Idoport Pty Ltd v National Australia Bank Ltd
Case
•
[1999] NSWSC 828
•19 August 1999
No judgment structure available for this case.
CITATION: Idoport Pty Ltd v National Australia Bank Limited [1] [1999] NSWSC 828 CURRENT JURISDICTION: Equity Division, Commercial List FILE NUMBER(S): 50113/98 HEARING DATE(S): 26, 27, 28, 29, 30.7.99; 2, 3, 4, 5.8.99 JUDGMENT DATE:
19 August 1999PARTIES :
Idoport Pty Ltd & anor (Plaintiffs)
National Australia Bank Limited & ors (Defendants)JUDGMENT OF: Einstein J
COUNSEL : J.J. Garnsey QC, T.J. Hancock, M.C.L. Dicker and R.C. Titterton (Plaintiffs)
T.E.F. Hughes (AO) QC, H.K. Insall (Defendants)SOLICITORS: Withnell Hetherington (Plaintiffs)
Freehill Hollingdale & Page (Defendants)CATCHWORDS: Practice and Procedure - Interlocutory application for appointment of receiver and manager and for injunctive relief - applicable principles - Discretionary factors to be taken into account - Consideration of serious questions for trial and balance of convenience - Intellectual Property - ‘e-commerce services’ - Definition of words ‘equivalent or similar functionality’ - Equity - Fiduciary obligations - Interrelationship with contractual obligations - Whether terms of contract generally or with respect to a specific matter require one party to pursue the other’s interests without regard to its own - Special relationships - Receiver and Manager - Appointment by Court - Plaintiffs’ claim in final proceedings to very substantial amount by way of unliquidated damages - Preservation of subject matter of litigation - Conduct of defendants said to be damaging and destroying subject business - Plaintiffs having no proprietary interest in subject intellectual property or business - Applicants having unlimited guarantee given by bank in respect of defendants’ compliance with obligations under contract - Whether damages an adequate remedy - Delay - Laches - Undertaking as to damages - Value of undertaking as to damages in circumstances - Trade Practices - Misleading and deceptive conduct - Alleged precontractual representations - Contract - Electronic Commerce Services - AUSMAQ system - Sale of intellectual property rights in automated trading/settlement/principal portfolio/reporting system able to effect real time transactions in financial markets and able to operate as a stock exchange - Electronic trading - Purchasing banking group interest in probable use for delivery and support of customer focused services - Changing nature of bank’s business involving unbundling of product function from customer service function - Sale effected by complex set of interrelated agreements including restructuring and consultancy agreements - Plaintiff company [JMG] set up by vendors to provide consultancy services and as entity entitled to receive ongoing performance bonuses and with rights upon invocation of buyout procedures - Defendant company [NMG] acquiring all the shares in operating company and set up as wholly owned subsidiary of bank - Plaintiffs retaining no proprietary rights in undertaking, business or goodwill of NMG or operating company - Plaintiffs’ claim that NMG and bank have by breaches of consulting agreement and by development of services infringing intellectual property rights to AUSMAQ system, threatened the subject matter of the litigation - Application for appointment of receiver and manager of bank’s assets employed in relation to bank’s development of e-commerce services - Application for interlocutory injunctive relief requiring bank to conduct e-commerce services within NMG so as to avoid alleged infringement of NMG’s intellectual property rights and to preserve JMG’s contractual interests in NMG’s profitability - Contract - Construction - whether ‘mutually known facts’ and surrounding circumstances admissible in aid of construction - Implied terms - Principle in Mackay v. Dick (1881) 6 AC 251 - Derogating from grant - Principle in Trego v Hunt (1896) AC 7 - Contracting party not entitled to undermine benefit of a contract - Whether global operation, development and commercialisation of the system a term of the contract - Contract - Consulting agreement - Entitlement to service fees and to performance bonuses relating to the exploitation of an automated market quotation system - Contract - Interlocutory mandatory injunctions - Application for orders that alleged ‘other’ services developed by defendants outside consulting agreement be brought within the scope of consulting agreement - Functionality - Whether ‘other’ services have equivalent or similar functionality - Equity - Interlocutory mandatory injunction seeking attendance and participation at management meetings, submission of draft business plans - Whether party excluded from performing contractual obligations - Whether relief by way of interim specific performance appropriate - Constant supervision of Court - Contempt sanction - Persons subject to a mandatory order attended by contempt sanction must know with precision what is required - Possibility of repeated applications for rulings on compliance with orders requiring a party to run a business over an extended period to be discouraged - Equity - Interlocutory mandatory injunction - Obligation to keep separate accounts and records - Evidence - Expert evidence - ‘Specialised knowledge based on training study or experience’ - Weight to be accorded to the evidence of a partisan expert. ACTS CITED: Evidence Act 1995 s.79
Trade Practices Act 1974 s.52CASES CITED: A v Hayden [No 1] (1984) 59 ALJR 1
Admar Computers Pty Ltd v Ezy Systems Pty Ltd [1997] 853 FCA, 29 August 1997
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Attorney-General v Sheffield Gas Consumers Co (1853) 43 ER 119
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Baker v Selden (1879) 101 US 99
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Carlton & United Breweries (NSW) Pty Ltd v Bond Brewing New South Wales Ltd (1987) 76 ALR 633
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J C Williamson Ltd v Lukey (1931) 45 CLR 282
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Jones & Anor v Australian Pacific Hotels (Challa Gardens) Pty Ltd (unreported Supreme Court of SA, 26 February 1998, Lander J)
Kearns v Leaf (1864) 71 ER 299
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Mackay v Dick (1880-1881) 6 AC 251
Magna Alloys and Research Pty Ltd v Coffey (1981) VR 23
Mercator Property Consultants Pty Ltd v Christmas Island Resort Pty Ltd (unreported, Federal Court, 29 July 1998, Nicholson J)
Moorgate Tobacco Co Ltd v Philip Morris Ltd (1984) 156 CLR 414
Moss Steamship Co Ltd v Whinney [1912] AC 254
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Wentworth v Wentworth, (unreported, Supreme Court of NSW, 12 June 1997, Hodgson J)
Whelan Associates Inc v Jaslow Dental Laboratory Inc [1987] FSR 1DECISION: Short Minutes to be brought in.
JUDGMENT
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION - COMMERCIAL LISTEINSTEIN J
SYDNEY 19 August 1999
50113/98 Idoport Pty Limited & Anor v National Australia Bank Limited & ors.
1 These proceedings concern the dealings between the parties relating to the exploitation of an Automated Market Quotation System called ‘AUSMAQ’. Prior to the parties entering into interrelated contracts on 13 September 1996 which commenced in operation on 6 November 1996, Market Holdings Pty Limited [‘Market Holdings’], a company controlled by Mr J.M. Maconochie and interests associated with him, directly or indirectly owned and controlled the various intellectual and industrial property rights in the software and other information materials and works used to provide the AUSMAQ service. Idoport [‘JMG’] which is a company subsequently incorporated for the purpose of providing consultancy services referred to hereunder and which is now controlled by Mr Maconochie, presently seeks interlocutory relief principally on the asserted basis that it is necessary to preserve the subject matter of the litigation pending the final hearing of the proceedings. 2 Before identifying the parties with more precision, it is convenient to immediately turn to an explanation of the AUSMAQ system against a background context in which the Australian Securities Commission [the “ASC”] held a series of public hearings in 1993 before authorising the establishment of the system which in due course resulted in the necessity for the Corporations Law to be amended to include section 770A and for the Australian Securities Commission to exempt the operator of the system from compliance with Part 7.12 of the Corporations Law in relation to the offering of securities. A copy of the ASC instrument of exemption [PX 2/610] is appended to the judgment as Appendix “A”. 3 The principal contracts under examination in the proceedings defined the ‘AUSMAQ service’ in identical terms. The subject definition was:
The Proceedings
4 A brief description of the system, and of the interest of the National Australia Bank Limited [‘the Bank’] in acquiring the AUSMAQ business, by what it called “Project Electra”, is to be discerned from the following excerpt from a memorandum dated 6 December 1996 sent by Mr Breeze of the Bank to Mr GLL Barnes, the Chairman of NMG:
‘AUSMAQ Service’ means the service of providing an automated securities trading system and related services known as the Australian Market Automated Quotation System or Ausmaq System or Euromac regardless of its name and includes but is not limited to, the holding of Securities and Entitlements for clients, the provision of a related deposit facility, execution of Securities transactions with related client portfolio administration and reporting and any service with the equivalent or similar functionality, and any enhancements, modifications and additions to the service anywhere in the world’.
[emphasis added]5 Whilst noting that the “functionality” of the system was the subject of evidence before the Court on the hearing of the motion, and will be examined in more detail below, for present overview purposes it is sufficient to describe the essential elements of the system in the words used by the plaintiffs in their submissions:
‘1. AUSMAQ is a ‘straight through’ securities trading/settlement/principal/ portfolio/reporting system which can effect real-time transactions in financial markets. It is based on the central depository model for cash and securities, whereby cleared cash and securities are credited to each client principal’s portfolio account on the system, which then permits simultaneous transaction and settlement as a book entry on the counterparty client accounts.
The NMG/Ausmaq business has the ability to provide the automated infrastructure for managed products (and other securities) distribution, trading, dealing group management and control, and real-time automated client account management. We see this has application to client discretionary investment accounts, client tax-advantaged accounts (for example Tax Exempt Savings Accounts) and payment systems.
2. The Group’s interest in acquiring the AUSMAQ business was based on the changing nature of our business, the unbundling of product function from the customer service function , and the constant pressure to reduce costs. The AUSMAQ business scores highly in each of these areas and we believe represents the way forward for the delivery and support of customer-focused services’ .
[PX 1742-1743] [emphasis added]
6 Prior to the contractual agreements of late 1996 earlier referred to, the intellectual property rights for the AUSMAQ Service had been licensed by Market Holdings to AUSMAQ Limited which had in turn sublicensed those rights to the operating company, Australian Market Automated Quotation (AUSMAQ) System Limited [‘AUSMAQ Systems’]. AUSMAQ Limited was placed into voluntary administration on 30 June 1996 when Mr Walker of Ferrier Hodgson was appointed administrator. 7 In the latter portion of 1996, upon the completion of successful negotiations between Mr Maconochie, Market Holdings, JMG and Mr Walker of the one part and the Bank and companies associated with it of the other part, the contracts to which earlier reference has been made were entered into, providing inter alia, for the restructure of the group of companies of which Ausmaq Systems was a part [‘the Restructuring Agreement’] and for the entry of relevant parties into a Consulting Agreement [‘the Consulting Agreement’ or ‘the Consultancy Agreement’]. Broadly, these agreements achieved the transfer by Market Holdings and the other shareholder in Ausmaq Limited to a company taken off the shelf and renamed National Markets Group Limited [‘NMG’], of the legal ownership of the shares in Ausmaq Limited and of the intellectual property rights to the AUSMAQ system itself. NMG at the same point in time became a wholly owned subsidiary of the Bank. In general terms, these transfers to NMG were in consideration of monetary payments to be made to third parties and the right to a performance bonus once the profit produced by the system reached a predetermined level. A set of potential ‘buy out’ procedures was also provided for in the contractual agreements, dealing with entitlements to invoke such procedure some seven years after the commencement of the agreements, according to a predetermined formula. Importantly, the agreements also included stringent conditions by way of covenants, by JMG, inter alia to the effect that it would not by itself nor any related body corporate ‘be directly or indirectly engaged, concerned or interested whether on its own account or as a member, shareholder, consultant, agent, beneficiary, trustee or otherwise in any enterprise corporation, firm, trust, joint venture, or syndicate which is engaged, concerned or interested in or carrying on any business the same as or substantially similar to or in competition with that conducted by [NMG or Ausmaq Systems] and any of their related Bodies Corporate from time to time who would accede to the Consulting Agreement. [Consulting Agreement, clause 12.1]. 8 The date for the final hearing of the proceedings has not yet been fixed. That hearing is anticipated by the defendants to take at least six months by way of Court hearing time. The present state of the proceedings is such that a final hearing date will not be fixed prior to the commencement of the year 2000. The defendants have stated that they will resist a fixture prior to mid 2000 and even then have indicated that such a fixture could presently only be regarded as “provisional”. The hearing date is dealt with below. The probabilities of an appeal from a decision of a trial judge in a case such as the present are high. In general terms, it is unlikely then that a final resolution of the proceedings on a final basis, following any appellate proceedings, could be expected to be reached until in all likelihood the year 2002, if that. 9 The burden of the plaintiffs’ application for interlocutory relief is the allegation that in flagrant breach of their obligations under the Consulting Agreement, the defendants have prevented JMG from performing its obligations under that agreement and have by their conduct [said to include the development by the Bank of services infringing the intellectual property rights to the AUSMAQ system], threatened ‘the subject matter of the litigation … [being] the undertaking, business and goodwill of the NMG Group in relation to the Ausmaq Service’ [plaintiffs’ overview submissions paragraph 2.2.1.] 10 The Plaintiffs in overview submissions put the matter as follows:
‘* It is a computer system which is located on main-frame computers located in Brisbane which are operated by the Queensland Government Centre for Information Technology and Communications (“CITEC”). Users of the AUSMAQ system are connected by terminals and land lines to the CITEC computers in Brisbane and thus to the AUSMAQ system itself which comprises a suite of computer programs.
* AUSMAQ operates as a market. It enables dealers and vendors of financial products to meet in an electronic market place, to buy and sell such products, and to settle such transactions immediately. Customers of AUSMAQ include funds managers, dealers and financial institutions.
* AUSMAQ has the ability to operate as a stock exchange, but presently has not been approved to do so. Its features include those of other automated settlement systems such as SEATS and CHESS, but it also has the ability to handle all types of financial instruments and securities, including land.
* A vital part of AUSMAQ system is a central facility called “INSTACLEAR” which holds cash and securities on behalf of customers of AUSMAQ (ie. clients of dealers) and enables automatic and immediate settlement of transactions. The advantages of such a system are clear when settlement times on conventional systems are considered. For example, settlements on the Australian Stock Exchange take up to 5 days, and up to 60 days for units in mutual funds.
* Clients’ funds are held by a trustee called the “Depositee” pursuant to a Deposit Funds and Management Agreement. Before the sale in 1996, the Depositee was the Australian Industry Development Corporation (“AIDC”) which held deposit accounts as trustee on behalf of each AUSMAQ customer. The customers did not have accounts in their own names.
[Plaintiffs’ overview submissions]
* The Depositee is now the NAB itself, and clients of AUSMAQ have been required to open accounts with the NAB in their own names. The Plaintiffs contend that this change has had serious and deleterious consequences for the independence of the AUSMAQ System and hence for NMG’.
11 Accepting immediately the severe difficulties which lie in the plaintiffs’ path in endeavouring to obtain interlocutory relief by way of appointment of receivers or by way of what may be referred to as ‘indirect specific performance of an extant contract’, the plaintiffs assert that in what is alleged to be the extremely unusual circumstances of the instant proceedings, the Court’s discretion is enlivened so as, according to principle and in the exercise of the administration of justice, to furnish the plaintiff with all or some of the relief now pressed. That the case is an unusual one is at the least made plain by:
The Plaintiffs seek interlocutory relief substantially to preserve the subject matter of litigation pending the final trial of these proceedings, including the appointment of a receiver and manager of the assets, business and undertaking of “NMG” and to certain parts of the undertaking of “NAB” and NATIONAL AUSTRALIA FINANCIAL MANAGEMENT LIMITED (“NAFM”) as enable NAB to control appointment to the Board of NMG or as are employed in relation to the development of certain e-commerce services which the plaintiffs contend should be e-commerce services developed and conducted through NMG and the NMG Group. [paragraph 1.1.1]
The Plaintiffs seek this relief because they believe they have no other choice in view of their wish to continue to perform their obligations under the Consulting Agreement, which is ongoing, and in view of the following:
The apparent deliberate disregard by NMG and NAB of their contractual obligations under the Consulting Agreement dated 13 September 1996 with effect from 6 November 1996 pleaded in the Second Further Amended Statement of Claim in these proceedings (the “Statement of Claim” and the “Consulting Agreement”), which was an Agreement entered into after substantial technical, legal and financial due diligence had been carried out by NAB, its solicitors Arthur Robinson & Co and its accountants KPMG; and
The complete failure and refusal of the Defendants to respond to any matter of substance raised or recommended by Idoport Pty Limited (“JMG”) concerning the conduct of the Consulting Agreement and the business of NMG and the NMG Group (primarily the global exploitation of the AUSMAQ Service) from August 1997 to date; and
The apparent attempts by commission and omission by NMG through its Board at the direction of NAB to damage, perhaps irretrievably, the business, undertaking and goodwill of NMG and the NMG Group in relation to the AUSMAQ Service which have continued and recently increased; and
The substantial liability for damages and/or equitable compensation which NMG. NAB and the other Defendants are incurring by the continued wrongdoing which, if it results in the destruction of the business, undertaking and goodwill of NMG and the NMG Group in relation to the AUSMAQ Service and the impossibility of performing the Consulting Agreement, will be beyond the capacity of all the Defendants to meet, even NMG if it calls upon NAB’s unlimited Guarantee of its obligations under the Consulting Agreement, and NAB, as, upon the Plaintiffs’ case, the quantum of damages in such an event may well amount to USD21 billion and thus may exceed the NAB’s shareholders’ funds by an amount in excess of USD10 billion. [paragraph 1.1.2]
This is a similar case to Mercator Property Consultants Pty Ltd v Christmas Island Resort Pty Ltd (unreported, Federal Court, 29 July 1998, Nicholson J) where a receiver was appointed to a company whose major asset, its casino licence, was in danger of being revoked or canceled. The strength of the evidence in this case may be contrasted with the evidence in Jones v Australia Pacific Hotels Pty Ltd (unreported, Supreme Court of SA, 26 February 1998,) in which Lander J held that the application was refused because the evidence did not establish that there was a possibility that the assets controlled by a trustee may be dissipated or wasted. [paragraph 2.5.4]
There is very strong evidence in this case that the Defendants are destroying the business of NMG by (most recently) refusing to pursue or accept an offer from an international corporation for the Ausmaq System customers (for example, a UK mutual fund), which would generate many millions of dollars in annual revenue for NM; by alienating present customers at the highest level, by refusing to permit the development and to implement business plans in accordance with the Consulting Agreement, by imperiling the technical and integrity and security of the AUSMAQ Service and its licence and exemptions under the Corporations Law, and by engaging in the other behaviour complained of by the plaintiffs (see Mr Maconochie’s longer affidavit of 2 June 1199). [paragraph 2.5.3]12 The Court’s jurisdiction to grant interlocutory relief is of course tailored to the individual circumstances of any particular case and is exercised according to principle applied to those circumstances. Undaunted by the obvious difficulties in the path of the grant of the wide ranging interlocutory relief sought at this stage in the proceedings, the plaintiffs pursue that relief.
(a) the application to appoint a receiver of certain assets of the Bank;
[Transcript for 26 July 1999 page 41]
(b) the plaintiffs’ claim that the Bank is exposed by its widely framed guarantee [“of the performance of all money under which NMG, whether alone or with any other person, is or at any time may become actually or contingently liable to pay to or for the account of JMG for any reason whatever under or in connection with clause 7 of the Consulting Agreement”], to claims within a range of US $271million as at 2003, said to increase indefinitely to US $21billion or more, being claims which, if successful, are said to exceed the value of the Bank’s shareholders’ funds.
13 The plaintiffs in overview submissions put the matter as follows:14 I return to set out in more detail what has at the most been merely the briefest of overviews of some of the issues.
‘In this case, although
* the Consulting Agreement and the Restructuring and other Agreements associated with it were entered into by NAB and NMG after extensive legal due diligence by NAB’s solicitors, Arthur Robinson & Co, and commercial, financial and technical due diligence by NAB and its auditors KPMG,
* the decision on the part of NAB to enter into the Agreements was made by the full NAB Board after a full presentation to it,
* the NAB studies for that presentation contain documents largely supporting the Plaintiffs’ case concerning the true construction and effect of the Consulting Agreement, and
* JMG has endeavoured to perform its obligations under the Consulting Agreement and has complained in writing about apparent and continuing breaches of it and associated breaches of fiduciary duty for almost two years,
the Defendants’ conduct has continued and is continuing, and JMG’s complaints have been met almost entirely with a wall of silence, with no reply on the merits, even in the affidavits filed on this application in answer to the matters most recently relied on by JMG in Mr Maconochie’s longer affidavit of 2 June 1999 (leaving aside an attempt to reply on some technical matters, which JMG will contend substantially admits its complaints).
This is extraordinary behaviour for an organisation of the size and apparent standing of NAB, and is not consistent with a bona fide attempt to properly perform the Consulting Agreement and to accord JMG its rights under and associated with the Consulting Agreement’. [paragraphs 2.6.5 and 2.6.6]15 JMG and Market Holdings are the first and second plaintiffs. The Bank is the first defendant. NMG is the second defendant. National Australia Financial Management Limited [‘NAFM’] is the third defendant. Ausmaq Systems is the fourth defendant. Mr G.L.L. Barnes, the Executive General Manager of the Bank is the fifth defendant. Mr Francis J. Cicutto, the Chief Operating Officer of and Executive Director of the Bank is the sixth defendant. Mr David M. Krasnostein, the Group General Counsel of the Bank is the seventh defendant. Mr K.F. Courtney is the eighth defendant. Mr Russell A. McKimm is the ninth defendant. 16 There is no issue but that the Bank directly or indirectly controls and owns the shareholding in both NMG and NAFM. 17 It is convenient to set out the relevant corporate structure before and after the entry into of the subject contracts:
The Parties to the Proceedings
Second Further Amended Points of Claim
18 The second further amended points of claim and the detailed particulars of that claim run to 232 pages. A synopsis of the statement of claim sets out its structure and is in the following terms:
19 To my mind, it is sufficient to set out the Plaintiffs’ summary of the case and of their complaints as set out in their overview submissions:
49H Project Maple Leaf
‘Synopsis of Statement of Claim
Para
1. Parties
9. Misrepresentations by NAB
12. The Consulting Agreement
13. Provisions of the Consulting Agreement
15. The Performance Bonus Provisions
16. NAB’s Guarantee of the Performance Bonus
18 Implied terms in the Consulting Agreement
19. Fiduciary Relationship of NMG and NAB to JMG
28. Breaches of Contract and Fiduciary Duty by NMG and NAB
28 Breaches in relation to the Performance Bonus
29 The Gateway Service
34 The Remote Wealth Service
39 The Premium Automated Lending Service
45 The FX Auto-Dealing Service
49A Independence One Service
50 Further Breaches of Contract and Breaches of Fiduciary Duty by NMG and NAB
51 NMG’s Breaches of Contract
52 NAB’s Breaches of Contract and Procuring Breaches of Contract
53 NMG’s and NAB’s Breaches of Fiduciary Duty and participation in each other’s breaches.
54.1 Participation and threatened participation by NAB Executives (Mr Barnes, Mr Cicutto, Mr Krasnostein) and NMG Directors (Mr McKimm, Mr Courtney, Mr Barnes, Mr Cicutto, Mr Krasnostein) in NAB’s and NMG’s Breaches of Fiduciary Duty
55. Legal Consequences, Damages, Compensation, Liability, Obligations and Trusts
56. Contravention of the Trade Practices Act and the Fair Trading Act by NAB and NMG
57. Return of the AUSMAQ Systems, the AUSMAQ IP and AUSMAQ Services to JMG and Market Holdings’.20 The precontractual representational case is not relied upon by the plaintiffs in relation to the relief sought on the motion, but the facts detailed in the particulars of precontractual communications were said to be relied upon within the principles expounded in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, as materials which may be legitimately resorted to for the purpose of the construction of ambiguous or imprecise terms in the written contracts or for the purpose of dealing with the implied term case propounded by the plaintiffs.
‘ 3. The Serious Questions to be Tried
The claim which JMG and Market Holdings make against NAB, NMG and the other proposed respondents is set out in detail in the Second Further Amended Statement of Claim and further amplified in the Particulars of 9 October 1998 (Annexure A to this Overview) and the Further and Better Particulars (Annexure B to this Overview). The Plaintiffs’ complaints arise principally in connection with the Consulting Agreement, and may be categorised under the following headings:
3.1. Contraventions of the Trade Practices Act 1974 by misleading and deceptive conduct
JMG and Market Holdings complained of initial misrepresentations by NAB, which lead them to enter into the Restructure Agreement and related agreements including the Consulting Agreement, and to attempt to perform the Consulting Agreement. They also complain of subsequent misrepresentations of both NAB and NMG, and of subsequent and continuing misleading and deceptive conduct of NAB and NMG in relation to the implementation and administration of the Consulting Agreement.
3.2. Breaches of provisions of the Consulting Agreement3.2.1. JMG complains that both NMG and NAB have breached or procured the breach of the Consulting Agreement. It should be understood that although the agreement is called a “Consulting Agreement”, it is not merely that. The Consulting Agreement provides not only for a consultancy Service Fee to be paid to JMG, but also for a Performance Bonus to be paid to JMG, being 13.5% or 12.5% of the gross income of NMG and companies in the NMG group, and any other entity falling within the Agreement’s definition of an “Operating Entity”, that is an entity that uses or provides the Ausmaq Service and the Ausmaq IP (including their functional equivalents whether or not obtained from or supplied by NMG and the NMG Group) as defined in the Agreement. On JMG’s case, those Operating Entities include NAB and any division or subsidiary of NAB which provides a service which is functionally equivalent to or similar to that of Ausmaq, capturing most types of electronic commerce in intermediate financial markets.
3.2.2. JMG claims that NMG, at the instigation of NAB, has failed to implement the Consulting Agreement and to involve JMG in the implementation of the Consulting Agreement as provided in the Consulting Agreement, has misappropriated the Ausmaq IP and Service for the benefit of NAB and its associated entities, and has delayed the commercialisation of the Ausmaq Service in accordance with the Consulting Agreement, thereby depriving NMG and the NMG Group of income and JMG of its Performance Bonus.
3.3. NAB’s inducing breach of contract
3.3.1. JMG also complains that NAB has induced and procured NMG to breach the Consulting Agreement, and indeed has done so while using NMG’s confidential business and technical information and other intellectual property rights to develop elsewhere within NAB and its subsidiaries functions and services which should have been developed in NMG and its group.
3.3.2. Consequently JMG claims substantial damages which can be identified at this time arising from breaches of the Consulting Agreement due to lost Performance Bonuses because of inadequate, delayed or failed commercialisation of NMG and the Ausmaq Service in accordance with the Consulting Agreement and the commercialisation of the Ausmaq IP and functional equivalents of the Ausmaq Service by NAB and its associates outside the NMG Group. These claims involve breaches not only of express and particular provisions of the Consulting Agreement, but of implied terms in the Consulting Agreement (based generally speaking on the obligation of a party to an agreement not to frustrate and prevent the operation of the agreement, but to co-operate in the performance of the agreement).
3.4. Breaches of fiduciary duty
3.4.1. JMG also claims breaches of fiduciary duties owed by NMG and NAB to JMG. A fiduciary relationship of a significant but limited nature is claimed arising out of the position and relationship of the various parties and the obligations in the Consulting Agreement. The basis is indicated in detail in the Statement of Claim. While the matters relied upon in breach of fiduciary duty overlap to a large extent with the breaches of contract, the consequences in law are somewhat different. The test for causation in relation to equitable compensation for the breach of fiduciary duty is quite different from that for breach of contract, and, in effect, puts the onus on the party in breach of fiduciary duty to show why it should not pay compensation for or disgorge all profits in respect of the wrongful act.
3.4.2. Claims for participation in NMG’s and NAB’s breaches of fiduciary duty and contraventions of the Trade Practices Act are made against NAB and the Directors of NMG, three of whom are Senior NAB executives.
3.5. Return of the Ausmaq IP and Unjust Enrichment
A claim is also made for the return of the Ausmaq system and related industrial and intellectual property, effectively seeking that the restructure Agreement and the Consulting Agreement be “undone”. The claim calls upon the powers of the court under s 87 of the Trade Practices Act 1974, should it find a contravention of the Act. This claim depends very much on the totality of the evidence as it comes during and at the end of a trial.
3.6. The claim in contract3.6.1. The express and implied obligations relied upon and the construction of the Consulting Agreement and the effect of the terms contended for are set out in paragraph 12-18 of the Statement of Claim.
3.6.2. In the Further and Better Particulars, the basis of the implied terms was particularised as follows:
Paragraph 18
Request
The matters set out in the "Further Particulars of Statement of Claim “dated 9 October 1998 in relation to paragraph 18 do not provide adequate particulars.
In relation to each alleged Implied term in subparagraphs 18.1 to 18.5, please identify the facts, matters and circumstances alleged to give rise to that implied term including:
where reference is made to an agreement, the precise Clause or Clauses of the agreement referred to or relied upon,
where reference is made to a document,. the part of that document relied upon: and
where reference is made to a conversation:
the persons involved in the conversation:
the date of the conversation: and
the part or parts of that conversation relied upon as giving rise to the implication.
Reply
The particulars supplied are quite sufficient to enable the Defendants to plead. The matters you request are matters of evidence. The basis of the Plaintiffs’ case in this respect has previously been made quite clear in the particulars supplied.
As stated in the Particulars of Statement of Claim dated 9 October 1998, each of the terms is implied, and it is contended that each is implied:
as a matter of law (see, for instance, Mackay v Dick (1880-1881) 6 App Cas 251 and Trego v Hunt [1896] AC 7), and
as a matter of necessary implication, from the other terms of the Consulting Agreement, and/or
as a matter of fact, as implied in fact, as necessary to enable the Consulting Agreement to operate according to its terms and reasonable, by reason of the nature and terms of the Consulting Agreement and the Restructuring Agreement and related agreements referred to in the Restructuring Agreement as required for completion, and the facts and matters pleaded in paragraphs 8, 9, 12, 16, 17 and 20 to 25 of the Statement of Claim and further particularised in the Particulars of Statement of Claim dated 9 October 1998 and previously supplied and in the particulars in this Reply.
The terms of the Consulting Agreement particularly relied on are the definitions in Clause 1.1, and clauses 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 20 and Schedule 2.
3.6.3. The factual matrix relied upon in this regard is found in the history of the negotiations for and entry into the Restructuring Agreement, the Consulting Agreement and related Agreements. See:
Maconochie First Statement paras 7 to 16 and the documents numbered and identified therein:
Hume First Statement paras 4 to 7 and the documents numbered and identified therein:
The documents exhibited to the Defendants Statements of Mr Mackinnon and Mr Moore:
3.7. The fiduciary relationship3.7.1. The facts and matters relied upon to establish a fiduciary relationship are set out in paragraphs 19 – 27 of the Statement of Claim.
3.7.2. The relationship the Plaintiffs with NMG and the NAB is one in which arose out of the purchase of the Ausmaq System in 1996 and was defined, in particular, by the Consulting Agreement and the representations made by the Defendants to the Plaintiffs from July 1996 onwards. The result of the completion of the transactions in November 1996 was to place where the NAB and NMG in a position where they are in control of the AUSMAQ system and its ability to make profits and thus affect the payment of the performance bonus to the Plaintiffs. The NAB and NMG thus are in a position to affect the interests of the Plaintiff in both a legal and a practical sense, the Plaintiffs are vulnerable to abuse of that power, and the relationship is therefore fiduciary in character: Hospital Products v USSC (1984) 156 CLR 41 at 97 per Mason J.
3.7.3. The primary evidence relied upon is that set out in paragraph 6 above.
3.8. Breaches of Contract and of Fiduciary Duty
3.8.1. The breaches of contract and of fiduciary duty are fully pleaded and particularised in paragraphs 50 to 53 of the Second Further Amended Statement of Claim and in the Particulars of 9 October 1998 . . . and the Further and Better Particulars . . ..
3.8.2. The evidence relied upon to support these breaches is found in the following statements and documents:
Maconochie First Statement paras 16 to 38 and the documents numbered and identified therein:
Hume First Statement paras 8 to 18 and the documents numbered and identified therein:
Maconochie Second Statement paras 2 to 9 and the Annexure Tables (concerning the NAB’s creation and development of the Gateway Service, the Remote Wealth Service, the Premium Automated Lending Service, the FX Auto-Dealing Service) and the documents numbered and identified therein:
Maconochie Third Statement paras 2 to 13 and the Annexure Tables (concerning the NAB’s creation and development of the Independence One Service, and Project Maple Leaf) and the documents numbered and identified therein:
Aitkin Statement
Maconochie Affidavit 2 June 1999 paragraphs 5 to 76 and the documents numbered and identified therein.
Maconochie Affidavit sworn 25 June 1999 (paragraphs 5-11) and the documents annexed to that affidavit.
Maconochie Affidavit sworn 9 July 1999 and Exhibit “JM1” thereto.
Maconochie Affidavit sworn 16 July 1999 and the documents annexed to that affidavit.
Hetherington Affidavit sworn 27 May 1999 exhibiting correspondence between solicitors and the letters in Exhibit SWH1:
3.9.1. The tort of inducing breaches of contract, and the participation in breach of fiduciary duty, and in contraventions of the Trade Practices Act are fully pleaded and particularised in paragraphs 54 to 56 of the Second Further Amended Statement of Claim and in:
3.9. Inducing Breach of Contract, and Participation in Breach of Fiduciary Duty, and in contraventions of the Trade Practices Act
The Particulars of the Statement of Claim served on 25 September 1999; . . .
The Further and Better Particulars of 9 October 1998 . . . and
The Reply dated 12 November 1998 to the Defendants’ request for additional Particulars . . ..
3.9.2. The evidence relied upon to support these matters is found in the statements and documents specified under paragraph 9 above.3.10. NMG’s and NAB’s Silence and Refusal to Respond to complaints
3.10.1. The Defendants have completely failed and refused to respond to any matter of substance raised or recommended by Idoport Pty Limited (“JMG”) concerning the conduct of the Consulting Agreement and the business of NMG and the NMG Group (primarily the global exploitation of the AUSMAQ Service) from August 1997 to date. The evidence is found in the following statements, affidavits and documents:
Maconochie First Statement paragraph 38 and the documents numbered and identified therein.
Maconochie Affidavit sworn 2 June 1999 paragraph 35 and the documents numbered and identified therein.
Maconochie Affidavit sworn 25 June 1999 (paragraphs 5-11) and the documents annexed thereto.
Hetherington Affidavit sworn 27 May 1999 exhibiting correspondence between solicitors and letters in Exhibit SWH1.
3.11.1. The NAB and NMG have at all times known that the Consulting Agreement required:
3.11. The NAB’s Knowledge of the True Nature of the Consulting Agreement – Deliberate Breaches and Conduct Damaging and Destroying Business
the global commercialisation of the AUSMAQ Service including “similar and equivalent services” within the NMG Group,
by NMG operated as an independent entity,
with JMG having the rights in relation to the development and implementation of NMG’s business plans in accordance with clauses 4 and 5 of the Consulting Agreement, and
with JMG having performance bonus rights plans in accordance with clauses 4 and 5 of the Consulting Agreement, representing in substance a one third equity share in NMG, and with NAB having the obligation to fund NMG and the NMG Group accordingly.
3.11.2. The evidence is found in the following statements and documents:
Maconochie First Statement paragraphs 1 to 7 and the documents numbered and identified therein.
Hume First Statement paragraphs 1 to 3 and the documents numbered and identified therein.
The documents exhibited to the Defendants’ Statements of Mr McKinnon and Mr Moore.
3.11.3. The evidence regarding damage and destruction of the business is found as follows:
Maconochie First Statement paragraphs 16 to 38 and the documents numbered and identified therein.
Hume First Statement paragraphs 8 to 18 and the documents numbered and identified therein.
Maconochie Third Statement paragraphs 2 to 13 and the Annexure Tables (concerning the NAB’s creation and development of the Independence One Service, and Project Maple Leaf) and the documents numbered and identified therein.
Maconochie Affidavit sworn 2 June 1999 (76 paragraphs) paragraphs 3 to 76 and the documents numbered and identified therein
Maconochie Affidavit sworn 25 June 1999 and the documents annexed thereto.
Maconochie Affidavit sworn 9 July 1999 and Exhibit “JM1” thereto
Maconochie Affidavit sworn on 16 July 1999 annexing the corporate search documents.
Hetherington Affidavit sworn 27 May 1999 exhibiting correspondence between solicitors and letters in Exhibit SWH1.
3.12. Liability of NMG and NAB and the other Defendants for Substantial Damages and the capacity to meet those damages3.12.1. The substantial liability for damages and/or equitable compensation which NMG. NAB and the other Defendants are incurring by the continued wrongdoing is one which, if it results in the destruction of the business, undertaking and goodwill of NMG and the NMG Group in relation to the AUSMAQ Service and the impossibility of performing the Consulting Agreement, will be beyond the capacity of all the Defendants to meet, even NMG if it calls upon NAB’s unlimited Guarantee of its obligations under the Consulting Agreement, and NAB, as, upon the Plaintiffs’ case, the quantum of damages in such an event may well amount to USD21 billion and thus may exceed the NAB’s shareholders’ funds by an amount in excess of USD10 billion.
3.12.2. The evidence is found in the following statements and documents: The Guarantee dated 6 November 1996.
Maconochie Fourth Statement paragraphs 1 to 14 and Appendices thereto and the documents numbered and identified therein:
Maconochie Fifth Statement paragraphs 1 to 11 and Appendices thereto and the documents numbered and identified therein:
Hume Second Statement paragraphs 1 to 10 and the documents numbered and identified therein:
Hume Third Statement paragraphs 1 to 4
Joslin Statement paragraphs 1 to 13 and the Appendices thereto.
Skelton Statement pages 1 to 7 and the Exhibit and Annexures thereto.
Pruden Statement pages 1 to 15 and the Annexures thereto.
[Not all of the evidence referred to above was admitted on the interlocutory motion.]
.13. The Defendants’ conduct of the proceedings
3.13.1. These proceedings were commenced in October 1998. The Plaintiffs have filed and served their witness statements dealing with the issues of both liability and damages.
3.13.2. The Defendants have filed only two witness statements dealing with issues of liability only. Those witnesses, Messrs McKinnon and Moore, have made damaging admissions (see 3.8 above) which substantially support the Plaintiffs’ case.
3.13.3. The Plaintiff’s evidence on this application is principally that contained in or referred to in the affidavit of Mr Maconochie sworn on 2 June 1999. Application. The defendants have served no affidavit evidence dealing with the matters raised by Mr Maconochie in that affidavit, particularly those matters dealing with refusal of major business opportunities. Further, the documents produced by the Defendants on Notices to Produce show no considerations of the opportunities referred to’.
21 The breach of contract case raises centrally questions of construction of the Consulting and Restructuring Agreements. It is not going too far to say that the respective contentions as to the proper construction and interrelationship of clauses 3 and 4 of the Consultancy Agreement, are of critical significance to the plaintiff’s contractual case and may well be determinative of the plaintiff’s fiduciary obligations case. 22 One crucial question is whether properly construed, these provisions leave entirely at the unfettered discretion of NMG by its authorised officer, the entitlement to give or to withhold from giving, instructions to JMG to perform particular services, including the preparation of business plans. 23 On the defendants’ construction of these clauses, there is no obligation whatever upon NMG to ‘ascribe’ or to allot to JMG, the performance of any services whatever. On the plaintiff’s submissions, the substratum of the Agreements and the proper construction of clauses 3 and 4 of the Consulting Agreement, make plain that at the least and without any ascription to JMG by an authorised officer of NMG of any obligation to perform particular services, JMG has a contractual right to the strict compliance by NMG with the provisions of clauses 4.1 and 4.2. 24 JMG’s case is that its entitlement to participate at all meetings of the management committee of NMG in the fashion provided for in clause 9.3 of the Consultancy Agreement and its entitlement as said to be provided for in clause 4.1(a), to meet with the management committee of NMG at least 90 days before the end of the financial year (or at such other time as agreed by NMG and JMG), ‘to review the objectives of [NMG and Ausmaq Systems] regarding the operation, development and commercialisation of the Ausmaq Service throughout the world’, were (a) fundamental terms of the Agreement and (b) terms which were inserted for the purpose of recognising the special interest of JMG [and through it Mr Maconochie], in the worldwide operation, development and commercialisation of the Ausmaq service and in being able to speak to and play a real part in the management committee’s deliberations and decisions. These are, as I understand the plaintiff’s submissions, said to be clear from both the express terms of the Consulting and associated agreements and also from surrounding circumstances in the form of “mutually known facts”, said to be admissible in aid of construction as part of an objective setting in which the contract is to be construed. In this regard Stephen, Jacobs and Mason JJ in following Prenn v Simmonds [1971] 1 WLR 1381, said in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 and 429:
The Proper Construction of the Consultancy Agreement
25 As Mason J put the matter in Codelfa, at 352:
‘A Court may admit evidence of surrounding circumstances in the form of “mutually known facts” to identify the meaning of a descriptive term” and it may admit evidence of the “genesis” and objectively the “aim” of a transaction to show that the attribution of a shared legal meaning would “make the transaction futile”.’
26 The construction issues are dealt with below. I note presently NMG’s submission that clause 4.1(a) of the Consultancy Agreement should be construed as if it read:
‘The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious, knowledge of them will be presumed’.
27 Both plaintiffs to the proceedings are applicants on the amended notice of motion which was filed on 4 June 1999. Market Holdings was not, however, a party to the Consultancy Agreement, although it was a party to the Restructuring Agreement. The effect of the Restructuring Agreement was relevantly for a transfer by Market Holdings of all intellectual property rights to the AUSMAQ system so that for all intents and purposes the notice of motion may, as Mr Garnsey QC for the plaintiffs accepted, be regarded as one in which the effective applicant is JMG. 28 The first two paragraphs in the notice of motion seek the appointment of a receiver and manager of various companies, shares and assets. The third and following paragraphs seek restraining orders pending the determination of the proceedings or further order and in some cases seek mandatory injunctive relief. The ninth paragraph deals with orders seeking that accounts be kept. 29 A schedule to the amended notice of motion sets out the powers sought to be conferred upon receivers and managers if appointed.
‘At least 90 days before the end of the financial year or at such other time as agreed by the Company and JMG, JMG and the management committee of the Company will meet to review such objectives, if any, as the Group may have regarding the operation, development and commercialisation of the Ausmaq service throughout the world.’
The Amended Notice of Motion
30 A short summary of the relief sought in the notice of motion as filed on 4 June 1999 taken from the plaintiff’s overview submissions is as follows:31 Leave to further amend the notice of motion to make claims to alternative relief was granted on 3 August 1999. The new claims were put as follows:
‘Consequently the plaintiffs seek the relief in the Amended Notice of Motion dated 4 June 1999. That relief includes relief seeking:
The appointment of a Receiver and Manager of NMG and the NMG Group (paragraph 1 of the Notice of Motion).
The appointment of a Receiver and Manager to certain assets of NAB, NAFM and the NAB Group to the extent necessary to protect the assets, interests and entitlements of NMG and the NMG Group (paragraph 2 of the Notice of Motion). [paragraph 2.2.2]
The relief sought in the Amended Notice of Motion also includes relief:
Restraining the defendants from dealing in or with what the plaintiffs contend are misappropriated assets (paragraph 3 of the Notice of Motion).
Requiring NMG’s compliance concerning the Management Committee and the Business Plan Obligations and the Performance Bonus and access to the AUSMAQ Service (paragraph 4 of the Notice of Motion)..
Requiring NAB to provide and continue to provide all funds as are reasonably required to fund the market and technical development and exploitation throughout Australia and New Zealand and globally of the AUSMAQ Service (as defined in the Consulting Agreement) (paragraph 5 of the Notice of Motion).
Requiring NMG, and NAB, and the other defendants to permit JMG and its consultants and representatives access to the AUSMAQ Service and the premises, records and staff or consultants of NMG, of AUSMAQ Systems, of NAB and of the NMG Group or the NAB to such extent as JMG may reasonably require to enable JMG and its consultants and representatives to audit, ensure and maintain the technical and structural and organisational integrity and security of the AUSMAQ System and to furnish to JMG, certain books, records and information specified in Schedule B to this Notice of Motion (paragraph 6 of the Notice of Motion).
Requiring the defendants do everything on the part of each necessary to comply and enable JMG to comply with the provisions of the Consulting Agreement concerning the ascertainment and/or payment of the Performance Bonus under the Agreement (paragraph 7 of the Notice of Motion).
Requiring NMG, AUSMAQ Systems, NAB, and NAFM, by their respective chief executives and the other defendant to provide certain information concerning the services which the plaintiffs contend are similar and equivalent services to the AUSMAQ Service (paragraph 8 of the Notice of Motion).
Requiring the keeping of accounts by the defendants (paragraph 5 of the Notice of Motion)’. [paragraph 2.2.3]
32 The defendants’ extensive written submissions included the following:
‘1. In these orders the following definitions apply:
1.1 “Consulting Agreement” means the written agreement dated 13 September 1996 between the First Plaintiff (“JMG”), Valenti Pty Ltd now called National Markets Group Pty Ltd (“NMG”), Australian Market Automated Quotations System Ltd (“System”) and National Australia Bank Limited (“NAB”).
1.2 “Group” means NMG, System, Ausmaq NZ Limited and any of their related bodies corporate from time to time who accede to this agreement.
1.3 “System IP Rights” means the Intellectual and Industrial Property in the software and other information, materials and Works as defined in the Consulting Agreement and used to provide the AUSMAQ Service.
1.4 “AUSMAQ Service” means the service of providing an automated securities trading system and related services known as the Australian Market Automated Quotation System or Ausmaq System or Euromaq.
2. UNTIL FURTHER ORDER:
Restraining Orders
2.1 NAB, System and NMG be restrained from:
2.1.1 using the System IP Rights save and except for the benefit of the Group.
2.1.2 dealing in any way with the System IP Rights except for the benefit of the Group.
2.1.3 procuring any person or corporation to act in breach of these orders.
2.2 NAB and NMG and FAFM be restrained from dealing in the shares of NMG and the respective assets of the NMG Group including the System IP [except in the ordinary course of business].
[Note - the words in square brackets were suggested by JMG’s counsel in address].
Keeping accounts and Records
2.3 NAB and NAFM keep and cause to be kept as and from the date of these orders separate accounts and records of expenditure of NAB and NAFM and income earned by NAB and FAFM in respect of the services and projects called Operation First Choice (Formerly Maple Leaf), Gateway, Margin Lending, and FX Autodealing (the “Named Services”).
2.4 NAB and NAFM keep and cause to be kept as and from the date of these orders separate records and accounts of the intellectual and industrial property employed in or used by the Named Services.
Management Committee
2.5 On or before 1999:
2.5.1 NMG form the Management Committee referred to in Clauses 4 and 9.1 of the Consulting Agreement (the “Management Committee”) and give notice to JMG of the membership thereof.
2.5.2 JMG appoint two consultants to act as representatives of JMG at all meetings of the Management Committee.
2.6 NMG give reasonable notice to JMG of all meetings of the Management Committee sufficient to permit two representatives to be able to attend such meetings.
2.7 No decisions substantially affecting the Ausmaq Service or its marketing, exploitation, commercialisation or technical or market development will be made other than by the Management Committee.
2.8 NMG hold and cause to be held regular meetings of the Management Committee not less than once a month and as often as may reasonably be necessary.
2.9 NAB, NMG and System, and each of them be restrained from managing or exercising or vesting responsibility for the management of NMG, System, Ausmaq NZ Limited or any other entity which may accede to the Consulting Agreement except by the Management Committee.
2.10 NAB and FAFM and each of them be restrained from managing or exercising or vesting responsibility for the management of each of the Named Services except by the Management Committee PROVIDED THAT it shall be sufficient compliance with this order in respect of any NAB Service if NAB and NAFM procure that the representatives of JMG entitled to attend and participate on the Management Committee be given reasonable notice of and be permitted to attend and participate (without any voting powers) in all meetings of the Executive or other committee of NAB or NAFM managing that Service or in which responsibility for the management of that Service is vested.
Business plans
2.11 For the purpose of enabling JMG to comply with Clause 4 of the Consulting Agreement, NMG shall:
2.11.1 Provide to JMG on or before 15 September 1999, copies of the 1997, 1998 and 1999 Business Plans for the NMG Group amended and adopted by NMG.
2.11.2 Provide to JMG all information requested by it and reasonably required to enable it to provide the services referred to in Clause 3.1 of the Consulting Agreement and to provide and deal with and implement the Business Plans referred to in Clause 4 thereof.
2.11.3 Deal with and implement the Business Plans in accordance with clause 4 of the Consulting Agreement.
Accounting for the System IP
2.12 NAB and NMG keep and cause to be kept as and from the date of these orders separate accounts and records of the System IP.
The Defendants’ Submissions -
2.13 Each of NAB, NAFM, Mr Cicutto, Mr Krasnostein, Mr Courtney and Mr McKimm be restrained from preventing NMG from complying with these orders’.
33 The defendants’ description of the relief sought in the Notice of Motion, and of some of the difficulties with that relief, is put as follows:
‘The correct approach to the evaluation of the claims to interlocutory relief requires more than just an assessment of whether there is a serious question to be tried as to their validity . This is so because the grant of the relief sought would displace proprietary rights clearly vested in NMG, when the evidence shows no countervailing proprietary rights even arguably vested in the Applicants. They do not claim any proprietary right as supporting their alleged entitlement to interlocutory relief. There is no serious question to be tried ; but even if there were it would, given the disruptive reach of the relief sought, be inappropriate to grant any of it because:
(a) there is no evidence of any actual or threatened violation of any proprietary or other rights vested in the Applicants;
(b) there is no evidence of imminent danger of loss if the relief sought were not granted;
(c) it is not shown that damages would be an inadequate remedy;
(d) the parties seeking relief do not have the financial ability to honour an undertaking as to damages;
(e) the balance of convenience is tilted decisively in favour of the Respondents;
(f) there are discretionary factors negating the appropriateness of the relief sought (eg, laches)’.
[Overview Submissions paragraph 4] [Emphasis added]
Suggested Difficulties with the Relief Sought in the Notice of Motion
34 In their overview submissions the defendants dealt with the plaintiffs’ claims to relief as follows:
The Defendants’ Analysis of the Relief Sought in the Proceedings and of the Suggested Difficulties with Aspects of the Causes of Action
‘(a) Prayer 1 seeks interlocutory relief by way of the appointment of a receiver and manager of the assets business and undertaking of NMG, the 2nd Defendant, and each other company in the NMG Group of Companies except Ausmaq Systems, the 4th Defendant. The exact identity of the companies sought to be subjected to receivership is unclear: see (b) below.
(b) Prayer 2 seeks the appointment of a receiver and manager of all shares held directly or beneficially by NAB (1st Defendant) or NAFM (3rd Defendant) or by “any other company in the NAB group of companies in NMG, AUSMAQ SYSTEMS or any other company in the NMG group of companies”. A lack of precise identification of the companies against which the order is sought is a proper matter for objection.
(c) Other parts of the prayers for relief in para 2 are objectionable for the uncertainty of their reach. See particularly the reference in prayer 2.4 to assets “reasonably required” to fund the development of the AUSMAQ Service.
(d) Prayer 3 seeks against all the Respondents an interlocutory injunction restraining them from dealing in any way with the assets business or undertaking of NMG, AUSMAQ Systems and the other companies in the NMG group. This amounts to a suggested restraint on each Respondent from dealing with its own assets except in the ordinary course of business. The evidence provides no basis for such relief.
(e) Prayer 4 seeks interlocutory specific execution of the Consulting Agreement on the basis that the interpretation of it propounded by the Applicant is correct. In principle this is an inappropriate remedy; particularly so given the dispute concerning the correct interpretation of that agreement. The Defendants’ detailed submissions on that issue are set out below.
(f) Prayer 5 seeks an interlocutory mandatory order that NAB fund on an open ended basis the development of the AUSMAQ Service. The Consulting Agreement provides no basis for such an order’.
35 In their final submissions, the defendants addressed the application for receivership orders as follows:
‘The main relief sought in these proceedings is in the nature of unliquidated damages for contraventions of s52 TPA and breach of contract. The Applicants’ outline of submissions (para 2.4) asserts standing as unsecured creditors, which the Applicants are not. They go on to allege, (para 2.4.4) that their remedies at law are inadequate “because … the Defendants are in breach of their fiduciary duties”. This is simply meaningless. The Applicants bring this claim to interlocutory relief on the basis of a claim for unliquidated damages. The assertion of a breach of fiduciary duty cannot improve their position on the issue of liability. It is true that there is, as against NMG, a claim articulated in para 26 of 2nd FASOC that it owed to JMG the obligations of a fiduciary in relation to seven topics therein enumerated. However, matters pleaded as giving rise to such a fiduciary obligation are incapable of doing so. For example, para 26(a) asserts the matters pleaded “in paras 9 to 12 above” as doing so. But when one turns to para 9, one finds that the allegations therein are confined to misrepresentations said to have been made by NAB (the 1st Defendant). Para 10 does not impugn any conduct of NMG; nor do paras 11 and 12. Thus one finds as part of the framework of an allegation of fiduciary misconduct on the part of NMG a series of allegations about another corporate entity. Such disordered pleading should not be countenanced.
Para 26(b) invokes as matters giving rise to fiduciary obligations owed by NMG to JMG “the facts matters and circumstances alleged in paragraphs 13 to 15 and 18”.
Para 13 sets out what are said to be express or implied terms of the Consulting Agreement.
Para 14 simply embodies clause 4 of that Agreement.
Para 15 pleads more terms as express provisions of the Consulting Agreement.
Para 18 asserts 5 implied terms.
There is no allegation in para 26(b) of facts capable of elevating any of the contractual terms pleaded to the level of fiduciary duties. It is quite erroneous to plead contractual provisions as in themselves prescribing fiduciary obligations: the only fiduciary duties recognised by equity are proscriptive in nature, not prescriptive. A fiduciary may not take a profit from his position without fully informed consent; a fiduciary may not act, without such consent, in a situation of conflict between self interest and duty or between opposing duties: Breen v Williams (186 CLR 71 at p113). A principal error in the present formulation of the Applicants’ case is it treats breaches of contract as equivalent to breaches of fiduciary duty.
Para 26(c) contains no allegation against NMG.
JMG’s last throw in paragraph 26 is to rely on the matters alleged in paras 20 to 25 as subjecting NMG to the obligations of a fiduciary. The key assertion is that in the administration of the Consulting Agreement NMG occupied “a position of dominance”. In the context of the present litigation that is a meaningless slogan because on no view of the pleaded facts can the Applicant’s case be squeezed into some kind of undue influence claim based on the occupancy by any of the Defendants of a position of ascendancy of the kind dealt with in Johnson v Buttress ((1936) 56 CLR 113 per Dixon J at pp134-135); see also Breen v Williams ((1995-1996) 186 CLR 71 per Brennan CJ at p82). The key question is whether under that Agreement NMG agreed “to act for and on behalf or in the interests of” JMG “in the exercise of a power or discretion which will affect the interests of” JMG “in a legal or practical sense”: Hospital Products ((1984) 156 CLR 41 per Mason J at pp96-97). The answer to that question is a clear negative because nothing in the Agreement imposed upon NMG a duty to act “for or on behalf of or in the interests of” JMG. In this connexion it is significant that clause 10.1 of the Consulting Agreement requires JMG “at all times” to act “in the best interests of and to the benefit and advantage of” NMG. In these circumstances no implied obligation on the part of NMG to act in the interests of JMG could arise: “expressum acit cessare tacitum”. This is fatal to the Applicants’’ assertion of fiduciary obligations in the present case.
Even if (which is disputed) the Consulting Agreement imposed upon NMG a contractual obligation to take into account as a relevant factor the interest of JMG in obtaining the payment of a performance bonus when considering what course to take in relation to the utilisation and development of the Ausmaq Service, it does not follow that any such obligation was of a fiduciary character; it was not imposed on NMG in a representative capacity: see Breen v Williams (186 CLR 71 per Dawson and Toohey JJ at pp92-93). It would be contrary to principle to superimpose upon a contractual relationship in which NMG was clearly entitled to pursue its own interests in ways that might affect adversely JMG’s interest in the payment of a performance bonus, any duty of undivided loyalty owed by NMG. The attempt to invoke fiduciary principles in the present case is an example of an “over ready tendency to reach for the amplitude of (the) fiduciary remedy” in cases which do not require it: cf News Ltd v ARL ((1996) 139 ALR 193 at pp310-311).Even if a fiduciary obligation were established, such an outcome would not necessarily justify the creation of a constructive trust so as to give rise to the appointment of a receiver as an appropriate remedy. Although a claim to constructive trust relief is articulated in 2nd FASOC, it is significant that the Applicants’ written submissions make no reference to such relief. This understandable reticence is doubtless due to a recognition that such a claim, ie to proprietary relief, would be unfounded.
While an interlocutory proceeding may not be the appropriate environment for reaching a final conclusion negating the existence of fiduciary duties of the kinds so tenuously propounded in 2nd FASOC, the strength or weakness of the fiduciary claims in this case is a vital factor for consideration when the drastic remedy of receivership is pressed in circumstances where (as here) it can have no possible substance unless at the very least there is a serious question to be tried as to the appropriateness of a constructive trust remedy over the assets of one or more of the defendants. But, as submitted above, both authority and the justice of the case require that before severe remedies of the kind sought in the notice of motion are granted, more than a serious question to be tried must be demonstrated.
The allegations of breach of fiduciary duty do not constitute a serious question to be tried . The claim to relief on the basis of constructive trust is ill-founded and seems not now to be pressed.
If the artificial cladding of a fiduciary duty case is tripped away, the Plaintiff is driven to seeking the appointment of a receiver and manager in aid of claims for unliquidated damages for alleged breaches of contract and alleged contraventions of the Trade Practices Act.
The claim articulated in para 22 of 2nd FASOC as to the existence of a partnership or joint venture between NAB, NMG and JMG is negated by the terms of clause 1.4 of the Consulting Agreement. While a contractual denial of the existence of a partnership is not necessarily conclusive as negating it, nothing it he evidence serves to impugn such denial. The express provision in clause 10.1 of the Consulting Agreement, taken in conjunction with clause 1.4, is wholly inconsistent with the creation of a partnership or joint venture as contended in para 22.5 of 2nd FASOC.
To appoint a receiver and manager of the assets and undertaking of NMG or NAB in the circumstances established by such of the evidence in support of the motion as is admissible would be contrary to principle for the following reasons:
The Trade Practices Act does not provide for the interlocutory appointment of a receiver in aid of a claim for damages for misleading/deceptive conduct.
The drastic equitable remedy of receivership will not be granted in aid of a claim for unliquidated damages against companies (such as the defendants) not shown to be insolvent and not shown to be bent upon disposing of assets to defeat any judgment that may be obtained against them; and against whom, on the true construction of the relevant contract, there is no serious question to be tried as to any of the multiple alleged breaches of contract: NAB v Bond Brewing ((1991) 1 VR 386); ((1990) 169 CLR 271).
The Applicants’ evidence in support of this motion does not show that a remedy by way of damages, contractual or equitable, would be inadequate. The appointment of a receiver, with all the attendant consequential harm to NMG, would be totally inappropriate: NAB v Bond Brewing (169 CLR 271 at p277).
If, assuming its admissibility (which is denied), one has regard to the quality of the evidence relied upon to support the claim that Idoport’s loss would sound in billions of dollars, the assertion that the supposed size of the damages claim supports an order for receivership is fanciful. It would be contrary to principle to appoint a receiver and manager of solvent companies on the ground that a very large, but wholly untested, claim for damages is made against them. In the nature of things an interlocutory hearing is not a proper forum for testing such a claim.
The appointment of a receiver and manager would be more disruptive of the business of the Defendant companies than a Mareva injunction. In effect such an appointment would be a species of equitable execution by way of the provision of security in advance of judgment, when there is no evidence of a risk that any of the Defendants will dispose of assets so as to defeat a judgment: cf Jackson v Sterling Industries Ltd ((1987) 162 CLR 612 per Brennan J at p621). The degree of potential disruption is illustrated by the fact that the Plaintiffs’ motion even seeks to empower the receiver/manager to conduct the defence of the current proceedings. Such a claim is absurd and unprecedented.The application is fatally flawed because, quite inconsistently with the terms of the Consulting Agreement, it seeks (prayer 1) to displace the contractual discretion of NMG concerning the extent to which JMG shall be employed as consultant. Further, the notice of motion seeks in substance that the proposed receiver and manager shall act in an entrepreneurial role, quite at odds with the proper function of such an appointee. The notice of motion really seeks orders for the administration of NMG on the footing that the Plaintiffs are entitled to succeed on their various claims; it seeks therefore much more than the preservation of the status quo.
The affidavit of Alan Copsey sworn 16 July 1999 proves that the appointment of a receiver and manager of NAB as sought in the Notice of Motion may expose NAB itself to the potential termination of funding and other significant agreements that it has with third parties: see paras 91-119’.
[Emphasis added]
‘2 Application for receiver of NMG (Para 1)
2.1 It is submitted that are a number of independent reasons why the application for the appointment of a receiver to NMG is fatally flawed.
2.2 The evidence of Tanya Cox is that Ausmaq System conducts the Ausmaq business and that NMG does not (affidavit of Tanya Cox affirmed 15 July 1999 paras 18 and 19). In those circumstances, the appointment of a receiver to the assets of NMG would be futile. The appointment of a receiver does not vest title to the assets of the company in the receiver. A receiver of NMG would have no power to control Ausmaq System which would remain in the control of the directors of that company.
2.3 Even if it were possible to appoint a receiver to NMG by reference to the business of Ausmaq System, there is no evidence of imminent danger of loss. The evidence is that decisions have been made to carry on business in a particular way (eg not in Europe until the system proves itself in Australasia (DX1 at 382, DX1 at 359). Decisions such as this are a matter of business judgment. It is not possible for the Court to say whether the decision will be successful or not. The Court has no function to speculate in this regard. It is not the function of the Court to appoint a receiver and manager whenever parties disagree about the course which a business should take.
2.4 The evidence of Mr Maconochie suggests that one of the main reasons why he seeks the appointment of a receiver and manager is so that new “opportunities” to develop the business can be exploited. If a receiver and manager were to be appointed and were to enter into contracts to exploit these new opportunities, he would be personally liable: Moss Steamship Co Ltd v Whinney [1912] AC 254 at 259; Meagher Gummow and Lehane, “Equity Doctrines & Remedies” 3rd Ed at para 2834.
2.5 A receiver and manager is not appointed for the purpose of conducting business in accordance with the wishes of one of the parties, a fortiori where that party has no rights of control or even voting: Sovereign Bank of Canada [1913] AC 160 at 166-7; Buckley v Bennell Design & Constructions Pty Ltd [1971] 1 NSWLR 110 at 123; see also Meagher Gummow and Lehane, 3rd Ed at para 2841. A receiver is appointed to fulfil the role of company caretaker, not to restore profitability. The receiver must preserve those assets of the company upon which its fortunes may be dependent so that the assets are available when the dispute between the parties is resolved: see Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 at 384.5; Wayland v Nidamon Pty Ltd (1986) 11 ACLR 209 at 220.
36 The defendants rely heavily on the Bank’s Guarantee as a reason for rejecting the plaintiff’s claims to interlocutory relief. The defendants’ submission is that:
3. Application for receiver to NAB (Para 2)
2.6 The Applicants have no standing except as claimants for unliquidated damages. Their sole interest in the business is to receive service fees or performance bonuses, when payable. Damages (if payable) are an adequate remedy. The claim to billions of dollars in damages is a purely academic claim. There is no evidence of present damage. (Also, as to the level of damages, see Maconochie’s own projections which show that as at December 1996, he did not expect the business to have a cumulative positive cash flow until June 1999 - Maconochie 1st statement para 21 and PX 5/1984)
2.7 The Applicants are guilty of extraordinary delay in proceeding with the application for the appointment of a receiver. This delay is of two varieties. First, there is ample evidence of the plaintiffs complaining of certain conduct of the defendants upon which they now seek to rely, in 1997 and 1998 (see for example in relation to Europe, Annexure 1 to these Submissions). By June 1998, the Applicants asserted that there was the need for interlocutory relief (DX1 at 109, 135-137). Yet they did not commence proceedings until 24 September 1998. That delay of itself was fatal to any application.
2.8 The second variety of delay concerns a delay after the commencement of the proceedings. Between the period of the filing and serving of the summons and draft statement of claim and the first directions hearing in October 1998, the plaintiffs’ solicitors on a number of occasions (see, for instance, letter of Withnell Hetherington dated 8 October 1998 (DX1 at 259)) expressed an intention to seek the appointment of a receiver on an interlocutory basis. However, the plaintiffs did not proceed with such an application in October 1998 and it was not until June 1999 that the application was made.
2.9 In the case of an interlocutory application such as the present, the court will refuse to grant relief where the delay is relatively short (see eg Carlton and United Breweries (NSW) Pty Ltd v Bond Brewing New South Wales Ltd (1987) 76 ALR 633). Here, there has been gross delay. Further, in the interim, the Respondents have continued to conduct and fund the business on the assumption that that is their right.
2.10 A further defence is provided by the fact that a Court will not exercise its power to appoint a receiver merely because applicants have a valid cause of action. To do so would amount to the Court requiring the defendants to give security for the applicants’ claim: see National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386 at 553.
2.11 Further, the plaintiffs must provide an adequate undertaking as to damages. Such damages flow inevitably from the fact of the appointment of the receiver and of the defendants’ loss of control over its assets and affairs: see National Australia Bank Limited v Bond Brewing Holdings Limited (1990) 169 CLR 271 at 277.
2.12 The giving of an undertaking as to damages is the “ordinary price” that the plaintiffs must be prepared to pay in order to obtain interim relief by way of injunction or appointment of receivers: Bond Brewing Holdings Limited v National Australia Bank Limited [1991] 1 VR 386 at 559. This has been the practice since at least 1844: Bond Brewing at 574. In Meagher, Gummow and Lehane, 3rd Ed, para 2181 the following is said:
“Almost as a matter of course, a Court will decline to grant an interlocutory injunction unless the plaintiff undertakes to the Court to abide by any order it may make later if it turns out that the injunction should not have been made [Smith v Day (1882) 21 Ch. D.421]. If no undertaking can be given, no injunction will issue. .... The importance of an undertaking is immense, as in the absence of an undertaking a defendant who is ultimately victorious at the final hearing has no recourse to recover the damages he may have incurred from complying with an interlocutory injunction ...”
2.13 The provision of the usual undertaking must, in a case of this kind, be seen as an essential ingredient of the application: Air Express Limited v Ansett Transport Industries (Operations) Pty Limited (1981) 146 CLR 249 at 311; Bond Brewing at 569; National Australia Bank Limited v Bond Brewing Holdings Limited (1990) 169 CLR 271 at 277; see also Cardile v LED Builders Pty Limited (1999) 162 ALR 294 at 304. It is particularly apposite to refer to the comments of the Full Court in Bond Brewing at 569:
“In any event, if any case for the interim or interlocutory appointment of receivers and managers of the undertakings and assets was made out, the usual undertaking would have to be exacted ... . The argument on the appeal has proceeded on the basis that the respondents are not willing, in order to keep the receivers in possession, to give an undertaking as to damages which will protect the appellants against the consequences of the orders of 29 December and 9 February. To preserve the receivership without a satisfactory undertaking as to damages is unthinkable.”
2.14 The Applicants are unable to provide any worthwhile undertaking for an application of this kind (T15.56-16.46). Even where the usual undertaking is offered, interlocutory relief will, absent the exceptional circumstances, be refused if the undertaking is likely to prove ineffective, in particular because of a plaintiffs’ lack of means. In Donnelly v Amalgamated Television Services Pty Limited & Anor (1998) 45 NSWLR 570, Hodgson CJ (in Eq) stated (at page 575):
“On the balance of convenience, the fact that the plaintiff’s undertaking as to damages is probably of little or no value is a powerful discretionary factor against the grant of an interlocutory injunction.”
2.15 The plaintiffs assert that the High Court decision in Bond Brewing should be seen as being limited to ex parte situations. That is plainly incorrect. The Court said, at page 275:
“... their Honours attached great importance to the absence of an undertaking as to damages which they described as the ‘usual undertaking’ to be required, clearly having in mind contested applications as well as ex parte applications for the appointment of receivers and managers.”
The High Court did not disturb any of the findings of the Full Court.2.16 In the present case, it is apparent that Mr Maconochie and Australian International Insurance stand behind the Plaintiffs (see EXD1); yet there is no evidence that they are prepared to put their own assets at risk in securing the undertaking.
2.17 The application is for a receiver in respect of the assets, business and undertaking of NMG and other companies in the NMG Group. NMG Group is not defined. If the expression is meant to include all subsidiaries of NMG, it would include Ausmaq NZ Limited, a company incorporated in New Zealand, which is not a party to either the proceedings or to this application. The assets are not further defined. It is clear from the powers sought in Schedule A that it is intended that the Receiver is to have the power to carry on NMG’s business and defend the current proceedings on behalf of NMG.
3.1 The application to appoint a receiver in relation to the NAB relates to three different types of property:
(a) shares held by NAB or NAFM in NMG, Ausmaq Systems and other unidentified NMG companies (para 2.1);
(b) such assets of NAB and NAFM and other NAB group companies as comprise or are employed in or are used for the purposes of the various NAB projects (paras 2.2 and 2.3);
(c) such assets of NAB and NAFM and other NAB group companies as are reasonably required to fund the global development of the Ausmaq service
(a) Receiver of shares held by NAB or NAFM
3.2 No such relief is sought in the Summons. There is just no basis whatsoever for any such relief.
3.3 The shares in NMG were acquired by NAB before the Consulting Agreement (when NMG was known as Valenti Pty Limited and was a shelf company). NAB has held the shares at all times since then. Pursuant to the Restructuring Agreement, NMG acquired from Market Holdings all the right title and interest in the System IP rights and all the shares in Ausmaq System. The shares in NMG have never been the subject of any dealings between the parties and there is no basis for the Applicants interfering in the NAB’s control. It is not contended in any part of the pleading that the shares in NMG are property to which the plaintiffs are entitled or in which they have any interest.
3.4 Paragraph 58 of the 2nd FASOC seeks rescission of the Restructuring Agreement and the Consulting Agreement. For the Applicants to keep that claim alive while seeking mandatory interlocutory relief in the nature of specific performance introduces an Alice in Wonderland element to the litigation. The Applicants should be required to elect.
(b) Receiver of such assets as comprise or are employed in or used for the purposes of Maple Leaf and the other NAB projects
3.5 The assets which “comprise or are employed in or used for the purposes” the projects or any of the other projects are not identified. The evidence of Mr Alan Copsey (affidavit sworn 16 July 1999) is, in this regard:
(a) that it is extremely difficult, if not impossible, to isolate all of the assets which are, or will be used in the projects (as to Gateway, see paragraph 23; as to Margin Lending, see paragraph 50; and T43.25-35);
(b) that two projects, namely Remote Wealth Management Strategy Project, and Independence One Project, did not progress past research and high-level conceptualisation (as to Remote Wealth, see paragraph 31; as to Independence One, see paragraph 89).
3.6 JMG’s claim in respect of the Bank projects is based upon a misreading of the terms of the Consulting Agreement. The NAB or its divisions cannot be an Operating Entity because there is no evidence that it has the use of the Intellectual Property used to provide the service known as the Ausmaq Service. The evidence of Mr Copsey is that the intellectual properly used in the Bank projects was derived from sources other than NMG (see paras 13, 40, 58 and 81).3.7 Further, even if the Applicants’ construction of the Consulting Agreement is correct, there is no admissible evidence that the Ausmaq System is similar in functionality to the Bank projects.
3.8 However, even if the Applicants’ construction of the Consulting Agreement were correct and even if the evidence in relation to similarity of function were admissible, there is no obligation on the NAB to transfer such projects to NMG and no entitlement on the part of NMG to obtain such projects. The relevant provision is the obligation imposed upon NMG in the Consulting Agreement to make payments of Performance Bonus in respect of the revenue of Operating Entities, which, on the Applicants’ argument includes any part of the NAB conducting a service similar to the Ausmaq Service. The fact, (if it be the fact) that NMG has agreed to make a payment to JMG in respect of the revenue of “operating entities” does not entitle NMG to ownership of those entities.
3.9 Further, there is simply no evidence that assets comprised in the Bank projects are in any way at risk. Indeed, such assets as there are are being developed by the NAB. The fact of the matter is that these projects have been brought into existence by the NAB; it is only through the NAB’s actions that they exist, whether or not they are part of the Ausmaq service. If, which is disputed, they are, there is no evidence that the NAB has utilized any of the Ausmaq IP for the purpose of creating or developing them.
3.10 The claim for relief is nonsensical. The evidence from Mr Copsey shows that projects consist of software licences, some confidential information, some records of the concepts and information and certain intellectual property (as to Gateway see paragraphs 12-13, 21-23; as to Margin Lending see 36-41, 47-50; as to FX Autodealing 54-60, 65-68; as to Maple Leaf see paragraphs 74-75, 82-84). Apart from this, the four projects still on foot depend upon the knowledge of employees of the NAB, funding by the NAB and office equipment belonging to the NAB (see paragraphs 21, 47, 65 and 82 of the affidavit of Mr Copsey). The plaintiffs have no entitlement to orders directing the NAB as to the manner of control of its own employees and resources. In these circumstances, the only effect of appointing a receiver over the Bank projects (assuming that this is even possible) will be to lead to their termination or degradation (see for instance Copsey affidavit at paragraphs 24, 52, 71 and 84). One stark example is given in paragraph 70 of Mr Copsey’s affidavit. The appointment of a receiver to any assets of the NAB may result in Cognotec Services Limited, the software vendor for the software used in the FX Dealing Project (as to which, see paragraph 58 of Mr Copsey’s affidavit) terminating the software licence, which would have the effect of shutting down the project. It in such precise circumstances that the Court will not appoint a receiver as it will destroy the very property that the receiver would be appointed to protect.
3.11 There is no evidence of misuse by the NAB of NMG’s intellectual property.
3.12 The jurisdiction to appoint a receiver and manager is for the purpose of protecting assets. Indeed the relief sought is only for the appointment of a receiver and manager pending the determination of these proceedings. In other words, it is implicit that if NMG and the NAB succeed in the present litigation, NMG and the NAB should be entitled to continue to conduct the business in the way in which it has been conducted to date.
3.13 Yet the material in support of the application shows that what JMG in fact seeks are orders which require the business to be conducted as if JMG were entitled to ordain how it be conducted, no matter what the cost to NMG and the NAB and no matter whether Maconochie’s way of conducting the business is agreeable to the Bank.
3.14 A key issue in the dispute between the parties is whether the agreement between the parties requires NMG to proceed immediately to develop the Ausmaq Service throughout the world and provide whatever finances are necessary to that end. There is evidence that NMG made a decision not to develop the business overseas until it had been commercialised in Australia and NZ (EXDX1 at 380). Whether this decision was permissible under the Consulting Agreement is a question for the final hearing. Prima facie, however, the decision was permissible and not a breach of contract.
(c) Receiver of assets required to fund
3.15 This claim has no basis. There is no express term of the agreements which requires NAB to fund anything. There is no basis for the implication of such an extraordinary term. Even if there were, that would give rise to a claim by JMG against NAB to damages. This cannot ground the appointment of a receiver.
3.16 Apart from these matters, there are insuperable difficulties in making orders about unidentified assets alleged to be necessary to provide funding at an unidentified level’.Relevance of the Bank’s Guarantee
[Overview Submissions paragraphs 7-19]
37 The defendants rely upon the defence of laches to the interlocutory claims - see CUB v Bond Brewing [(1987) 76 ALR 633].
‘For so long as the Consulting Agreement remains on foot, there is no doubt as to the entitlement of JMG to the monthly payment under clause 6.1. There is no valid complaint of non-payment. As to the performance bonus (clause 7 and Schedule 2), the Guarantee dated 6 November 1996 by NAB, in favour of Idoport, of payment of any money due under that clause provides a powerful reason for rejecting any claim to interlocutory relief’.
[Overview Submissions paragraph 20]
Laches
38 The defendants’ submission in respect to so much of the interlocutory application as includes such an order is as follows:
Mandatory Injunction Against Bank as to Funding
39 It is quite plain that the appointment of a receiver is to be had only where the remedies which the applicant could obtain from a court of law are inadequate to meet the ends of justice, and insufficient to confer upon him all the relief to which he is justly entitled. To my mind the relevant principles are those which were expounded by the Victorian Full Court in Bond Brewing Holdings Ltd & Ors v National Australia Bank Ltd & Ors (1989-1990) 1 ACSR 445, in particular at 460-463; [1991] 1 VR 386. The Full Court said inter alia:
‘The claim that there should be an interlocutory mandatory injunction requiring NAB to fund the development of the AUSMAQ System is hopelessly flawed. Presumably the Applicant seeks to sustain the claim by reference to an implied contractual term of the Consulting Agreement pleaded in para 18.1 of 2nd FASOC:
“That NMG and NAB should take all reasonable steps to enable the implementation and operation of the Consulting Agreement, including the provision of adequate finance … to enable the operation and commercialisation of the Ausmaq Systems and business throughout Australia and globally.”
A simple answer to this contention is that the only function of NAB under the Consulting Agreement is to provide a guarantee: see clause 7(h). It is neither implicit in the text of the Agreement or necessary to instil business efficacy that NAB be under any obligation of the kind pleaded. As to NMG, the same factors preclude any implication of such a term; also any implication is excluded by clause 10(3)(a) of the Consulting Agreement (set out below). Why, one asks, would one imply it if that clause removes any liability for a supposed breach of it?’
[Overview Submissions paragraph 22]
Overview of the Approach to be taken
40 Hence one approaches the application for the appointment of a receiver on the basis that such appointment is to be had only where the remedies obtainable at law are inadequate to meet the ends of justice. The inadequacy of legal remedies is a condition for the proper exercise of equitable jurisdiction rather than the foundation of the jurisdiction itself. 41 Further, there is no principle that a receiver may be appointed only on the application of a person who asserts some proprietary interest in the property concerned. What the applicants before this Court must show is that it has some legal or equitable right which will be protected or enforced by the making of the orders sought and that no other available remedy is adequate for that purpose. 42 However, as was also pointed out by the Full Court in Bond Brewing the power to appoint a receiver is:
‘True it is that in many cases the appointment of a receiver will be sought by one who has a proprietary interest. But the existence in the applicant of such an interest is not essential to the existence of jurisdiction or power to appoint a receiver, or to a right exercise of the discretion to make an appointment if the matter is not treated as one of jurisdiction or power.
The reason why the court normally looks for something in the nature of an interest in the property is not some principle of equity whereby a receiver may be had only by someone who has such an interest but a much wider principle, the principle that the appointment of a receiver, or for that matter any peculiarly equitable remedy, is to be had only where the remedies which the applicant could obtain from a court of law are inadequate to meet the ends of justice, insufficient to confer upon him the relief to which he is justly entitled. We refer to Pomeroy’s Equity Jurisprudence, 5th Ed, Vol 1, paras 136-222. On Pomeroy’s analysis, unlike that of some other writers, the exclusive jurisdiction of equity includes cases in which the remedy to be granted is purely equitable in the sense that it is recognised and administered by courts of equity and not by courts of law. See para 138. It is Pomeroy’s thesis that while the inadequacy of legal remedies is the foundation of the concurrent jurisdiction it is only the occasion for the rightful exercise of the exclusive jurisdiction. See paras 216-222. According to Pomeroy, since the exclusive equitable jurisdiction, as far as presently relevant, exists because the remedies invoked are such as are administered by courts of equity alone, it is wrong to treat the inadequacy of legal remedies as the foundation of the exclusive jurisdiction. The jurisdiction, and so the power of the tribunal to adjudicate, exists, and what is affected by the question of the adequacy of legal remedies is the due and proper exercise of the jurisdiction or power. The proper exercise of the jurisdiction - but not the jurisdiction itself - depends upon whether the legal remedies may be inadequate to meet the ends of justice. This seems to us to be the correct view. The actual power or jurisdiction of a court of equity to grant a receiver depends simply upon its jurisdiction over the person of the defendant, just as its power or jurisdiction to grant an injunction does.
Now in the ordinary case of a simple debt the creditor’s remedy at law is regarded as adequate. Compare Pusey & Jones Co v Hanssen 261 US 491 at 497. But if he has a right to be paid out of a fund, then, if his legal remedies are not adequate to protect that right, equity may be prepared to appoint a receiver: Kearns v Leaf (1864) 1 H & M 681; 71 ER 299: see also Cummins v Perkins (1899) 1 Ch 16, which may, however, have to be viewed rather as a case of “equitable execution”.
The court will not interfere by injunction unless its remedy is superior to the remedy which may be had at law: Attorney-General v Sheffield Gas Consumers Co (1852) 3 D M & G 304 at 319; 43 ER 119. Just as a plaintiff will not obtain an injunction if damages are an adequate remedy, so he will not obtain a receiver if some common law remedy is adequate”.
43 It is appropriate to also note that on the application to the High Court for special leave to appeal from the decision of the Victorian Full Court in National Australia Bank Ltd & Ors v Bond Brewing Holdings Ltd & Ors [(1989-1990) 1 ACSR 722], Mason CJ, Brennan and Deane JJ said:
‘a drastic, harsh and dangerous one and should be exercised with care and caution … receivership is a drastic course allowed only under pressing circumstances and granted only with reluctance and caution … the appointment of a receiver is an extraordinary and drastic remedy, to be exercised with utmost care and caution and only where the court is satisfied that there is imminent danger of loss if it is not exercised’.
[1 ACSR 445 at 458 followed in Global Funds v Burns Philp 3
ACSR 183 at 187 per Rolfe J]
44 The plaintiffs’ entitlement to ultimate relief being necessarily uncertain at an interlocutory stage, the Court, in deciding to grant or refuse an interlocutory injunction, must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the defendant of the grant of an injunction in support of relief to which the plaintiff may ultimately be held not to be entitled, and the consequences to the plaintiff of the refusal of an injunction in support of relief to which the plaintiff may ultimately be held to be entitled: see e.g. Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208 at 216; A v Hayden [No 1] (1984) 59 ALJR 1 at 4-5; Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533 at 535. 45 I approach the instant application upon the basis that the following are the correct principles:
‘The damage to be apprehended by the making of an order for the appointment of a receiver and manager is not so much that the receiver and manager may so exercise his powers as to occasion loss in the business to which he has been appointed. It consists of the consequences flowing from the fact of appointment and of the defendant’s loss of “its title to control its assets and affairs”, the phrase of Viscount Haldane LC in Parsons v The Sovereign Bank of Canada (1913 AC 160 at 167)’.
[1 ACSR 722 at 724-725]
46 It is of course common ground that unless a plaintiff shows that there is at least a serious question to be tried which if resolved in its favour would entitle it to final relief, then the requirements of justice as between the parties will dictate that an interlocutory injunction should be refused. 47 There are certain classes of cases where the evaluation of the strength of the plaintiff’s case for final relief is clearly desirable. 48 In Kolback Securities McLelland J dealt with the class of case where the decision to grant or refuse an interlocutory injunction would in a practical sense determine the substance of the matter in issue. In that case his Honour said:
‘Where the uncertainty depends in whole or in part on a contested question of fact it is not appropriate for the court to decide that question on the interlocutory application. Where the uncertainty depends in whole or in part on a contested question of law, it may or may not be appropriate for the court to decide that question on the interlocutory application, depending on circumstances e.g. whether the question is novel or difficult, or is susceptible of resolution on the present state of the evidence, or whether the urgency of the matter renders it impracticable to give proper consideration to the question: see e.g., A v Hayden ([No 1] (1984) 59 ALJR 1 at 4); Cohen v Peco-Wallsend (1986 61 ALJR 57 at 59) … If the court does decide the question of law the uncertainty is to that extent removed’.
( Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR at 535 per Mc Lelland J)
49 I note also that in considering the important question of “the balance of convenience”, the relative apparent strength of each party’s case may be a relevant matter. 50 In Appleton Papers Inc, McLelland J pointed out the importance of recalling that the Court here deals with a discretionary power conferred on the Court in very general terms, referring to section 66(4) of the Supreme Court Act, which provides that the Court may at any stage of proceedings on terms grant an interlocutory injunction in any case in which it appears to the Court to be just or convenient so to do.
‘ … normally the court “does not undertake a preliminary trial and give or withhold interlocutory relief on a forecast as to the ultimate result of the case” (Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618 at 622), there are some kinds of case in which for the purpose of seeing where lies the balance of convenience (or more specifically “the balance of the risk of doing an injustice” - see per May LJ in Cayne v Global Natural Resources plc [1984] 1 All ER 225 at 237, cf per Brennan J in Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 ALJR 288 at 292, it is desirable for the court to evaluate the strength of the plaintiff’s case for final relief: see, e.g. Brayson Motors Pty Ltd v Federal Commissioner of Taxation at 292; Castlemaine Tooheys v South Australia at 682’.
(1987) 8 NSWLR at 536
51 As McLelland J made plain at page 216 citing from the judgment of Moffitt P in Stollznow v Calvert (1980) 2 NSWLR 749:52 At page 214 McLelland J cited the full High Court decision in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622, 623 where the Court had said that in dealing with applications for interlocutory injunctions:
‘While useful guidance is provided by the manner of exercise of the discretion in other cases, and by the factors considered in those cases to favour the exercise of the discretion in a particular way, each case must depend upon its own facts. It would be contrary to what I understand to be the accepted law in this country, to confine the exercise of a judicial discretion by judge made rigid formulae’.
53 At page 214 McLelland J further referred to Shercliff v Engadine Acceptance Corporation Pty Ltd (1978) 1 NSWLR 729 at 736, 737, where the Court of Appeal explained the special sense in which the expression "probability" was used by the High Court in the Beecham case, and in particular had said that it did not refer either to a prediction as to the ultimate result or to a better than even chance of ultimate success. The Court said that:
‘The Court addresses itself in all cases, patent as well as other, to two main enquiries. The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is, there is a probability that at the trial of the action the plaintiff will be held entitled to relief...the second enquiry...is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused, outweighs or is outweighed by, the injury which the defendant would suffer if an injunction were granted’.
54 As McLelland J reminds us at page 214, the Court had already stated that in that case the balance of convenience was very strongly in favour of the granting of interlocutory relief (to preserve the status quo), and accordingly the Court's statement, McLelland J believed, might be generalised by saying:
‘The degree of probability or likelihood of success is simply that which the Court thinks sufficient, in the particular case, to warrant preservation of the status quo’.
55 McLelland J also cited from the Privy Council decision in Eng Mee Yong v Letchumanan [1980] AC 331 at 337 where the Privy Council had expressed the relevant principle in terms derived from the American Cyanamide case as follows:
‘ . . that the degree of likelihood of success to be demonstrated is that which the Court thinks sufficient in the particular case to warrant consideration of where the balance of convenience lies’.
56 McLelland J at page 215 expressed the view that what was said in the Eng Mee Yong case is not inconsistent in substance with what is said in the Shercliffe case notwithstanding that the form of words used in the two cases is different, and in the Eng Mee Yong case, the expressions "probability" and "prima facie case" seem to be used in somewhat different senses to those in which the same expressions are used in the Beecham case as explained in the Shercliffe case. McLelland J pointed out that it must be remembered that:
‘The Court's power to grant an interlocutory injunction...is discretionary. It may be granted in all cases in which it appears to the Court to be just and convenient to do so...the guiding principle in granting an interlocutory injunction is the balance of convenience; there is no requirement that before an interlocutory injunction is granted the plaintiff should satisfy the Court that there is a `probability', a `prima facie case' or a `strong prima facie case' that if the action goes to trial he will succeed; but before any question of balance of convenience can arise the party seeking the injunction must satisfy the Court that his claim is neither frivolous nor vexatious; in other words that the evidence before the Court discloses that there is a serious question to be tried...’.
57 McLelland J further noted that in considering the question of the "balance of convenience" as contemplated in the Eng Mee Yong case and the American Cyanamide case, the relative apparent strength of each party's case may be a relevant matter. As McLelland J pointed out this accords with what the Supreme Court of Victoria said Magna Alloys and Research Pty Ltd v Coffey 1981 VR 23 in the following passage relating to the High Court's judgment in the Beecham Group case:
‘No Court should consider itself fettered by the form of words as if it were a phrase in an Act of Parliament which must be accepted and construed as it stands’.
58 Rather the High Court should be understood as referring to the degree of probability which may be high or low. No doubt the strength or weakness of the plaintiff's case will be relevant when the judge comes to the question of the balance of convenience, if he ever does."
‘Having regard to the fact that the High Court cited the judgment of James LJ in Plimpton v Schiller with approval, the reference in Beecham's case...to a probability of success should not be understood as meaning that the plaintiff must show that at trial it is more probable than not that he will succeed. Indeed the High Court made it clear that that is not the issue for the judge to determine, for, in the passage already cited the Court said `...the Court does not...give or withhold interlocutory relief upon a forecast as to the ultimate result of the case’.
59 At page 216 McLelland J cited Lord Diplock's judgment in American Cyanamide in terms of the power to grant interlocutory injunctions. The passage was as follows:60 At page 216, McLelland J pointed out that it is the task of the Court on an application for an interlocutory injunction to seek to fulfil this purpose in the manner best calculated to achieve justice between the parties in the circumstances of the particular case. McLelland J pointed out that with possible exception of a passage in the Beecham Group case which deals with what are said to be special considerations arising in a patent suit in which there is a substantial issue as to the validity of the patent, which McLelland J then proceeded to consider:
‘My Lords, when an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's legal right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action. It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction; but since the middle of the nineteenth century this has been made subject to his undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do. The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial’ .
[Emphasis added]
61 I have endeavoured to approach the present application for interlocutory relief applying the principles as expressed by McLelland J. The matter is put shortly by Meagher, Gummow & Lehane, Equity Doctrines and Remedies, 2nd Edition at para 2168.
‘. . . the decisions to which I have already referred provide authoritative guidance (not however to be interpreted as `rigid formulae') as to how this task of the Court should normally be approached, but do not deny the proposition that the ultimate task of the Court is as I have described it’.
62 Likewise in Meagher, Gummow and Lehane at paragraph 217 the learned authors say:
‘What the plaintiff must prove is that he has a serious, not a speculative, case which has a real possibility of ultimate success and that he has property or other interests which might be jeopardised if no interlocutory relief were granted. Then it becomes a matter of seeing if, in all the circumstances of the case, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction’.
63 Bearing in mind the significance on the motion of questions going to matters said to involve the concept of “constant supervision by a court” of specific performance orders, it is convenient to refer to two recent decisions, one of the House of Lords, and one of the High Court. 64 In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 the speech of Lord Hoffmann, with whose reasons Lord Browne-Wilkinson, Lord Slynn of Hadley, Lord Hope of Craighead and Lord Clyde agreed, included the following at page 12:
‘What is meant by saying that the Court must take into account the balance of convenience and the question of hardship is that it must consider carefully what effects the granting of an injunction will have on both parties and in particular whether to grant one would cause hardship to the defendant or to refuse one would cause hardship to the plaintiff’.
65 The decision in Argyll Stores was dealt with by the High Court in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia [No 3] (1998) 72 ALJR 873 in the following terms:
‘The practice of not ordering a defendant to carry on a business is not entirely dependent upon damages being an adequate remedy. In Dowty Boulton Paul Ltd v Wolverhampton Corporation [1971] 1 WLR 204, Sir John Pennycuick V-C refused to order the corporation to maintain an airfield as a going concern because: “It is very well established that the court will not order specific performance of an obligation to carry on a business”: see p 211. He added: “It is unnecessary in the circumstances to discuss whether damages would be an adequate remedy to the company”: see p 212. Thus the reasons which underlie the established practice may justify a refusal of specific performance even when damages are not an adequate remedy.
The most frequent reason given in the cases for declining to order someone to carry on a business is that it would require constant supervision by the court. In J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282, 297-8, Dixon J said flatly: “Specific performance is inapplicable when the continued supervision of the court is necessary in order to ensure the fulfilment of the contract”.
There has, I think, been some misunderstanding about what is meant by continued superintendence. It may at first sight suggest that the judge (or some other office of the court) would literally have to supervise the execution of the order. In C H Giles & Co Ltd v Morris [1972] 1 WLR 307, 318 Megarry J said that “difficulties of constant superintendence” were a “narrow consideration” because:
“there is normally no question of the court having to send its officers to supervise the performance of the order … Performance … is normally secured by the realisation of the person enjoined that he is liable to be punished for contempt if evidence of his disobedience to the order is put before the court; …”
This is, of course, true but does not really meet the point. The Judges who have said that the need for constant supervision was an objection to such orders were no doubt well aware that supervision would in practice take the form of rulings by the court, on applications made by the parties, as to whether there had been a breach of the order. It is the possibility of the court having to give an indefinite series of such rulings in order to ensure the execution of the order which has been regarded as undesirable.
Why should this be so? A principal reason is that, as Megarry J pointed out in the passage to which I have referred, the only means available to the court to enforce its order is the quasi-criminal procedure of punishment for contempt. This is a powerful weapon; so powerful, in fact, as often to be unsuitable as an instrument for adjudicating upon the disputes which may arise over whether a business is being run in accordance with the terms of the court’s order. The heavy-handed nature of the enforcement mechanism is a consideration which may go to the exercise of the court’s discretion in other cases as well, but its use to compel the running of a business is perhaps the paradigm case of its disadvantages and it is in this context that I shall discuss them”.
66 It is inappropriate on an interlocutory application such as the present to detail the facts in the same fashion as occurs in handing down a final judgment. The documentary tender in the present case, albeit that the motion is an interlocutory motion, extended to well in excess of 5,000 pages. This was principally because the plaintiffs sought to place into evidence all of the materials presently filed by the plaintiffs as their evidence to be deployed in the final hearing. The extensive statements also relied upon by the plaintiffs in the interlocutory motion in very large part went to the so-called “serious question to be tried” or “real question” issues. The statements also dealt at length with balance of convenience issues. The interlocutory application occupied nine hearing days. 67 The defendants for their part sought to put into evidence principally matters going to balance of convenience and only briefly evidence said to be sufficient to enable the Court to discern that in relation to many of the factual allegations pressed by the plaintiffs, there was a real dispute which would require to be ultimately determined at the final hearing. The defendants not only placed “serious question to be tried” in issue but as already noted, asserted that “the correct evaluation of the claims to interlocutory relief require more than just an assessment of whether there is a serious question to be tried as to their validity. This is because the grant of the relief sought would displace proprietary rights clearly vested in NMG”. [Overview Submissions paragraph 4] 68 Not all of the materials to which the Court was taken on the hearing of the interlocutory motion will be referred to hereunder. Here again, a brief overview of the facts, which were in some cases agreed and in other cases the subject of dispute, suffices for the purposes of the motion. The following outline is broadly taken to represent the plaintiffs’ case.
‘We see in the orders no defect which sometimes is expressed as the involvement of the court in “constant supervision” of continued conduct. Reservations of that nature have been expressed in decisions of this Court. However questions of degree rather than absolute restrictions upon the scope of curial relief are involved. Reference was made in the Federal Court judgments and in submissions to this Court to the speech of Lord Hoffmann in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd. His Lordship affirmed the refusal by the judge at first instance of an order for specific performance of a lease for a term of 35 years containing a covenant to keep premises open for retail trade during usual hours of business in the locality. His Lordship’s statement that the usual practice was not to grant specific performance to carry on an activity over a period of time was made in response to a submission by the lessor to the effect that the equitable remedy was no longer to be understood as granted in the auxiliary jurisdiction where damages would be an inadequate remedy. The lessor submitted, without success, that in cases such as Argyll Stores the court “should look at the whole panoply of available remedies and consider the appropriate one rather than the gloss of rules put on them restricting their use”.
The Facts
The House of Lords discharged the order for specific performance which the Court of Appeal had made. The significance of Lord Hoffmann’s speech for present purposes is not the rejection of the lessor’s submissions. That rejection, with respect, was virtually inevitable. What is significant is the acceptance by the House of Lords that the concept of “constant supervision by the court” by itself is no longer an effective or useful criterion for refusing a decree of specific performance. Rather, Lord Hoffmann placed stress on other propositions. First, a person who is subject to a mandatory order attended by contempt sanction (which “must realistically be seen as criminal in nature”) ought to know with precision what is required; and, second, the possibility of “repeated applications for rulings on compliance” with orders requiring a party “to carry on an activity, such as running a business over a more or less extended period of time” should be discouraged’ .
[per Brennan CJ, McHugh, Gummow, Kirby and Hayne JJ
at 893] [emphasis added]
69 An unsigned set of draft heads of agreement entered into between the Bank, AUSMAQ Limited, Mr Walker, NMG, JMG, Mr Maconochie and Investors Buying Service (IBS) Pty Limited was sought to be relied upon by the plaintiffs - PX 3/1195.
15 August 1996
70 A later draft of heads of agreement this time expressed to be between the Bank, AUSMAC Limited and Mr Walker was sought to be relied upon by the plaintiffs and tendered as PX4/1220 and following. This draft was also unsigned. Both this and the previous 15 August 1996 draft included the sentence “The parties agree that this heads of agreement is not intended to be legally binding” - cl 1.
20 August 1996
71 The restructuring and consulting agreements were entered into on this date together with several ancillary agreements.
13 September 1996
72 On 18 October 1996 JMG entered into a number of consultancy service agreements with nominated consultants, namely Mr Maconochie, a company Graspnovel Limited associated with Mr Hume, a company Chipland Pty Limited associated with Mr Nelson, and Future Software Pty Limited, a company associated with Mr B Martin. [PX 1498, 1508, 1528 and 1542]. The agreements were generally for a term of 5 years and obliged the consultant to the best of his or its ability to provide identified services relating to the use of computers and communications in support of the AUSMAQ service and by way of the development modification and maintenance of software in connection with the service, by way of preparation of business plans and such other services as may be directed in accordance with the agreement. Subject to regulation by cl 4 of the agreement, the consultants agreed to devote and procure that nominated personnel devote so much time to the services as may be necessary up to full time, for the proper performance of the services, and to give priority and procure that nominated personnel give priority to the provision of services to the business. The business was described as “the commercial and practical operations of the Company, [NMG] or its subsidiaries relating to the AUSMAQ service”. The consultancy service agreements were expressly cross-referenced to the 18 October 1996 Consultancy Agreement between JMG and NMG. The Consultancy Agreement included a covenant [clause 3.1] that “JMG will devote and will procure that the Consultants [in turn defined to mean Messrs J M Maconochie, C Hume, G Nelson and B Mackin or any of them] devote so much time to the Services on a full time basis for the proper performance of the Services and will give exclusive priority and procure that the Consultants give exclusive priority to the provisions of the Services to the Group”.
18 October 1996
73 On 6 November 1996 the Bank guarantee, to which reference has already been made, was entered into between the Bank and JMG. The agreement is appended to this judgment as Appendix “B”. It is an important document to be read as part of the reasons for judgment. 74 6 November 1996 is also of significance in that, as the parties accepted, it was the date on which completion occurred under the Restructuring Agreement - see the definition of “completion date” in the Restructuring Agreement and in the Consultancy Agreement. In consequence, as and from 6 November 1996 the Consultancy Agreement commenced to bind the parties - [Consultancy Agreement clause 2 and see also the conditions precedent in section 2 of the Restructuring Agreement]. 75 A number of ancillary agreements listed in paragraph 15.7 of Mr Maconochie’s first statement were also entered into on 6 November 1996.
6 November 1996
76 The relevant financial year was at all material times the 12 month period ending upon 30 September. It will be immediately appreciated that as the parties were bound to the terms of the Consultancy Agreement on and after 6 November 1996, it would not have been possible for the parties pursuant to cl 4.1(a) of the Consultancy Agreement to agree upon a business plan for the 1996/97 year on an earlier date. In consequence clause 4.1 (a) and 4.1 (b) detailed a different regime to be observed with respect to the provision at least for so much of the first business year, as would deal with the period between 6 November 1996 and 30 September 1997. Mr Maconochie’s statements and a deal of the correspondence was directed to the allegation that JMG’s nominated representatives had not been given an opportunity to meet with the NMG management committee prior to the end of relevant financial years to review the objectives of the group, so as then to be in a position to prepare and later deliver to NMG, a draft of the proposed business plan for the immediately following financial year - see cl 4.1(a) and (b) Consultancy Agreement. 77 Mr Maconochie in his first statement asserts that in early October 1996 Mr Breeze, the Bank’s Group General Manager assisting the Managing Director, advised him that he would be appointing Mr Krasnostein to the Board of NMG, he being the Bank’s new Group Legal Counsel. Mr Maconochie also asserts that Mr Breeze in early November advised him that Mr Peter Crutchley had been appointed to the post of Chief Operating Officer. According to Mr Maconochie Mr Breeze advised him that Mr Maconochie was the head of JMG and consultant to AUSMAQ. 78 In paragraph 20 of his first statement Mr Maconochie asserts that on 19 November 1996 he attended a meeting of the Board of Directors of AUSMAQ Systems, at which meeting the directors received a slide presentation from Mr Moore prepared by Mr Moore for the AUSMAQ Systems’ Board. The presentation is said to have included the Bank’s Objectives and Strategy, the Bank’s approach to AUSMAQ, the NMG organisational structure within the Bank group, and the Bank/JMG balance of interests. 79 In paragraph 21 of his first statement Mr Maconochie gives evidence that in December 1996 and January 1997 he prepared the 1997 Business Plan for AUSMAQ Systems and AUSMAQ (NZ) Limited “in accordance with the terms of the Consulting Agreement”. He gives evidence that he then submitted the plan to NMG and to AUSMAQ Systems on 16 December 1996. 80 In paragraph 22 of his first statement Mr Maconochie gives evidence that the draft Business Plan was tabled at a meeting of directors of AUSMAQ Systems on 17 December 1996 which he attended. The minutes of that meeting [PX 2062] record that the Business Plan was tabled at the meeting. The directors, as the minutes record, resolved that the business plan be sent to the Bank’s group strategic development area for their review and comment. 81 At the same meeting the directors, on Mr Maconochie’s evidence, were informed by the company secretary that NMG intended to appoint Messrs Courtney, McKimm and Krasnostein as directors and that the Board confirmed the appointment of Mr Crutchley as Chief Operating Officer of AUSMAQ Systems. 82 On 16 December 1996, as PX 2039-2042 records, a memorandum was sent by Mr Crutchley to the Directors of Systems, dealing with an executive summary of the business plan. The business plan is itself set out at PX 5/1917 running to PX 5/2029. It appears to be a comprehensive and detailed Business Plan. 83 By memorandum dated 27 December 1996 Mr Crutchley forwarded to the executive committee, a note seeking the committee’s approval to implement the business plan in scenario two for Australia and to proceed with the establishment of the business in New Zealand. [PX 5/2030] 84 By memorandum dated 3 March 1997 Mr Breeze notified Mr Crutchley of AUSMAQ Limited in broad terms of the Bank’s approval to the Business Plan. The memorandum advised inter alia:
Events Following 6 November 1996
85 In Mr Maconochie’s first statement he refers to AUSMAQ System’s meetings which he attended on 18 February 1997 and on 18 March 1997 and to the Board papers for these meetings which he received before the meetings. His evidence in paragraph 25.3 is that the subject of Business Plans was not on the agenda of either of these meetings and that according to the minutes of the meetings that subject was not raised. 86 Mr Maconochie also refers to his attendance at subsequent meetings of directors of NMG of AUSMAQ Systems and AUSMAQ (NZ) Limited in April, May, June and July 1997. His evidence is that the 15 July 1997 meeting was the last such meeting which he attended and that his attendance at the April and June meetings was by video link from Sydney. Mr Hume he says, also attended the May and July meetings. 87 Mr Maconochie’s evidence in paragraph 26.2 of his first statement is that at these meetings the subject of Business Plans and the performance overall of AUSMAQ Systems and AUSMAQ (NZ) Limited was never raised once nor discussed. 88 During these proceedings the plaintiffs’ counsel indicated that the commencement of the arms length position taken as between the parties appears to have been in about mid-June 1997. In Mr Maconochie’s first statement he gives evidence that on 16 June 1997 he attended a meeting with Mr Crutchley and Mr Meikle at AUSMAQ Systems’ premises in Sydney at which Mr Maconochie alluded to having heard from Mr Meikle that it was thought that Mr Maconochie might sue the Bank. In the course of this conversation, on Mr Maconochie’s version, he said that JMG’s sole interest was to make the business work properly and that there should be nothing holding them back in this regard, and Mr Meikle said “the enemy’s out there not in here, we have to work together”. 89 Mr Maconochie then, on his evidence, furnished at the meeting a copy of what he described as a completed AUSMAQ Strategic Plan saying that he was forwarding it to NMG that day and seeking comments on it in due course. The subject strategic plan is to be found at 6/2420-2444. 90 Mr Maconochie gives evidence that at this meeting of 16 June 1997 he told Mr Crutchley that the approved Business Plan was not being implemented, that the Board of AUSMAQ had no latitude in the matter, and that Mr Crutchley was obliged to enable JMG to undertake its role and fulfil its contractual obligations. 91 On Mr Maconochie’s evidence he stated:
‘With a majority of the formalities out of the way the scene is now set for AUSMAQ to proceed forward. The Business Plan submitted has some significant challenges in the next seven months and also presents AUSMAQ with opportunities to gain value from the use of Group resources’.
92 In Mr Maconochie’s first statement he gives evidence that on 17 June 1997 he telephoned Mr Breeze advising Mr Breeze that the company was badly off track and that JMG would be proposing immediately firm and decisive action to rectify the situation. On his evidence he said that he was concerned about the organisational structure of the company and the situation with the Premium and with NAFM. He told Mr Breeze that no NMG Management Committee Meetings had been held yet. He said “I don’t even know who’s on it”. 93 At a meeting at AUSMAQ Systems’ premises in Sydney on 19 June 1997 attended by Mr Maconochie, Mr Crutchley and Mr Meikle, Mr Maconochie tabled a paper entitled “AUSMAQ Functional Structure, Management Operations and Reporting Division and JMG/War Room”. [PX vol 6 pp 2449-2455] 94 Mr Maconochie’s first statement includes evidence that he prepared a paper dated 11 July 1997 entitled “Performance Review of COO” [PX 7/2572-2580], a copy of which was given to Mr Hume. 95 Mr Maconochie’s evidence was that on 14 July 1997 he held a meeting with Messrs Breeze and Krasnostein of NMG at the Park Hyatt Hotel. Messrs Hume and Nelson were also in attendance. 96 On Mr Maconochie’s evidence, upon his arrival at the meeting with Mr Krasnostein, and even before sitting down, Mr Breeze said:
‘There have been no NMG management committee meetings. I don’t even know who is on the NMG management committee. We need to convene it to discuss the strategy document prepared by JMG. Otherwise JMG can’t meet its contractual requirements to produce the next Business Plan … I don’t want to be waving our contract in your face, but the NMG management committee is an essential requirement of our contract. You cannot unilaterally do as you like, for example, withdrawing the sales people from the field. That is not your prerogative nor is it the prerogative of the AUSMAQ Board. They must implement the Business Plan delivered to them by NMG and you must do your part. Things must be better co-ordinated and run in accordance with our agreement”.
97 On Mr Maconochie’s evidence Mr Breeze then produced a letter and handed it across the table to him. [PX7/2571] The letter addressed to Idoport to the attention of Mr Maconochie was in the following terms:
‘We are happy to come to your meeting and listen, but we won’t be deciding anything here today. You should deal with Peter Crutchley who is the authorised officer’.
98 Mr Maconochie gives evidence in his first statement that after he had read the letter and given it to Mr Hume to read what occurred was as follows. Mr Maconochie said:
‘I confirm that until further notice Peter Crutchley is an Authorised Officer (within the meaning of paragraph 3.2 of the Consulting Agreement) of National Markets Group Limited (the company) and that he is authorised to give instructions to Idoport Pty Limited (JMG) under the terms of the Consulting Agreement.
Until further notice the management committee of National Market Group Limited will comprise Mr Peter Crutchley, Chairman and Roger Meikle. Mr Simon Moore and/or Mr Rod Carr may attend those meetings ex officio.
Would you please make arrangements with this committee to review the company’s objectives and Business Plan for 1997/98. I would hope that you personally will be available to attend these discussions together with one of your consultants.
I look forward to our meeting on 4 July 1997’.
99 After that Mr Breeze said:
‘You are the head of business for NMG. We have always taken it that you, as head of business, for NMG, were the Authorised Officer … I am glad to see that the NMG Management Committee has now been set up even though you have nominated Crutchley to it which might be a problem for all of us and we want to talk about that. It is now eight months since completion and the Committee hasn’t met. The Consulting Agreement requires that we should have met at least by the end of June to review the objectives of the Group throughout the world, and we are now well overdue for that meeting. JMG is obliged to produce a draft Business Plan in about two weeks’ time’.
100 Mr Maconochie said:
‘We have let you attend the Board meetings. They have been in place of the Management Committee’.
101 On Mr Maconochie’s evidence, during the luncheon section of the meeting which then took place, he said inter alia:
‘Thank you for that, but it appears to us that the NMG Board meetings don’t address any of the substantive issues concerning the company that one might expect. For example one of our agenda items today is the AUSMAQ Strategic Plan that we submitted to you on 16 June before the last NMG Board Meeting. NMG hasn’t even acknowledged its receipt yet, let alone discussed it. We were hoping to review it with you today. This has to be settled before we can go ahead and produce the Business Plan which JMG has to complete in draft at the end of the month’.
102 According to Mr Maconochie, when he and Mr Krasnostein went to the wash room, Mr Krasnostein said to him:
‘We are serious about JMG undertaking the role for JMG that was agreed. JMG has a lot invested in this business and we need to see NMG operated as agreed to realise its huge potential. That was the basis that we transferred NMG the IP from Market Holdings. I want you to know we are playing for keeps here’.
103 On Mr Maconochie’s evidence, after the luncheon at the meeting, Mr Hume said that Mr Crutchley had neither the experience, competence, course, skill, set, aptitude, nor presence for a senior management role in the AUSMAQ Group. Mr Hume said that Mr Crutchley had significantly damaged the AUSMAQ Group and the Bank’s investment since his arrival. He said:
‘The Bank is very powerful and has a lot of money’.
104 Mr Maconochie’s evidence is that Mr Breeze and NMG took no action to replace Mr Crutchley and appointed him to the position of the newly-formed management committee. 105 On Mr Maconochie’s evidence, a further NMG, AUSMAQ Systems and AUSMAQ (NZ) Limited Board set of meetings took place on 15 July 1997 which he and Mr Hume attended. Upon Mr Maconochie’s arrival at the meeting, Mr Breeze apparently said that he had just informed the Board about the management committee, and circulated a copy of the letter which he had handed to Mr Maconochie on the previous day. 106 Mr Maconochie then handed over a letter which he had written in reply. This letter appears at PX 7/2581, which reads:
‘The waste of time, energy and resources he has imposed on the business has been grievous. In the absence of JMG Consultants being on hand to keep an eye on him and take corrective action if they find out in the time, the Bank’s investment would be seriously compromised. His performance has demonstrated that there is no executive role, or indeed any position in the company at all, that he is qualified to fill. Our advice to you is that the company cannot be commercialised while he is present at the company. We therefore recommend that you take him back, promote him to Deputy Chairman or something of NMG …’.
107 Mr Maconochie’s evidence is that after handing that letter across the meeting in substance continued inter alia as follows. Mr Maconachie said:
‘Thank you for your letter of 9 July 1997 … your confirmation that Peter Crutchley is an Authorised Officer of NMG … and is authorised to give instructions to JMG is acknowledged … The Membership Committee of the Management Committee of NMG is noted. I will arrange with the Committee to review the company’s Objectives and Business Plan for 1997/98. I confirm that I will be personally available and will look forward to attending these discussions with the NMG Management Committee.
I note that the Management Committee of NMG is comprised of Line Managers in AUSMAQ Australia and New Zealand. These staff members are responsible for implementing the Business Plans in Australia and New Zealand. I would appreciate your written advice as to how you see these staff members reconciling that role with their responsibilities as Management Committee Members for issuing, reconciling and if necessary, modifying Business Plans. A bit like the poacher and the gamekeeper being one and the same, wouldn’t you think?’
108 Mr Breeze said:
‘How do you propose to separate the responsibilities and accountabilities of members of the Management Committee of the company to monitor the performance and recommend corrective action and the Line Managers implementing the Business Plans when they are one and the same. We have a poacher and gamekeeper problem here’.
109 In Mr Maconochie’s first statement he then gives evidence that on the morning of 17 July 1997, in the presence of Mr Hume, he telephoned Mr Breeze and asked Mr Breeze where he was at on addressing the management issues which he had been spoken to about, to be advised by Mr Breeze that it would take them about two weeks to get things sorted out, and that it couldn’t be done any faster. Mr Breeze said that he could not be more specific and Mr Maconochie said:
‘NMG doesn’t have any separate staff to undertake that role. All that is done in the Bank. The people from Investments and Advisory and Group Strategy Development and NAB Group leadership do that. I have put Rod Carr on. You should find him good value’.
Mr Maconachie said:
‘This set up completely defeats the purpose of having NMG. It doesn’t do anything. Its role is being done in the Bank which was exactly what was to be avoided. NMG can’t abdicate its role to other people outside NMG. The way it is being done is not what was agreed between NAB and JMG. You know that’.
Mr Breeze shrugged and said:
‘That’s nothing to do with you’.
Mr Krasnostein said:
‘You are just a Consultant’.
Mr Maconachie said:
‘JMG is entitled to attend all Management Committee Meetings and be heard. How can we do that when NMG’s role is subsumed in the Bank. The way you are doing it, we don’t even know when the meetings are on, let alone who’s there and what is being decided and on what basis. That’s not what we signed up for’.
110 On Mr Maconochie’s affidavit, on 17 July 1997 he asked Mr Crutchley to hold an NMG Management Committee Meeting that afternoon which was then held. It was attended by Mr Meikle, Mr Crutchley and Mr Maconochie. At the meeting, on Mr Maconochie’s evidence, he said to Mr Crutchley and Mr Meikle:
‘This place must be operated along the lines agreed with JMG and that is what we expect to happen. Apart from that it is not safe to have Crutchley continuing to run operations as he has been’.
111 On Mr Maconochie’s evidence, Mr Crutchley and Mr Meikle said that they were not able to offer any such suggestions, and Mr Maconochie asked, “How can we review those objectives if there are none”, to be advised, “We cannot”. 112 On 2 August 1997, on Mr Maconochie’s evidence, he met with Mr Breeze, Mr Moore and Ms Shaw at AUSMAQ Systems’ premises in Sydney. On Mr Maconochie’s evidence at this meeting the following occurred. Mr Breeze said:
‘Can you offer any suggestions as to the objectives for the commercialisation of the AUSMAQ Service throughout the world as required by the Consulting Agreement’?
113 Mr Maconochie said:
‘Mr Meikle will replace Mr Crutchley who will be leaving the company as Chairman of the NMG Management Committee. Mr Meikle will determine the frequency of the NMG Management Committee Meetings.
114 I note that the minutes of the Management Committee Meeting of 17 July appear at PX 7/2672 and following.
‘It is essential that Management Committee meetings of NMG be held at least quarterly. You must hold Executive Committee or Group Leadership meetings, whatever you call the Management Committee in the Bank, at least quarterly and probably once a month’.
Ms Shaw said:
‘It is only necessary to have a Management Committee Meeting of NMG once a year. It’s a bit like a Shareholders’ Meeting. You can attend and be heard and you go away and come back next year’.
Mr Maconochie said:
‘What you have just said is not in accordance with our agreement [the Consulting Agreement] and the Annual Meeting of Shareholders of a company cannot in any way be compared with the Management Committee of a company’.
Ms Shaw said:
‘Well that’s all you are entitled to. You are only Consultants’.
115 Under cover of memorandum dated 1 August 1997, Mr Maconochie forwarded to NMG, and copied to Mr Breeze and others, what he termed “the draft of the proposed 98 Business Plan for the 3 plan years 98-2000”. 116 This draft Business Plan is to be found at PX 7/2674-2889. It includes a section entitled “JMG’s Proposed Involvement”. [PX 2685] 117 This section provides inter alia:
1 August 1997
118 On 2 August 1997 Mr Maconochie wrote to Mr Breeze enclosing a copy of JMG’s meeting notes of their meeting that day. In this letter Mr Maconochie said inter alia:
‘1. The implementation of the Business Plan, JMG’s role in it, and the safe operation of the business is contingent upon the recommendations in respect to organisation and staffing being implemented.
2. JMG requires suitable office and secretarial support facilities to be able to properly undertake its role. JMG secretarial support has been included in the Business Plan. This, and the adoption of the recommendations regarding the organisation and staffing will greatly reduce the load on JMG’s principal, J Maconochie. It is essential for the business that this be done.
JMG’s principal no longer has suitable office space at the Harrington Street premises due to actions by the COO. Until this is rectified, and in order to be able to properly undertake his duties, JMG’s principal has, at considerable inconvenience, reactivated his development office facilities [-75m2] at 30 Stanton Road, Mosman. AUSMAQ will be invoiced $3000 per month for these facilities from June ’97 inclusive until the situation is rectified to JMG’s satisfaction.
3. Since February ’97, JMG has meet the standing costs (office infrastructure and secretarial) necessary to support the active UK market exploration program according to Plan that has been undertaken by C Hume. The cost is approximately 3000 pounds per month. The COO was not originally prepared to meet the costs of these services, which are essential if the job is to be undertaken efficiently and professionally. Accordingly, the ’98 Plan includes a monthly amount of 3000 pounds that will be billed to AUSMAQ from 15 August ’97.
4. JMG consultants are prepared, and have contracted, to work on a full time basis. This does not mean 7 days per week, 15 hours per day continuously. This has been necessary for extended periods to maintain the business as a viable operating entity and to progress it. The reasons have been fully documented elsewhere. It is unacceptable for efficiency and health reasons. JMG consultants will be available to work a reasonable number of hours. If the recommendations on organisation and staffing are accepted, then this will be adequate to meet the needs of the proposed Business Plan.
5. JMG requires a supplementary agreement with the Bank that is aimed at bringing the current position back into balance, and thereafter keeping it in equilibrium. This matter is on the agenda with NMG’s Head of Business, Mr Breeze’.
2 August 1997
119 On 5 August 1997 NMG, by letter signed by Mr Breeze as Chairman, wrote to Idoport, attention Mr Maconochie. This letter is appended as Appendix “C”.
‘I would reiterate my statement to the meeting today, that JMG’s position has been attacked, and today sustained a deliberate attempt to force us out of the business, aided and abetted by your letter of 14 July only just failed … We need to get back to the position we signed up for, and which was presented in slide form to the Board by Simon Moore in November so that we can make the “new start” on Monday that you have proposed. We need information, support and positive assistance to properly discharge our contracted responsibilities and play our proper role in the direction of the business. We also need some tangible assurances now of the good faith that has been so sadly lacking …
We are disturbed by the tone of this information shutdown. We signed up for a business partnership, and this information shutdown has no place in it. It is nonsense to try to give the best advice on less than best information. We shall require full Board input and output papers as a matter of course, and regard the withdrawal of invitations to Board Meetings, whilst freely acknowledging they are not a JMG right, as a hostile act. After all, we did you and the Board’s job in rescuing the company from the CEO’s incompetence’.
120 On 8 August 1997 Mr Maconochie responded by writing to Mr Breeze of NMG. This letter is appended as Appendix “D”. 121 In this letter Mr Maconochie accepted that the rights and obligations of the parties to the Consulting Agreement were quite clear. He agreed with the synopsis extract in Mr Breeze’s letter of 5 August 1997, which is sought to be emphasised above.
8 August 1997
122 On 20 August 1997 Mr Maconochie sent a memorandum [Appendix “E” to this judgment] to Mr Meikle.
20 August 1997
123 On 3 September 1997 Mr Maconochie had sent a memorandum to Mr Meikle entitled “BT MAQ Competitive Threat”. He had received no reply. His evidence is that in September 1997 he asked Mr Meikle whether he had circulated the BT MAQ letter to the NMG directors to be told that the directors had been handed the document at a Board Meeting and had laughed and rubbished JMG and ignored it. 124 In paragraph 35 of Mr Maconochie’s first statement, he gives evidence that in the first week of September 1997 he asked Mr Meikle when Management Committee Meetings were being held. His evidence is that the conversation included the following. 125 Mr Maconochie:
3 September 1997
126 On 25 September 1997 Mr Meikle from AUSMAQ sent a memorandum to Mr Maconochie thanking him for the AUSMAQ Business Plan submitted by JMG and advising:
‘You and I agreed back in June that they should be held at least quarterly. It is coming up to the start of the end of the financial year and the Management Committee should have been considering these things’.
Mr Meikle:
‘ I have been instructed by the Bank not to hold NMG Management Committee Meetings’ .
Mr Maconochie:
‘But Breeze told me that you and I should consult about the Management Committee Meetings and their scheduling. When is Rod Carr available to meet, I’d like to meet him’?
Mr Meikle:
‘I don’t know. I’ll ask him but I don’t know when we can hold the Management Committee Meeting. I’ll ask Simon [Mr Moore]’.
Mr Maconochie:
‘What about the Business Plan? What is happening here? If the NMG Management Committee isn’t reviewing it, who is’?
Mr Meikle:
‘Simon Moore and Investment and Advisory are handling it. Simon has got Ian Clarke from Coopers & Lybrand working with him on it. Simon used to work with him when he was at Coopers & Lybrand. Simon has written to me about the draft Plan you submitted. You won’t like what he has to say about it’.
Mr Maconochie:
‘What’s Moore got to do with it? It’s none of the Bank’s business. This should be handed by NMG’.
Mr Meikle:
‘There are a few “please explains” coming down from above to Moore and McKinnon. They are being asked why they did a deal structured like this . Moore is doing a revalidation of the AUSMAQ acquisition. It’s part of that’.
[Emphasis added]
25 September 1997
127 Mr Maconochie complains in paragraph 36 of his first statement that the Draft Proposed 1998 Business Plan, furnished to him on 26 September 1997 by Mr Meikle, made no reference to any Management Committee Meetings. He points out that the Organisational Structure diagram made no reference to JMG, and its role, other than to show under the Technology and Project Management box a sub-box: “JMG Technical Consultants - Graham Nelson, Brian Martin”. 128 Mr Maconochie, in paragraph 36 of his first statement, also asserts that the forum at which the Management and Board of AUSMAQ were finalising the Strategy and Business Plan for the following year was, and remains, unknown to him. His evidence is that it was not the management committee of NMG. In this regard he refers to the memorandum of 25 September 1997 [extract above set out], which had stated:
‘The Management and Board of AUSMAQ are now in the process of finalising the Strategy and Business Plan for the coming year. The purpose of this memo, in accordance with our contractual arrangements with JMG, is to provide you with a draft of the 1997/98 Business Plan and to invite your comments and suggestions. A copy of the current draft AUSMAQ Business Plan is attached for your consideration.
You will see from this draft that the Business Plan, while substantially complete, still requires some work in finalising certain aspects of the detail, in particular, the individual Operational Plans for the various Divisions within the Company.
In summary the proposed Business Plan is significantly less ambitious than either the second year of the original Plan or the Plan submitted by JMG. The draft Business Plan, and associated Budget, focuses on the commercialisation of the AUSMAQ System and the consolidation of the company’s position and reputation in the Australian and New Zealand marketplaces. The reason for this focus is essentially twofold. Firstly, as you are aware, the company is effectively 12 months behind where it should have been had certain elements of the original Plan been fulfilled this year. Secondly and more importantly, the company is required by its shareholders, to validate the value proposition as currently defined. Specifically, this required proof of the financial viability of AUSMAQ through the successful implementation of the Service, on normal commercial terms, to each of three selected distribution channels. Accordingly, the strategy underling the Business Plan, and the mechanics to actually implement the Business Plan, are focussed on the commercialisation of the Service to a select number of identified customers and targets. This revised focus has necessitated a change in the Sales/Marketing operating and implementation strategies.
What has become clear in the last few months is that a number of system enhancement developments identified in scenario two of last year’s Business Plan are now considered fundamental to the successful commercialisation of the system in the near term. Accordingly, the Business Plan includes appropriate allowance for the development of a number of specific system projects including the front and interface for the “end to end” solution, superannuation/tax advantaged accounts, shares, and a degree of process redesign. The costings for these developments have been taken from scenario two of the original Business Plan.
I look forward to discussing the proposed Strategic and Operational Plans for the company with you on Friday’. [PX 7/2936]
129 In his first statement Mr Maconochie sets out the further developments of October 1997, including reference to a meeting of 21 October 1997 when Mr Hume and Mr McConochie met with Mr Meikle, Mr Moore, Ms McGrath from the Bank and Mr Clarke of Coopers & Lybrand at AUSMAQ Systems’ Sydney premises. The substance of the meeting in Mr Maconochie’s evidence was as follows. 130 Mr Maconochie said:
‘The Management and Board of AUSMAQ are now in the process of finalising the Strategy and Business Plan for the following year’.
‘We want to talk about the independence agenda item’.
Mr Moore said:
‘Well I don’t know what that has to do with anything’.
Mr Maconochie said:
‘You’ve read the document on independence that I wrote and which I believe Roger circulated to the directors at their meeting this morning.
Mr Moore said:
‘Yes, but I don’t see the point of the issue or the discussion. The company was insolvent when be bought it’.
Mr Maconochie said:
‘The point is that as the document states, the company is not being operated independently and the company’s Business Plans are not being developed external to the parent shareholder, the Bank. These Business Plans are not being reviewed and approved to go forward on the recommendation of the NMG Management Committee as we agreed. That was the basis of our deal with the Bank. You were there. You know that as well as I do. The financial situation of the holding company was irrelevant. It had been deliberately put into administration to enable the restructure with AIDC. And AUSMAQ Systems and Market Holdings were not insolvent. They were both going concerns and we sold you an exclusivity period. We had other investors which we put aside in your favour as you well know’.
131 Mr Maconochie’s evidence is that he and Mr Hume again met Mr Meikle on 22 October 1997 and Mr Meikle said, in relation to the meeting of the previous day, as follows:
Mr Moore said:
‘I still don’t see how independence and those other issues you mention are relevant now. Nothing will change’.
Mr Maconochie said:
‘The business is not under effective intellectual control now that JMG and myself have been excluded. There is no one with the knowledge or experience to lead it’.
Mr Meikle said:
‘I agree with you the business lacks intellectual leadership. There is a stalemate in relations between JMG and the Bank. AUSMAQ is making inefficient use of JMG’s potential’.
Mr Hume said:
‘AUSMAQ corporate governance is ineffective and has contributed materially to the Crutchley debacle and the breakdown in relationships between JMG and the Bank’.
Mr Maconochie said:
‘We need to know exactly what is going on here. Have you seen the draft letter Roger Meikle sent to you that he is proposing to send to me. According to Roger it is an accurate description of the situation’.
Mr Moore said:
‘Yes’.
Mr Maconochie said:
‘Well what do you say about it?’
Mr Moore said:
‘I was astounded’.
Mr Maconochie said:
‘Let’s go through each item in it shall we? I think that will help determine where we are. What about the Management Committee item in paragraph 6? Or rather do you disagree with anything in the letter?’
In regard to the Consulting Agreement, Ms McGrath said:
Mr Moore was silent.
‘ JMG is no different to any other consultant group used by the NAB Group. It has no right to attend Management Committee Meetings of the NMG’ .
Mr Maconochie said:
‘That’s not correct. No other consultant group used by NAB has a Consulting Agreement that gives it representation on the Management Committee of the company and pays it substantial royalties and gross revenue, amongst other things. Isn’t that correct Simon?’
Mr Moore was silent. [Emphasis added]
132 The events between roughly mid-August 1997 and the forwarding on 22 June 1998 by Mr Barnes QC counsel for the plaintiffs to the defendants with a draft statement of claim are chronicled by a large section of correspondence principally passing from JMG to NMG or to bank officers. By letter dated 17 March 1998 JMG (Mr Maconochie) wrote to NMG, attention Mr Meikle, asking that there be addressed “the now 44 pieces of correspondence requiring a response from NMG …”. 133 It is inappropriate to presently set out so much of exhibit PX 7 as sets out the majority of this correspondence. For relevant purposes the correspondence can be found generally from approximately PX 7/2901 through to approximately the end of PX 7. 134 An example of the approach taken by Mr Maconochie is to be seen in his memorandum to Mr Meikle of 20 August 1997 [PX7/2909]. It deals with the background to the structure and to what Mr Maconochie refers to as “the philosophy” in relation to his understanding of the transaction. He says inter alia:
‘No [Simon] was not happy with the meeting yesterday. He was very unhappy. He thought it went very badly. After you left me said to me: “Why did I tell them [Hume and Maconochie] all those things about how things really are? Why didn’t you tell them something else? I told them that wasn’t my way and that I was always open with you. He would find out anyway, and if I didn’t let you know what was happening it would then be difficult for me to work with you’.
135 This theme has continued in terms of Mr Maconochie’s complaints to this day. 136 Later correspondence, such as Mr Maconochie’s memorandum of 3 September 1997 to Mr Meikle, refers to the competitive threat posed by the development work underway at BT. Mr Maconochie had apparently advised Mr Meikle that BT had committed substantial funds and technical resources to the creation of a potential competitor to AUSMAQ. He had apparently informed Mr Meikle that he regarded this of urgent and strategic importance to AUSMAQ. 137 This memorandum includes many seriously put complaints by Mr Maconochie suggesting that AUSMAQ was then “rudderless”. At PX 2922 Mr Maconochie’s opinion is voiced in the following fashion:
‘The philosophy was, and presumably still is, to set up a stand alone holding company [NMG] that is operated independently of other NAB group operations.
NMG would therefore have its own culture, objectives, strategy, and method of implementation all as contained in the Business Plan of the day. NMG would have carriage of the global development of AUSMAQ. NAB Group, as the sole and controlling shareholder of NMG, would therefore have outright control of NMG and accordingly, all its subsidiary operating entities, from day 1.
The strategy of the AUSMAQ Group would be determined at the NMG level, and implemented by NMG’s operating entities. This strategy, and its implementation according to the Business Plan approved by NMG, would be fed into the relevant NAB Group areas for monitoring or reporting purposes, for example GSD, Group Accounting, Group Legal. Where applicable, NMG could draw on NAB Group resources. As the sole shareholder, NAB Group would have the usual prerogative of a controlling shareholder to ultimately determine the NMG’s Business Plan.
In respect of the founder of the business, there would be a balance of interests that would be reflected in terms of the transaction. There would be a common goal of business profitability. In practice, this would involve a broad split of roles, with JMG working on product and market development, and NMG being the final arbiter of investment decisions and focusing on the management of the operations.
From JMG’s viewpoint, this approach carried some risks for both parties, but more so for JMG, as it depended on the good faith of the parties . JMG took the view that it ultimately didn’t matter what was written down and necessarily who had the legal control, since a successful enterprise would always require the good faith of both parties for it to work in the critical short to medium term; in this key period, there would be a balance between the dependencies on JMG’s unique skills and the capital that would be required from the shareholder to establish the business and grow it.
[The structure initially suggested by I & A to JMG was one involving control by JMG initially, and later transferring to NAB Group. However, the current structure was agreed to provide transparency and to leave the market in no doubt as to who would end up controlling the enterprise - the one ship, one master principle. It was judged, correctly I believe, that it was better to start out the way we all intended to operate some time down the line, because this would give the market an enhanced confidence level.]
…
What is the root of the problem that needs to be addressed?
The root of the problem is believed to be a conflict of actual operation objectives between NAB’s Group traditional businesses and AUSMAQ’s operating objectives , notwithstanding that the overall articulated objectives are clear at the I & A and senior management level; lip service at the operation levels in the traditional businesses may be paid to these overall high level objectives, but whilst a good game is talked, it is not played.
This was recognised at the outset by setting up the National Markets Group as an entity operated independently of the traditional business.
… It is considered important to avoid the “gamekeeper and poacher” problem , where key positions in the AUSMAQ Group are subject to executive action and oversight by one and the same persons …
There are two key issues that need to be addressed now.
(1) The governance of AUSMAQ [NMG and the operating entities] needs to be made independently of the traditional business executive … the governance objective can be achieved by the appointment of an independent Chairman and Board members at each of the NMG and operating entity levels’.
[Emphasis added]138 A memorandum from Mr Meikle to Mr Maconochie of 25 September 1997 enclosed the draft Business Plan. 139 By memorandum dated 23 October 1997 JMG wrote to Mr Meikle stating inter alia:
‘JMG has consistently advised NAB/NMG and the AUSMAQ Boards that we had a window of opportunity that was finite. JMG has advised that the worst possible mistake the Bank could make would be to show the world how it was done, prove it, and then fail to exploit AUSMAQ’s [huge] lead by establishing an unassailable position before the competition reverse engineered our system and opened for business. Only time and money stand between companies like BT … and success in doing just that. NAB, NMG and the Boards of AUSMAQ, against our repeated and insistent advice, have made that gross error. The naive and concentrated stupidity of this appalling strategic blunder is breathtaking. It is all the more galling that AUSMAQ strategy, which was implemented unswervingly and successfully over a number of years, which piloted AUSMAQ into a winning position with a huge prize in sight, and which was astutely identified by the Bank’s I & A Group, should be so recklessly squandered in such a short space of time.
AUSMAQ will never prosper while it is chained, restricted and held back by the all pervasive incompetence that is choking it. Continuation of drip feed funding, eked out by the AUSMAQ Board/GSD/NMG/Group, Legal/group, Accounting/group, Management System, whose comprehensive inability and failure to grasp the strategic situation has now been starkly illuminated by BT, will surely cure AUSMAQ and thereby render NAB’s investment worthless within 6-12 months to say nothing of the enormous loss of strategic and value added wealth creation opportunity to the Bank that far outweighs its investment in AUSDMAQ. …
One thing’s for sure. A continuation of the way AUSMAQ has been run since 7 November 1996 is a dead set loser; any mug punter can see that. The pity of it is that if this happens, BT will end up with a fabulous business within 5 years that makes its current funds management success story pale into insignificance, and that’s what they aim to do. And good old NAB will go safely into the first 10-15 years of the next century playing catch up again as the world moves past funds management per se into the lush green customer fields that AUSMAQ pioneered. That scenario, very likely unless the Bank wakes up, now, will make its experience with AC Goode look like an unqualified success.
The right way forward
The only way forward is for the Bank to fund AUSMAQ as a stand alone, independent, fully financed company with JMG directing its activities as it contracted to do, subject to the proper checks and balances we proposed and put in place to protect the banks, and JMG’s, interests. Sound familiar? It should do - it’s the deal JMG agreed with NAB and signed on for on 6 November last year. It’s a pity the Bank hasn’t implemented it yet.
Sadly those checks and balances are being misused and abused by the staggering incompetence and stupidity with which a relatively small number of bank officers are employing them to strangle the business …
In my own case I still don’t have the office I was promised by Mr Breeze for myself and my fellow consultants and support staff … it is nonsensical to have the one person who just might have the knowledge and ability to deal with this situation, completely locked out from the business and powerless in any way to assist it, let alone chart a safe course for it to sail to prosperity, whilst this ludicrous situation persists. None of the hired hands there have a snowflake’s chance’.
[PX 2920 and following]
140 The document at PX 7/2975, being a draft which Mr Maconochie prepared intending to have Mr Meikle send, but which was never sent, nevertheless speaks to Mr Maconochie’s perception of NMG’s then position. It suggests that Idoport was advised, in or about October 1997, of the results of “the recent Management and Organisational Restructuring and JMG’s Future Rule and Relationship with NMG/AUSMAQ”. Page 2 of the document records Mr Maconochie’s intent to seek to have Mr Meikle formally confirm that instructions had been given as to JMG’s role and the procedures required to be followed by JMG, including the statement that NAB’s overall strategy is a global perspective, but that GSD has directed that this does not apply to NMG/AUSMAQ:
‘One point we did not discuss was JMG’s further contribution to the Business Plan. We understand that JMG will not be required in the future to contribute to the high level business strategy nor as a consequence be involved in the formulation of review of Business Plans. Also that the Business Plans may be amended at any time but we will not necessarily be advised’. [PX 7/2970]
141 The draft letter also included a statement that AUSMAQ’s scope for the 1998 Plan year is limited to “bedding down existing clients”. 142 Mr Maconochie also intended to seek to have Mr Meikle sign two paragraphs reading:
‘GSD has abandoned the long term global targets for the AUSMAQ service. AUSMAQ’s business is now limited to Australia and New Zealand’.
143 Plainly the letter is to be viewed as Mr Maconochie’s private document - but it gives support as a contemporaneous document, to Mr Maconochie’s case of then frustration to the extent of the matters referred to in the draft. 144 By letter dated 21 November 1997, Mr Maconochie wrote to Mr Meikle advising:
‘It is unnecessary for any NMG Management Committee Meetings to be scheduled for 1997/1998 as Group Strategic Development has now laid down the Business Plan and all that remains now is for AUSMAQ to get on with implementing it. …
… GSD considers that JMG is in no different to any other consultant group used by the NAB Group. GSD neither needs nor wants further involvement by yourself in AUSMAQ’s business. This sentiment has also been communicated by Bank officers to the market as part of the restructuring of AUSMAQ’.
145 From early February 1998 Mr Maconochie was receiving and sending correspondence relating to the restructure of the Depositee accounts [ PX 7/3040 and following]. This document is a comprehensive memorandum from Mr Martin to Mr Maconochie as to the proposed structure with NAB as Depositee. 146 On 5 March 1998 Mr Meikle notified Mr Maconochie that Ms McGrath, general counsel of NMG, was also an Authorised Officer for the purpose of the Consulting Agreement. This appointment was apparently challenged on formal grounds. 147 By letter dated 26 March 1998 Mr Meikle, writing on behalf of AUSMAQ, notified Mr Maconochie that AIDC would shortly be replaced as Depositee by the Bank. 148 At a meeting on 28 May 1998 attended by Messrs Meikle and McGrath on behalf of NMG, and Messrs Maconochie and Martin on behalf of JMG, the minutes of which are headed “NMG Management Committee Meeting”, Mr Maconochie [see item 5 of the minutes] sought a deal of information and stated that JMG “could not do the 1999 Business Plan without having the full set of information that JMG had requested …”, and further that “it should not have been necessary to request this information. NMG was obliged to provide it on an ongoing basis as a matter of course but had refused to do so … it was not impossible for JMG to complete the 1999 Business Plan, given the lack of involvement imposed by NMG and the lack on ongoing information”. The minutes of the meeting of 28 May 1998 include a table identifying unanswered correspondence from the Bank [see PX 3474 & 5]. 149 By letter dated 29 May 1998 JMG by Mr Maconochie wrote to NMG in terms of the letter appended to this judgment and marked PX 8/3471 and following. Relevantly a copy of that letter was forwarded to Mr Garnsey QC. Clearly, matters had reached a head by this point in time with allegations that the 28 May meeting was a sham and a farce and could not in any way be regarded as a bona fide meeting of the management committee of the company. Mr Maconochie stated:
‘I understand that the NMG Board at its meeting on 18 November 1997 has rejected JMG’s recommendation to you that was set out in my memo to you of 12 November 1997 and instead has accepted Mr Krasnostein’s recommendation that no further activity would ever be undertaken in Europe to further AUSMAQ’s interests for the next two years.
JMG’s earlier advice continues to apply, namely that this decision will kill any possibility of AUSMAQ achieving a global operation and henceforth will restrict it to Australia and New Zealand’.
150 In his letter of 20 July 1998 [PX 3684] to NMG, Mr Maconochie, in relation to “Business Plan information”, stated:
‘JMG will not therefore accept that any meeting of the Management Committee of the company has yet taken place to which it has been given the opportunity to attend, and awaits notice from the company of the papers for a bona fide meeting of the Management Committee of the company which it has repeatedly requested, but as yet to no avail’.
151 PX 8/3419 comprises Mr Maconochie’s letter to Mr Meikle enclosing the draft 98/99 Business Plan which in paragraph 1, under the head “Base Information”, [PX 3422] states inter alia:
‘JMG records that there has been no bona fide meeting of the Management Committee of the company to review the objectives etc of the company. It would be disingenuous on the part of NMG to represent that there had been any such meeting.
JMG submitted the draft 98/99 Business Plan to NMG on 14 July 1998 [this being a reference to PX 8/3419-3551]. JMG records that NMG did not comply with any of its obligations in respect to the Business Plan as JMG makes clear in its draft Business Plan”.
152 In Mr Maconochie’s sixth statement at paragraph 8.6 on p 45, he gives evidence that as far as he is aware the 1999 Business Plan, which he formulated for JMG in July 1998, was not implemented and that JMG received no response to it, and that JMG’s recommendations were apparently ignored. His evidence is that JMG was not provided with a copy of any Business Plan for the year ended 30 September 1999, which may have been adopted, if one had been.
“NMG, and its subsidiaries AUSMAQ Systems/AUSMAQ (New Zealand) are obliged in accordance with the Consulting Agreement to provide JMG with complete information about the companies and the business.
In breach of the Consulting Agreement, the parent NAB, has directed that JMG be excluded from the business and the company. NAB, on the advice of its lawyers Freehill Hollingdale & Page, has directed that no information whatsoever be provided to JMG …
The 1998 Business Plan was not provided to JMG, nor any amendments that may have been made to it during the course of the business year and the reason for them. JMG has repeatedly requested the information it requires but to no avail …
JMG has latterly been forced to resort to sending letters from its solicitors to obtain the information NMG is obliged to provide, and further, that JMG requires to meet its obligations in accordance with the Consulting Agreement, to no avail … Apparently it will be necessary for JMG to take legal advice to obtain this information.
It has not therefore been possible at this stage for JMG to make a thorough quantitative reconciliation of actual performance against what the companies may have planned to do. JMG is therefore reliant on its observation of the company’s performance in the marketplace, the situation at the National Australia Bank, and the state of developments of the AUSMAQ service and the organisation that supports it based on technical reports from its technical consultant, Mr Martin …”. [PX 3422]
153 There is no evidence before the Court as to what if any Business Plan, within the meaning of Clause 4.2 of the Consultancy Agreement, was prepared by NMG or was adopted or followed by it for the year to September 1999. This is an important matter as it seems to me, bearing in mind the substance of the motion and the allegations put by JMG, generally to the effect that NMG has been and remains to be operated on an ad hoc basis without proper direction and without any reasonable flow of information to JMG. I infer from NMG’s failure to tender or produce any Business Plan for the period to September 1999 that no such Business Plan was prepared, or alternatively that if prepared, it was not followed, or alternatively that if prepared and followed, it was a document which NMG was not content be produced to JMG, so that its performance against that Plan could be measured, or to the Court so that the plan could be examined. 154 In paragraph 8.8 of his sixth statement Mr Maconochie, in relation to the position with respect to a 2000 Business Plan, gives evidence that failure to reply to his correspondence has meant that he has insufficient information to formulate the 2000 Business Plan. On 15 February 1999 [PX 11/4586] Mr Maconochie wrote to NMG seeking to make recommendations and enclosing a report entitled “Global Commercialisation of the AUSMAQ Service”. No substantial response on Mr Maconochie’s evidence was given to this letter or report.
Business Plans for the Years to September 1999 and 2000
155 In final submissions the defendants sought to summarise Mr Maconochie’s allegations of the bases to his fears that the Bank is damaging and destroying the business of NMG and the NMG Group, and that unless the relief is given, the business and undertaking of NMG will be irretrievably damaged. The defendants’ short summary of these bases is as follows:
The Substance of JMG’s Allegations
156 There is of course a substantial further matter of complaint relating to JMG’s allegations that the defendants have failed to cause to be held Management Committee Meetings in accordance with the Consultancy Agreement, and have failed to permit the meeting or meetings stipulated for by Clause 4.1 to take place between JMG and the management committee, hence derailing, on JMG’s submissions, the intended Clause 4 regime.. 157 The defendants relied upon only three affidavits which were read. They were the affidavits of Mr Purcell of 15 July 1999, Ms Cox of 15 July 1999, and Mr Copsey of 16 July 1999. 158 Mr Purcell is the Head of IT Strategy and Development of AUSMAQ System employed by National, but seconded in April 1998 to his current position at AUSMAQ System. 159 Ms Cox is Chief Financial Officer of each of NMG, AUSMAQ Systems and AUSMAQ New Zealand. She is also Head of Corporate Services of AUSMAQ Systems. 160 Mr Copsey is Head of the Australian Bank Legal at the Bank with responsibility for national legal matters. 161 None of these witnesses was able to deal, or did deal, with the question of the Management Committee Meetings, or the history of Business Plans or draft Business Plans, regarding the development of the AUSMAQ Service by the Group. In a case such as the present it may seem surprising, for example, that Mr Crutchley was not called, and that Mr Meikle was not called. Those were the persons nominated as comprising the management committee, and on Mr Maconochie’s evidence he told Mr Crutchley in June 1997 that the management committee was an essential requirement of the contract and required to implement the Business Plan delivered to them by NMG. 162 Ms Shaw was not called to respond to Mr Maconochie’s evidence that on 2 August 1997 she had said that it was only necessary to have a Management Committee [Meeting] of NMG once a year, and that Mr Maconochie [and JMG] could attend and be heard and then were to “go away and come back next year”. 163 Nor was evidence adduced from the defendants even on an information and belief basis, to traverse these allegations. Not even the allegation made by Mr Maconochie that in early September 1997 when he asked Mr Meikle when Management Committee Meetings were being held, Mr Meikle said that he had been instructed by the Bank not to hold NMG committee meetings, was traversed even on information and belief from Mr Meikle. 164 The whole of the evidence adduced on the interlocutory motion and the contemporaneous documents satisfies me that there has been no effective attempt made by NMG or the Bank to hold Management Committee Meetings, or to permit the management committee to meet with JMG [see Clause 4.1], as contemplated by the Consultancy Agreement for a considerable time now. This is an important consideration in relation to the relief being sought by the plaintiffs. Whilst many other parameters of the plaintiffs’ complaints resolve down on the evidence to complaints, which may or may not at the final hearing ultimately prove to have real substance and basis, the Management Committee Meeting complaint is of altogether another order. To my mind the evidence adduced on the interlocutory motion establishes quite plainly that JMG has been excluded from any involvement in the preparation of Business Plans as contemplated by the Consultancy Agreement. 165 The other complaints summarised by the defendants and set out above are difficult to adjudicate upon an interlocutory motion. There is to my mind made out on the interlocutory motion a serious case to be tried in support of JMG’s allegation that a number of specific opportunities said to have been available by way of furthering the AUSMAQ service, have not been followed, or have not been followed with reasonable expedition, or have been allowed to fall away without proper investigation. In short a serious case to be tried has been made out upon the interlocutory motion, in support of JMG’s allegations that NMG has not used sufficient capital, goodwill, organisational or marketing resources world-wide to commercialise the AUSMAQ service globally in a timely, efficient and proper manner. Hence a serious case to be tried has been made out on the interlocutory motion, of a failure by NMG to permit the operation, development and commercialisation of the AUSMAQ service throughout the world, and to carry out such steps as were reasonably practicable in that regard. As will be seen from what follows below, to my mind the plaintiffs have established a strong probability that there was to be implied into the Consultancy Agreement a term:
‘(a) Damage to and alienation of JMG’s (sic) custom and goodwill in respect of the Ausmaq service namely:
(d) Establishment of Maple Leaf, Independence One;
(i) the failure to investigate the Joslin opportunity;
(iii) the failure to pursue the Morning Star opportunity;
(ii) the failure to pay for the continued registration of the name “Euromaq” in the UK;
(iv) the failure to pursue the Exchange opportunity;
(v) the failure to develop Euromaq;(b) Damage to NMG’s and the Ausmaq Service’s competitive position in appointing NAB the depositee;
(vi) the NMG director’s alienation of custom by cancelling a lunch;
(c) Damage to the integrity and operation of the Ausmaq Service by means of Unauthorised Technical alterations;
(e) The “JMG Report”.’
166 To my mind a serious case for trial has been shown on the interlocutory motion to the effect that this term has been breached and that the Bank has induced or procured such breaches by NMG. A serious case for trial has also been made out to the effect that a like term to be implied into the Consultancy Agreement bound the Bank to take such reasonable steps. 167 As to the other and specific complaints by JMG, it is appropriate to refer particularly to the claim to damage to NMG’s and the AUSMAQ’s system competitive position caused by the replacement of AIDC with the Bank as depositee. Mr Maconochie in his second statement at paragraph 43.2 expresses the opinion that the appointment by the Bank as replacement depositee “has substantially diminished, if not precluded, the ability of the AUSMAQ service to address Australia’s financial markets as a settlement agent and trading service”. 168 In final submissions the Bank submitted that if Mr Maconochie’s said opinion was to be accepted, and if he was to be believed in this regard, “the damage has already been done, i.e. the appointment has substantially diminished if not precluded the ability of the AUSMAQ service to address Australia’s financial markets as a settlement agent and trading service”. 169 Here again a serious question has been raised by the plaintiffs on the interlocutory motion for determination on the final hearing on this issue. 170 I deal with the Bank’s projects and proposed services below. 171 I note the defendants’ contention in final submissions [paragraph 5.17] that “the Consulting Agreement contains no express terms as to the composition or role of the management committee”. It is then contended that one of the major difficulties with an order giving relief by way of requiring that Management Committee Meetings be held is that there is substantial disagreement between the parties as to what the Consulting Agreement requires in relation to the management committee. 172 The judgment below deals with questions going to the proper construction of the Consultancy Agreement in relation to the management committee. The parties having, on the plaintiffs’ submissions, contractually agreed upon a regime, an important part of which required the holding of Management Committee Meetings, the plaintiffs submit that it is no answer for the defendants to now assert that such Management Committee Meetings cannot, and should not, be held. The submission is that the position may be quite different were the Consultancy Agreement to have been rescinded by one party or the other. Both parties steadfastly maintain that the agreement remains on foot. In circumstances in which the burden of the plaintiffs’ serious case to be tried relates to the allegation that the Bank has effectively side-lined the AUSMAQ service and is progressing by utilising the “system IP rights” as defined in the Consulting Agreement outside of NMG, and outside of the AUSMAQ service, and in the circumstance in which JMG and the consultants remain subject to the extensive restrictive covenants imposed by the terms of the Consultancy Agreement and ancillary agreements, the plaintiffs submit that the balance of convenience requires that the management committee regime be reinstated, so that at the very least JMG has an opportunity to be heard at such meetings and to play its proper role in relation to preparation of draft Business Plans and in receiving amended Business Plans and the like. The submission is that without a management committee, JMG is denied its contractual entitlement provided for in Clause 4.1(a), to meet with that committee to review the stated objectives of the Group, so as then to be seised of sufficient information to enable it to comply with Clause 4.1(b). 173 An important consideration in relation to the hearing of the motion has been the inference that the persons who were not called by the Bank as above referred to, would not have assisted the Bank’s case on the motion. The further inference which is appropriate is that the Bank’s failure to call witnesses in relation to the “functional equivalence” question was because such witnesses could not assist the Bank’s case on that question.
‘That NMG should take all reasonable steps to enable the implementation and operation of the Consulting Agreement, including the provision of adequate finance, management and personnel to enable the operation and commercialisation of the AUSMAQ systems and business throughout Australia and globally’.
174 It has to be said that the present is a very difficult case insofar as the interlocutory motion is concerned. The respective cases clearly cry out for determination at a final hearing, which hearing may be expected to take an extended time and to involve voluminous documents and evidence given by numerous witnesses, including many witnesses at expert level. In a curious way the task of a Judge in relation to the final hearing may be expected to be far easier than the task of determining this interlocutory motion, because on the final hearing all the evidence ought to be before the Court, and final, as opposed to interim, decisions both as to principles and as to facts, and as to the application of principles to facts, can be given.
Dealing with the Motion
A difficult case to be dealt with at an interlocutory stage
175 A most significant and well understood discretionary consideration in relation to interlocutory applications for injunctive relief, and for relief in the nature of appointment of receivers and managers, is and has always been that a plaintiff requires to commence such proceedings with special expedition. Alaintiff who sits on his or her hands, whilst well aware that claimed rights are being infringed, takes the risk that interlocutory relief may be refused depending upon all the circumstances. Meagher, Gummow and Lehane, Equity - Doctrines and Remedies, 3rd Ed, Butterworths, 1984 state:
Relevance of Delay
176 Where interim relief is sought on the basis that the applicant need only show a serious issue to be tried, delay in seeking the relief is an important discretionary consideration. [Carlton & United Breweries (NSW) Pty Ltd v Bond Brewing New South Wales Ltd (1987) 76 ALR 633 at 638 per Bowen CJ, Beaumont and Foster JJ] 177 The present is par excellence the case in which, as it appears to me, the evidence clearly makes plain that many of the substantial complaints presently pursued by the plaintiffs have in large measure been complaints of matters known to the plaintiffs and of which the plaintiffs have complained in considerable detail, literally for years. Whatever be the correct construction as a matter of law ultimately upheld by the Court in relation to the Consultancy Contract, both parties have continued to regard the contract as extant, neither seeking to rescind the contract for alleged repudiation by the other. 178 To my mind there is much to be said for the proposition that at least some of Mr Maconochie’s views of the contractual obligations of each party are derived as much from his beliefs as to pre-contractual communications, as they are from the written words in the contract. However, at the end of the day, it is the express terms of the contract, and in particular the Consultancy Agreement, and of course any terms which may be implied into that agreement by appropriate principles, which will decide the case insofar as it involves questions of contract. The pre-contractual Trade Practices representational case is altogether another case expressly not put in aid of the Notice of Motion. 179 The relatively clear exposition by Mr Maconochie on 20 August 1997 in PX 7/2909 [appended as Appendix “F” to the judgment] of JMG’s view that ultimately, it did not matter as to what was written down and necessarily who had legal control, since a successful enterprise “would always require the good faith of both parties for it to work in the critical short to medium term” suggests that Mr Maconochie saw good faith as necessary to achieve what he apparently believed was to be “a balance between the dependencies on JMG’s unique skills and the capital that would be required from the shareholder to establish the business and grow it”. That this co-operative and confirmed interdependent “joint venture” expectation appears to have been in fact a shared belief, appears from the Group Executive Committee Paper entitled “Electra Investment Proposal”, where the Bank’s objectives at PX 4356 are expressed to include “retaining key individuals in a joint venture concept” [and see PX 4401 - “The founders will be locked into a long term management contract”.] [emphasis added] Naturally, the admissibility of this Committee Paper will be determined on the final hearing, where the Court will also take clause 1.4 of the Consultancy Agreement into account. That clause does not, however, exclude the existence of fiduciary duties. In an appropriate case such duties may operate as a “default mechanism”, supplying the ground rules of the relationship. This is made clear in Bean Fiduciary Obligations and Joint Ventures - The Collaborative Fiduciary Relationship, Clarendon Press, 1995 at 70 in the following passage:
‘Why should a court grant urgent relief when the plaintiff’s tardiness in applying for it casts doubt on the reality of his alleged injury?’
The authors state:
‘Obviously if the delay is coupled with some such factor as the intervention of third party rights or prejudice to the defendant, an interlocutory injunction should be refused just as a final injunction should be refused. But authority is not wanting that on an interlocutory application - where different principles apply from those which would be applicable on a final hearing - mere delay of itself can (not must) be fatal …It is self-evident that the stronger the defences apparently open to the defendant the less chance the plaintiff has of obtaining interlocutory relief. Thus, in Hubbard v Vosper [1972] 2 QB 84 the fact that the defendant’s chances of making out a good statutory defence of “fair dealing” seemed very strong was probably the biggest factor in inclining the court against enjoining what was otherwise prima face a clear breach of copyright. Conversely, in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 the fact that the defendants advanced no very clear grounds of defence greatly contributed to the plaintiff’s success. But it should not be imagined that if a court on an interlocutory application inclines in the defendant’s favour it must necessarily refuse an injunction: an injunction can still lie to protect the plaintiff’s property if he has a substantial case, some possibility of success, and there is lack of countervailing factors’.
[para 2473]
180 The conflict of actual operating objectives between the Bank’s group traditional businesses and AUSMAQ’s operating objectives was said in this memorandum by Mr Maconochie back in August 1997 to be the root of the problem, it being there suggested that at the outset this type of problem was recognised “by setting up the National Markets Group as an entity operated independently of the traditional business”. 181 There does not appear to be any express term in the Consultancy Agreement which explicitly recognises that the National Markets Group would be an entity operated independently of the traditional business. The defendants contend that the plaintiffs’ construction would violate the accepted position that the ultimate control of a corporate entity is vested in its Board of Directors.
‘ 2. Recognising Fiduciary Duties in a Contractual Context
The courts can recognise fiduciary duties if they are express terms or necessarily implied terms; also if a term is ambiguous it can be construed as fiduciary, where the purpose of the relationship indicates that it is fiduciary. Thus a fiduciary relationship may be considered to exist concurrently with the contract’s terms and to supplement them or fill some gap in the contractual matrix.
Earlier we noted the view of Lord Wilberforce [New Zealand Netherlands Society v Kuys [1973] 2 All ER 1222 at 1225-1226] and others that any fiduciary relationships or duties must be moulded to fit within any contractual framework and not contradict any terms of the contract. In a fiduciary relationship created by contract the supremacy of the contact’s terms can be considered to make fiduciary law a “default scheme of regulation”. [R Flannagan, Fiduciary Obligation in the Supreme Court (1990) 54 Sask LR 45]. As Mason J stated:
“ The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them . The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true interpretation. [Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97]
Thus in recognizing fiduciary duties the courts must give effect to the contract, and in a contract the parties’ intentions are paramount. Thus any fiduciary duty must not contradict the parties’ intentions, but rather must fulfil those intentions. The role of fiduciary law is then to supplement express terms and explain ambiguous terms. In a fiduciary relationship it is a “default mechanism”, supplying the ground rules of the relationship’ .
[Emphasis added]
182 To my mind the granting of the relief sought by the plaintiffs in terms of the appointment of receivers and managers is out of the question in this case. As has already been pointed out, the appointment of a receiver is an extraordinary and drastic remedy to be exercised with utmost care and caution and only where the Court is satisfied that there is imminent danger of loss if it is not exercised. There is ample authority for the proposition that the Court will not usually assume the management of a business or undertaking except with a view to its winding-up and sale as a going concern so that with the sale the management ends. When the Court appoints a manager of a business or undertaking, it in effect takes the management of it into its own hands; the manager or receiver and manager is of course an officer of the court. Managers who have been appointed by the Court are responsible to the court and can have no regard to orders of any of the parties interested in the business - “Kerr on Receivers” 14th ed at p 219. 183 Receivers and managers appointed by the Court are personally liable to persons dealing with them in respect of liabilities incurred or contracts entered into by them in carrying on the business unless the express terms of the contract exclude, as they may do, personal liability. 184 It is to my mind inconceivable that the Court could appoint a receiver and manager of NMG and the NMG Group, or of the assets of the NAB, NAFM and the NAB Group, the subject of the initial orders in the motion. For one thing, the period during which the receiver and manager would be in place is likely to be extended. For another thing, the dynamic nature of the subject business is such, and the industry is such, that in effect the appointment of the receiver and manager would place the Court in an invidious position where one might anticipate very similar differences of opinion as have in the past separated the parties to the proceeding arising in relation to the future conduct of the business. Further, the very fact of the appointment is likely to significantly erode confidence in the AUSMAQ service. 185 Mr Garnsey submitted that a receiver and manager of NMG would simply be expected to cause NMG to comply with the Consultancy Agreement and to require that the business of the company be managed by a management committee to meet regularly and to be entitled to be heard and present at such meeting the two nominated representatives of JMG, albeit that they could not vote. Mr Garnsey’s submission is that the business would go forward under the aegis of the receiver and manager and managed by such management committee. His submission was that there would not be anticipated any particular difficulties such as continued court supervision over the activities of the receiver and manager and of NMG. 186 To my mind these submissions are without substance, bearing in mind the nature of the AUSMAQ service, and bearing in mind the history of the difficulties between the parties as evidenced by the correspondence and meetings and matters earlier set out in the judgment. The receiver and manager is likely to be caught squarely in the middle of a continued competition as between Mr Maconochie and JMG on the one part, and the Bank and its interests on the other part, as to the appropriate way forward for NMG. 187 The appointment of a receiver and manager to NMG would it seems to me be far more prejudicial to the interests of both parties than for NMG to be simply managed by a management committee to meet regularly and upon which NMG’s representatives would have a right to be heard, although not a voting right. Clearly questions arise as to whether the Court ought, by order, oblige the parties to hold such management committee meetings. The issue is dealt with below. Such a committee would not be responsible to an officer of the court for its determination as to NMG’s way forward and business operations. Although such a committee may also be expected to have to weather personality differences, and differences as to NMG’s way forward as between the JMG representatives on the one part, and other management committee members on the other part, at the end of the day the theory behind the Consultancy Agreement that the two groups would have a common interest, but that the management committee itself, excluding JMG’s nominated representatives, would have voting rights to determine NMG’s way forward, would be being followed. [I emphasise that in so referring to the “theory behind the Consulting Agreement”, I well recognise that this represents an interim view as to such being a correct analysis of the Agreement read in context and read in full. Suffice it to say that in my view the plaintiffs have established a serious case for trial to the effect that on a final hearing, this view of the contract will be accepted.] 188 The relief sought in the paragraphs of the amended notice of motion, seeking application of appointment of Receivers and Managers, will not be granted.
Application for Receivership Orders Rejected
189 There are effectively three crucial matters which require to be examined in relation to the “serious case” issue. Each also bears upon the proper approach to the balance of convenience. These are:
Serious case
190 It is not appropriate on this interlocutory application for the Court to form a concluded and final opinion upon questions of law, and in particular upon the questions of law involved in the respective contentions as to the proper construction of the Consultancy Agreement. The Court is, however, entitled if the nature of the case requires this as a matter of discretion, to form a considered view upon such matters.
(1) The contractual obligations of the parties - those require a view to be expressed, albeit not a final view, as to the proper construction of the Consulting Agreement;
(2) JMG’s fiduciary obligation case;
(3) JMG’s functionality case.
It is appropriate to deal with these matters seriatim.
The Proper Construction of the Consultancy Agreement
The Management Committee
191 The Consulting Agreement used the words “management committee” in two places only - clause 4.1 (a) and clause 9.3 On each occasion, the phrase used is “management committee of the Company [NMG]”. 192 Clause 4 of the Agreement deals with “Business Plans”. 193 Save for the reference in sub clause 4.1(a) to “management committee of the Company”, the remaining sub clauses [4.1(b), 4.1(c), 4.2, 4.3] all refer to “the Company”. 194 The sole express reference to the functions which the management committee of NMG is to be charged with is to be found in clause 4.1 (a) which requires that JMG and the management committee meet at the identified time or times for the purpose which is specified. The time or times of such meeting or meetings is to be at least 90 days before the end of the financial year or at such other times as may be agreed by “the Company [NMG]” and JMG. Again I note the use in the first sentence of clause 4.1 (a) of the words “the Company” in contradiction to the use in the same sentence of the words “the management committee of the Company”. 195 The purpose of the meeting or meetings to take place between JMG and the management committee is “to review the objectives of the Group regarding the operation, development and commercialisation of the AUSMAQ Service throughout the world”. 196 Clause 4.1 (b) clearly explains the timing device stipulated in sub clause (a). Save with respect to the initial Business Plan [as to which special arrangements are made to accommodate the fact that the agreement was anticipated to come into operation following the end of the 1996 financial year], the parties intended that JMG would have at least 30 days in which to carry out a specified task. [I avoid using the word “service” without intending to deal with the issue raised and dealt with below, as to the meaning to be given for the word “services” as used in clause 3.1.] The specified task required JMG to deliver a document [and plainly to prepare, whether or not using or modifying in that task of preparation, materials, if any, furnished to it by the management committee during the meeting or meetings convened required by clause 4.1 (a)]. The document to be delivered was to be a draft “of the proposed Business Plan regarding the development of the AUSMAQ Service by the Group for the immediately following financial year”. Such draft would plainly be a “proposed Business Plan” within the meaning of Clause 4.2 and therefore was required to include each of the matters referred to in sub paragraphs (a) to (f) of paragraph 4.2. 197 A close examination of the matters referred to in sub paragraphs (a) to (f) of paragraph 4.2 throws light upon the nature, extent and width of the information required to be made available to JMG in order that it be in a position to discharge its clause 4.1(b) obligation to produce a draft proposed Business Plan. Plainly, JMG would have had to be made aware, before being able to produce such proposed Business Plan for any given year, of:
198 The extent of JMG’s perceived involvement during the window of opportunity [possibly a window limited to 30 days] in which to prepare a proposed Business Plan, is thus clear from the nature of the detail enunciated by clause 4.2. 199 In my view it is clearly open to a trial judge to hold that an understanding of how the parties anticipated that JMG could be expected to discharge its clause 4.1(b) functions may be found at a number of points within the Agreement. Hence it is open to a trial judge to find as follows:
(i) Detail of what had been the objectives and milestones set out in the immediately preceding Business Plan (which may have remained unaltered through the current year, or during that year been amended - [see the last paragraph of clause 4.2].
(ii) Detail of what had been the actual objectives achieved by the Group in the immediately preceding Business Plan, or altered Business Plan;
(iii) Information necessary to enable JMG to reconcile the planned objectives with the objectives achieved;
(iv) Information necessary to enable JMG to determine what may have been reasons why any objectives were exceeded or not met [this information was needed by JMG so as to permit it to be able to state whether or not there were identifiable reasons why objectives were exceeded or not met, so as to permit JMG to state what any such identifiable reasons were];
(v) What were the objectives of the Group for the relevant financial year regarding:
(a) the operation of the AUSMAQ service throughout the world;
(b) the development of the AUSMAQ service throughout the world;
(c) the commercialisation of the AUSMAQ service through the world;
(vi) What were the estimated:
(a) capital costs involved in meeting these objectives;
(b) personnel requirements involved in meeting those objectives;
(c) equipment requirements involved in meeting those objectives;
(vii) estimated reserves;
(viii) the involvement proposed by JMG in meeting those reserves;
(ix) the estimated hours required by each of those consultants [in the endeavour to enable JMG’s proposed involvement in meeting those objectives, to be achieved].
200 Earlier in the judgment I referred to JMG’s case that its entitlement to participate at all meetings of the management committee of NMG in the fashion provided for in clause 9.3 of the Consultancy Agreement and its entitlement as said to be provided for in clause 4.1(a), to meet with the management committee of NMG at least 90 days before the end of the financial year (or at such other time as agreed by NMG and JMG), ‘to review the objectives of [NMG and Ausmaq Systems] regarding the operation, development and commercialisation of the Ausmaq Service throughout the world’, were (a) fundamental terms of the Agreement and (b) terms which were inserted for the purpose of recognising the special interest of JMG [and through it Mr Maconochie], in the worldwide operation, development and commercialisation of the Ausmaq service and in being able to speak to and play a real part in the management committee’s deliberations and decisions. In my view, the plaintiffs have established a serious case to be tried to the effect that the Consultancy Agreement, upon its proper construction, obliged NMG to hold regular Management Committee Meetings so as to permit JMG by its nominated representatives to keep abreast of:
(1) Clause 9.3 was to entitle JMG by two appointed representatives [to be from the pool of defined ‘Consultants’] to attend and to be heard at all meetings of the management committee. This suggested that such meetings would occur regularly and that the management committee would have a management function with respect to the Company’s business. This is not to suggest that, properly construed, the Agreement required that the Board of Directors of the Company abdicate its functions to the Committee. It simply suggests that the management committee was, subject to appropriate Board overseeship, to manage the business of the company, which business so managed, was to be carried out in accordance with the Business Plans from time to time adopted by the company in accordance with the carefully structured and defined set of procedures set out in clause 4. The Board of Directors was bound to procure compliance by NMG with the provisions of the Consultancy Agreement, hence permitting the management committee to meet and to permit the JMG representatives the right to be heard.
(2) The parties anticipated that JMG was to be involved in meeting the Group’s objectives - see clause 4.2(e). See also the regime stipulated in clauses 5; 6, 7 and 10. See also the JMG software warranties provided for in clause 11.4 and the JMG indemnity provided for in clause 11.5.
201 In short, the plaintiffs have established a reasonable prospect that the Court on the final hearing will hold:
(a) the activities, present and proposed, of the AUSMAQ Service, and by definition, of NMG’s directions in that regard;
(b) the content of Business Plans in place regarding the development of the AUSMAQ service by the Group;
(c) the actual performance of the Group in meeting the objectives set by the Business Plan.202 I refer to NMG’s submission that clause 4.1(a) of the Consultancy Agreement should be construed as if read:
(a) That the vehicle selected by the parties for the participation by both JMG and NMG in the further development of the AUSMAQ service by the Group, was the requirement that Business Plans be prepared and that Management Committee Meetings be held to deal, subject to appropriate Board overseeship, with the business of the Company.
(b) That business, so managed, was to be carried out in accordance with the Business Plans in place from time to time.
203 A very respectable case has been presented by JMG to the effect that on a final hearing the Court will hold that the purport of the whole of the Agreement is the clear acceptance by the parties that the Group’s objectives were to operate, develop and commercialise the AUSMAQ Service throughout the world and to carry out such steps as were reasonably practicable in that regard.
‘At least 90 days before the end of the financial year or at such other time as agreed by the Company and JMG, JMG and the management committee of the Company will meet to review such objectives, if any, as the Group may have regarding the operation, development and commercialisation of the AUSMAQ service throughout the world’. [emphasis added]
204 The second line of clause 3.1 of the Business Plan includes the words “including any Business Plan”, in parenthesis. The draftsman could have adopted the device of avoiding that parenthesis and of instead including a sub clause amongst the sub clauses (a) to (g) to read:
The “Services”
205 The plaintiffs have established a reasonable case that the proper construction of the Agreement, which will be upheld on the final hearing, will be that at the least, and without any ascription to JMG by an authorised officer of NMG of any obligation to perform any particular services, JMG has a contractual right to the strict compliance by NMG with the provisions of clauses 4.1 and 4.2.
“ - preparation of draft Business Plans”.
206 The plaintiffs contend that “AUSMAQ Service” in the Consulting Agreement can be read as (amongst other things), a reference to any service with equivalent or similar functionality to the service known as “AUSMAQ System etc”. 207 The plaintiffs contend as follows:
System IP Rights
The Plaintiffs’ Contentions
208 The defendants contend that:
‘(A) Analysis of Definitions:
Ausmaq Service
1) means
(a) the service of providing an automated securities trading system and related services known as the
(i) Australian Market Automated Quotation System or
(ii) Ausmaq System or
(iii) Euromaq(2) includes but is not limited to,
(b) regardless of its name, and
(a) the holding of Securities and Entitlements for clients,
(c) any service with equivalent or similar functionality, and
(b) the provision of a related deposit facility, execution of Securities transactions with related client portfolio administration and reporting and
(d) any enhancements, modifications and additions to the service anywhere in the world.
System IP Rights means(1) the Intellectual and Industrial Property in the software and other information, materials and Works used to provide the Ausmaq Service and
whether in existence on the Completion date or subsequently developed or provided by JMG, the Group or any other person.
(2) the Intellectual and Industrial Property in any developments for the purpose of enhancing or expanding the Ausmaq Service (in Australia or elsewhere) during the term of this Agreement,
(B) The Applicants (Plaintiffs) submit that the above analysis is the clear natural meaning of the definitions of Ausmaq Service and System IP rights and makes it clear that the definitions are ambulatory during the relevant terms both of the Service Provisions and the other Provisions of the Consulting Agreement and apply
(a) both in respect of the AUSMAQ Service so named conducted by or through NMG and the NMG Group and services with equivalent or similar functionality such as Operation First Choice (Maple Leaf) conducted by NAB or within the NAB Group; and
(b) do not confine the System IP Rights only to those in existence at the time of and transferred under or pursuant to the Restructuring Agreement….
(D) In relation to the implication of “management” aspects in the express or implied terms relied upon, the Applicants also refer to Maconochie First Statement para 10.4. Mr McKinnon of NAB said on 6 August 1996 (inter alia):
(C) Consequently, the definition of Operating Entity merely by referring to System IP Rights does not exclude the (NAB) Named Services which the Applicants contend should be exploited by NMG or within the NMG Group from being so included in the various manners and on the various bases contended for .
“The Bank does not have the people and the organisation to figure out and build a system like the AUSMAQ. Even if it did, it couldn’t run itÉ”.
(E) In the case of divisions of NAB and its subsidiaries which do not have a separate legal personality, they fall within the definition of the term “Operating Entity” being “entities” properly described as such. The term “entity” is used and has been interpreted in revenue law, industrial law and in securities law as including unincorporated organisations or committees or associations of persons which do not have a separate legal personality. The term is used in these contexts precisely because it catches entities which do not have a separate legal personality. See, for instance, the definition of “entity” in the Corporations Law in relation to financial reporting: Section 294A(4)(5) . See also: Australian Breeders Co-operative Society Limited v Jones, Federal Court of Australia, Davies J, No. NG711 of 1991, 18 December 1995, Full Court (1997) 150 ALR 488; Re McJannet; ex parte Minister for Employment, Training and Industrial Relations (Qld) (1995) 184 CLR 639 –640, 659-660, Environment Protection Authority v Caltex Refinery Co Pty Ltd (1992-3) 178 CLR 529-530; Henderson v Amadio (No. 1) (1995) 62 FCR; CBFC Ltd v Pearce (1993) 112 FLR 478 at 483-484’.
[emphasis added]
The Defendants’ Contentions
209 The submission is that it does not mean the intellectual property in any service anywhere in Australia or throughout the world which is equivalent or similar to the service known as “AUSMAQ System”. 210 The defendants’ argument follows a close examination of the definitions in the Restructuring Agreement and is as follows:
‘The phrase “System IP Rights” in the Consulting Agreement means (in substance) the intellectual property received by NMG under the Restructuring Agreement and any developments of that intellectual property’.
211 It is strictly unnecessary for the Court to express a firm view on these opposing contentions. To my mind however the plaintiffs have shown that a serious question is raised by their construction seen as part of the whole of the Consultancy Agreement and the surrounding circumstances in the form of mutually known facts being part of the objective setting in which the contract is to be construed. On the other hand, the Court on the final hearing may well construe the above described warranty so as to exclude the extension suggested in the words in parenthesis in sub paragraph (e)(i) above. 212 The plaintiffs have in my view, established a serious case for trial in support of their claims that the Consulting Agreement included the following as express, or partly express and partly implied, terms:
‘(a) “System IP Rights” in the Consulting Agreement “means the Intellectual and Industrial Property in the software .... used to provide the Ausmaq Service.”
(b) The definition of “Ausmaq Service” provides that Ausmaq Service “means the service of providing an automated securities trading system and related services known as the Australian Market Automated Quotation System or Ausmaq System or Euromaq regardless of its name”. The “System IP Rights” must therefore be intellectual and industrial property in software used to provide that service.
(c) The definitions of “System IP Rights” and “Ausmaq Service” are, for all relevant purposes, in the same terms in the Consulting Agreement and the Restructuring Agreement. These definitions should be construed consistently in both agreements.
(d) Under the Restructuring Agreement, Market Holdings
(ii) transferred its right title and interest in the “System IP Rights” to NMG (cl 4.2.2)
(i) warranted to NMG that it had full power to transfer good legal and equitable title to the “System IP Rights” (cl 5.2.40)
(e) On the plaintiffs’ construction, if the definitions of “System IP Rights” and “Ausmaq Service” are read consistently in both agreements,
(i) the effect of the warranty in 5.2.40 of the Restructuring Agreement would have been that Market Holdings warranted that it had full power to transfer the legal and equitable title to the intellectual property in the software used to provide any service with equivalent or similar functionality to the service known as Ausmaq System; (this would have included any such service anywhere throughout the world); and(ii) Market Holdings would have been obliged to transfer that intellectual property to NMG;
(iii) from the moment of completion of the Restructuring Agreement, NMG would have been required to pay performance bonuses by reference to (amongst other things) any service in the Bank which was of equivalent or similar functionality to the Ausmaq System.
(f) This could not be have been the intention of the parties’.213 I interpolate that the words “or any other person” which appear at the end of paragraph 15.2.2 of the Points of Claim have been excluded from paragraph (d), as they may well require to be read down or qualified - a matter for the trial judge.
(a) ‘That JMG was entitled to the continued representation by two representatives with deliberative but not voting rights on the management committee of NMG and JMG’s representatives being kept fully informed of such matters as are reasonably necessary to enable JMG to prepare and discuss the annual Business Plan’.
[Points of Claim paragraph 13.2]
(b) ‘That NMG would, and NAB would procure that NMG would, conduct NMG’s affairs reasonably to enable the Performance Bonus to be met’.
[Points of Claim paragraph 13.4]
(c) ‘That as consideration for JMG’s entering into the Consulting Agreement and/or JMG agreeing to provide the Services under the Consulting Agreement, NMG would pay or procure the payment to JMG of periodic payments by way of Performance Bonuses (as defined in the Consulting Agreement) in respect of each Operating Entity (as defined in the Consulting Agreement) being an entity established by NAB having the use of the Systems IP Rights (as defined in the Consulting Agreement) for the purpose of commercialisation of the Ausmaq Service (as defined in the Consulting Agreement) including but not limited to AUSMAQ Systems’.
[Points of Claim paragraph 15.1]
(d) ‘That the Systems IP Rights as defined in the Consulting Agreement mean and include the Intellectual and Industrial Property (as defined in the Consulting Agreement) in the software and other information materials and Works (as defined in the Consulting Agreement) used to provide the Ausmaq Service (as defined in the Consulting Agreement) and the Intellectual and Industrial Property (as defined in the Consulting Agreement) in any developments for the purpose of enhancing or expanding the Ausmaq Service in Australia or elsewhere during the term of the Consulting Agreement whether in existence on the Completion Date (as defined in the Consulting Agreement) or subsequently developed or provided by JMG, [or] the Group (as defined in the Consulting Agreement) … ’.
[Points of Claim paragraph 15.2.2]
(e) ‘That the payments of the Performance Bonus referred to in 15.1 above would be calculated by reference to the financial performance of each Operating Entity (as defined in the Consulting Agreement) being an entity established by NAB having the use of the Systems IP Rights (as defined in the Consulting Agreement) and would be of an amount determined in accordance with Schedule 2 of the Consulting Agreement’.
[Points of Claim paragraph 15.6]
(f) ‘That NMG would pay the performance bonuses so calculated for itself and for any Operating Entity (as defined in the Consulting Agreement) being an entity established by NAB having the use of the Systems IP Rights (as defined in the Consulting Agreement) which was not a member of the Group (as defined in the Consulting Agreement) being any of the related bodies corporate of NMG or AUSMAQ Systems which was or part of which was an Operating Entity (as defined in the Consulting Agreement) but which had not acceded to the Consulting Agreement by executing a Deed of Accession as provided in the Consulting Agreement’.
[Points of Claim paragraph 15.7]
(g) ‘That NMG would procure that any Operating Entity other than AUSMAQ Systems enter into a binding agreement with JMG to pay the Performance Bonus in respect of the Operating Entity within 60 days of that Operating Entity commencing business and using the Systems IP Rights (as defined in the Consulting Agreement) for the purpose of commercialising the Ausmaq Service (as defined in the Consulting Agreement)’.
[Points of Claim paragraph 15.8]
214 It will be recalled that paragraph 18 of the Statement of Claim alleges the following terms to be terms implied into the Consulting Agreement:
Terms Implied by Law or as Attributed to the Contractual Intent of the Parties
215 The plaintiffs rely upon the proposition of Lord Blackburn in Mackay v Dick (1880-1881) 6 AC 251 at 263 to support the terms pleaded in paragraphs 18.1 and 18.2. That proposition, described as a “rule of construction” by Mason J in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607-608 is in the following terms:
‘18.1 That NMG and NAB should take all reasonable steps to enable the implementation and operation of the Consulting Agreement, including the provision of adequate finance, management and personnel to enable the operation and commercialisation of the Ausmaq Systems and business throughout Australia and globally;
18.2 That NMG, NAB and JMG should cooperate to enable the performance by the other of each other’s obligations under the Consulting Agreement;
18.3 That NMG and NAB should not conduct their respective businesses so as to affect prejudicially or diminish the value of the Performance Bonus or other rights of JMG under or in relation to the Consulting Agreement, or so as to render the Performance Bonus or other rights worthless;
18.4 That NMG and NAB should not conduct themselves or their respective businesses so as to make it difficult or impossible for JMG to carry out its obligations to provide services and otherwise under the Consulting Agreement; and
18.5 That NMG and NAB would not conduct or carry on or exploit or commercialise or implement or deal in any way with any service or any business using or marketing any service within the definition of the Ausmaq Service as defined in the Consulting Agreement or the Ausmaq IP as defined in the Consulting Agreement except in and by NMG or the NMG Group or by way of an Operating Entity as defined in the Consulting Agreement’.216 As Griffiths CJ said in Butt v McDonald [(1896) 7 QLJ 68 at 70-71]:
‘I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend in circumstances’.
[Cf Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 448-450]
217 This latter quotation makes clear that the McKay v Dick rule of construction is not confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract.
‘It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract’.
218 As Mason J points out in Secured Income:
[per Mason J - Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607 ]
219 The terms pleaded in paragraphs 18.3 and 18.5 are said to be grounded upon Trego v Hunt [1896] AC 7 and upon Codelfa Construction [supra]. In Trego v Hunt, Lord Macnaghten said at 25:
‘It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party’s obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the act shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the contract depends … not so much on the application on the general rule of construction as on the intention of the parties as manifested by the contract itself’.
220 The law also implies a negative covenant not to hinder or prevent to fulfilment of the purpose of an express covenant. [Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378 per Dixon J; Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at 92-92] 221 In Carlton & United Brewers Ltd v Tooth & Co Ltd (1986) 7 IPR 581, Young J held that:
‘… A man may not derogate form his own grant; the vendor is not at liberty to destroy or depreciate the thing which he has sold; there is an implied covenant, on the sale of goodwill, that the vendor does not solicit the custom which he has parted with: it would be a fraud on the contract to do so. These, as it seems to me, are only different turns and glimpses of a proposition which I take to be elementary. It is not right to profess and to purport to sell that which you do not mean the purchaser to have; it is not an honest thing to pocket the price and then to recapture the subject of sale; to decoy it away or call it back before the purchaser has had time to attach it to himself and make it his very own’.
222 The decision supports the proposition that the Trego v Hunt principle is not restricted to the protection of proprietary interests but extends to prevent a contracting party from undermining the benefit of a contract by diverting custom. 223 I note that in Castlemaine Tooheys Ltd & Anor v Carlton & United Breweries Ltd & Anor (1987) 10 NSWLR 468 [Court of Appeal] Young J’s decision was reversed on other grounds but was not disapproved in relation to its dealing with Trego v Hunt -see the judgment of Hope JA at 484-490. 224 The plaintiffs have established a strong probability that the terms contended for in paragraphs 18.1 to 18.5 inclusive of the Statement of Claim will be upheld by a trial judge as implicit by implication of law or as attributed to the contractual intent of the parties.
(a) In some circumstances a person will be restricted by an implied contractual term from undermining the benefit of the contract which he has made.
(b) The court will only imply the term where it can be seen that it should do so as a matter of common honesty and it will weigh in each case the commercial interests involved.
225 In my view the plaintiffs have established a serious case to be tried in support of their case:
JMG’s Fiduciary Obligation Case
226 Bean (supra), makes a number of points which, for present purposes, suffice to support the plaintiffs’ serious case. These are:
(a) that the relationship the plaintiffs had with NMG and the NAB is one which arose out of the purchase of the AUSMAQ system in 1996 and was defined, in particular, by the Consulting Agreement;
(b) that the result of the completion of the transactions in November 1996 was to place the Bank and NMG in a position where they assumed control of the AUSMAQ system and its ability to make profits and thus affect the payment of the performance bonus to the plaintiffs;
(c) that the Bank and NMG thus are in a position to affect the interests of the plaintiff in both a legal and a practical sense;
(d) that the plaintiffs are vulnerable to abuse of that power; and
(e) that the relationship is, therefore, fiduciary in character: Hospital Products v USSC (1984) 156 CLR 41 at 97 per Mason J.
(i) ‘As Deane J made clear in Hospital Products Ltd v United States Surgical Corporation, the reason commercial transactions often do not give rise to a fiduciary relationship or fiduciary duties is that factually they do not satisfy the relevant criteria for the establishment of such relationships or duties. But to draw a distinction between commercial transactions and other transactions can cause a court to be misled, for it is the presence of the relevant facts not the commercial nature of the transaction that is important’.
[at 54]
[at 55]
(ii) ‘In the commercial world the parties are often at arm’s length, which means they are independent of each other. In LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14 La Forest J stated that the law of fiduciary relationships does not ordinarily apply to parties involved in commercial negotiations because they are at arm’s length [LAC Minerals at page 33]. But this merely stated a negative conclusion that no special relationship exists [R P Austin, “Commerce and Equity - Fiduciary Duty and Constructive Trust” (1986) 6 Ox JLS 444, 454] and neither party has undertaken to act for the other or their joint interests, rather than explaining why no undertaking can be said to exist’.
(iii) ‘The decision of the Supreme Court of Canada in Jirna Ltd v Mister Donut of Canada Ltd (1974) 40 DLR (3d) 303 may be compared to Mooregate Tobacco Co Ltd v Philip Morris Ltd, a case where a licensor claimed that a fiduciary relationship or duty arose to prevent the licensee from marketing a product with a similar name (1954) 156 CLR 414. Although less intimate in nature than franchises, licensing arrangements are similar to the franchises discussed in Jirna. The approach taken by the court in Moorgate Tobacco showed a sophistication notably absent in Jirna. The High Court of Australia found no fiduciary duties existed because (1) the relationship was not similar to partnership and agency, and (2) the terms of the contract did not generally, or in regard to a specific matter, require one party to pursue the other’s interests without regard to its own . The court did not take refuge in the false conclusion that commercial parties at arm’s length do not create fiduciary duties or relationships in their dealings’.
[at 58] [emphasis added]
(iv) ‘… the recognition of fiduciary duties in partnership and agency (which are established by contract) indicates that specification of fiduciary duties is not necessary in commercial relationships. There is no duty to specify any particular duty in an agreement, nor a duty to spell out whether or not one party undertakes to act in another’s interests or their joint interest. Fiduciary duties cannot be excluded by an argument analogous to contributory negligence’.
[at 60]
(v) ‘… fiduciary relationships are atypical in commerce because the relationships created are usually antagonistic in nature: whether a party protects itself or not objectively each party serves its own interest. These transactions are the antithesis of a fiduciary relationship. It is only in special types of transactions that fiduciary relationships exist . Thus we must identify these special situations’.
[at 61] [emphasis added]
(vi) ‘The best example in a commercial context of the irrelevance of self-protection in the determination of fiduciary relationships and duties is United Dominions Corp Ltd v Brian Pty Ltd (1984) 157 CLR 1. In this case one party to the transaction, SPC, gave a mortgage over land to be used for the joint project to another party, UDC. The mortgage contained a collateralization clause which gave UDC the right to claim the proceeds of sale of the land to offset SPC’s other debts. This deprived the other party, Brian, of its share of the proceeds of the sale of the land, that is the fruits of the venture. Brian and its co-contracting parties were at arm’s length in the sense of being independent of each other. They were experienced commercial parties. They had legal advisers [Cf Gummow J in Elders Trustee and Executor Co v Reeves Pty Ltd (1988) 78 ALR 193] and an opportunity to protect themselves in the negotiations for the formal agreements that were drawn up. All the factors set out by Gibbs CJ, Sopinka J, Kennedy J, and others for denying a fiduciary relationship existed. Mahoney JA in the NSW Court of Appeal explicitly noted that Brian, through its advisers, had an opportunity to consider the mortgage. In this sense Brian failed to protect itself by not requiring the collateralization clause to be removed or excluding its share from the operation of the clause.
227 JMG, on the motion, pursues a case to the effect that the services being developed by the National Bank known as “The Gateway Service”; “The Automated Margin Lending Service”; “The FX Auto-Dealing Service” and “Project Maple Leaf”, will each be services within the definition of the “AUSMAQ service” as defined in the Consultancy Agreement, being services with equivalent or similar functionality to:
However the High Court held the parties were partners and a fiduciary relationship existed, rendering the clause unenforceable. The NSW Court of Appeal considered that the parties were joint venturers and a fiduciary relationship existed. Brian’s failure to protect itself did not prevent the court recognizing a fiduciary duty of disclosure of material facts. The failure of other contracting parties to draw attention to the unusual nature of the collateralization clause and obtain consent to it was a breach of that fiduciary duty. The failure occurred at the negotiation stage. Brian’s lawyers could have investigated the documents for unusual clauses but their failure to do so, and the failure of Brian to protect itself, did not destroy the fiduciary duties.
Why? To state that the answer is “because they had entered into a partnership” is to miss the point. The answer is that the facts indicated that it was reasonable to expect that the parties had to act in their joint interest and not for their own interest . What facts were these? The facts were that the object of the relationship would be defeated if the breach (i.e., the collateralization clause) were allowed to stand. The object of the relationship in Brian was mutual profit to be divided among the parties. The collateralization clause prevented Brian receiving its share of the mutual profit’.
[at 62-63] [emphasis added]
JMG’s Functionality Case
228 The evidence of Mr Maconochie was objected to on the basis that he was not appropriately qualified to give evidence as an expert. The admissibility issue is dealt with below. 229 In Mr Maconochie’s second statement [paragraph 8 and following] he compares the functionality of the AUSMAQ Service and of the above described actual or projected Bank services, with a view to determining whether each of those services is a service with equivalent or similar functionality to the AUSMAQ service. His methodologies are set out in his statements. The results of his analyses and conclusions are set out in the tables annexed to his statements, in particular in table 2 annexed to his second statement entitled “Functionality Comparison Table” and in table 1 entitled “Division and Strategy Comparison”. 230 In Mr Maconochie’s second statement in paragraph 8.3 he identifies the characteristics of the Bank’s services earlier referred to. His conclusions as to functionality are set out at p 74 and following of his second statement. His ultimate conclusion in paragraph 9 of his second statement is that each of the above described Bank services, namely the Gateway Service, the Automated Lending Service and FX Auto Dealing Service, “is a service with the equivalent or similar functionality to the AUSMAQ service”. The motion no longer seeks relief with respect to the Remote Wealth Service. Mr Maconochie expresses the view that “the strategy and objectives of the four projects, and the e-commerce activities of the group, are common to the AUSMAQ service”. 231 The functionality comparisons are furthered in Mr Maconochie’s third statement which also includes a functionality comparison of the AUSMAQ service with the Maple Leaf service and the Independence One service. No relief is pressed with respect to the Independence One Service. The results of those analyses are set out in Mr Maconochie’s third statement and in the tables appended to that statement. 232 Mr Maconochie’s ultimate conclusion with respect to project Maple Leaf is set out in paragraphs 11, 12 and 13 of his third statement, his conclusion being relevantly that project Maple Leaf “is a service with equivalent or similar functionality to the AUSMAQ service”, and that “the strategy and objectives of [that project], and the e-commerce activities of the Bank that [it] represent(s) is common to the AUSMAQ service”. 233 In paragraph 5.2 of Mr Maconochie’s second statement, he defines the word “functionality” as used by him in his statements in relation to the AUSMAQ service. That definition deals with several sub parameters, namely:
(a) the service of providing an automated securities training system and related services known as the Australian Automated Quotation Systems, or AUSMAQ Systems, or Euromac regardless of its name; and
(b) without limiting the holding of Securities (as defined in the Consulting Agreement) and Entitlements (as defined in the Consulting Agreement) for clients, the provision of a related deposit facility, execution of Securities (as defined in the Consulting Agreement), transactions with related client portfolio administration and reporting (or any of them); and
(c) any enhancements, modifications or additions to the foregoing service or services or any of them anywhere in the world.
[Second Further Amended Points of Claim paragraphs 30, 40, 46, 49I]
[See Consulting Agreement clause 7 and clause 1.1: Definition of AUSMAQ service.]
234 The AUSMAQ service is referred to in detail from paragraphs 6.1 and following in Mr Maconochie’s second statement insofar as its purpose, nature and functions are concerned. 235 In setting out his mode of comparing the functionality of the AUSMAQ service, and the actual or projected Bank services, Mr Maconochie in paragraph 8.2 of his second statement gives evidence that the table he compiled:
(a) the nature of the service;
(b) the quality of the service;
(c) its practical capabilities and capacities;
(d) the configuration of the above into a market able to deliver defined benefits to the market participants.
The full definition is set out below.
236 On pp 66-67 of his second statement, Mr Maconochie refers to the notations E for enhancements, modifications and additions, stating as follows:
“listed the 24 functional categories which comprise all the main functions done, or which are planned to be done, by the AUSMAQ service.
The table included planned, enhancements, modifications and additions that had been identified in the Business Plans for NMG and AUSMAQ and previously, which I identified with an E.
The functions in this table were based on my knowledge of the AUSMAQ service, the Business Plans for NMG and AUSMAQ, and the documents referred to in this statement and included in the production specification. The AUSMAQ production system is a flexible platform and was so designed to enable the AUSMAQ service to have additions and enhancements readily made to it to meet the future needs of the market. Such future enhancement, modifications and additions were to be specified by JMG in the future Business Plans JMG delivered in accordance with the Consulting Agreement’.
237 Also on p 67 of Mr Maconochie’s second statement, with reference to the modifications, enhancements and additions, to which he is referring, he gives evidence as follows:
‘All of these enhancements, modifications and additions have been planned and most of them have been specified, some to a higher level than others. Several, for example, items 1.1.1 and 1.3.5, have been partially built but not yet released. The share trading capabilities of the production system exist but have never been used. The real time issue of units to the AUSMAQ managed fund and deposit market also exist but have never been used’.
238 The defendant submitted that Mr Maconochie’s evidence was inadmissible in that he was not shown to have “specialised knowledge based on his training, study, or experience” in a situation in which his opinion sought to be given was “wholly or substantially based on that knowledge” - see Evidence Act s 79.
The Challenge to Mr Maconochie’s Evidence
‘The rationale for including each of the above items of functionality in the production system in the future was to satisfy the needs of market participants by having a complete market value-proposition that is difficult for competitors to match, thereby providing the substance for future marketing efforts to meet the strategic objectives of the AUSMAQ service as enunciated in the 1997, 1998 and 1999 Business Plans and to commercialising the AUSMAQ service, globally, as rapidly as possible. These aspects were described in detail in the 1997 and subsequent Business Plans prepared by JMG. All of these modifications, enhancements and additions were planned prior to the involvement of NAB and were so recognised in NAB’s Due Diligence report of July 1996. All were subsequently included in the NMG/AUSMAQ Business Plans. They are relatively simple and straightforward additions to implement’.
239 Prior to the commencement of the Evidence Act 1995, to be admissible the opinion of an expert needed to satisfy the following tests:
The Position before and following the Evidence Act
240 The current rules for the admissibility of expert evidence are:
(1) the opinion had to be relevant to a fact in issue;
(2) there had to be evidence capable of proving the facts upon which the opinion was based;
(3) the witness had to disclose the facts upon which the evidence was based;
(4) there had to be a relevant field of expertise, which was sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience;
(5) the witness had to be an expert in that field;
(6) the opinion could not be related to a matter of common knowledge;
(7) the opinion could not concern the ultimate issue, that is, the expert was not permitted to give an opinion on the very issue of fact or law which the court had to determine.
241 It is to be noted absent the making of a limiting order, s 79 will apply in terms. The section provides that if a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to an opinion of that person that is wholly or substantially based on that knowledge. 242 Section 79 is a direct rejection of the American Frye Test [Frye v United States - 293 F 1013 (1923)]. The Frye test had required that an expert's opinion be related to a recognised field of expertise or result from the application of theories or techniques accepted in that field. 243 It is important to note that an expert witness should not be allowed to stray outside the witness' area of expertise. It is for this reason that the opinion expressed by the witness must be based wholly or substantially on the witness' specialised knowledge, which is in turn specialised knowledge based on training, study or experience. 244 At common law, the field of expertise prerequisite required a court in determining the admissibility of expert evidence, to assess the reliability of the knowledge and experience on which the opinion was based. A question may be suggested as arising as to whether a similar exercise is required under the Evidence Act. 245 The Australian Law Reform Commission did not enter the difficult field of determining what were the criteria which were required to be shown before the field of expertise would be treated as a recognised or accepted field of expertise. The Commission recommended that there be no field of expertise test. The Commission's position was that:
(1) the evidence must be relevant (s 55) and have sufficient probative value (s.135 and in criminal proceedings s.137);
(2) the witness must have specialised knowledge based on training or experience (s 79);
(3) the opinion expressed by the witness must be based wholly or substantially on that knowledge (s 79).
246 This position is reflected in s 79 of the Evidence Act, which requires only that the expert have "specialised knowledge", with the exclusionary rules regarding irrelevant, prejudicial or misleading evidence presumably operating to exclude the opinions of specialists in unreliable and unacceptable fields of expertise. 247 See generally Article by Peter Berman "Fundamentals of Expert Experience: part 2" (1996) 3 Criminal Law News 55-56. 248 In Trust Company of Australia Limited v Perpetual Trustees WA Limited, (unreported, Supreme Court of New South Wales, McLelland CJ in Equity, 18 September 1996), his Honour dealt with an objection to a report purporting to be an expert's report. The objection was based substantially on the ground that the matters in respect of which the expert purported to express opinions in his report, comprised or included matters going beyond a field of expertise in which the expert had been shown to be qualified to give opinion evidence. 249 McLelland CJ in Equity dealt with the matter as follows:
". . . there will be available the general discretion to exclude evidence when it might be more prejudicial than probative, or tend to mislead or confuse the tribunal of fact. This could be used to exclude evidence that has not sufficiently emerged from the experimental to the demonstrable."
Australian Law Reform Commission, Evidence , ALRC 26 (Interim) Vol.1 (AGPS, Canberra, 1985) at para 743.250 As it was difficult, if not impossible, having regard to the form of the report, to physically sever the opinions from those which should not be admitted, counsel were invited by the court to agree that certain sections of the report before his Honour should be admitted, possibly with an appropriate qualification by way of a s 136 direction. 251 His Honour stated that if no such agreement could be reached it would be necessary for the report to be either recast or for the expert to give oral evidence in lieu thereof within the limitations indicated.
(a) by first defining the extent to which the expert had been shown to have specialised knowledge based on his training and experience;
(b) by then identifying, by description, the matters upon which the expert was qualified to express opinions;
(c) by holding, in relation to opinions expressed in the report going beyond those descriptions, that assuming, without deciding, that they would be admissible under section 79, they would not be admitted in the exercise of the court's power under section 135, in particular in reliance on sub-paragraph (c).
252 The defendant’s submission was that Mr Maconochie has not been shown to have the expertise to express opinions, about either the functionality of the AUSMAQ service, or the functionality of the Bank’s proposed services. The submission was that Mr Maconochie was not shown to have expertise to express opinions as to whether the Bank projects were similar to the system known as the AUSMAQ system. The submission was that there was no evidence that Mr Maconochie had had experience in the industry of automated trading services, and on the evidence that Mr Maconochie gave, that his involvement was with the development of the AUSMAQ service, but not of experience in general banking industry. The submission was that there was no evidence that Mr Maconochie had any experience in software writing or information technology in a technical sense. Hence, the defendant’s submission was that Mr Maconochie is not shown to have relevant experience in the industry in respect of which he is purporting to express opinions, and in particular had no experience in the general banking area with which the banking projects here in consideration were concerned. The submission was that in order for an expert to qualify within the words of s 79 of the Evidence Act, it was necessary that the witness be shown to have experience in the relevant industry, and here to be familiar with automated trading systems and to have training, study or experience in relation to the operations of banks. 253 Mr Maconochie has a Bachelor of Engineering (Mech. Eng Honours) Melbourne University 1968. From 1969 to 1977 he was employed by Esso Australia Limited and during that period worked on the exploration and development of the Bass Strait oil and gas field. 254 In 1976 and 1977 Mr Maconochie worked as a senior engineer in the 3 person Planning and Evaluation section of Esso’s production department, undertaking the commercial evaluation of gas plant No. 3 at Longford, the Schnapper Gas Platform Commercial Assessment and Budget submission and various oil and gas pipeline proposals. He took several courses given by Esso production research company in the analytical techniques of profitability, analysis and computer simulations of commercial appraisal. He was also selected for a drilling and production engineering training course with an oil and refining company in Houston Texas. He was also selected for the Reservoir Engineering Training course with Esso production research company in Houston Texas. 255 In 1978 Mr Machonochie joined the Lend Lease Group as a Project Manager to pursue a more commercial career. He was appointed a Development Manager, was a foundation member of Lend Lease Engineering, and developed some of the early infrastructure projects in Australia, including the 70 million 52 kilometre alumina conveyor built by Lend Lease, Civil & Civic and other projects. 256 In about 1984 Mr Maconochie jointed the fledgling Equitilink Australia Limited, a newly formed funds management company, as a consultant. He had also begun developing his own development businesses. 257 In about mid 1985 Mr Maconochie became a Director of Equitilink Australia Limited and became partner of Messrs Sherman and Friedman in a re-formed Equitilink ownership group. At that time Equitilink Australia Limited had about $120 million under management. Mr Maconochie’s role at Equitilink became full time, and he worked to get the growing business organised on a stable commercial footing and developed and marketed new products. In mid 1985 he developed the $US 60 million US listed The First Australia Fund Inc. Mr Maconochie founded the Management Company Equitilink International Management Limited in Jersey, Channel Islands. 258 In February 1986 Mr Maconochie conceived and developed The First Australian Prime Income Fund, Inc. Its objective was to invest in Australian and New Zealand debt securities. 259 Mr Maconochie is shown to have had experience with underwriters in relation to attempts to duplicate the prime income fund in Canada and sell it as a global offering. 260 In Australia in 1986 it was determined to list the Australian operations of the Equitilink Group on the Australian Stock Exchange. Mr Maconochie was responsible for developing the methodology of calculating the value of the business and restructuring the group. During the period since mid 1985, Mr Maconochie was the Equitilink’s Group’s Marketing Director New Products and developed a superannuation venture with Prudential of the United Kingdom. 261 In 1987 the last product which Mr Machonochie conceived and developed at Equitilink was Maxilink, a $100 million split income and growth closed end investment company listed on the Australian Stock Exchange in about September 1997. 262 In 1989 Mr Maconochie began what on his evidence became the AUSMAQ service.
The Defendants’ Submissions
263 By reason of Mr Maconochie’s experience earlier set out, and his subsequent experience in what he stated [paragraph 2.17 of his second statement] was “his experience in the conception, design and development of the AUSMAQ service”, Mr Maconochie believed that he was qualified to make the second statement, his third statement and to express the opinions in them upon the matters which are properly the subject of opinion and expert evidence. 264 I do not intend to here set out the whole of the sections running from pp 10-77 of Mr Maconochie’s second statement in which he sets out his functionality analysis, and the evidence which he gives of the work he carried out in relation to the conception, design and development of the AUSMAQ service. His evidence in paragraph 5.3 of his second statement for example is:265 In paragraph 5.3.20 of his second statement, Mr Maconochie gives evidence that by December 1992 he had developed the new functional specification for the production version of the new AUSMAQ system, and sets out its functionality. 266 In paragraph 5.3.18 of his second statement, Mr Maconochie gave evidence that in about June 1992 he determined to develop a new functional specification for a AUSMAQ production system that would satisfy the needs of the missing marketplace mechanism earlier referred to. That specification, he said, would be premised on his knowledge of the marketplace and its dynamics. 267 In paragraph 5.5.33 of his second statement Mr Maconochie gives evidence that from December 1993 he undertook the role of System Development Director, responsible for the design, construction and commissioning of the software and peripheral report systems that together would comprise the AUSMAQ Production System. This he said was a sub set of his overall responsibility for the overall delivery of the development project through to production system certification and commissioning with live clients within the projected time and budget. 268 Mr Maconochie’s evidence in paragraph 5.3.34 of his second statement is that Mr Brian Martin was the overall systems architect and was to be responsible for the design and construction of the AUSMAQ trading engine and the overall system architecture. Mr Martin apparently worked from December 1993 through to July 1994 in AUSMAQ North Sydney’s development office in that role. Mr Maconochie’s evidence is also that he engaged Mr Graham Nelson as the Applications Architect, and that in this role Mr Nelson was responsible for vetting and refining the functional specification, matching it with the systems architecture and technical specification, and organising the contracts with the peripheral service contractors. 269 Mr Maconochie ‘s evidence in paragraph 5.3.44 of his second statement is that in the first quarter of 1995 he wrote the Standard Operating Procedures for the key administrative functions of the production system. He also drafted the two prime service agreements upon which the operation of the AUSMAQ’s functionality depended, namely the AUSMAQ Nominee and Custodial Services Agreement and the AUSMAQ Deposit Services and Management Agreement. 270 It is important to recognise that s 79 of the Evidence Act is directed to examining “evidence of an opinion of [a] person that is wholly or substantially based on [the specialised knowledge based on the person’s training, study or experience]”. 271 What then is the subject matter of the opinion expressed by Mr Maconochie which the section requires must be based wholly or substantially on Mr Maconochie’s alleged specialised knowledge based on training or experience? 272 To my mind, there is a reasonable argument that Mr Maconochie must be shown to have training, study or experience giving him specialized knowledge in comparing the functionality of services, such as the AUSMAQ service, to other services. And whilst Mr Maconochie certainly has been shown to have, as it seems to me, specialised knowledge based on his training, study or experience in relation to the AUSMAQ service, and in relation to its functionality, a real question remains as to whether or not he is shown to have specialised knowledge based on his training, study or experience, in relation to the functionality of banking services. He has, however, not only been a director of a major funds management group, but also has been shown to have such a wide involvement in development and marketing of new products integrally concerned with banking activities, with underwriters, with stock exchanges, with superannuation and importantly in “the design, construction and commissioning of the software and peripheral report systems which became the AUSMAQ Production System” and in “the conception, design and development of the AUSMAQ Service” that in my view the challenge to his evidence on admissibility grounds fails. Of particular significance is the fact that Mr Maconochie was not cross-examined on his own broad, and in some cases imprecise, descriptions of his experience which were admitted into evidence. He has been shown to have specialised knowledge in relation to functionality analyses so as to permit comparisons of the functionality of the AUSMAQ Service with other services. That knowledge is based on his experience. His opinions are given within the ambit of his specialised knowledge based on his experience. 273 The question of admissibility of Mr Maconochie’s evidence on the final hearing may well be altogether another matter, depending on the evidence on a voire dire and on the trial judge’s determination of this important issue. For the purpose of this interlocutory judgment, I therefore proceed upon the basis that Mr Maconochie is qualified as having specialised knowledge based on his training, study or experience in respect of the functionality comparisons with which he purports to deal. 274 In the result I admit Mr Maconochie’s evidence the subject of the objection.
‘Between 1989 and 1995, I conceived, developed and created the on-line securities and investment transaction, information and portfolio administration and reporting service known as the “AUSMAQ Service”. There were three forerunners to what became the AUSMAQ Service. These were the EFMS Service, the Registry of Record Proposal and the Australian Unit Exchange Proposal’.
275 An entirely different field of discourse is then open, and this relates to the weight to be given to Mr Maconochie’s evidence. Plainly enough Mr Maconochie is to be regarded as a partisan witness, whose impartiality is not even suggested by the plaintiff. In those circumstances, Mr Maconochie’s opinions require to be very closely scrutinised indeed, it being, it may be thought, surprising in a case in which the functionality issue assumes such significance, that on the interlocutory hearing no admissible outside evidence, of an expert nature, capable of being tested by cross-examination, was relied upon by the plaintiffs.
The Weight to be Accorded to the Evidence of a Partisan Expert
276 The defendants’ further submission was that Mr Maconochie had not proved in any sufficient detail as a factual matter, precisely what was the functionality of the Bank services or projects in respect of which he purports to opine. The Court was taken by Mr Insall of Counsel appearing for the Bank, to the particular documents which, for example, Mr Maconochie at p 19 of his third statement in paragraph 8.3, had relied upon for the purpose of making his functionality comparisons. In that regard, Mr Insall submitted that the only document which could conceivably be evidence about the Maple Leaf Project was the Initiative System for Key Strategy Prioritisation session of 18 December 1998 [JM 0900]. Mr Insall submitted that the second document [JMG 0901] was merely a proposal from McKinsey & Company, referring to their proposed involvement in the project. Documents JMG 0902, 0903 and 0905 related to the Independence One project being no longer relevant. Documents JMG 0904, 0906 and 0908 were not in evidence. Document JMG 0907 constituted a speech given by Mr Cicutto. 277 Returning then to document JMG 0900, to be found at PX 9/4067, Mr Insall submitted that this was an initiative submission for key strategy prioritisation. I accept Mr Insall’s submission that it is appropriately categorised as a document which one might anticipate to find where someone within the Bank was bringing up a concept and suggesting that it was a good concept. It cannot be described as a specification of the elements of a service. 278 Hence, the defendants here submit that even granted that Mr Maconochie were accepted as a person capable of giving expert evidence of the type which he purports to give, the simple fact is that he has not shown that the source materials to which he had regard, properly or sufficiently furnish a foundation for his views as to the attributes of the relevant proposed Bank services, here Project Maple Leaf. 279 To my mind this again is a matter of serious concern, particularly where upon the final hearing the question of functionality and functionality comparison is almost certainly likely to be a major issue for decision. 280 It is inappropriate to set out in this judgment the whole of the material from pp 73-113 of Mr Maconochie’s second statement, generally also followed from p 29 through to the end of the third statement but in relation to Maple Leaf and Independence One. Those paragraphs should be carefully read as though they had been set out in this judgment. The significance of Mr Maconochie’s evidence in this regard is that, notwithstanding any possible criticisms of his methodology and by way of a very close examination of how he approached the functionality exercise, the Bank has not put forward on the interlocutory motion any evidence whatever as to the functionality issue. Such evidence as the Bank had sought to put forward was rejected as inadmissible and is not, therefore, before the Court. 281 Mr Maconochie has given the following evidence:
The Materials Available to Mr Maconochie and Upon Which His Evidence was Based
282 Evidence was given on information and belief by Mr Alan Copsey, Head of Australian Branch Legal at the Bank, inter alia as follows:
[Second Statement - para 8.3]
‘Each of the four NAB Services has the following characteristics:
Gateway Service (Group Wealth Creation Leadership Team)
This project emulates the AUSMAQ Service, but uses the means of a “fund of funds/master fund” trust deed to create a central market on which a margin can be realised on the total market of products/intermediaries/customers. Initially, the focus of the Gateway Project is more on NAB as a product vendor of discrete NAB products and NAB-branded aggregations of NAB/other product vendors’ products in a conventional trust structure. AUSMAQ dispenses with the conventional means of delivering the functionality through a trust deed, and achieves the same functionality by (sic) through a “virtual” trust in which trustee obligations are established through the AUSMAQ Client Service Agreement, the Deposit Services and Management Agreement and the AUSMAQ Nominee and Custodial Services Agreement.Automated Margin Lending Service
FX Dealing Service
This service is focused on the stock broker segment of AUSMAQ’s target Market and aims to produce a service that emulates the broker/client cash credit/handling processes inherent in the AUSMAQ Service. It is proposed to expand the service to include the managed funds features of the AUSMAQ Service. NAB Premium Financial Services is the project sponsor and owner.
This service is more of a conventional FX (Foreign Exchange) trading facility commonly used among a number of banks. NAB Business Financial Services is the project sponsor and owner. It emulates the functionality of a Market on the AUSMAQ Service that is configured for trading currencies.’
‘Maple Leaf
The source document [JMG0900] describes the Maple Leaf Service paraphrased as follows:
“… building and implementing for customers direct channel capabilities and … systematic restructuring of all distribution channels along direct lines through the use of technology including the convenience and tools of the internet, personal digital assistants and modern communications devices”.
The Maple Leaf Service has a 100% match with NAB Group objectives and strategies. It also brings together a number of existing NAB projects and provides a coherent coordinating influence.
It is apparent, therefore, that the Maple Leaf Service is an integrated financial services platform designed to offer a common, on-line, Ecommerce-based financial service to customers across the NAB Group in parallel with access to NAB products and services via branch, telephone and Automatic Teller Machine channels. Access to the Maple Leaf service is typically via internet, ATM, telephone and Web TV. It will provide a common platform for NAB’s retailers (intermediaries/dealers) and products and services. The Service is integrated with information and advice and guidance services from third party service providers. It will become the clearest and most visible point of focus of NAB’s customers and for the corresponding activities of the NAB’s retailers and products and services.
Project Maple Leaf, which is the project to deliver the Maple Leaf Service, includes the development and implementation of a service including at least two component services, namely the development of a Direct Bank by direct banking (the “Direct Bank Service”) and a Global Payments system (the “Global Payments Service”), and further, and alternatively including at least three component services, the Direct Bank Service, the Global Payments Service and the Independence One Service referred to above in this paragraph and below in paragraph 9.
The Direct Bank Service involves an integrated financial services platform offering customer value to customers generally through access to certain financial services at any place and time through the convenience and tools of the internet, personal digital assistants and modern communications devices, Ecommerce generally.
The Global Payments service seeks to attain these objectives by the development and use of, inter alia, smart card technology, broadband and/or internet capability for the on-line transmission of information and the enabling of payments transactions, either alone or in strategic alliance with a telecommunications or similar company, the Internet and Ecommerce, and the development and use of related technology.
The AUSMAQ Service can be described in the same terms’.
[3rd statement - paragraphs 8.7.6-8.7.9]
283 In Autodesk Inc v Dyason (No. 1) (1992) 173 CLR 330, Dawson J dealt in terms of the law of copyright, with the traditional dichotomy between an idea and the expression of an idea:
‘ Description of the Gateway project
NAFM is currently in the process of developing a discretionary master fund product, as the first phase of the Gateway project.
A master fund allows investors to invest in one or more underlying managed funds by investing in units in the master fund. The master fund (through its custodian) holds units in the underlying managed funds on behalf of the investors in the master fund. The units in the underlying managed funds are applied for, or redeemed, at the direction of the investors in the master fund.
NAFM’s proposed discretionary master fund product will allow investors to invest in a number of products offered by fund managers external to the NAB Group, as well as products offered by the NAB Group’s fund managers. The master fund will also have a number of “fund of funds” options, where the underlying investment mix and fund managers will be selected for the investor, based on a risk profile specified by the investor.
Discretionary master funds are not a new concept. Financial institutions currently offering discretionary master fund products in Australia include ASGARD, Navigator (Norwich Union Group), ANZ Bank, Colonial State Bank, Deutsche Bank and National Mutual.
Parties involved in the Gateway project
The Gateway discretionary master fund product has been developed by NAFM.
NAFM uses a software package known as “Talisman” for the administration of its unit trust products. The Talisman software is licensed from the Tacit Group, an actuarial and information technology consultancy group based in New Zealand. The Tacit Group has been developing additional capability to Talisman to accommodate the proposed master fund product.
NAFM will be responsible for administration of the discretionary master fund product once it is launched.
Products available to investors through the discretionary master fund will include products managed by:
(a) the NAB Group’s in-house fund mangers, National Australia Asset Management Limited (“NAAM”) and County Investment Management Limited; and
(b) a number of fund managers external to the NAB Group.
National Australia Fund Management Limited, a wholly-owned subsidiary of NAFM is the Responsible Entity for the master fund.
Investment management for the “fund of funds” option will be provided by a number of different fund managers, both internal and external. The National has engaged InTech Asset Consulting, an independent specialist asset consultancy, to assist in the selection of fund managers for that purpose.
Current status of the Gateway project
A pilot of the master fund product commenced in May 1999. The pilot has involved a small number of National financial planners offering the master fund product. That has resulted in a number of customers investing in the master fund product. The master fund product currently has approximately $1 million under management.
It is currently proposed that the full launch of the master fund product will take place in late July 1999.
Description of the Margin Lending project
Margin lending is lending against the market value of securities, such as shares, adjusted by a gearing ratio. It involves an investor (or guarantor) providing security in the form of cash, Australian Stock Exchange (“ASX”) listed securities or managed funds, that is mortgaged to the financier, and in return receiving a line of credit that is used to purchase additional securities or managed funds which are also mortgaged to the financier.
The National does not currently offer a margin loan product.
The Margin Lending project involves the development of a margin lending product which will allow the National to:
(a) provide a margin lending service;
(b) automate some of the tasks and transactions associated with the margin lending process;
(c) outsource some of the tasks involved in offering a margin loan product; and
(d) utilise an additional channel through which a margin loan product may be distributed, namely, brokers using software licensed from Star System Pty Ltd (“Star Systems”) (as referred to in paragraph 40 below).
Current status of the Margin Lending project
The Margin Lending project is an ongoing project, with the software for the project in the process of development. Part of the coding for the margin lending software has been completed, and is being tested by the National, ACS, and other users. Star Systems is continuing to develop the software, in terms of both debugging existing code, and developing new programs.
Development of the software is approximately two-thirds complete. It is currently proposed that a pilot of the product be launched in September 1999 with a general launch to take place in late October 1999.
The National is in the process of negotiating with Star Systems the terms of the software licence, and with ACS the terms of the agreement under which ACS will provide settlement, administration and other services.
A margin lending unit is to be formed within the National to administer the margin loan product. The unit will comprise three National employees. It is currently proposed that this unit will become operational by the end of July 1999.
The Margin Lending project involves, to different degrees, employees of the National in different sections, most of whom are not engaged full time on the project. It is therefore extremely difficult, if not impossible, to isolate all of the assets which are, or will be, used in the project.
Description of the FX Autodealing project
The objective of the FX Autodealing project is to automate the process whereby customers of the National purchase foreign exchange products from the National.
The system enables customers to connect to the National by computer. The customer chooses the foreign exchange product required, and the amount of currency required. The Autodealing system will respond with a price quoted in real time based on a number of parameters, including the currency, the size of the trade, and the customer’s profile. If a customer accepts the real time quoted price, the deal details are shown to the customer on screen. The system automatically issues a dealing ticket, which is provided to a foreign exchange dealer and entered into the National’s systems.
Where a proposed deal exceeds a customer’s dealing or credit limits, the system allows manual dealer intervention, enabling one of the National’s foreign exchange salespersons to make a judgment as to whether to proceed with the deal.
Current status of the FX Autodealing project
The pilot will shortly be extended to approximately 200 customers. It is currently proposed that the full rollout of the FX Autodealing service in Australia will occur in October 1999.
The FX Autodealing project is currently in a pilot phase. Approximately 63 Business Markets’ customers within Australia are participating in the pilot by conducting their foreign exchange transactions through the system. This allows the National and Cognotec to test and refine the software and processes involved in the FX Autodealing service.
Cognotec is also currently developing new modules of the software in conjunction with staff from the National, as well as debugging existing code as a result of issues arising from the pilot and from testing by the National.
Description of the Maple Leaf project
Project Maple Leaf was the development phase of the concept of shifting the National’s operating model from a traditional branch-based regional retail bank to a customer focused integrated retailer of financial services targeting direct channels such as telephone banking and internet banking.
The programme commenced in mid-December 1998 with McKinsey and Company (“McKinseys”), the external consultants, suggesting certain strategy and implementation plans. These plans called for multiple phases or “episodes”.
The development phase was completed in late May 1999.
Strictly speaking, therefore, Project Maple Leaf has been completed. The implementation phase has now commenced as a new project under the name “Operation First Choice”.
Involved in the Maple Leaf project
The Maple Leaf/Operation First Choice project is conducted by the Retail Financial Services and Channel Management section of the National. It involves, and will continue to involve, employees from a number of other sections of the National.
In addition, a number of external contractors will be engaged to work on specific aspects, particularly issues relating to computer and other information technology. For instance, Cambridge Consulting has been engaged to assist in the development of the National’s telephone banking service.
Current status of the Maple Leaf project
The first episode of the implementation phase has commenced. Essentially, it involves what is known as a customer migration strategy, focusing on changing customer behaviour from the traditional branch-based banking to alternate channels, involving increased use of automatic teller machines and telephone and internet banking. This involves investment in the National’s internet banking and web capabilities, investing in telephone call centres to enable an increased number of transactions to be conducted by telephone banking, and piloting changes to the structure of bank branches.
Resources currently employed on the Maple Leaf project
The project is being led by a small group of approximately 6 persons, with a total staff of approximately 16 persons.
The project is gearing up to staffing in the order of 60 persons. At present 30-40 people in various areas of the National are spending approximately 50% of their time on the project.
Service with Equivalent or Similar Functionality
Effect of a receiver being appointed to the Maple Leaf/Operating First Choice Project
As the project is built very much on the expertise and knowledge that has been accumulated from people within the National, it is likely that for a receiver to manage the project, he or she would need to spend a considerable amount of time understanding the aims and objectives of the project. This would likely lead to a delay in the taking of decisions. This may have serious consequences for key components of the project, such as operational issues involving the call centres. In respect of the call centres any delay in taking decisions may lead to a lack of call centre capacity to meet current demand which may cause a loss of customers’.
284 The evidentiary difficulties in relation to alleged copyright infringement where expert evidence is sought to be led in relation to the investigation of software systems, said inter alia to have had “common functionality”, were examined in Admar Computers Pty Ltd v Ezy Systems Pty Ltd [1997] 853 FCA [Federal Court of Australia, Goldberg J, 29 August 1997]; [(1997) 88 IPR 659, AIPC 91-350.] 285 A number of courts do not appear to have had particular difficulty in using the word “functionality”, as for example Compagnie Industrielle de Precontrainte et D’Equipment des Constructions SA v First Melbourne Securities Pty Ltd [1999] FCA 660 [at paras 85, 89, 90]; Ni-Tech Pty Ltd v Parker [1998] 484 FCA, 27 April 1998. 286 The plaintiffs rely upon the definitions of “function” and “functional” in The Macquarie Dictionary, 2nd revised edition:
‘As Lindley LJ said in Hollinrake v Truswell … : “Copyright … does not extend to ideas, or schemes, or systems, or methods; it is confined to their expression; and if their expression is not copied the copyright is not infringed”. The distinction has been criticized and it is true that it is often difficult to separate an idea from its expression, but it is nevertheless fundamental that copyright protection is given only to the form in which ideas are expressed, not to the ideas themselves. The protection of ideas, at all events when the subject of manufacture, is the province of patent law. There is a particular difficulty in distinguishing an idea from its expression in the case of a utilitarian work, such as a computer program, which, in contrast to literary works of an artistic kind, is intended to be useful rather than to please. But it has been held that the idea of a utilitarian work is its purpose or function and that the method of arriving at that purpose or function is the expression of the idea : see Whelan Associates v Jaslow Dental Laboratory … citing Baker v Selden … . Thus, when the expression of an idea is inseparable from its function, it forms part of the idea and is not entitled to the protection of copyright …. Whelan Associates v Jaslow Dental Laboratory was a case which was concerned with a computer program, the purpose or function for which was to assist in keeping records of the business operations of a dental laboratory. It was held that the computer program was the subject of copyright because it was only one of a number of programs of different structure and organization which might be used to achieve the same end’.
[173 CLR at 344-345] [emphasis added]
287 On the interlocutory motion it is inappropriate to express any concluded view on the meaning in the definition of “AUSMAQ Service”, of the words “equivalent or similar functionality”. For the purposes of the motion I accept that the plaintiffs have shown a serious question to be tried to the effect of that claimed. In short, Mr Maconochie’s definition of the word “functionality” in relation to the AUSMAQ Service [para 5.2, 2nd statement] is capable of satisfying the words used in the subject definition as found in the Consultancy Agreement. Mr Maconochie states in paragraph 5.2:
“function” - N. 1. The kind of action or activity proper for a person, thing or institution …
“functional” - adj 1. Of or pertaining to a function or functions. 2. designed or adapted primarily to perform same operation or duty.288 It is to be recalled that in the 6 December 1996 memorandum from Mr Breeze to Mr Barnes, referred to in paragraph 4 of this judgment, the Group’s interest in acquiring the AUSMAQ business had been said to be:
‘By “functionality” in relation to the AUSMAQ Service I mean
a) The Nature of the Service, which:
* is a Market,
* is not itself a market participant,
* is electronically based,* used Straight-through Processing,
b) the quality of the Service which:
* is used by Remote Users,
* operates On-line and in Real-time,
* and operates in multiple tax and currency environments;
* provides a secure, commercial robust, Transparent, Fair, and
Efficient Market for all Market Participants,
* provides Liquidity and Depth of Market for Market Participants;
c) its practical capabilities and capacities, which enable
* Remote Order placement and transaction capability,
* a large number of Customers to make deposits of money and place a wide range of Securities into safe custody to the account of the Customer to hold or to trade,
* management of Entitlements,
* Remotely requested consolidated reports and queries,
* delivery of and connection to, related services and functionality
provided by third parties, for example, research and portfolio
assessment software packages and services,
* multiple market categories to be configured with limited or particular Market Participants who have access to, and trade in, specified sets of products, for example, foreign exchange dealers and currencies;
and the configuration of the above into a Market that is able to deliver defined
benefits to the Market Participants’.
289 It seems that the Bank itself in its investigation of AUSMAQ, and its interest in acquiring the AUSMAQ business, was recognising the probable use of that service for the delivery and support of customer-focused services. 290 I have regard also to the Due Diligence report conducted for the Bank between 15 and 19 July 1996 in relation to Project Electra and dated 25 July 1996 which appears at PX 10/4238 and following. That report includes several sections dealing with functionality, also identified in a number of attached diagrams and flow charts. 291 Paragraphs 7.1, 7.2, 7.3 and 7.4 of the Due Diligence report at PX 4253 are in the following terms:
‘based on the changing nature of our business, the unbundling of product function from the customer service function , and the constant pressure to reduce costs.
The AUSMAQ business scores highly in each of these areas and we believe represents the way forward for the delivery and support of customer-focused services ’.
[emphasis added]
292 The report at PX 4241 includes:
‘ 7.1 Linking to “front-end” systems
7.1.1 Electra is presently displaying the characteristics of trying to be both the “market place” and a service provider to the dealers by way of portfolio management. However, the system currently does not meet the functionality provided by other bespoke front-end planning systems and it is unlikely that one system would provide the best solution for both markets. The Bank should consider the marriage between Electra as a market place tool and a front end system, with the capability to pass data between the two within the integrated model, not requiring manual re-keying or “cut and pasting”.
7.2 Using dormant functionality
7.1 The system is said to contain a number of modules which currently lie unused. In addition to more market styles, this unused functionality includes data feeds - the ability to move data in and out of the system . For example providing fund managers with details of training and depth of market data (assuming the other parties agreed), moving data to/from research companies, other exchanges etc.
7.3 The Internet as a source of ideas
7.3.1 The Bank should maintain a close watch on related services available over the Internet which would stimulate ideas on how this tool, married with others , could be used in Australia, or indeed internationally.
7.4 The Intenet as an access vehicle
7.4.1 The Bank should consider the possibility of providing investor access to the system , not just via the IVR, but also via the Internet. For example, allowing the investor to download information on actual portfolios, on “what if” portfolios, to lodge instructions with a dealer, to obtain external data feeds etc . By doing so, the Bank would be providing a reason for people to visit and re-visit the site, thereby reinforcing the Bank’s name in the market’.
[emphasis added]
293 The report at PX 4242 includes:
‘ 2. Systems overview and business process flowcharts
2.0.1 See attached diagrams and flowcharts for an overview of the Electra operations, functionality, system and business flows and example risks and controls.
2.1 Short Description
2.1.1 The system operating today is described by Electra as “providing order execution, electronic trading and client portfolio administration in single currency to the managed funds industry in Australia”.
2.1.2 It is “the market place ”. It is not a licensed securities dealer. It is independent of dealers and fund managers, with no in-house products .
2.1.3 Electra’s claim to electronic trading is based on the fact that when the custodian confirms on the system that a trade has been agreed with a fund manager, it settles both unit and cash movements simultaneously. Up to then, the transaction is merely an order.
2.1.4 Good title to units is given in return for cleared funds, virtually eliminating counterparty risk.
2.2 Functional capability of Release 1.0 v022
2.2.1 Release 1.0 v022 is said to contain coding, which has been tested to support the following market styles. See separate table for more information. Currently the system is only handling products in market Style 4’.
[emphasis added]
294 The Due Diligence report gives substantial support to the plaintiffs’ proposition that, as indeed paragraph 1.1 states:
‘ 2.3 Possible functional development
2.3.1 Electra advised that the next developments in the use of the system could include:
Using the current functionality better or for the first time:
Market style developments
1. Fund managers having dollar and unit accounts in Electra to allow settlement within the system - this may or may not be associated with Fund managers inputting their own prices, rather than the custodian ie moving from market style 4 to 7.
2. Fund managers to act as market makers, posting buy and sell prices enabling on line real time order to settlement - ie market style 2.
3. Extend the product range . Initially likely to focus on periodic fixed interest products such as debentures.
Usage/Improvement in other services eg
4. Information broadcast service to connected parties, on screen, by fax or EDIPost.
5. Export of prices to eg the Financial Review.
6. Registry information eg providing registry information to a Fund Manager’s orders, fails, purchases and redemptions, subject to approval by individual investors approval …
9. Multi currency
While the functionality is not included in the current release, some components have been incorporated in the current system. For example, customer numbers are formatted nnnnnnn.ccc, where n is the user id and c is available for a wide range of sub-sets, such as products and currencies’.
[emphasis added]
295 The whole of the Due Diligence report supports the proposition of functionality and dormant functionality of the type pleaded and supports the proposition that a serious and far from speculative case has been made on an interlocutory basis that the subject projects namely Gateway, Margin Lending, FX Auto Dealing and Maple leaf which were compared by Mr Maconochie with the AUSMAQ service seek to provide services having a similar or equivalent functionality to the AUSMAQ service. 296 The terms of the Bank’s media release upon its acquisition of the AUSMAQ service, which appears at PX 10/4337 is entitled “National Buys Electronic Trading Service”. A copy of that release at both pp PX 4337 and 4338 is appended [as Appendix ‘F’] to this judgment. The release requires to be read as part of this judgment. It relevantly states:
‘The system is likely to contain a wide range of controls commensurate with its business function’.
297 The Group Executive Committee Paper entitled “Electra Investment Proposal” of 14 August 1996 is located at PX 10/4350. At PX 10/4353 the following appears in the proposal”
‘We believe AUSMAQ has the potential to be a leading provider of “straight through” electronic transactional and financial services to investors and institutions in Australia, New Zealand and other international markets’.
It also states:
‘AUSMAQ is recognised as one of the most advanced “straight through’ electronic trading systems in the world, enabling trades in real time without counter party risks’.
It also states:
‘AUSMAQ provides a unique combination of convenience, low cost and security’.
It also states:
‘Under the new arrangements with the National, AUSMAQ will continue to operate independently of any investment fund manager, financial planning or dealer group.
AUSMAQ’s various operating entities will be managed and operated independently of the National’s other activities.
The original developers of the concept - John Maconochie, Graham Nelson and …….Hume will be continue to be involved …
We believe AUSMAQ has the potential to be a leading provider of “straight through” electronic transactional and financial services to investors and institutions in Australia, New Zealand and other international markets”, Mr Breeze said’.
298 At PX 4355 under the heading “Management Issues” the following appears in the investment proposal:
‘1.1 Strategic Considerations
Electra presents an opportunity to diversify the Bank’s income sources within the financial services industry . Whilst it is recognised that Electra does not address in any unique way the Bank’s customer basis, it represents the creation of a new form of institutional business within the Bank’s industry. In this regard it would be similar to other services provided by the Bank to the general marketplace. The closest analogy would be EFTPOS which is an open system not targeted specifically for Bank customers, but nevertheless is profitably managed by the Bank. Electra however potentially offers the added advantage of positioning the Bank as the sole service provider . Electra provides the National:
* A potentially significant new source of non interest income as a service provider in the managed funds industry
* An immediate opportunity to participate in electronic commerce and gain a strategic position in this emerging industry’.
[emphasis added]
299 At PX 4357 the proposal under the heading ‘Regulatory Framework’ reads inter alia:
“As stated above ELECTRA would represent a new business line of potentially global dimension for the Group. The appearance of ELECTRA as a division or subsidiary of AFS would be detrimental to its strategy in the marketplace, where it is attempting to gain the support of dealer groups and fund managers who are the natural competitors of the Bank and NAFM. We would recommend that if NAB should acquire ELECTRA, that it be managed as a group business, with AFS providing input to group management on market and commercial issues relevant to the monitoring of the investment. This input will be critical in the start up stage where NAB requires realistic acceptance of the commercial acceptance of the business’.
300 The proposal, speaking to Electra’s plans to add to the scope of the system [at PX 4357 to 4358], refers to plans to add to the scope of the system by the addition of savings products, equities, secondary trading and a superannuation administration module. 301 Further support for the plaintiffs’ claims on the motion in relation to functionality, and in relation to the Bank’s strategic plans, is to be found at PX 10/4393 in the paper presented to the Group Executive Committee, which recommended that the Board approve an investment of $7 million to purchase the issues shares in AUSMAQ Systems Limited, and which states inter alia:
“ELECTRA is a reasonably unique business. It operates with the appearance of a stock market and also with the appearance of a master trust …’.
302 Support for the plaintiffs’ claims for the potential benefits in the subject markets is to be found at PX 10/4396 where the subject paper delivered to the Bank committee states inter alia:
‘The AUSMAQ system is an automated trading, settlement and administration system for retail managed funds
* the system offers retail investors direct access to wholesale managed funds products in an automatic screen based environment
* the system is developed to the stage of being operational …
* the system neither supplies product nor acts as an intermediary. It simply provides a marketplace and takes a fee , based on transaction volume and the quantum of funds on the system
* should the system succeed in attracting broad acceptance amongst the dealer/adviser community, our Bank will be positioned as a “gatekeeper ” for a significant proportion of the retail investment funds flow in the economy’ . [emphasis added]
303 At PX 4397 the same paper states:
‘The retail investment products market comprises about one third [or 92 billion] of the $300 billion managed funds market …
* Our best estimate is that AUSMAQ could realistically achieve about 10 percent market share, or $3 billion of retail funds held in open ended funds under management’.
304 At PX 4401 the transaction structure is identified in terms of the founders receiving a one third economic interest through a royalty arrangement and receiving a long term management contract. On the same page one finds the following:
‘At the very least AUSMAQ has several years’ lead on any direct competitors’.
305 Mr Maconochie’s statements, assisted by all of these contemporaneous documents, to my mind support the plaintiffs’ case on the motion that it has made good the proposition that it has a serious case to be tried in terms of its claims to breaches of contract to the effect that the subject projects, namely Gateway, Margin Lending, FX Auto Dealing and Maple Leaf, seek to provide a significant number of proposed services falling within the description “any service with the equivalent or similar functionality” as used in the definition of “AUSMAQ Service” in the Consultancy Agreement. The detail and complexity of the issues, both technical and legal, which will confront the trial judge hearing the proceedings on a final basis is plain from the above description of the “functional equivalence” case. 306 Plainly, the Court on the present state of the evidence has only one party’s case before it on this important issue. And a very significant aspect of that case as presented is that it is based upon evidence of a witness whose involvement with JMG means that, by definition, impartiality is absent. That evidence is certainly detailed but it is not corroborated by outside third party evidence. These are considerations to be taken into account in assessing the balance of convenience and as factors bearing upon the exercise of the Court’s discretion in favour of or against the grant of interlocutory relief. 307 Clearly the trial judge will have to determine on all the evidence:
‘The founders - represented by John Maconochie the MD - will receive no up-front consideration. They will receive a royalty which translates into an approximately one third share of the expected net value of the business … the founders will be locked into a long term management contract’.
308 In that regard the Bank may elect to rely upon evidence and to address submissions seeking to negate JMG’s functionality case.
(a) What functionality the Bank services may ultimately have which the AUSMAQ Service may not have;(b) Whether all of the functional specifications of the Bank’s Services as said to be derived by Mr Maconochie from banking documents may fairly be gleaned from those documents;
(c) What the necessary overlap will be as between the functionality of the AUSMAQ and Bank services, to satisfy the definition ‘[having] equivalent or similar functionality’.
309 Mr Maconochie’s fourth and fifth statements deal generally with matters going to damages. The allegations made in paragraphs 11.17 and 11.18 of his fifth statement are:
The Damages Case
310 In the final paragraph of Mr Maconochie’s fifth statement he expresses the view that it is possible “that NMG could have become one of the top 100 Fortune 500 companies if considered as an operating entity in its own right and if the AUSMAQ service had been commercialised globally in a timely, efficient and proper manner in accordance with the Consulting Agreement”. 311 The plaintiffs claim that the interlocutory relief appropriate is based inter alia upon the following submission:
‘11.17 The resources of JMG have necessarily been diverted to protecting its asset, the Consulting Agreement, and NMG, almost from the effective start of the Agreement in November 1996, instead of JMG and NMG’s being able to commercialise the AUSMAQ service globally in accordance with the Consulting Agreement.
11.18 I refer to my first statement in these proceedings: that NAB has not used its capital, goodwill, organisational or marketing resources worldwide, to commercialise the AUSMAQ service globally in a timely, efficient and proper manner in accordance with the Consulting Agreement as I understand it’.
312 The formal particulars of the plaintiffs’ claims are set out in a document filed on 21 June 1999, entitled “Amended Particulars of Damages and Equitable Compensation”. Paragraphs 1, 3, 4 and 7 of these particulars are in the following terms:
‘The substantial liability or damages and/or equitable compensation which NMG, NAB and the other Defendants are incurring by the continued wrongdoing is one which, if it results in the destruction of the business, undertaking and goodwill of NMG and the NMG Group in relation to the AUSMAQ Service and the impossibility of performing the Consulting Agreement, will be beyond the capacity of all the Defendants to meet, even NMG if it calls upon NAB’s unlimited Guarantee of its obligations under the Consulting Agreement, and NAB, as, upon the Plaintiffs’ case, the quantum of damages in such an event may well amount to USD 21 billion and thus may exceed the NAB’s shareholders’ funds by an amount in excess of USD 10 billion’.
[Final Submissions paragraph 6.2]
313 To my mind, it is inappropriate on this motion for a minute examination of all the plaintiffs’ evidence on quantum. Suffice it to say that the plaintiffs have shown a serious case to be tried in relation to a very substantial claim to damages should the underlying causes of action be upheld. 314 One matter does, however, require to be exposed. This is that in important respects the plaintiffs rely upon many assumptions as to the processes which it is suggested are likely to occur if and when Clause 15 of the Consultancy Agreement is invoked. 315 Appendices “G and “H to this judgment set out:
‘The plaintiffs claim damages and equitable compensation from the Defendants and each of them on the following basis and in the following amounts:
(1) NAB and NMG by
(a) the breaches of the Consulting Agreement and of fiduciary duty, and the procuring of or participation in those breaches, pleaded in and particularised under and in relation to paragraphs 50, 51, 52, 53 and 54 of the Second Further Amended Statement of Claim and
(b) the contraventions and participation in contraventions of the Trade Practices Act and the Fair Trading Act pleaded in and particularised under and in relation to paragraph 56 of the Second Further Amended Statement of Claim
…
prevented the development and commercialisation of the business of the NMG Group throughout Australia and globally in accordance with the Consulting Agreement and caused NMG, and thus JMG to suffer loss as pleaded in paragraphs 55.1, 55.2, 55.4, 55.10, 56.2, 56.3 and 57.8 of the Second Further Amended Statement of Claim by reason of NMG’s lost custom, revenue and profitability to date and to continue. The loss is probably irreversible. NMG was in a strong position in 1996 to exploit the Ausmaq System as a market leader and to establish a or the leading position in the relevant markets worldwide. The markets have since developed and competitors have entered the markets and secured custom which would have been available to NMG for the Ausmaq Service.
(4) The damages and compensation claimed by JMG for breaches of contract and breaches of fiduciary duty are within a range of US$271 million as at 2003 and continuing and probably increasing indefinitely to US$21 billion or more depending, inter alia, on the matters referred to in the preceding paragraph, the method of valuation of NMG adopted to ascertain the extent of JMG's loss of its Performance Bonus rights, and the value of the purchase rights (“Total Rights”) in clause 15 of the Consulting Agreement.
…
(3) The loss and damage to JMG varies depending on whether and to what extent the Court will enforce the Consulting Agreement. The plaintiffs claim damages and equitable compensation, the amount of which will vary depending on the extent to which specific performance of the Consulting Agreement is decreed and injunctive relief granted and damages and compensation limited to compensation for loss from past breaches of contract and duty or whether damages and compensation extend to cover the loss of the benefit of the whole or part of the Performance Bonus and other benefits under the Consulting Agreement,
(7) JMG contends that either
(ii) JMG's Performance Bonus rights under the Consulting Agreement would continue indefinitely and probably increase for the foreseeable future (see Clause 2 of the Consulting Agreement)’
(i) NAB would probably be compelled to exercise its Purchase Rights in respect of the Total Rights in clause 15 of the Consulting Agreement at 2003 at market value or if NAB were to exercise its Purchase Rights in respect of the Total Rights at less than market value, JMG would be entitled to exercise its Purchase Rights in clause 15 of the Consulting Agreement in respect of the Total Rights at less than market value and on-sell at market value; or316 To my mind, this simply highlights the many uncertainties which exist. This is not of course to suggest that the plaintiffs do not hold an extremely valuable right in their entitlement to have the chance to receive a large sum of money should the Bank purchase JMG’s rights. Nor is it to suggest that the plaintiffs have not shown a serious case to be tried, capable, if proven, of leading to a very substantial damages verdict. That case, of course, goes well beyond a consideration of the buyout provisions, embraces its alleged loss by way of diminution in value of its Performance Bonus Rights and generally rests upon NMG’s alleged lost custom, revenue and profitability to date and continuing.
(a) Mr Maconochie’s 4th statement [pages 12 and 14] “description of the process of purchase of either JMG’s rights by the Bank or the purchase of NMG and Operating Entities by JMG “ - Appendix “G”;
(b) Mr Maconochie’s “Assumptions for Valuation Purposes” - taken from pages 15-16, 4th statement - Appendix ‘H’.In attempt to substantiate JMG’s case that the Bank would almost certainly exercise its buyout option, the plaintiffs’ counsel submitted as follows:
These documents make plain that the damages case, insofar as it assumes that the clause 15 rights must lead to a buyout of JMG’s rights by the Bank, or by JMG of NMG and Operating Entities, may well be misconceived.
‘ Reasons why NAB would exercise their buyout option
1. If the AUSMAQ were as successful as the Plaintiffs contend, with continuing growth, there would be strong commercial reasons to exercise the buy-out provisions at the earliest opportunity.
2. To eliminate escalating exposure to JMG’s buyout due to escalating revenue (JMS4 para 7.9).
3. To eliminate escalating exposure to JMG’s buyout due to escalating market valuations (JMS5 para 11).
4. To eliminate JMG’s ability to put a large part of the Bank’s e-commerce in market play at the time of the buyout, and possibly precipitating a market play on the Bank itself (eg US$63 bn, JMG’s share US$21 bn, Bank market cap in 1999 US$27 bn).
5. To terminate the Guarantee liability (JMS4 para 7.6(i).
6. To get rid of involvement with JMG at the earliest possible time (6 November 2003).
7. To gain the unfettered ability to assign, encumber and otherwise deal in the respective rights, obligations undet the CA without the need to seek JMG’s consent (JMS4 para 7.6(ii)), eg for a hiving off and listing, or other disposition.
8. To conduct the AUSMAQ Service within and outside the NAB Group and organise the NAB Group unfettered by any obligations and duties to JMG (JMS4 para 7.6(iii)).
9. To deal in the IP unfettered by the CA (JMS4 para 7.6(iv))’.
317 In Mr Maconochie’s affidavit made on 2 June 1999 he deals with the alleged loss of opportunities, damage to and alienation of NMG’s custom and goodwill in respect of the AUSMAQ service in the United Kingdom and Europe, and deals with the damage which, in his view, has been sustained to NMG’s and the AUSMAQ services’ competitive position by a number of matters, including the replacement of AIDC by the Bank as Depositee. He also deals in paragraph 65 and following with the establishment and development of the Maple Leaf service, and the Independence one service, alleged to have occurred outside NMG, the NMG group and the AUSMAQ service. He also deals with the suggested failure of the defendants to attend to the global exploitation of the AUSMAQ service. In paragraph 4 of this affidavit Mr Maconochie deposes as follows:
Fears as to the Destruction of NMG’s Business and Undertaking
318 In Mr Maconochie’s affidavit of 25 June 1999 he deposes that he is concerned and fears as follows:
‘I am concerned and fear that:
(a) NAB is irretrievably damaging and destroying the business and undertaking of NMG and the NMG group in respect of the AUSMAQ service, and consequently the rights and entitlements of JMG under the Consulting Agreement, and
(b) NAB is using its power, control and influence as, inter alia, the sole shareholder in NMG over the directors of NMG and the executives and staff of NMG to do this; and
(c) I am concerned and fear that unless the interlocutory relief sought in the notice of motion in support of which this affidavit is sworn is granted, the business and undertaking of NMG will be so irretrievably damaged that its prospects of achieving and maintaining a commercially viable business of any substance will be completely destroyed and the full extent and value of JMG’s rights and entitlements under the Consulting Agreement may never be able to be realised’. [paragraph 3]
319 In paragraph 8.7 of Mr Maconochie’s affidavit of 25 June 1999 he deposes that following a conversation with Ms Cox, the head of Corporate Services of NMG/AUSMAQ, he was informed and verily believes to be true that the management of NMG has been required (he understands by the Bank) to comply with the methodology of Freehill Hollingdale and Page in facilitating the removal, for extended periods, of substantial and important files that he believes are integral to the safe and efficient operation of the AUSMAQ service and of NMG and AUSMAQ systems. He deposes that these files are no longer under the effective control and custody of the management of those companies but instead, are under the control and custody of solicitors of the firm of Freehill Hollingdale and Page who are neither responsible nor accountable, at present, for the disruption and damage that may be caused to the AUSMAQ business by their conduct. He deposes that in his experience, the maintenance of a secure, efficient and well controlled central filing system is necessary to enable any enterprise to properly function, particularly one which has control over and is responsible for substantial amounts, perhaps billions, of other people’s money. He deposes that for this reason he established such a system and enforced it from the inception of the AUSMAQ business and the AUSMAQ service. 320 Mr Maconochie further deposes to his concerns that substantive and important files that are material to the business undertaking are not under the control of the management of NMG and its Australian operating entity, AUSMAQ Systems, and that the central files of the business undertaking have been dismantled and the files that are on location at AUSMAQ’s premises are under the custody and control of an indeterminate number of employees and possibly past employees, and not the management and directors of NMG and AUSMAQ systems. 321 Mr Maconochie in the same affidavit, expresses concerns in relation to the ability and competence of NMG’s and AUSMAQ Systems’ management and his concerns at JMG’s having been excluded from full and proper information about the AUSMAQ business, including the depositee issue since 4 August 1997. 322 In the same affidavit in paragraph 10, Mr Maconochie deposes that in his opinion it is apparent from an affidavit made by D H Hazzard, which Mr Maconochie was furnished with on 23 June 1999, that the AUSMAQ IP is not under effective control and custody:
(a) that NAB is irretrievably damaging and destroying the business and undertaking of NMG and the NMG group in respect of the AUSMAQ service and consequently the rights and entitlements of JMG under the Consulting Agreement;
(b) that NAB is using its power, control and influence as, inter alia, the sole shareholder in NMG over the directors of NMG and the executives and staff of NMG to do this;
(c) that he is concerned and fears that unless the interlocutory relief sought in the notice of motion in respect of which the affidavit is sworn is granted, the business and undertaking of NMG will be so irretrievably damaged that its prospects of achieving and maintaining a commercially viable business of any substance will be completely destroyed, and the full extent and value of JMG’s rights and entitlements under the Consulting Agreement may never be able to be realised.
323 In paragraph 10.5 of this affidavit Mr Maconochie deposes that in his opinion, immediate action is required to bring the NMG group under effective and competent management control if the value of NMG is to be maintained and grown, the AUSMAQ IP commercialised in accordance with the consulting agreement and JMG’s rights reserved. 324 Sections of Mr Maconochie’s sixth statement of 14 July 1999, namely paragraphs 7.2 and 7.3-7.8, are sought to be read on the motion. Those paragraphs deal with representations alleged to have been made by the Bank and Mr Maconochie’s advice to the Bank prior to the entry into of the subject contracts as to the global scope that he would require for the exploitation of the AUSMAQ service. 325 In paragraph 7.3.3 of the sixth statement, Mr Maconochie expresses his view that the global exploitation and development of the AUSMAQ IP was an essential requirement for him and JMG and that he and JMG would not have proceeded with the transaction with the Bank irrespective of any other factor, if the representatives of the Bank had not made the statements of which he had given evidence in his first statement, namely the pre-contractual representations. Generally, the sections of the sixth statement read on this interlocutory application deal with the subject of reliance and causation in terms of the plaintiffs’ final claims for relief.
‘being scattered amongst an indeterminate number of present and possibly past employees, the firm of FHP whose clients have repeatedly failed to give undertakings as to confidentiality and 15 present and former NAB officers and employees who could possibly possess material relating to the depositee issue …’.
Balance of Convenience and Ultimate Decision on the Motion
326 JMG has proved that it has a serious and not a speculative case, which has a real possibility of ultimate success and that it has contractual interests, which may well be presently being substantially eroded by the conduct of NMG and the Bank. It has shown a serious and far from speculative case in support of the proposition that NMG has breached and continues to breach its contractual obligations provided for in the Consultancy Agreement. JMG has established serious grounds for concern as to the Bank’s conduct, and as to whether JMG’s clear interests in the proper commercialisation of the AUSMAQ service, and in the activities of NMG and Systems, are presently being vitally affected by the failure to hold management committee meetings, by JMG’s effective exclusion from its right to be represented at management committee meetings and from the effective failure to permit the holding of the clause 4.1(a) meetings between JMG and a management committee. JMG has shown a serious and not a speculative case to the effect that it has been effectively excluded from participating, as was intended by the Consultancy Agreement, in the preparation of proposed Business Plans. JMG has shown that it has a serious case in relation to whether or not the Bank is presently, by the subject Services, utilising or about to utilise the “System IP rights” as defined by the Consulting Agreement, without having brought itself or those entities, such as NAFM, which apparently are to run the new services, under the rubric of the Consultancy Agreement by accession. [See Schedule 3 and clause 20.2] 327 There are notwithstanding that JMG has shown a serious case on the interlocutory motion to the above effect, very clear difficulties in the Court presently granting the interlocutory relief sought. At the end of the day, however, the simple fact is that JMG has no proprietary interest in the undertakings of NMG or AUSMAQ Systems. It has contractual entitlements of value and undoubtedly, if its causes of action are made out at the final hearing, a very substantial claim to unliquidated damages against the Bank. 328 To my mind it is appropriate, together with the other discretionary considerations referred to below, to bear in mind the central structure of JMG’s transaction with the Bank at inception. That transaction retained for JMG only contractual rights. JMG has no proprietary interest in the AUSMAQ Service or in the System I.P. Rights. 329 In essence, the claims to interlocutory relief resolve into four compartments. The first is the claim for appointment of receivers. The second is the claim for sundry injunctions seeking to bring within NMG, the Bank’s proposed services already referred to. The third is comprised of injunctions seeking to force the Bank to permit NMG to presently operate by Management Committee Meetings, and to permit the holding of the clause 4.1(a) meeting or meetings between the management committee and JMG. The fourth is comprised of those orders seeking various types of accounting on an interim basis. 330 The receivership applications have already been dealt with. The receivership orders are not orders which in this case and on these facts are appropriate to be made on an interlocutory basis. The very fabric of the underlying businesses and the environment in which they operate must mean that the receivership applications fail. Further, the possibility of repeated applications for rulings on the mode by which the receiver sought to act as an umpire in relation to conflicting claims which may be anticipated from both parties as to:
331 Insofar as injunctions are sought by way of orders calculated to bring the subject operations of the Bank relating to The Gateway, Margin Lending, FX Auto Dealing and Maple Leaf Services within the umbrella of NMG, there are very real difficulties which stand in the plaintiff’s path. JMG simply has no proprietary interest in, nor any right to control the assets of NMG or of AUSMAQ Systems. Mandatory interlocutory injunctions carry a higher risk of injustice than prohibitory injunctions as they go further than the preservation of the status quo by requiring a party [in this case the defendants] to take some new positive step or to undo what has been done in the past. Hence, requiring a party to take positive steps usually causes more waste of time and money if it turns out to have been wrongly granted than an order which merely causes delay by restraining the party from doing something which he was otherwise entitled to do. It is also particularly difficult to formulate with sufficient precision the terms of the mandatory interlocutory injunctions; see the judgment of Hoffman J as he then was in Films Rover International Ltd v Cannon Film Sales Ltd [1986] 3 All ER 772 at 781; see CS Phillips Pty Limited & Anor v Baulderstone Hornibrook Pty Limited (Unreported, Supreme Court of New South Wales, 26 October 1994, Giles J). 332 Relevant to all of the claims to interlocutory relief, and particularly to the claims in respect of the receivership orders and the orders seeking to bring NMG’s and AUSMAQ System’s operations under the rubric of NMG, is the inadequacy of the applicant’s undertaking as to damages. Also relevant is the delay in pursuing the proceedings. 333 As to the undertaking as to damages, the tax return for Idoport for the year ending 30 June 1998 (DX1 at 395 - 398) relevantly provides that the company received income of $895,361 during the course of that year. Expenses for the year totalled $888,006, with $473,619 attributed to “contractor, subcontractor and commission expenses”. The 1998 balance sheet, (DX1 at 399 - 400) part of the last published accounts (T 16.40) records total assets of $229,808 and total liabilities of $219,511. The tax return for Market Holdings Pty Limited (DX1 at 403 - 406) is also for the year ending 30 June 1998. It relevantly provides that the company received no income during the course of the year and incurred expenses of $1,910. The 1998 balance sheet, of that company, also the last published, records total assets of $12,850 and total liabilities of $135,779, giving negative shareholder funds of $120,979.79 (T 16.30 - .35). 334 Where the court is balancing monetary disadvantages as between a plaintiff and defendant, the inability to give a valuable undertaking as to damages is a factor which can be taken into account in assessing the balance of convenience, and may be decisive: Wentworth v Wentworth (Unreported, Supreme Court of New South Wales, 12 June 1997, Hodgson J.) 335 As to the bank guarantee earlier referred to in the judgment, the proposition that the guarantee leaves the plaintiffs at risk as the Bank’s shareholders’ funds are substantially less than the plaintiffs’ claim fails to recognise that it is one thing to claim damages of up to $US 21 billion and altogether another matter to substantiate such a claim at a final hearing. Clearly enough an unlimited guarantee given by the Bank is a matter of substantial value of the highest order. 336 The matter of delay has already been referred to. This is a case in which, in late June 1998, Mr Garnsey QC forwarded to the general counsel of the Bank the draft statement of claim foreshadowing a claim to the appointment of receivers, or receivers and managers, to the assets, business and undertaking of NMG, Systems, and other companies of the NMG Group including the AUSMAQ Service and the AUSMAQ IP, and to such parts of the assets, business and undertakings of the Bank and NAFM in which the AUSMAQ IP and the AUSMAQ Service had been employed. Later on 19 August 1998, JMG, by Mr Maconochie, forwarded to NMG, attention Mr Meikle, a detailed letter enclosing an expanded form of draft statement of claim. On this occasion the draft form of statement of claim [exhibit DX 1 page 241] foreshadowed interlocutory orders and injunctions in very similar form to those presently sought almost precisely one year later. By letter dated 24 September 1998 from Freehill Hollingdale & Page, solicitors for the defendants, to Withnell Hetherington, solicitors for the plaintiffs, it was confirmed that Mr Hetherington had confirmed to Mr Healey that the plaintiffs “would not be seeking interlocutory orders against our clients”. 337 Later on 24 September 1998 Withnell Hetherington wrote to Freehill Hollingdale & Page advising:
(a) the proper construction of the Consultancy Agreement;
(b) how the AUSMAQ service should be operated;
(c) how business opportunities for that service in Australia and overseas should be furthered,
is a strong factor suggesting that this form of relief is inappropriate. [Cf Patrick Stevedores (supra) - and in particular the emphasised section of the extract from the joint judgment].
338 By letter dated 30 September 1998 Freehill Hollingdale & Page wrote to Withnelll Hetherington advising:
[Exhibit DX page 248]
‘you enquired as to our clients’ intentions in relation to the interlocutory orders sought in the summons. We will be writing to you well before the return date of the proceedings seeking undertakings from your clients to be given to the Court. Our clients’ intentions concerning the interlocutory orders will depend on your response.
339 The correspondence continued to pass between the two firms of solicitors. Freehill Hollingdale and Page wrote on 8 October 1998 complaining that despite numerous undertakings to the contrary, the plaintiffs had still not made their position clear as to interlocutory relief. 340 By letter of 8 October 1998 Withnell Hetherington wrote to Freehill Hollingdale & Page enclosing draft undertakings and advising that in the absence of the undertakings being given “the plaintiffs will seek appropriate directions on the return date for the hearing of an application for interlocutory relief in the form of the draft short minutes”. 341 The proposed undertakings were congruent generally with the orders sought in the notice of motion before me in mid 1999. 342 The plaintiffs declined to give those undertakings - see letter from Freehill Hollingdale & Page of 15 October 1998 [DX 278]. 343 Thereafter the plaintiffs, at the directions hearing of 16 October 1998, did not seek interlocutory orders and the position which ultimately obtained was that the plaintiffs did not pursue the notice of motion for interlocutory relief until well into 1999. In early June the amended notice of motion upon which the plaintiffs moved was filed. 344 These are extraordinary delays in proceeding with the applications now made. I do not accept the plaintiffs’ explanation that it was not appropriate to seek interlocutory relief until the Bank had further formalised its particular plans with respect to the known services. And whilst I do certainly accept that substantial difficulties would always have been perceived in the plaintiffs’ camp, in terms of progressing an interlocutory application of the type here pursued by way of having to produce the necessary evidence, the plaintiffs always took the risk that the Court, in the exercise of its discretion, would take into account as an important matter, the plaintiffs’ delay. That risk is now realised. A significant ground for the Court’s refusal to grant the bulk of the relief here sought is by reason of the plaintiffs’ delay. 345 I turn next to the claimed injunctive relief which would require NMG to proceed to hold management committee meetings, thereby permitting JMG in being entitled to meet with the management committee [clause 4.1(a)], that which is asserted to be its proper role in relation to preparation of draft Business Plans. I have given close consideration to the question of whether these are orders which ought now to be made at an interlocutory level. The plaintiffs submit that no particular prejudice is discernible from the defendants’ perspective, in permitting, as it contracted to permit, JMG by two nominated representatives to attend at Management Committee Meetings. The plaintiffs argue that the suggestion that there are now irreconcilable difficulties which must render such Management Committee Meetings abortive should be rejected. 346 One of the considerations which it may be thought should be treated as relevant in aid of the plaintiffs’ argument that past personality difficulties ought not render management committee meetings abortive, is the very fact that if the plaintiffs’ submissions were accepted, the terms of the judgment would presumably lead to the Bank and NMG taking special care to cause management committee meetings to be held and to afford to JMG its contractual right to be heard at those meetings, and, particularly through the clause 4.1(a) procedure, to afford to JMG its contractual right to be involved in the preparation of Business Plans in accordance with the Consultancy Agreement. 347 Another factor which suggests that the balance of convenience may be in favour of an order for the holding of management committee meetings is that there has been a very serious case established that those meetings were always intended as a vehicle through which JMG would receive such information as it was entitled to receive in relation to the ongoing concern and business activities of NMG and the AUSMAQ service. 348 Ultimately, however, I have reached the view that the balance of convenience is against this form of injunctive relief being granted at this stage in these proceedings. To my mind as the litigation progresses through the next several months into a final hearing, the very high likelihood is that a management committee regime to be put in place by interlocutory injunctive orders would simply become a forum in which the respective parties would be, with an eye to the final hearing, making statements and dealing with one another in the most artificial of environments. Such meetings imposed by court order are capable clearly of becoming a major focus for the evidence ultimately adduced during the final hearing. It is one thing for the parties to comply with their contractual obligation outside of an interlocutory injunctive regime, and altogether another matter for the holding of management committee meetings to be compelled by court order. 349 This then highlights as it seems to me the significance of the litigation as a factor to be taken into account in the balance of convenience exercise. Take for example the curious fact that the Consultancy Agreement expressly denies to the JMG representatives entitled to attend at management committee meetings, any right to receive minutes of those meetings. Whatever may have been the original thinking which led to the inclusion of this provision, the fact is that by dint of the continuing discovery obligations of both parties in the proceedings, JMG, certainly by its legal representatives and probably by itself, becomes entitled to discovery of all minutes of management committee meetings. Hence a court-imposed injunctive regime requiring the holding of management committee meetings, if this is to be enforced as a continuing contractual obligation, would presumably have to specify that the JMG representatives were not to be entitled to receive minutes of those meetings. Yet at the very same time, the discovery process would permit JMG to receive those minutes as part of the litigious process. These are real concerns and simply highlight the difficulties faced by the court in imposing the management committee injunctive regime now sought by the plaintiffs. 350 It goes without saying that the court’s refusal to grant that form of injunctive relief says nothing whatever to the continued obligations in contract of the parties to hold management committee meetings. But that is a matter which will continue simply as contractual obligations without the aid of a court order, and all that such an order would entail. 351 It is further quite clearly the case that JMG’s complaints with respect to the management committee matter have been in existence and being aired for at least two years now. 352 In the result to my mind the appropriate exercise of the court’s discretion is to reject the claims to this class of injunctive relief. 353 In relation to the sections of the notice of motion as seek an order that the Bank and NMG keep separate accounts and records, to my mind the balance of convenience is heavily in favour of the making of such an order provided that an order can be framed with sufficient specificity to permit of its enforcement. Possibly an order generally in the form of that sought in paragraph 9 of the notice of motion as originally filed on 4 June 1999, but confined to the services which are still pursued, namely Gateway, Margin Lending, FX Auto Dealing and Maple Leaf would have the necessary precision. Understandably relatively little attention was addressed to this issue during the hearing of the motion. In consequence, I would be disposed to entertain further submissions on the matter. Plainly, a clear question will arise as to the suggested inclusion for example of the last two and a half lines of paragraph 9, namely the words following the words, “… or any other Service within …”.
‘Your clients have foreshadowed [in the summons] that they will seek various interlocutory orders against our clients on 16 October 1998. In particular, your clients apparently intend to seek the appointment of a receiver to:
* the businesses of NMG and AUSMAQ Systems
* certain parts of NAB and NAFM
It is a most serious matter to seek orders of the kind your client seeks . It is for this reason that we wrote to you on 24 September 1998 seeking your client’s immediate clarification of their position. Your letter of the same day provided no such clarification. Instead of responding to our request for information, you said that at some stage “well before the return date” you will be seeking unspecified undertakings from our clients and that your clients’ attitude to seeking interlocutory relief will depend upon our clients’ response’.
[DX 249] [emphasis added]
354 As already indicated, some attention was given during the hearing of the motion to the question of the date for fixing a final hearing to commence. The defendants’ submission was that the case could not be fixed for hearing save on a tentative basis, prior to the middle of next year. The plaintiffs’ position was that a hearing date should be fixed from the commencement of term next year. I indicated that the parties should be ready at short notice to produce any evidence upon which they may seek to rely on the question of the fixing of a final hearing date. 355 Having now had the benefit of a short period of time in which to examine all of the materials relied upon during the motion and bearing in mind the Court’s conclusion that the plaintiffs have established a serious case for trial in relation to many of their allegations and bearing in mind the pressing significance and urgency attaching to the case and to JMG’s claims of an ongoing and radical undermining of its contractual rights, I have come to the conclusion that the case is in all likelihood, one appropriate to be fixed for final hearing on the first Monday in May 2000. The parties will have an opportunity to adduce evidence and direct submissions on the hearing date and the matter will be before the Court on Friday 27 August 1999, on which date a final hearing date will be fixed.
Fixing the Proceedings for Final Hearing
356 The proceedings will be stood over for a few days to enable the parties to address submissions on the issue of the keeping of separate accounts and records on costs and for the bringing in of short minutes of order.
Short Minutes of Order and Further Submissions
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Last Modified: 06/13/2002
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