Blue Visions’ contracts in Perth, including the Perth Children’s Hospital project. His contract of employment included the following job description (Judgment [21]):

Manage the Business Unit assigned to you in accordance with the annual strategic and financial plans and the overall company business plans. To provide consulting services in the areas of planning & controls and any other project related services as required by the Employer from time to time. To contribute to company overall direction and strategy. To take overall responsibility for the technical quality of the company planning & controls services [emphasis added]

The conversation on or about 25 March 2014

69. It is said that Mr Chidiac’s answer to Mr Hamilton’s question, that he was “interested” in continuing to work on the Perth Children’s Hospital project after his employment came to an end, and his subsequent failure to inform Mr Khreich of the conversation, engaged and breached the conflict rule: see Judgment [139]. That submission encounters difficulty at two levels.

70. First, Mr Hamilton’s question merely sought to identify whether Mr Chidiac was at that time open to performing work for Strategic Projects at some time after the termination of his employment. It did not, for example, suggest any arrangement by which he might compete with Blue Visions in the provision of services to Strategic Projects. By itself, it carried no opportunity capable of being pursued by Mr Chidiac, let alone pursued inconsistently with some existing function or responsibility. Mr Chidiac’s affirmative, and truthful, response took the matter no further. It was consistent with any number of wholly innocuous courses of action, including that noted by Gleeson JA at [195]. What Mr Hamilton chose to do with the answer given cannot make that answer any more concrete or untoward.

71. Secondly, the benefit which Mr Chidiac ultimately received by its nature depended on the concurrence of Blue Visions. Yet neither by his initial exchange with Mr Hamilton nor subsequently is Mr Chidiac said to have procured, or attempted to procure, that concurrence. Moreover, short of falsely representing that he was not interested in working with Strategic Projects in the future, Mr Chidiac could not preclude the possibility of that benefit accruing to him. Thus, in the events that in fact transpired, the circumstance of his answer was of no relevance to his later receipt of a benefit.

72. Whether considered alone or in the light of subsequent circumstances, the conversation with Mr Hamilton does not show Mr Chidiac to be pursuing any opportunity which could give rise to a real or substantial possibility of conflict.

The communication on 31 March 2014

73. Mr Hamilton advised Mr Chidiac on 31 March 2014 that Mr Khreich had agreed with Mr Hamilton’s proposal that the strategic planning aspect of Blue Visions’ contract be novated to a company associated with Mr Chidiac. Mr Chidiac’s agreement to that course was then sought and given. By that point, the opportunity presented to him was one which was only available by reason of Blue Visions’ agreement to surrender part of its existing contract, so that Strategic Projects could enter into a separate contract with him or his nominee. Mr Chidiac is not said to have participated in that decision in fact. Nor did his functions and responsibilities require, or even contemplate, his doing so.

74. The present circumstances are, therefore, fundamentally different from those in Cook v Deeks [1916] AC 555 and Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443. In each of these cases the fiduciaries had general responsibilities over their principal’s affairs – in the former case as three executive directors and in the latter as the managing director. More to the point, they diverted for their own benefit business opportunities which they were authorised specifically to consider on behalf and for the benefit of their corporate principal. By contrast, although Mr Chidiac was responsible for “managing” the Children’s Hospital contract, and doing so in Blue Visions’ best interests, his functions and responsibilities did not extend to considering or deciding whether all or part of that contract should be surrendered, or the benefit of it made available to him. Even assuming that he and his principal had conflicting interests as to whether that surrender should come to pass, he did not exercise any power or discretion or otherwise act in a fiduciary capacity for the company in relation to that surrender. In these respects, his position is to be contrasted with that of the solicitor in Ex parte James (1874) 9 Ch App 609 who, whilst acting for the assignees of the bankrupt estate, purchased assets of the estate. That subject matter and dealing were within the scope of the solicitor’s retainer and accordingly involved interests of the client which the solicitor had undertaken to protect and prefer. It follows in my view that there was no breach of the conflict rule by Mr Chidiac’s pursuit of the novation agreement opportunity.

75. This conclusion is not undermined by the reasoning in Keech v Sandford (1726) Sel Cas 61; 25 ER 223 or decisions applying it, which presuppose a conflict and merely answer any attempt by the fiduciary to disclaim a liability to account by invoking the inevitability of the beneficiary’s loss.

Contravention of s 182

76. Notwithstanding that ground 1 of Blue Visions’ appeal also asserts the primary judge erred in not finding that Mr Chidiac breached his duty under Corporations Act 2001 (Cth), s 182(1)(a), the foregoing analysis deals only with its claim for breach of fiduciary duty, and specifically the conflict rule. It does so because, before the primary judge and in this Court, Blue Visions did not contend, if its claim for breach of fiduciary duty failed, that its claim under s 182(1) could nevertheless succeed. At [45] above, Basten JA concludes that Mr Chidiac’s conduct was in breach of that section, and for that reason would allow Blue Visions’ appeal on ground 2. On the basis that “s 182 is not in its terms constrained by principles delineating the scope of the fiduciary duty” (see [14] above), his Honour’s consideration of whether that section was breached is not limited to whether Mr Chidiac pursued any opportunity in circumstances which involved a breach of the conflict rule.

77. In any event, as Gummow and Hayne JJ emphasised in Angas Law Services Pty Ltd v Carabelas (2005) 226 CLR 507 at [54]; [2005] HCA 23, a breach of s 182 “is not established by merely showing that the officer engaged in conduct that resulted in an advantage to himself, or a detriment to the corporation. There must be the element of impropriety.” In R v Byrnes (1995) 183 CLR 501 at 514-515; [1995] HCA 1, the plurality (Brennan, Deane, Toohey and Gaudron JJ) described impropriety in this context as consisting 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.

78. That impropriety in the performance of a duty, or exercise of a power or authority, must have been engaged in for the purpose of gaining an advantage or causing detriment to the corporation; thus the officer’s state of mind is relevant: Chew v The Queen (1992) 173 CLR 626 at 632-633; [1992] HCA 18 (Mason CJ, Brennan, Gaudron and McHugh JJ). Here, as Gleeson JA notes at [216] below, the cross-examination of Mr Chidiac did not include that his purpose in responding to Mr Hamilton’s first enquiry was to secure any personal gain or advantage.

79. In order to determine whether there has been impropriety, the conduct complained of must be considered by reference to the duties, powers and authority of Mr Chidiac at the time and in the circumstances in which it occurred. Mr Chidiac having earlier indicated that he would be “interested” in continuing to work on the Hospital project, his improper conduct is said to have been (see [43] above) “making himself available to continue working on the project, though not as an employee of Blue Visions”, presumably a reference to the later conversation between Mr Hamilton and Mr Chidiac on 31 March 2014. For the reasons given above, on the earlier occasion there was no breach of duty or improper use of fiduciary power or authority by Mr Chidiac in his response to Mr Hamilton’s inquiry. And what Mr Chidiac said on that occasion did not change in any way the nature or scope of his duties, powers or authority at the later time when Mr Hamilton approached him with a fully formed proposal of Strategic Projects and Blue Visions that he provide the former with services following the termination of his employment with Blue Visions.

80. That proposal did not come to him as a person bound or empowered to consider it on behalf, or in the interests, of Blue Visions. It was the outcome of negotiations and considerations on the part of Blue Visions directed to its best interests in the commercial circumstances then prevailing; and made for his consideration acting in his own interests. Mr Chidiac did not participate in Blue Visions’ considerations and his functions and responsibilities did not extend to, or require, his doing so. Accordingly, there was no impropriety in his agreeing to the proposal made, and no breach of s 182(1).

Appropriate relief

81. Finally, had it been necessary to consider whether Blue Visions was entitled to an account of profits or to equitable compensation for the period after 11 July 2015, I would have agreed with the conclusion of the primary judge at Judgment [165]. In this scenario the opportunity pursued in breach of the conflict rule was the provision of programming services during the remaining two years of the existing contract, which in turn carried with it the possible opportunity of providing those services for any further period, in the event that the works were not completed on time. As Basten JA observes at [49] above, in any contest for the right to provide those further services, the existing providers would have the advantage of incumbency. That advantage, in the context of a competitive tender process such as that undertaken in July 2015, would have established a sufficient causal connection between the pursuit of the opportunity and the benefit received from a further extension of the contract. That outcome does not operate to undermine the undivided loyalty rule and its policy: as to which see Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at [63]-[64]; [2017] FCAFC 74 at [63]–[64].

82. GLEESON JA: Blue Visions Management Pty Ltd (Blue Visions) carries on business as a project management and specialised project planning services consulting firm. It was established in 2001 by Mr Adel Khreich, who is its managing director. At the time of the events the subject of the proceedings below, Blue Visions’ clients included the West Australian Department of Treasury and Finance (the Department). Dealings between Blue Visions and the Department were administered on behalf of the Department by its “Office of Strategic Projects” (Strategic Projects). In May 2010, Blue Visions entered into a 3 year contract with the Department to provide programming services in respect of the development of the Perth Children’s Hospital (the hospital project). That contract contained two options in favour of the Department to renew for a further year.

83. In mid-March 2014, two senior employees of Blue Visions, Mr Sam Chidiac and Mr Arun Gunasegaram, resigned. On 3 April 2014, they incorporated a company, Aspire Corporation Pty Ltd (Aspire), with Mr Chidiac and Mr Gunasegaram as shareholders and directors. Subsequently on 8 April 2014, the Department and Aspire, and on 15 April 2014, Blue Visions signed a partial novation of the strategic programming services component of the hospital project in favour of Aspire.

84. On 30 June 2014, Blue Visions commenced proceedings against Mr Chidiac, Mr Gunasegaram and Aspire making various claims of breach of fiduciary duty, breach of analogous duties under the Corporations Act 2001 (Cth), as well as an accessorial liability claim against Aspire and claims of breach of the terms of their employment contracts arising from their conduct in establishing Aspire and entering into the partial novation of the hospital project. Blue Visions also made a separate claim for damages against Mr Gunasegaram for misrepresentations allegedly made by Mr Gunasegaram to Mr Khreich of Blue Visions concerning the prospects of Blue Visions obtaining work in respect of other projects. Mr Gunasegaram brought a cross-claim against Blue Visions in respect of unpaid leave entitlements.

85. The primary judge (Ball J) found that the claims against Mr Chidiac and Mr Gunasegaram of breach of fiduciary duty and analogous duties under the Corporations Act failed, as did the claims of breach of contract. It followed that the accessorial liability claim against Aspire also failed. The misrepresentation claim against Mr Gunasegaram succeeded, but only in respect of the prospects of Blue Visions obtaining project management work relating to the rollout of “Masters” hardware stores by Woolworths. Mr Gunasegaram succeeded on his cross-claim in respect of his leave entitlements in the sum of $31,596.48 plus GST: Blue Visions Management Pty Ltd v Chidiac [2017] NSWSC 255.

86. On 10 May 2017 Ball J made final orders including entering judgment for Mr Chidiac and Aspire against Blue Visions, judgment for Blue Visions against Mr Gunasegaram in the sum of $1,443,709.67 (inclusive of interest), and judgment for Mr Gunasegaram against Blue Visions (on the cross-claim) for $40,753.60 (inclusive of interest), and ordered that the judgment sums be set off against each other.

87. There are two appeals. Mr Gunasegaram appeals from that part of the primary judge’s decision finding him liable for misrepresentations and the quantification of damages payable by him to Blue Visions. Blue Visions appeals from that part of the primary judge’s decision dismissing its claims of breach of fiduciary duty and analogous Corporations Act duties against Mr Chidiac and Mr Gunasegaram and its claim of accessorial liability against Aspire. Blue Visions does not challenge the dismissal of its breach of contract claim against Mr Chidiac and Mr Gunasegaram.

88. Mr Chidiac and Aspire have filed a notice of contention seeking to uphold the primary judge’s decision (dismissing the claim against them) on various grounds: see [140]-[143] below.

A. BLUE VISIONS’ APPEAL

Facts

89. Blue Visions’ head office is in Sydney where Mr Khreich was located. Its clients included businesses in the construction, mining, civil engineering and infrastructure, defence, communications and health industries. It seems that Blue Visions had a substantial number of employees at the time of the events in dispute, but the evidence is unclear as to the precise number. As at September 2015, Blue Visions had approximately 70 employees in Australia.

Mr Gunasegaram

90. Mr Gunasegaram was the second most senior employee of Blue Visions. He was initially engaged in August 2010 as regional manager in Western Australia. He was promoted to the position of executive general manager on 1 May 2012 and became responsible nationally for Blue Visions’ project and services area. He was based in Perth. He resigned from Blue Visions on 20 March 2014, the day after Mr Chidiac resigned.

310. His Honour then applied a discount of 30 percent to the damages claim to make allowance for the fact that the additional staff were employed and retained by Blue Visions, not just in the expectation that they would work on the Masters project, but that they would work on other projects that also did not come to fruition, relevantly, the Nicholson’s Gold Mine project and the Roy Hill project: at [218].

Mr Gunasegaram’s submissions

313. Mr Gunasegaram contends that his Honour erred in including in the award of damages (a) the salary and other benefits paid to Mr Gunasegaram himself either at all, or prior to February 2013, or without allowance for billable and non-billable work which was of direct benefit to Blue Visions (ground 3), and (b) the salary or other benefits paid to any person at any time prior to June 2013, or alternatively February 2013 (ground 5).

314. Mr Gunasegaram also contends that the 30 percent discount in the award of damages is inappropriate and that a reduction of at least 85 percent should have been made (ground 6). Finally, Mr Gunasegaram contends that the quantum of damages awarded was manifestly excessive (ground 7).

315. It is convenient first to deal with ground 5, concerning the appropriate date for commencing the damages calculation.

Commencement date of damages calculation: ground 5

316. As indicated, his Honour found that the appropriate period for calculating damages was 1 July 2012 to 31 March 2014. Mr Gunasegaram contended that the appropriate starting date was either June 2013, or alternatively February 2013. According to the submission, given that the primary judge had recast Blue Visions’ representations case, the damages case should have been confined to the period after which those “new” representations were conveyed to Blue Visions and relied upon. Mr Gunasegaram contended that the second representation (that Blue Visions had good prospects of being retained by Woolworths) was made no earlier than February 2013, and that the third representation (that Blue Visions had been retained) was made no earlier than June 2013.

317. The essential difficulty with ground 5 is that it proceeds upon an incorrect premise. For the reasons given above in relation to ground 1, the primary judge did not reformulate the representations relied upon by Blue Visions.

318. The detailed factual findings of the primary judge (which have been extracted at [280] above), amply support his Honour’s finding at [201] that from at least April 2012, Mr Gunasegaram made statements to Mr Khreich to the effect that there was a real prospect that Blue Visions would get the Masters project based on his relationship with people at Woolworths: at [201]. That finding is not challenged. The primary judge further found that Mr Gunasegaram included references to substantial income from the Masters project in draft financial plans for Blue Visions, which he provided to Mr Khreich in April 2012 and June 2012: at [93]. Those plans showed “Masters” as a pending project. That the income recorded in those financial plans was forecast, rather than certain, does not diminish the falsity of the representations made by Mr Gunasegaram.

319. Mr Gunasegaram submitted that the updated financial plan, which was sent to Mr Khreich on 13 June 2012 did not contain a quantification of the prospects of success of the Masters project as “strong” or otherwise. That may be accepted, but as the primary judge found, the document showed Masters as a “pending” project and forecast to earn over $40,000 per month in November 2012 and increasing to over $83,000 per month from February 2013: at [93].

320. The updated financial plan is not to be viewed in isolation. Mr Khreich gave evidence that Mr Gunasegaram told him in June 2012 that he had spoken with Mr Peter Horton of Woolworths who had said that Woolworths would be agreeable to a cash flow neutral agreement (for the Masters project). That meant that Blue Visions would be able to invoice Woolworths at the beginning of a month and be paid in advance, enabling Blue Visions to pay the salaries of the additional staff without having to fund that cost itself. In my view, there was no error by the primary judge in finding that by mid-2012, Mr Gunasegaram had made representations to the effect of the first two representations summarised at [194] of his Honour’s reasons.

321. The finding of reliance (at [201] of the judgment) is to be read together with the finding (at [210]) that it was shortly after Mr Khreich received the revised financial forecast on 13 June 2012 that “he agreed to Blue Visions devoting resources to the Masters project, no doubt in the expectation that Blue Visions had good prospects of obtaining the work in light of what he had been told by Mr Gunasegaram”. That finding, which is based on Mr Khreich’s affidavit evidence (par 243), is not challenged. Nor is there any challenge to his Honour’s finding (at [210]) that it was natural for Blue Visions (through Mr Khreich) “to agree to or to permit the investment of substantial time and money into attempting to obtain that work, and later, in anticipation that the work would commence shortly”. His Honour accepted Mr Khreich’s evidence that it was shortly after he received the revised financial forecasts on 13 June 2012 that he agreed for Mr Gunasegaram to put together a team of specialists within Blue Visions to pursue the Masters project: at [210]. That team involved seven identified employees, including Mr Gunasegaram and Mr Khreich. In addition, Mr Khreich gave evidence of the work that the project team undertook commencing with the preparation of a services delivery plan in April 2012.

322. Mr Gunasegaram submitted that the evidence of Mr Khreich upon which the reliance finding was based should be taken as referring to the period 26 or 27 February 2013, not at an earlier point in time. I do not agree. On a fair reading of Mr Khreich’s affidavit evidence his reference (in par 253) to keeping on staff and sub-contractors in the expectation that the Masters project would be obtained, was not limited to the period from February 2013. The evidence of Mr Khreich (in par 253) that staff and sub-contractors were kept on “after the project the staff and subcontractor was associated with had concluded” is to be read together with his evidence (in par 254) that Blue Visions kept on staff that were not producing enough income to warrant their employment in the expectation of being used on the Masters project and the Schedule of Salaries Costs Wasted compiled by Mr Khreich. That Schedule established that particular staff were engaged or retained by Blue Visions after April 2012 upon finishing another project when they would not have been engaged or retained but for Mr Khreich’s belief that Blue Visions would secure the Masters project.

323. There was also evidence from Mr Gunasegaram that employees had been retained even though Blue Visions’ workload had dropped off significantly due to a downturn in the mining industry. In his email sent to Mr Khreich on 27 February 2013, Mr Gunasegaram referred to the steps taken to protect the employment of nine employees of Blue Visions in circumstances where there had been a significant reduction in the company’s workload. Blue Visions submitted that the truthfulness of that email should be accepted because it was against Mr Gunasegaram’s interests to have made that assertion. That may be accepted.

324. Mr Gunasegaram also submitted that the earliest representation that Blue Visions had good prospects of being retained by Woolworths to manage the rollout of the Masters stores “throughout Australia” as opposed to Western Australia, was in the 8 October 2012 email to Mr Khreich, referred to at [94] of the primary judge’s reasons. That Mr Gunasegaram’s October 2012 email referred to locking in a particular person as project manager “for the whole rollout rather than just WA” does not detract from the inducement caused by the earlier representations which his Honour found had been made from at least April 2012.

325. Given the finding of reliance as from July 2012 in relation to the first and second group of representations, it is not to the point that the third group of representations (that Blue Visions had been retained by Woolworths), were first made in June 2013 when Mr Khreich was shown a draft announcement to the Stock Exchange on 7 June 2013 regarding the engagement of Blue Visions. Mr Gunasegaram’s argument in seeking to defer the date from which reliance was established by Blue Visions ignores the earlier finding of inducement with respect to the first and second group of representations from July 2012.

326. Mr Gunasegaram also complained that the primary judge side-stepped the evidence at trial as to when Blue Visions took particular actions in reliance upon the representations found to have been made in terms of holding onto employees who would otherwise have been terminated and retaining new employees. His Honour found that, having regard to the way in which Blue Visions put its case, this point was relevant to the assessment of damages, but did not establish the absence of reliance: at [199]. There is no error in that approach.

327. The criticism of his Honour’s approach to the evidence of reliance is unwarranted. There was evidence before his Honour identifying the periods of time staff were not required but otherwise kept on or hired because Mr Khreich believed, based on Mr Gunasegaram’s representations that Blue Visions had good prospects of obtaining and later believed that it had obtained the Masters project.

328. Given that there is no challenge to his Honour’s finding that Mr Khreich was an honest and reasonable witness and his Honour’s acceptance of Mr Khreich’s assessment of which staff were required and which were not, the challenge by Mr Gunasegaram to the starting date of July 2012 for the calculation of damages has not been made out.

Mr Gunasegaram’s wages as damages: ground 3

329. Mr Gunasegaram submitted that his Honour erred by including Mr Gunasegaram’s wages in the assessment of loss. In support of this contention, Mr Gunasegaram submitted that as a matter of principle in an action between an employer and employee, the employer cannot recover as damages the wages paid to the employee during the period of employment.

330. According to the so-called general rule, whether damages are assessed for breach of contract or in tort, the assessment of damages involves the employer being liable to pay the employee his or her wages. With respect to claims for damages for work diverted by an employee to his or her own company or new employer, Mr Gunasegaram submitted that the award of damages is the net profit the employer would have made had the work been retained by it, and one of the elements which must be netted off is the cost of retaining the employee to perform the work. Reference was made to Colour Control Centre Pty Ltd v Ty [1995] NSWSC 96 at [38] (Santow J). It was submitted that the employer recovers the difference between a complying performance and a non-complying one, not the difference between employing or not employing the person at all.

331. Alternatively to the submission based on the so-called general rule, Mr Gunasegaram submitted that damages are awarded in this case to put Blue Visions in the position it would have been had Mr Gunasegaram been dismissed or made redundant on 1 July 2012. However, since the representation case necessarily assumed that Mr Gunasegaram was employed and continued to be employed throughout the period of the misleading conduct, it was inconsistent with that assumption to treat Blue Visions as if it had not employed him at those times or at all.

332. In my view, the analogy which Mr Gunasegaram seeks to draw with the employment cases is inapt because the assumption underlying those submissions, that he would have been employed and continued to be employed throughout the period of his impugned conduct, is flawed.

333. Blue Visions’ damages case is based on the finding by the primary judge that, but for the misrepresentations made by Mr Gunasegaram, Blue Visions would have reduced its staffing levels to a level commensurate with the work then available, plus a margin for excess capacity to pick up new work. The finding that fewer staff would have been required by Blue Visions is not challenged. That finding included that Mr Gunasegaram, among others, would not have been employed and the work he did would have been done by other employees: at [218].

334. That it was part of Blue Visions’ case that Mr Gunasegaram was one of the members of staff falling into the “not required” category is evident from the Schedule of Salaries Costs Wasted compiled by Mr Khreich. Contrary to the premise of Mr Gunasegaram’s submissions, the damages awarded to Blue Visions did not put it in the position that it had the use of Mr Gunasegaram’s services throughout the period of his employment but paid him no wages. Damages were awarded on the counterfactual that Mr Gunasegaram, among others, would not have been employed and the work he did would have been done by other employees of Blue Visions absorbing some of the excess capacity of those persons.

335. Ground 3 has not been made out.

30 percent discount: ground 6

336. The primary judge found that while the majority of the staff who fell within the unrequired category were retained by Blue Visions because of the representations in relation to the Masters project, it was appropriate to discount Blue Visions damages claim by 30 percent to take account of the fact that additional staff were engaged or retained by Blue Visions for other projects which did not eventuate: at [218].

337. Mr Gunasegaram contended that the 30 percent reduction applied by the primary judge to the damages calculation was inadequate and should have been at least 85 percent. Blue Visions sought to uphold the 30 percent discount arguing that it was an evaluative judgment open to the primary judge and no error has been shown.

338. It is common ground that the 30 percent discount was applied across the board to all of the not required staff that fell within the damages calculations performed by Mr Mullins, irrespective of whether those staff had any involvement in other projects that also did not eventuate, such as the Nicholson’s Gold Mine project and the Roy Hill project. To that extent, the allowance by his Honour for the not required staff doing other work was somewhat generous to Mr Gunasegaram.

339. Nevertheless, Mr Gunasegaram pointed to five matters which he submitted justified a larger discount. First, that the whole “not required” group of employees had not been retained for the Masters project (or Masters plus the mining projects) for the whole loss period. Second, that Blue Visions’ policy was to keep some additional staff employed to provide capacity to start new projects quickly. Third, that Blue Visions acknowledged that it required staff for many other non-billable tasks besides covering for annual leave, such as tender writing. Fourth, that all of the “not required” staff did some work for projects for which Blue Visions charged and (presumably) received payments. Fifth, that the 12.5 percent deduction for leave addressed only annual leave and there was evidence that Blue Visions frequently asked employees to take additional unpaid leave when things were quiet and that the employees often agreed.

340. Blue Visions responded that the first four matters relied upon by Mr Gunasegaram are directed to the counter-factual analysis undertaken by his Honour but did not directly challenge that analysis or his Honour’s reasons for accepting that analysis and were made without reference to the evidence or his Honour’s findings.

341. Blue Visions further submitted that, in any event, each of those four matters was taken into account by the primary judge in reaching the figure in respect of the amount of damage, from which his Honour made the 30 percent deduction. That submission should be accepted.

342. First, that some people in the “not required” group of employees would have been retained by Blue Visions even if the Masters project was not a prospect, was a matter taken into account by his Honour. At [202] of the judgment, his Honour accepted the assessment of Mr Khreich of which staff were required and which were not, subject to the need to make an adjustment to take account of the fact that the additional staff were engaged or retained not just in anticipation of the Masters project, but also for obtaining other work including the Nicholson’s Gold Mine project and the Roy Hill project.

343. Second, that Mr Khreich would have retained some extra staff anyway for some period so that they could be quickly deployed on new client projects was a matter recognised by his Honour (at [186] of the judgment).

344. Third, that some non-billable work was necessary and Blue Visions retained staff for non-billable tasks was taken into account by his Honour. At [209] of the judgment his Honour found that, to the extent that the unrequired staff did non-billable work, such work should only be taken into account to the extent that it produced a financial benefit for Blue Visions and that Mr Gunasegaram had the onus to identify how Blue Visions obtained a financial benefit from non-billable work and had not done so. That finding is not challenged.

345. Fourth, that the “not required” staff did some billable work over the counterfactual period was taken into account by his Honour. At [209] of the judgment, his Honour found that to the extent that the unrequired staff did billable work, that work could have been done by required staff, with the result that Blue Visions would have got the benefit of that without any of the cost. That finding is not challenged.

346. As to the fifth matter (that staff were sometimes placed on unpaid leave when things were quiet, and staff often agreed), Blue Visions correctly points out that a version of this argument was advanced by Mr Gunasegaram and rejected by the primary judge (at [187] of the judgment) in relation to one particular employee, Mr Amir Roudbari. Insofar as Mr Gunasegaram sought to make a broader submission, he did not identify with any precision the number of employees who were sometimes placed on annual leave.

347. There is a further difficulty with this last submission. The fifth matter relied upon by Mr Gunasegaram is a quite different circumstance to that found by the primary judge, namely that Blue Visions was in a difficult financial position given the large number of staff it employed who were not producing income to warrant their employment, that Mr Khreich wanted to reduce staff numbers significantly, but was persuaded not to do so by Mr Gunasegaram’s representations. There was no error by the primary judge in not making a specific allowance for this matter.

348. In my view, the challenge to the 30 percent discount to the damages award has not been made out.

Manifest excess: ground 7

349. If ground 6 fails, Mr Gunasegaram contends in ground 7 that the same factors identified as justifying an increase in the 30 percent discount, justified setting aside the award of damages entirely as being manifestly excessive.

350. Blue Visions responded that the damages awarded by the primary judge cannot properly be characterised as “excessive”, much less so “manifestly excessive”. Blue Visions also contended that Mr Gunasegaram’s submissions in support of this ground did not identify error by the primary judge.

351. Since no oral submissions were advanced by Mr Gunasegaram in support of ground 7, it may be taken not to have been pressed. If I am wrong in this regard, then the manifestly excessive ground fails for want of identification of any error by the primary judge beyond the submissions in support of ground 6, which, for the reasons given above, have not been made out.

Conclusions and Orders

352. Blue Visions’ appeal has failed. There is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.

352. Mr Gunasegaram’s appeal has also failed. Again, there is no reason why costs should not follow the event.

353. Blue Visions also sought consequential relief in relation to certain interlocutory orders made by Leeming JA on 24 July 2017 pending the determination of the appeal: Gunasegaram v Blue Visions Management Pty Ltd [2017] NSWCA 187. Relevantly, Blue Visions submitted that the stay of the enforcement of the judgment in par 7 and the orders in pars 8, 9 and 13 of the orders made on 10 May 2017 should be discharged, and that the money ($400,000) paid into court by Mr Gunasegaram by way of security for the judgment debt in favour of Blue Visions be paid out to Blue Visions. Mr Gunasegaram did not make any submissions to the contrary, if the appeal was unsuccessful. Those orders should be made.

354. Accordingly, I propose the following orders:

CA 2017/168664 (Mr Gunasegaram’s appeal)

1. Appeal dismissed.

2. Appellant to pay the respondent’s costs.

3. Discharge orders (1) and (2) made by Leeming JA on 24 July 2017, staying the enforcement of the judgment in par 7 and the orders in pars 8, 9 and 13 of the Orders made on 10 May 2017 in proceedings 2014/192899.

4. Order that the amount of $400,000 paid into court by Mr Gunasegaram pursuant to order (3) made by Leeming JA on 24 July 2017 be paid out to Blue Visions Management Pty Ltd.

5. Grant liberty to apply, if necessary, to a single Judge of Appeal on 3 days’ notice in respect of the implementation of order (4) above.

CA 2017/168769 (Blue Visions’ appeal)

1. Appeal dismissed.

2. Appellant to pay the respondents’ costs.

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Endnotes

Amendments

15 August 2018 - Typographical errors amended in the following pars: [1]; [26]; [29]; [43]; [180]; [255]; Catchwords.

Decision last updated: 15 August 2018