Ken Guy Real Estate Pty Ltd v Midgley

[2015] QDC 1

DISTRICT COURT OF QUEENSLAND

CITATION:

Ken Guy Real Estate Pty Ltd v Midgley [2015] QDC 1

PARTIES:

KEN GUY REAL ESTATE PTY LTD (ACN 010344331)
(plaintiff)

v

ROBERT GEORGE MIDGLEY
(defendant)

FILE NO/S:

D51/13

DIVISION:

Civil  

PROCEEDING:

Claim and Counter/Claim

ORIGINATING COURT:

District Court at Maroochydore

DELIVERED ON:

30.1.15

DELIVERED AT:

Maroochydore

HEARING DATE:

17, 18, 19 and 20 November 2014

JUDGE:

Robertson DCJ

ORDER:

1.   The defendant’s counter-claim is dismissed.

2.   The defendant is to pay the plaintiff the sum of $632,987.28 inclusive of interest of $254,359.84 to the date of judgment.

3.   The defendant is to pay the plaintiff’s costs of the proceeding, including defending the defendant’s counter-claim, assessed on an indemnity basis.

CATCHWORDS:

EQUITY, BREACH OF FIDUCIARY DUTY: where plaintiff company sues for breach of contract and/or compensation for breach of fiduciary duty and/or an account of all monies received by the defendant in fraud of the plaintiff; where the plaintiff’s case is that at all material times the relationship between the parties was that of employer/employee; where the defendant alleges that he was in partnership with the plaintiff, and that the principal of the plaintiff agreed to him opening an office using the plaintiffs name from which he received substantial income; where defendant sues for underpayment of commission during the course of the partnership.

EQUITABLE REMEDIES: whether plaintiff is entitled to receive an account of all monies received by the defendant from operation of a business operated without the knowledge or consent of the plaintiff and in breach of the defendant’s fiduciary duty as employee to the plaintiff his employer. 

Legislation

Civil Proceedings Act 2011 (Qld)

Cases

Canson Enterprises Ltd ats Boughton & Corphery (1991) 3 SCR 534

Consul Development Pty Ltd v D.P.C. Estates Pty Ltd (1975) 132 CLR 373

Grimaldi v Chamelon Mining NL (No. 2) [2015] FCAFC 6

Warman International Limited and Another v Dwyer and Others [1994-1995] 182 CLR 544

COUNSEL:

Richard Perry QC for the plaintiff

Simon Gerber for the defendant

SOLICITORS:

Carter Newell Lawyers for the plaintiff

Schultz Toomey O’Brien lawyers for the defendant

1. From 1999 to 2007, the plaintiff corporation operated various real estate agencies on the Sunshine Coast.  The principal of the company, Mr. Ken Guy, was at all times its guiding mind.  The company held a corporate real estate licence throughout this period.  For convenience, I will refer to the plaintiff as “the company”.  The defendant, Mr. Midgley, managed the Noosa office for the company for a few years in the early 1990s but left to work for another real estate developer.

1. It is common ground that Mr. Midgley returned to work at the company’s Noosa office commencing in early 2000 and continued there until October 2007.  Mr. Guy says that Mr. Midgley was initially employed as a manager pursuant to an employment contract and then essentially pursuant to the terms of a letter dated 29 November 2000 which Mr. Guy says he drafted and sent to all managers after discussing the terms with each of them including Mr. Midgley.  Mr. Midgley says that at no time was he an employee of the company but rather in partnership with it in relation to its business at Noosa.  

1. It is common ground that in April 2007 Mr. Midgley caused to be registered the business name of “Ken Guy Real Estate Bli Bli”, and commenced to operate a real estate agency from a site in Bli Bli, in the name of a company that he controlled and that he registered.  It is common ground that Mr. Midgley’s company thereafter received all but a few commissions from sales through the Bli Bli office.   Mr. Guy says that he did not know about this arrangement until August 2007.  Mr. Midgley says that Mr. Guy approved the Bli Bli arrangement in a discussion in January 2007 between the two men.

1. The company commenced proceedings by way of claim on 15 April 2013.  The trial proceeded on the basis of the company’s amended statement of claim filed 5 July 2013.  Essentially, the company seeks damages (and interest) for breach of the 29 November 2000 agreement; and in the alternative, equitable compensation for breach of fiduciary duty and/or an account for all monies received by Mr. Midgley as a consequence of his fraud on the company relating to the Bli Bli arrangement. 

1. Mr. Midgley has filed a number of pleadings.  At the commencement of the trial, his case was based on a further amended defence and amended counterclaim filed 3 September 2013.  During the trial, leave was sought and granted to Mr. Midgley by me (over objection by Mr. Perry QC) to file a second further amended defence and counterclaim, essentially as a response to Mr. Midgley’s evidence-in-chief.  I will refer to this in more detail later in these reasons. 

1. Mr. Midgley’s case as pleaded is that the arrangement with the company in relation to the Noosa office was a partnership and not one of employer and employee; and that the Bli Bli arrangement proceeded with the agreement of Mr. Guy.  Mr. Midgley counterclaims for damages for breach of the alleged partnership agreement essentially for unpaid commissions between 2000 and 2007 from the operation of the Noosa office, and for his share of the increase in value of the Noosa business from 2000 to 2007. 

1. The disputed issues will largely be resolved by findings of fact which in turn will depend on my findings in relation to the credibility and reliability of the main protagonists, namely Mr. Guy and Mr. Midgley.

Issue 1 – what was the nature of the agreement between the company and Mr Midgley in relation to the Noosa office?

1. Mr. Guy gave evidence on behalf of the company.  By way of background, he told me that the company was incorporated in the late 1970s and since then had operated various real estate agencies around the Sunshine Coast and elsewhere using the logo “Ken Guy Real Estate” accompanied by particular colours and designs.  It held, and continued to hold, in the years 1999 to 2007 a corporate real estate licence.  By the end of 1999, there were offices at Maroochydore, Buderim, Caloundra, Mooloolaba, Noosa, Brisbane and Hervey Bay.  The company always held the corporate real estate licence, and each office had a manager who held a manager’s licence.  At no time has the company ever operated an office in partnership with a manager or any other entity.  Mr. Guy also said that the company had offices at various project sites which it managed or marketed such as subdivisions or high rise buildings.

1. He told me that he had known Mr. Midgley since school days and confirmed that he had worked for the company in the early 1990s for a few years.

1. With the consent of Mr. Gerber, during his opening Mr Perry QC tendered a number of documents, which are contained in two arch lever files marked “Trial Bundle”. 

1. Mr. Guy told me that in early 2000, after being contacted by Mr. Midgley the company employed him as manager of the Noosa office.  He said that at no time was there a partnership.  On this critical issue there are a large number of documents created at the time that do tend to strongly corroborate Mr. Guy’s evidence that the relationship between the company and Mr. Midgley was one of employer/employee and not a partnership.

1. Exhibit 19 is a letter from the Mooloolaba office of the company dated 14 January 2000, which Mr. Guy said acted at all relevant times as the central office for administration purposes.  It is addressed to the Office of Fair Trading and is (relevantly) in these terms:

“Re Robert George Midgley

Agents licence 1801930

Please be advised that Mr. Midgley has commenced full time employment as manager of the Noosa office effective 10.1.00.”

1. Exhibit 9 contains a series of documents (a number of copies of some) signed by Mr. Midgley in early 2000 which clearly suggest that he was employed at that time.  The first is an application for an “Individual Employee Flexibility Agreement” signed by Mr. Midgley as employee, and Mr. Guy on behalf of the company as employer, sometime prior to 17.3.00.  Attached is an “Employment Agreement for Salespeople” between the company as “the employer” and Mr. Midgley as “the salesperson”.  It is signed by both Mr. Midgley and Mr Guy, I infer, around 10.3.00, which was the date of the memo on letterhead of Ken Guy Real Estate at Noosa Heads, sent to the PSAQ (the same recipient of the other documents in Exhibit 9), signed by Mr. Midgley which in part states under the heading “Re: recent commission income” “2000 – current manager Ken Guy Real Estate Noosa”. 

1. Mr. Guy was referred to other documents tendered during Mr. Perry QC’s opening which, similarly to Exhibit 9, suggest an acknowledgment at various times from 2000 to 2007 by Mr. Midgley that he was an employee:  Exhibits 10-14 (respectively behind tab 48, 51, 52, 53 and 54 of the trial bundle).  Exhibit 10, for example, is an Australian Workplace Agreement signed by Mr. Midgley as “the employee” on 14.5.04, and M.r Guy on behalf of the company as “the employer” on 5.8.04. 

1. Mr. Gerber, obviously appreciating the potential difficulties of this contemporaneous documentary evidence, took Mr Midgley to it in very general terms in evidence-in-chief.  At T2-58 lines 27-43 is the following exchange:

“And there’s obviously – you’ve seen them in the trial bundle – employment agreements and contracts-----?-- Yes.

-----with you-----?-- Yes.

-----that you subsequently signed and registered with all sorts of organisations?-- Yes.

Why was that done?-- Well, it was Ken’s decision.  I – everyone who worked in any office – it was a time of – I believe it was Work Choices.  It was quite a – a change in the workplace arrangement.  It was – you couldn’t just turn up and become a commission only salesman anymore.  You had to prove your abilities to earn a commission and there were all these workplace agreements came (sic) into being.  There’s quite a succession of them.  There were – there were quite a few different ones.  I – I recall signing several of them but they were all – everyone signed them.  They didn’t really mean much because, you know, they didn’t give you any rights at all.  They just enable you to work for a commission.”

1. Apart from not explaining at all in any meaningful way why he would sign the documents prior to the introduction of Australian Workplace Agreements, this response is extremely unconvincing.

1. Mr. Guy gave evidence about the letter dated 29 November 2000, the terms of which are referred to in paragraph 3 and pleaded in paragraph 4 of the Amended Statement of Claim.  The letter (which is Exhibit 2) is in these terms:

“NOOSA OFFICE

29 November 2000

Ken Guy Real Estate
PO Box 190
Noosa QLD 4567

In reference to our recent discussions regarding your new management agreement, I have set out below the essence of that agreement.

What I have endeavoured to do is provide you with an opportunity to prosper with the growth of the business without the financial burden imposed on most business partners.  I believe this to be a generous offer as the business is well established and trading profitably, but I am sure, in return, you will provide the necessary skills and leadership to expand the business for our mutual benefit. 

I of course remain in my present role in administration and will be available at any time for advice or assistance.  In fact, the existing relationship we presently enjoy will not change.

Your main role will be in securing new business, property sales and motivating and monitoring sales staff.  While you will be the manager of Ken Guy Real Estate Noosa and be responsible for the office as a whole, your involvement in the necessary bookwork and property management will kept (sic) to a minimum but should be monitored regularly.

I will continue to provide the financial backing for the business and attend to the day to day running of the business (eg, accounts, advertising, disputes, etc).  I will also continue to improve our presentations, website and the technology to ensure we provide the best opportunities for our sales staff. 

Your remuneration for holding this position of manager will be as follows:

1.  COMMISSION

Will be paid to you on all your own sales as per the commission scale which applies to all sales staff.

2.  SUPERANNUATION

Will be at the legislation rate of 8% of your gross monthly commission.

3.  BONUS

Will be paid to you by way of 50% of the net profit of Ken Guy Real Estate Noosa.  For this purpose the net profit will be the profit which remains after all running expenses have been deducted.  Such expenses shall include a franchise fee of 5% of the gross income (sales commission, property management commission, but excluding advertising), rent at a commercial rate and commissions payable to directors, managers and sales staff, wages for clerical/support staff but will exclude salaries for directors.

A quarterly distribution of profit is envisaged with no provision for any large expenditure in the next quarter.  However, no more than 80% of the next profit will be distributed.

If a trading loss is experienced for a financial year this will carry forward to the next financial year. 

4.  THE INCREASE IN THE VALUE OF THE BUSINESS

Will also be shared with you on a 50/50 basis.  The value of the business at 30^th of June 2000 will be as follows:
             (a)       PROPERTY MANAGEMENT VALUE

The same rate in the dollar will apply as at the time we sell the business and for this purpose it will be assessed on the year 1999-2000 and this value will not form part of the sale in which you share.

(b)       PLANT FIXTURES AND FITTINGS

The inventory which exists as at 30/6/2000 will not form part of the sale in which you share (providing that they are not under a lease arrangement then a pro rata equation will apply).  The value of such inventory will be assessed as at 30/6/2000.

(c)       GOODWILL

No goodwill component will be included in the value of the business as at 30/6/2000.  But the goodwill value will be shared with you on a 50/50 basis in the event of a future sale achieving a goodwill factor.

(5)         TERMINATION

Should you wish to terminate this agreement at some future date, the options would be as follows:

(a)We could sell the business as a Ken Guy franchise and split the proceeds as per our agreement.

(b)If one of us wishes to terminate but the other did not, then a first option to purchase that share must go to the remaining partner.  This option to remain open for a period of one month and if not exercised then their share could be offered on the open market.  However, any sale must be conditional upon the approval of the remaining party.  (Note – the approval must not be unreasonably withheld)

Should you wish to terminate and sell your share then you must also agree to a restrict of trading clause.  The benefits of this agreement only applies while you remain the manager of Ken Guy Real Estate Noosa.  However should you resign or your position as manager is terminated, then any accrued value in the business would remain.

(6)         PARTICIPATION IN ANOTHER BUSINESS

Your active participation in another business must have my approval (another business for this purpose would include any activity to set up to make money and would include business in the conventional sense and also include network marketing, pyramid selling, franchising, property development or investment syndication). 

Should you see an opportunity to make money then I would be keen to participate in a venture with you.  If you could demonstrate that your involvement in any of the above activities would be beneficial not detrimental to the business, then my approval would not be unreasonably denied. 

All commission, consultancy fees, marketing fees, management fees, rental and leasing commissions and auctioneer fees which you procure are all considered to be company income and must be made payable to Ken Guy Real Estate Mooloolaba Noosa (this in handwriting).

(7)         MONITORING BUSINESS GROWTH

In an endeavour to monitor our business activities and ensure a trading profit and business growth, it is important that we meet for approximately half an hour in the second week of each month.

Matters I would like to discuss at these meetings are:

(1)       the month’s trading figures

(2)       property managers’ weekly reports

(3)       weekly income summaries

(4)       advertising accounts (ad cost monthly summary)

(5)       sales staff performances

In offering you this management agreement I have tried to mirror a partnership as closely as I could without any financial commitment by you.  I hope it all works out well and that we both prosper from it.

Yours sincerely,

Ken Guy Real Estate
K. C. Guy
Director”

1. Mr. Midgley says he did not receive this letter and did not see it until it was produced during the litigation by way of disclosure.  In his evidence-in-chief, he made much of the address on Exhibit 2 which is clearly not the address of the Noosa office, and appears to be an amalgam of the Noosa and Buderim office postal addresses.  In his re-examination of Mr. Guy, Mr. Perry tendered through him a series of documents relevant to this issue which became Exhibits 45, 46, 47 and 48.  Initially Mr. Gerber objected on the basis that these documents had not been disclosed, but accepted, after taking instructions, Mr. Perry’s indication the documents were disclosed but never inspected.  Exhibit 45 is the original of Exhibit 2.  Exhibit 46 is another original copy except that it is noted to be from the Mooloolaba office, the date is in a different position, and the letter is addressed to “Mr. R Midgley, Ken Guy Real Estate Noosa, Noosa Drive, Noosa Heads, 4567”.  Exhibit 47 is a copy of Exhibit 46 but marked “Midgley copy” in unidentified red handwriting.  Exhibit 48 is an orange file from (I infer) the Mooloolaba office.  In cross-examination Mr. Gerber had asked Mr. Guy how Mr. Midgley may have received Exhibit 2.  Mr. Guy explained that at the time there was a delivery system in place between offices whereby staff from other offices would go to Mooloolaba and collect stationery and mail addressed to their office.  On the front of Exhibit 48, Mr. Guy identified the handwriting of Monica Knowles, an employee at the time at Mooloolaba, which states, “Rob – please sign three agreements initial two pages of contract”.  The file is named “Rob Midgley”.  It is empty.  It is not clear on the evidence what it originally contained.  A copy of the 29 November letter of offer signed by Mr. Midgley has never been located.

1. When asked about these documents in cross-examination by Mr. Perry, Mr. Midgley was a lot more circumspect in his responses than he was in answering questions in evidence-in-chief about Exhibit 2.  At T3-76 his answers were (when asked about Exhibit 46), “I have no recollection of receiving that.  No”; and “If I was pushed, I would say no.”

1. Mr. Guy’s recollection is that he may have discussed the concept of the arrangement set out in Exhibit 2 with Mr. Midgley early on i.e. in January 2000 but he was sure that the arrangement set out therein did not take effect until around about the date of that letter. 

1. Mr. Midgley’s case is that right from the start what he was offered was a partnership with the company which Mr. Guy consistently disputed in his evidence.  The terms of the alleged partnership are pleaded thus in paragraph 5 of the second further amended defence and counterclaim:

“5.In December 1999 shortly before Christmas, the defendant and the defendant by counterclaim (referred to in this pleading as Ken Guy), a director of the plaintiff, had a conversation during which:

(a)Ken Guy made an offer to the defendant in words similar to or to the effect that:

(i)Ken Guy wanted the defendant to become his partner at Ken Guy Real Estate Noosa;

(ii)the defendant would receive a 50/50 share of the profits of Ken Guy Real Estate Noosa business;

(iii)the defendant would be the manager and licensee of Ken Guy Real Estate Noosa;

(iv)the defendant would receive his own share of commissions on sales; and

(v)on the sale of the Ken Guy Real Estate Noosa business, the defendant would be entitled to 50% of the increase in value of the business from the commencement of the proposed partnership to the sale of the business or termination of the proposed partnership;

(b)the defendant responded with words to the effect that he would like to accept the offer; and

(c)Ken Guy and the defendant shook hands.”

1. Mr. Gerber submits that there is some support for his client’s case on this disputed issue in Exhibits 30 and 31.  It seems to be common ground that Exhibit 30 is an extract from the company website at around the time Mr. Midgley started back at the Noosa office in early 2000.  It states (in part):

“After 13 years in the real estate industry, Rob has entered into partnership with Ken Guy in the Noosa office of Ken Guy Real Estate.”

1. Exhibit 31 is an article from Noosa News on 12.3.2000.  Mr. Midgley obviously gave an interview to a journalist who wrote the article.  This refers on a number of occasions to a partnership between Mr. Guy and Mr. Midgley in the Noosa office.

1. Mr. Guy was cross-examined by Mr. Gerber about these publications.  He conceded that Exhibit 30 could have come from the website.  He did not have any direct role in that area.  He could not recall seeing the article at the time, but if he did it would not have concerned him.  His responses to this line of questioning at T1-87 and T1‑90 lines 13-23 were very convincing.  There is also a significant problem for Mr Midgley in this evidence.  In giving his evidence about the nature of the agreement he says he reached with Mr. Guy between late 1999 and early 2000, he told Mr. Gerber that he “was told that this was a – a sort of a deal for me.  I wasn’t to discuss it with any of the other managers.  There were four or five other managers operated (sic) in the Ken Guy empire.” 

1. This was not put to Mr. Guy in cross-examination.  Logically, if both Exhibits 30 and 31 were public documents and freely accessible by other managers (particular Exhibit 30), it would make no sense for Mr. Midgley to cooperate in relation to either publication, if indeed he was being truthful about this aspect of his initial conversations with Mr. Guy. 

1. Mr. Gerber also makes much of the last paragraph in Exhibit 2.  Of course, his client says he never received that letter (or has no recollection of receiving it), and its contents only in part reflect his agreement with Mr. Guy.  His argument is that the letter is in fact close to what his client says was agreed i.e. a partnership prior to him commencing work on 10 January 2000.

1. Apart from the evidence referred to above, there is other evidence that strongly supports Mr. Guy’s evidence and undermines Mr. Midgley’s evidence of what in fact was agreed.  Mr. Midgley’s tax returns are not partnership returns; rather they are in the form of individual returns of an employee on a “salary or wage”.  His PAMD forms for renewal of his real estate licence filed during the relevant period and signed by him contain declarations signed by Mr. Guy on behalf of the company that it is Mr. Midgley’s employer.  There are internal documents from within the company records, for example, correspondence from the ATO that clearly indicates that Mr. Midgley was an employee.

1. Exhibit 14 is an example of this type of document.  Mr. Midgley also signed other documents during this period as an employee e.g. Exhibits 12 and 13.  His explanation recorded above to the effect that basically everyone signed documents such as this is frankly unconvincing. 

1. Mr. Guy gave undisputed evidence that in 2004, Mr. Midgley approached him and wanted to have his (Mr. Midgley’s) company employed by the company.  Mr. Guy did not agree to this, but after discussions between the company accountant and Mr. Midgley’s accountant, Mr. Guy agreed (on behalf of the company) that 10 D class shares be issued to AYOH Pty Ltd (Mr. Midgley’s company), which would in some way give him some tax relief.  Specifically, the Constitution of the company was altered to create D class shares to enable holders to be entitled to receive dividends from the company at the direction of its directors, but to have no voting rights (see tabs 55, 56 and 57 in volume 2, all part of Exhibit 21).  If, as Mr. Midgley says, he was then in partnership with the company, this arrangement would make no commercial sense at all.

1. It is common ground that for the financial years ending 30.6.2000 and 30.6.2001, the Noosa arm of the business made a loss, and yet Mr. Midgley was paid his commissions, and, at least for the first year, guaranteed $1,000 per week irrespective of sales.

1. Mr. Guy impressed me as an astute and careful historian with obvious commercial intelligence and skill.  His company’s very long and successful time in business since the 1970s confirms this.  It is simple inconceivable that he would (a) enter into a secret oral partnership agreement with one manager contrary to the arrangement he had with other managers and, (b) if he did, not expect payment of some kind for the rent roll, goodwill, etc. and, (c) not expect his new partner to take his share of the losses for the first two years.  His evidence about why, after a lifetime in the real estate business, he did not enter into binding financial relationships verbally given at T1‑92 lines 7-21 was very convincing, and I accept it.

1. At the time Mr. Midgley made contact with Mr Guy in late 1999, he (Mr. Midgley) was unemployed.  Mr. Guy frankly conceded that he had a high regard for Mr. Midgley’s abilities and was happy to have him back managing Noosa and was prepared to guarantee him $1,000 per week initially even though the Noosa office was not doing very well.  As I have said it defies commonsense that in those circumstances Mr. Guy would offer him a partnership with the company.

1. Finally, in relation to this theme, there is the lease agreement between the owners of the premises at Noosa Heads out of which the business operated, and the company.  The deed of extension in 2004 and the guarantees are Exhibit 20.  Mr. Midgley is not a guarantor of the company’s obligation under the lease.  Mr. Guy and his wife are the guarantors.  Again, it defies commonsense, that a person of Mr. Guy’s commercial skill and acumen would not insist that his partner (or the company’s partner) should also guarantee performance of the lease, if indeed Mr. Midgley was the company’s partner, which he clearly was not. 

Conclusion on issue 1

1. The evidence is overwhelmingly one way.  I accept Mr. Guy’s evidence on this issue in preference to Mr. Midgley.  I think it is more probable than not that Mr. Midgley has formed the view after the dispute arose around September 2007, and around the time that lawyers got involved, to rework the actual arrangement he had with Mr. Guy on or after 29.11.2000, and to assert the existence of a partnership from the start when at all times it was an employer/employee relationship governed after 29.11.2000 by the terms of that letter of offer.  I am satisfied on the balance of probabilities that Mr. Midgley did in fact receive a copy of that letter.  My conclusions about Mr. Midgley’s credibility and reliability on this issue are informed by my findings recorded below in relation to the second issue. 

1. Given these findings of fact, it is unnecessary for me to consider the application of the legal tests for the existence of a partnership discussed at paragraphs 22 – 36 of Mr. Gerber’s trial submission. He has done his best to manufacture a silk purse out of a sow’s ear, but, unfortunately my decisive rejection of his client’s evidence and my preference for Mr. Guy’s evidence does not permit any finding that there was a partnership, even though (as Mr. Guy said in Exhibit 2), after 29.11.00 the arrangement between them had features of a partnership but was clearly objectively on the basis of the evidence I have preferred not a partnership.

Issue 2 – did Mr. Guy know (and approve) in early 2007 about Mr. Midgley’s intention to set up a Ken Guy Real Estate business outlet at Bli Bli under his sole control?

1. The company’s case is that until the beginning of October 2007 Mr. Midgley remained as an employee of it and manager of the Noosa office.  It is common ground (as pleaded in paragraph 7 of the amended statement of claim) that on 18 April 2007, Mr Midgley:

“(a)incorporated a company called Land Marketing Solutions Pty Ltd;

(b)registered the business name ‘Ken Guy Real Estate Bli Bli’;

(c)established a trust account styled the ‘Ken Guy Real Estate Bli Bli Trust Account’, to which the defendant was the sole signatory;

(d)commenced trading a business from premises at Bli Bli under the name or style ‘Ken Guy Real Estate Bli Bli’.”

1. Mr. Guy told me he had no knowledge of these actions at the time and only discovered them prior to Mr. Midgley’s resignation.

1. The factual dispute between the parties centres on what is termed the “January 2007” discussions pleaded thus (in the further amended defence and counterclaim) which was the operable pleading for the defendant at the commencement of the trial:

“January 2007 discussion and the dissolution of partnership

28.In or about January 2007, the defendant and Ken Guy met with each other at the Noosa office and had a discussion (the January 2007 discussion) during which:

(a)Ken Guy suggested that ‘we sell the Noosa office’ where ‘we’ was a reference to Ken Guy and the defendant;

(b)Ken Guy and the defendant discussed that if the Noosa office was to be sold, it would be beneficial to sell it before the lease on the premises was up for renewal;

(c)two options for the sale were raised, the first being that they would sell the rent roll which they discussed being worth approximately $220,000, and the second was to sell the Noosa office as a going concern;

(d)the defendant said words to the effect that selling the Noosa office as a going concern would be in the interests of the staff at the office but it would involve renewing the lease on the premises;

(e)Ken Guy said words to the effect that he did not mind whether it was sold as a going concern or if simply the rent roll was sold, and given that was the case, he would agree to it being sold as a going concern;

(f)Ken Guy said words to the effect that the defendant should open an office at Bli Bli as a ‘Ken Guy Real Estate franchise’ and the Bli Bli area would be the defendant’s along with the subdivisions, where ‘the subdivisions’ was a reference to the marketing and selling of land in the subdivisions as particularised in paragraph 25(b) above;

(g)Ken Guy and the defendant discussed the terms of such a franchise and Ken Guy said words to the effect that a franchise and consultancy fee of about $70,000 per annum would be appropriate and he would want that amount;

(h)the defendant said words to the effect that he was agreeable to opening a franchise in Bli Bli and that he was agreeable to the franchise and consultancy fee of $70,000 per annum.”

1. The pleading was amended, as I have said, on the third day of the trial to accord with Mr. Midgley’s trial evidence; 28(a) was amended to allege that Mr. Guy said, “I want to sell Noosa office”, and (f) was amended (relevantly) to allege for the first time that “Ken Guy said words to the effect ‘that is not a problem we could do that’” and “you can have Bli Bli, the area north of the river is your patch”.  The fee amount of $70,000 in each of (g) and (h) was amended to $40,000, again in accordance with Mr. Midgley’s trial evidence. The pleading was also more significantly amended in relation to the estoppel plea pleaded at paragraph 19 of the Further Amended Defence and Counterclaim and I will deal with that later in my reasons.

1. Mr. Guy says that the conversation alleged in paragraph 28 is a fabrication. 

1. The issue is pleaded at paragraph 59 of the company’s Reply and Answer to the Further Amended Defence and Further Amended Counterclaim (i.e. the pleading in place at the start of the trial):

“59.In relation to paragraph 28 of the further amended counterclaim, insofar as the defendant has purported to recount a conversation identified therein as ‘the January 2007 discussion’, the plaintiff:

(a)denies this conversation occurred in the terms as alleged;

(b)says that the conversation, as pleaded by the defendant, is a fabrication advanced by the defendant in order to justify and explain the defendant’s own dishonest conduct; and

(c)says that, to the extent that Mr Guy, on behalf of the plaintiff, discussed with the defendant the plaintiff’s plan to sell the Noosa office:

(i)that conversation took place between Mr Guy, for and on behalf on the plaintiff, and the defendant in late December 2006 or early 2007;

(ii)no statement was made by Mr Guy to the defendant that ‘we sell the Noosa office’, where the word ‘we’ was a reference to any alleged partnership between Mr Guy and the defendant, because the defendant was the plaintiff’s employee and not the plaintiff’s partner;

(iii)says that, to the extent that Mr Guy, on behalf of the plaintiff, and the defendant discussed the issue of an arrangement with the defendant to conduct, on his own account, a real estate agency business at Bli Bli, the defendant proposed to the plaintiff, upon the sale of the Noosa office, that the defendant establish a real estate business at Bli Bli on his own account, albeit using the plaintiff’s name, to which Mr Guy, on behalf of the plaintiff, responded to the effect that he was prepared to issue a licence to the defendant to use the name ‘Ken Guy Real Estate’ in conjunction with the defendant’s establishment of a real estate business at Bli Bli, but only following the sale of the Noosa office, and on the basis that the defendant must pay to the plaintiff a licence and consultancy fee for the use of the name ‘Ken Guy Real Estate’ of $3,500 per month;

(d)says that no concluded agreement was ever entered into between the plaintiff and the defendant with respect to the licensing by the plaintiff of the defendant to conduct a real estate agency business in Bli Bli under the name or style of ‘Ken Guy Real Estate’;

(e)says that the licensing of the defendant to conduct such a business was subject to and conditional upon, the plaintiff’s sale of the Noosa office;

(f)says, further, that at no stage did the defendant ever pay to the plaintiff, with respect to the defendant’s use of the name ‘Ken Guy Real Estate’, the sum of $3,500 per month.”

1. The company’s case is that the actions taken by Mr. Midgley on 18 April 2007 and thereafter in conducting for himself a Ken Guy Real Estate business at Bli Bli were without Mr. Guy’s knowledge or consent, and constitute a breach of his fiduciary duty to the company to act in the best interests of it as his employer, and not to prefer his own business interests over the interests of his employer while still employed, and a breach of the 29.11.00 agreement.

1. The key factual issue joined on the pleadings is the extent of Mr. Guy’s knowledge of Mr. Midgley’s actions prior to and subsequent to 18.4.07, and the extent to which he agreed with these actions by words or conduct.

1. Again in my opinion, the evidence on this discrete issue is all one way.

1. As an initial observation, it again defies logic and commonsense that a person with Mr. Guy’s commercial acumen would agree to an employee of one office setting up entirely under the employee’s control a potentially (and in fact) highly profitable business using the valuable name of Ken Guy Real Estate without first securing an actual licensing and consultancy agreement in terms similar to Exhibit 22. 

1. However by far the most damning evidence on this issue comes from Mr. Midgley’s own hand in letters to Mr. Guy after Mr. Guy says he discovered his deceit in June – August 2007.  Mr. Guy gave evidence about discussions with Mr. Midgley in late 2006/early 2007 which, consistently with his desire to sell the various businesses under the control of the company, focussed on the sale of the Noosa office.  Mr. Guy’s evidence was that Mr. Midgley said he was not interested in purchasing Noosa, to which Mr. Guy responded that he was going to sell it.  Consistently with the case as pleaded in 59(c) of the reply, Mr. Guy said that Mr. Midgley told him he was interested in setting up a Ken Guy Real Estate agency at Bli Bli (where the company had an office in a large residential subdivision), and Mr. Guy said he would consider that but only after Noosa sold, and only on the basis of the licensing and consultancy agreement with the defendant which he had with other managers who had purchased portions of the business from the company.

1. After this time, there were a number of parties who expressed interest in purchasing the Noosa business, but it was not sold until well after Mr Midgley had left the employ of the company.

1. Mr. Guy says he was not aware of Mr. Midgley’s actions on 18 April 2007.  In June 2007 he discovered, more or less by accident, while visiting the Maroochydore office where the company’s bookkeeper was based, that Mr. Midgley was operating a separate trust account at Bli Bli.  Mr. Guy says he rang Mr. Midgley that night, who told him that it was all a mistake, blaming his bank for jumping the gun, and an employee named “Bradd”, who was working at Bli Bli, for putting money into the account inadvertently opened by the bank.  In another telephone conversation about a week later, Mr. Midgley told Mr. Guy that it would never happen again.  Mr. Guy says that at that point there was someone interested in purchasing Noosa.

1. Mr. Gerber is critical of the plaintiff for not calling Monica Knowles, the company bookkeeper, on this discrete issue. If, as he suggests, she could have supported the defendant’s evidence, it was for his client to call her which he did not. As Mr. Perry QC observes: “It is not the plaintiff’s obligation to call a witness with respect to a matter not pleaded and touched upon in hearsay evidence by the defendant.” 

1. He told me that in earlier conversations, it had been agreed between he and Mr. Midgley that any potential purchaser of Noosa would be told that Mr. Midgley intended to open an office at Bli Bli after the sale, and that would take about 80% of the commission income from Noosa at that time (because of the strong sales through Noosa of land in subdivisions at Bli Bli and elsewhere of which Mr. Midgley had extensive knowledge). 

1. As well as the January conversation, the defendant relies on the estoppel pleading which (as amended on the third day of the trial) is in these terms in paragraph 19 of the Second Further Amended Defence and Counterclaim:

“19. Further and in the alternative, the Plaintiff is estopped from now alleging or attempting to establish by evidence, that it did not consent to the conduct of the Defendant pleaded in paragraph 7 above (or as pleaded in the Statement of Claim, which is in any event denied) because:

(a)        the Plaintiff, by Ken Guy, represented to the Defendant that it had consented to the said conduct, such representations having been made as follows:

(i)          during the course of the January 2007 discussion;

(ii)        in a meeting with potential buyers, namely Craig Smith and Kathy Roberts, of the Noosa office in about January 2007 in the courtyard of the Noosa office in the Defendant’s presence, Ken Guy said words to the effect that if they were to buy the Noosa office, they would be buying the good will, the rent roll, fixtures and fittings, but that the listings which contributed to the majority of the commissions, being the subdivisions and marketing of the subdivision developments, would be going with the Defendant to the new Bli Bli office;

(iiA)     during a discussion between the plaintiff and the defendant in or about February or March 2007, after the proposed sale referred to in subparagraph (ii) above had fallen through, the defendant said to the plaintiff words to the effect that he was going to set up the Bli Bli office (defined in subparagraph 28(f) below) to which Ken Guy stated that “that wasn’t our agreement” (meaning or referring to the January discussion defined in paragraph 28 below) to which the defendant responded with words to the effect “well I am going to do it” to which Ken Guy acquiesced;

(iii)        in a meeting with potential buyers, Fiona and Rod Winter, of the Noosa office in July 2007 at Ken Guy’s farm in Cooroy in the Defendant’s presence, Ken Guy said words to the effect that if they were to buy the Noosa office the land listings that had provided the majority of the commissions in the years previous would not be theirs as these listings and the marketing of the developments had gone with the Defendant to the Bli Bli office;

(iv)       during the course of numerous telephone conversations during the period from approximately May 2007 to approximately June 2007 (the dates and times of which the Defendant is now unable to particularise), the Defendant and Ken Guy discussed the sale of the Noosa office and commencement of the Ken Guy Real Estate Bli Bli franchise and, during none of the said telephone calls, did Ken Guy express any absence of consent to the Defendant’s conduct or any surprise in respect of such conduct in circumstances where, if the Plaintiff were to allege subsequently an absence of consent or knowledge in relation to such conduct, it was obliged to raise the same during these telephone conversations.

(b)        in making those representations, Ken Guy (on his own behalf and on behalf of the Plaintiff) intended the Defendant to rely on them;

(c)        the Defendant did in fact rely on them; and

(d)        should the Plaintiff now be permitted to conduct itself as if the said consent had not been given, such reliance by the Defendant will have been to cause him to alter his position to his detriment.”

1. The alleged conversation in 19 (a) (iiA) arose out of the defendant’s evidence in chief, and is referred to in paragraph 55 of the redacted Exhibit 15:

“55.      At this stage, I made a decision to open the Bli Bli office regardless of whether the Noosa office sold and I advised Ken of my intention. I recall that Ken stated that “that was not the agreement we had” and I responded by telling Ken that I was going to do it anyway.”

1. I infer that Craig Smith and Kathy Roberts were the people interested in purchasing Noosa. They operated the management rights of a development across the road from the Noosa office. Craig Smith gave evidence confirming that in January 2007, he and his wife did have discussions with Mr. Guy and Mr. Midgley to the effect they were only interested in the rent roll and not the real estate side of the business. He said that he was told that sales from Bli Bli would not be part of the sale, and words to the effect “Rob will not be staying.” This is consistent with Mr. Guy’s evidence that any establishment of a separate Bli Bli office would be subject to Noosa selling first.

1. As to the new pleading in (iiA) based on Mr. Midgley’s evidence in chief, the key phrase in the pleading is “Ken Guy acquiesced.” Apart from the illogicality of someone like Mr. Guy succumbing meekly to a threat contrary to his own business interests, that key phrase is missing from Mr. Midgley’s recall of this exchange in his October 2008 statement.

1. Mr. Guy said that in late August 2007 he had another conversation with Mr. Midgley in which Mr. Midgley said he had woken up in the middle of the night and decided that he would purchase Noosa after all.  Soon after this conversation, Mr. Guy visited the Noosa office without notice and Mr. Midgley was not there.  On the sale secretary’s desk he found a number of settlement files which named Ken Guy Real Estate Bli Bli as the selling agent.  He discovered 14 contracts.  He looked at the trust account ledger for Noosa and found no entries corresponding with deposits recorded in those contracts.  He then rang the office at Bli Bli, which was situated in a large subdivision known as Park Lakes, and spoke to a female employee who told him that sales were good.  He became very concerned.

1. As the pleading in 19(a)(iii) indicates, Mr. Midgley relied on the evidence (as it turned out) of Fiona Winter in support of his case that Mr. Guy was aware of the Bli Bli arrangement prior to discovering the (14) contracts. Her evidence was that at an interview with Mr. Midgley on 20.07.07, he told her that Noosa was for sale. There was a meeting (4) days later at Mr. Guy’s home at Eumundi where she and her husband expressed an interest in purchasing Noosa. Her memory of conversations was naturally affected by time. She recalled that she was told that the sale of Noosa did not include the Parklands subdivision. She recalls discussion of another office of Ken Guy Real Estate Bli Bli but her evidence did not come anywhere near proving the allegation of fact in the pleading. Her evidence was consistent with Mr. Guy’s recollection about these subjects.

1. On the evening Mr. Guy found the 14 contracts, Mr. Midgley rang him.  The effect of the conversation was that Mr. Midgley said, “You’ve seen the contracts.”  Mr. Midgley told Mr. Guy it was a terrible mistake and that it should never have happened.  He said words to the effect “I hope this does not ruin our friendship”.  Mr. Guy said he told Mr. Midgley that it was serious and that he knew there were more contracts, and Mr. Midgley said that there were indeed other contracts, and Mr. Guy told him he wanted a full list.  Mr. Guy said that in this conversation Mr. Midgley told him that he was not putting all sales through Bli Bli and that he “was putting a sprinkling” through the Noosa office.  Shortly after, Mr. Guy received Exhibit 5, a list of sales which contained some handwritten notes accepted by Mr. Midgley to be his writing.

1. After Mr. Guy received this, he had a further conversation on the telephone with Mr. Midgley in which he demanded the return of monies owing from sales to the company.  Soon after this, he received from Mr. Midgley Exhibit 6, a handwritten note and a large number of contract summary sheets, and some contracts and other documents.  The note is (relevantly) in these terms:

“Ken,

Here are the rest of the summary sheets and invoices.  The cover sheet breaks down into lots and settlements.

I can write a cheque for contracts settled, however I can’t do the same for unsettled contracts some of which will be after Christmas.  We can do a break up after all have settled …

I talked to Paul Lund today.  He asked me for bank settlements for Bli Bli.  I was a bit pissed off and I told him we hadn’t discussed it.  I told him I could send him the full accounts, but I won’t as everything he needs for settlements is in the file.  I will phone you later. 

Rob”

1. Mr. Lunn (not Lund) was then the company accountant.

1. The statement “I can write a cheque for contracts settled …” is not consistent with Mr. Midgley’s evidence that Mr. Guy had approved the Bli Bli arrangement in January, and is entirely inconsistent with Mr. Midgley’s evidence on oath in support of 19 (a) (iiA).

1. Mr Guy recalls a meeting or a conversation with Mr Midgley, and on 4.10.07 by fax he received from Mr. Midgley a note, again in Mr. Midgley’s handwriting, which is Exhibit 8.  Remarkably, given what he had done, the note is in the form of a demand, but contained statements inconsistent with (a) the existence of a partnership and (b) that he had acted in relation to Bli Bli with full knowledge of Mr. Guy.  Relevantly, it is in these terms:

“

Thu 4 Oct 07
Fax [phone]

G’day Ken. 

I follow up from our conversation a couple of days ago.  I can’t help now what happened and I know you don’t believe me.  However there is nothing I can do about that either. 

I told you on 25 Aug I wanted to buy Noosa.  It is now 4 Oct and still no contract has been prepared by your solicitor or figures done by your accountant … I know you want to finalise this as much as I do.  However you are the only one in control.

I decided a few weeks ago that I would take control of my work life and not be answerable to anyone else.  I’ve given you all the figures, it is too late to go back.  We either finalise or not. 

My two alternatives

(1)You keep Noosa, I will resign and make no claim on the value of the business – just pay me commission owed and any profit … up to settlement.  I will pay Noosa office as per my invoices and contract summaries given to you and Paul Lund (sic).  I will operate Bli Bli as an independent agent.

(2)We settle on 11 October as per our agreed terms. …”

1. The conversation Mr. Guy recalled was a few days before he received Exhibit 8 when he told Mr. Midgley he wanted the money and Mr. Midgley said he was prepared to pay.  Mr. Midgley was still wanting to buy the business and “settle it all”. The note is completely inconsistent with Mr. Midgley’s pleaded case and his sworn evidence that he had Mr. Guy’s permission to operate Bli Bli as “an independent agent” from January 2007.

1. Soon after receipt of the 4 October note, the two men met at the Noosa office.  Mr. Guy recalls it was Mr. Midgley’s birthday.  Mr. Guy says he told him that he did not intend to sell Noosa to him, and until he was paid what was owed to the company from the Bli Bli operation, there would be no licensing agreement to use the Ken Guy name.  He says that Mr. Midgley told him that that was not acceptable and said words to the effect “I’m out of here”. I find that this statement constitutes his resignation as an employee of the company from that date which appears to be 8 October.

1. At a time prior to this, Exhibit 25 was prepared in the office of the company, and Mr. Guy has inserted all the handwritten figures and notes on it.  It was prepared after the conversation at the end of August in which Mr. Midgley had referred to waking up in the middle of the night and wanting to buy the Noosa business.  At this stage the asking price for Noosa was $350,000.  Mr. Guy explained that taking into account the figures for commissions owed, to purchase the Noosa business Mr. Midgley would have to pay $146,534.56, but this was contingent on Mr. Midgley paying the company for the Bli Bli sales.  As he said, Mr. Midgley ultimately was not prepared to proceed on this basis.  In conformity with his evidence now, Mr. Guy wrote to the Office of Fair Trading on 16.10.07 advising that Mr. Midgley was no longer the manager of Noosa and that he (Mr. Guy) had assumed that role.  He also wrote to the Registrar of Business Names on 23.10.07 enquiring as to how Mr. Midgley’s company had been able to register a business name using the name “Ken Guy Real Estate”. 

1. After Mr. Midgley left the office at Noosa, soon after the conversation on his birthday, Mr. Midgley and Mr. Guy never met again face to face.  Mr. Guy told me the day after this conversation he returned to the Noosa office and Mr. Midgley was not there.  Mr. Guy discovered that all the files relating to the various subdivisions (Bli Bli, Glasshouse, Ipswich, Emerald Hills, etc.) which I infer had, prior to Mr. Midgley commencing to operate Ken Guy Real Estate Bli Bli, been handled through the Noosa office, had been removed. I comfortably conclude that Mr. Midgley had removed them. Mr. Gerber is critical of the company for not disclosing of all the contracts relevant to any commission owing to Mr. Midgley for the whole period. It is far too late to make that complaint. If Mr. Midgley had thought this vast amount of material was relevant to an issue in dispute, he could have formally applied to the Court for further disclosure.

1. In the trial bundle behind tab 7 volume 1 is a copy of a letter dated 24 October 2007 written on behalf of the company to Mr. Midgley by a firm of solicitors.  It was not tendered but, I infer, it is the letter referred to Exhibit 7, another handwritten note from Mr. Midgley to Mr. Guy which I infer was received on its date i.e. 26.10.07. 

1. Again the note is combative in tone despite containing statements completely inconsistent with his present position as sworn on oath before me.  On p 2 of the note are these words in Mr. Midgley’s hand:

“Ken, this has all been out of character for me and I can only say a mixture of doubts, people whispering in my ear, coupled with my new role as carer for mum/dad have made me do stuff I’m not proud of.  I should have been stronger with you a while ago when I wanted to go it alone.”

1. If the truth was, as Mr. Midgley now says, that Mr. Guy, on behalf of the company, had agreed in January 2007 to the matters pleaded in 28(f), (g) and (h) and 19(a) (iiA) of the Second Further Amended Defence and Counterclaim, such an admission would make no sense at all. 

1. Mr. Gerber, undoubtedly appreciating the potential effect on his client’s credibility of this piece of evidence, took him to it at T3-51 and he also took him to Exhibit 6.  Mr. Midgley attempted to explain his use of words by admitting that he had lied to Mr. Guy on at least three occasions about how many sales made at Bli Bli he had “agreed to conjunct with him equal shares with (sic)”.  It was never put to Mr. Guy that there was some sort of agreement to conjunct.  Mr. Midgley’s attempt to explain his own words at best is disingenuous. This is not the explanation he gave in his own signed statement dated 20 October 2008 supplied by his solicitors to Vincents, the forensic accountants appointed by him for the purpose of assessing loss.  Mr. Perry QC tendered as Exhibit 15 a redacted portion of that statement which (relevantly to this issue) is in the following terms:

“79.Sometime after discussing the sale of his share of the Noosa office to me, Ken attended the Noosa office on, I believe Wednesday in early to mid-September and saw a number of files which I had left there on the Monday which were from the Bli Bli office.

80.These files were all from the Bli Bli office and therefore had nothing to do with Ken or Ken Guy Real Estate Pty Ltd.  After Ken saw these files Ken appeared to have a greater interest in the Bli Bli office and subsequently demanded to know how many sales I had at the Bli Bli office.

81.Up until this point Ken was unaware of any sales made from the Bli Bli office as it had nothing to do with him being that it was to become a full franchise owned and operated solely by me with only an annual franchise and consultancy fee paid but without funds or other fees being paid to Ken Guy Real Estate Pty Ltd.  I admitted to Ken and told him that I had not kept him informed of the sales and running of the Bli Bli office as this was not his concern as the Bli Bli office was to become a full franchise. 

82.As I said, Ken demanded that I tell him exactly the number of sales that had come through the Bli Bli office.  I was reluctant to give Ken this information on two grounds.  Firstly, Ken owed me a considerable amount of money held in the Noosa office general account, which was under his control.  Secondly, I had become concerned and sceptical as mentioned above, in relation to his accountancy and bookkeeping practices or summaries of the accountancy figures regarding our 50/50 share of profits from the Noosa office.

83.It was due to these two reasons that I was reluctant to tell Ken of the exact number of sales and several times I advised him of a lesser figure. 

84.However, Ken made various threats including criminal and civil action and I reluctantly agreed that from the period in which I left the Noosa office (April 2007) to that date (4^th October 2007) I would agree to conjunct the sales from the Bli Bli office with the Noosa office under the standard 50/50 arrangement.  In other words I agreed to split the proceeds of the sale from the Bli Bli office 50/50 with the Noosa office.

…

100.In relation to my letter to Ken dated 26 October 2007, I state that paragraph 2 on page 2 is by no means an admission of guilt for any of my actions but rather it is an attempt to explain my state of mind at the time.  I would have normally told Ken everything about my new business (the Bli Bli office) and the success I was having, however I was concerned about the money that was owed to me and was still in the Noosa office general account and under the control of Ken.”

1. It follows that I do not accept the evidence of Mr. Midgley.  I accept Mr. Guy’s evidence in relation to the Bli Bli arrangement and reject Mr. Midgley’s evidence where it conflicts with Mr. Guy’s evidence.

1. I find that Mr. Guy did not become aware of what Mr. Midgley had done at Bli Bli until he discovered the 14 contracts at the Noosa office.  Thereafter, Mr. Midgley deliberately lied to him, I infer, because he knew that what he had done was not only wrong but also possibly fraudulent.

Assessment of damages

1. Mr. Haley from Vincents Chartered Accountants gave expert accounting evidence for Mr. Midgley and Lisa Bundensen gave similar evidence on behalf of the company. Each provided a report (Haley – Ex 87 and Bundensen Ex 85). They provided a joint report – Ex 1.

1. As a result of my factual conclusions, many of the key assumptions forming the basis of Mr. Haley’s opinions fall away. There never was a partnership and the commercial arrangements from November 2000 until October 2007 when Mr. Midgley resigned, were governed by the terms of Ex 2.

1. There is no doubt Mr. Midgley owed the company a fiduciary duty informed by the terms of the November 2000 letter to act in a way which was compatible with the interests of the company and not to inflict harm on its business in furtherance of his own interest.

1. The proposition that an employee owes fiduciary duties to his employer is well settled and non-controversial. The nature of the duty was distilled by Professor Finn, in Fiduciary Obligations, in the following terms:

   “A person employed in, or having the management or control of, another’s business was not, by any act incompatible with his employment, management or control, (sic) inflict harm on that business in the furtherance of his own interests, or the interests of a competitor.””

2. The plaintiffs claim is for damages in the alternative equitable compensation in the alternative an account of monies received by way of fraud. Ms. Bundensen’s calculations, based on instructions from the plaintiff, which I have found proved were premised on 2 scenarios pleaded thus in the Amendment Statement of Claim:

“15.      Following the exchange of correspondence referred to in paragraph 14 of the statement of claim, the plaintiff commissioned a further independent forensic accountant’s report in respect of its loss referable to the conduct of the defendant from Lisa Bundensen Consulting (“the Bundensen report”), which report was prepared on two premises, namely that.

(a)        The only agreement between the plaintiff and the defendant was the management agreement dated 29 November 2000;

(b)        No agreement was reached between the plaintiff and the defendant pursuant to which the plaintiff had sanctioned the defendant to establish the “Ken Guy Real Estate Bli Bli” office, or to receive any moneys into the “Ken Guy Real Estate Bli Blií” trust account;

(c)        The plaintiff received no part of the commission received by the defendant from his operation of the Bli Bli office in the period April to October 2007;

(d)        The defendant expressly abandoned any claim upon his share of the proceeds of the sale of the plaintiff’s business when he tendered his resignation from the plaintiff’s employ on 8 October 2007, in circumstances in which his conduct was in breach of his express obligations under the agreement and in breach of his fiduciary obligations (which matters, namely paragraphs 15(a) to 15(d) of this pleading, collectively constitute scenario one”); and

(e)        In the alternative, predicated on the proposition that the defendant maintained an entitlement to a share in the increase in the profitability of the plaintiff’s business realisable on its sale, on the basis that that calculation was to be undertaken by reference to the defendant’s entitlement share in the increase in the value of the plaintiff’s rent roll between 2000 and 2007, from which claim must be deducted the costs incurred by the plaintiff referable to the sale of its business (“scenario two”).”

1. The loss is particularised in this way in paragraph 16:

“16. The plaintiff says, scenario one is the correct basis upon which to calculate the loss sustained by the plaintiff referrable to the conduct of the defendant, namely the commissions misappropriated by the defendant, referrable to his unauthorised operation of the “Ken Guy Real Estate Bli Bli” (sic) office in the period of 26 April 2007 to 8 October 2007, which commissions the defendant was obliged to share with the plaintiff pursuant to the agreement.

Particulars

The loss incurred by the plaintiff referrable to, and arising out of, the defendant’s breach of contract and/or the defendant’s breach of the fiduciary duties owed by him to the plaintiff, is calculated as follows:

(a)        Commissions received by the defendant from the conduct of the Ken Guy Real Estate Noosa office in the period 2000 to 8 October 2007 - $847,951.77; plus

(b)        Commissions received by the defendant from his unauthorised conduct of the business known as “Ken Guy Real Estate Bli Bli” (sic) in the period 26 April 2007 to 8 October 2007 - $356,536.64; plus

(c)        Superannuation contributions paid to the defendant by the plaintiff in the period 2005 to 2008 - $123,697.90; plus

(d)        Superannuation contributions appropriated by the defendant referable to his unauthorised conduct of the “Ken Guy Real Estate Bli Bli” (sic) office - $13,129.20; plus

(e)        The defendant’s 50% profit share of the conduct of the business of Ken Guy Real Estate Noosa pursuant to the agreement of 29 November 2000, for the period 2002 to September 2007 (excluding any entitlement to a profit share referrable to the defendant’s unauthorised conduct of the “Ken Guy Real Estate Bli Bli” (sic) office - $240,019.92.

(f)         Less commissions paid to the defendant generated from the conduct of the business of Ken Guy Real Estate Noosa - $847,951.77;

(g)        Less superannuation payment made to the defendant in the period 2005 to 2008 - $123,697.90;

(h)        Less bonus payments made to the defendant in the period 2002 to 2006 - $211,016.00;

(i)          Less monies misappropriated by the defendant referrable to his unauthorised operation of the “Ken Guy Real Estate Bli Bli” (sic) office - $702,418.40.

(j)         Total monies due to the plaintiff referrable to the defendant’s unauthorised operation of the “Ken Guy Real Estate Bli Bli” (sic) office, namely the plaintiff’s share of the commissions which, but for the defendant’s conduct, should have been paid to the plaintiff, - $303,748.19.

1. The prayer for relief at [25] is in these terms:

“25. The plaintiff claims from the defendant the following relief:

(a)        Damages for breach of contract from the defendant in the amount of $303,748.19 (exclusive of interests and costs);

(b)        In the alternative, equitable compensation from the defendant in the amount of $303,748.19 (exclusive of interests and costs);

(c)        In the further alternative, an account in respect of all sums received by the defendant in fraud of the plaintiff;

(d)        Interest pursuant to the Civil Proceedings Act 2011 (Qld) in the period 31 October 2007 to 30 June 2013, calculated at 10% per annum in the amount of $172,262.67;

(e)        Interest from 30 June 2013 to the date of judgment, calculated at the rate of 10% per annum;

(f)         Costs.

1. Having considered the trial submissions I caused an e-mail to be forwarded to the parties in the following terms (amended to omit typographical errors):

“His Honour requires some clarification of the plaintiff’s position in relation to the proper approach to assessment of loss. Mr. Gerber appears to proceed in his trial submissions at paragraph [56] on the basis that if the plaintiff is successful and it is found that the only agreement was that contained in Ex 2, and that the defendant breached the agreement and/or his fiduciary duty to the plaintiff; he would be liable to account for the entirety of the commissions he earned from the sales of the Bli Bli office from 26.04.07 – 8 October 2007. At [246] of Mr. Perry QC’s submission that figure is submitted to be $736,125.77. His Honour’s reading of paragraph 16 of the Amended Statement of Claim is that at 16(b), 50% of the commission from Bli Bli said to be unauthorised is taken into account in the defendant’s favour in reaching the claimed loss of $303,748.19 (see16(j)).

Is that the correct understanding of the plaintiff’s pleaded case on damages?

Could you please respond quickly. His Honour is anxious to finalise the matter before going on leave in early February.”

1. It is clear that the plaintiff is seeking that the defendant account for all of the commissions recovered by way of his company from the sales through Bli Bli which were undertaken without Mr. Guy’s knowledge or consent. Mr. Gerber encapsulates this at paragraph 56 of his trail submission (note this is [56] on p22 – for some reason the paragraph numbering recommenced at p11):

“56. The plaintiff alleges that the defendant breached his fiduciary obligations and is liable to account to the plaintiff for the entirety of the commissions he earned from the sales at the Bli Bli office.”

1. The response from the plaintiff to my e-mail in part is in the following terms:

“1. The reference at paragraph 16 of the plaintiff’s amended statement of claim concerns only a claim for damages for breach of contract or, in the alternative, a claim for damages predicated on the basis that the contractual provisions with respect to the division of commissions committed to the management agreement (exhibit 2) operate to constrain the exercise of the court’s discretion with respect to the award of damages to the plaintiff for the defendant’s breach of fiduciary duty.

2. At paragraphs 22 and 26 of the amended statement of claim, the plaintiff claims an entitlement, by way of an account for breach of fiduciary duty, to the entirety of the commissions obtained by the defendant from his unauthorised conduct of the Bli Bli office for his own benefit.”

1. As I have found that Mr. Midgley acted deliberately to deceive Mr. Guy and lied to him on a number of occasions in order to conceal the extent of his conduct, it is necessary for me to consider whether the relief sought (as an alternative) in paragraph 22 should be granted. I note that paragraph 2 above incorrectly refers to paragraph 26 of the Amended Statement of Claim. I think it should refer to 25(c). Paragraph 11 of that submission is in these terms:

   “11. The calculation of damages to be awarded to the plaintiff, therefore, ought reflect the amount set out at paragraph 246 of the plaintiff’s submissions. That is, the plaintiff seeks damages for the defendant’s breach of his fiduciary duty in the amount of $736,125.77, plus interest on that sum from 8 October 2007.”

2. That sum is not claimed anywhere in the Amended Statement of Claim although I accept that it is a matter for me to consider the company’s submission that the appropriate remedy in equity is an order that will require Mr. Midgley to account for the entire proceeds of the Bli Bli enterprise and not only 50%. This involves an analysis of the relevant principles.

Equitable compensation – the relevant principles

1. The starting point is the trite principle that equity does not assume jurisdiction to punish a fiduciary for misconduct by making him account for more than he actually received as a result of his breach of fiduciary duty: Grimaldi v Chamelon Mining NL (No. 2) [2015] FCAFC 6 at [556].

1. A breach of fiduciary duty provides a plaintiff with an election between equitable compensation and an account. As MacLachlin J in Canson Enterprises Ltd ats Boughton & Corphery (1991) 3 SCR 534 at 543, said:

   “The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In Negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently, the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges itself to act in the best interests of the other. A fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged.” (emphasis added)””

2. In my opinion, there is no need to go beyond the principles as laid down by the High Court in Warman International Limited and Another v Dwyer and Others [1994-1995] 182 CLR 544.

1. The quote from the HCA report of 18 of Warman relied upon by Mr. Gerber at [62] p.23 of his trial submission in relation to unjust enrichment must be read down by what the Court said at 557:

“It has been suggested that the liability of the fiduciary to account for a profit made in breach of the fiduciary duty should be determined by reference to the concept of unjust enrichment, namely, whether the profit is made at the expense of the person to whom the fiduciary is owed, and to the honesty and bona fides of the fiduciary. But the authorities in Australia and England deny that the liability of a fiduciary to account depends upon detriment to the plaintiff or the dishonesty and lack of bona fides of the fiduciary. Gibbs J in Consul Development Pty Ltd v D.P.C. Estates Pty Ltd stated:

“Where the rule applies, the liability of the person in a fiduciary position does not depend on the fact that the person to whom the duty is owed has suffered injury or loss.””

1. As the Court said at 559-560:

“It is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts … There is no class of case in which one ought more carefully to bear in mind the facts of the case … than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them.”

1. At 561 (as part of the same quote reproduced at [62] of Mr. Gerber’s trial submission), the Court observed:

“In the case of errant fiduciary it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal’s goodwill over an indefinite period of time. In such a case, it may be appropriate to allow the fiduciary a proportion of the profits, depending upon the particular circumstances. That may well be the case when it appears that a significant proportion of an increase in profits has been generated by the skill, efforts, property and resources of the fiduciary, the capital which he has introduced and the risks he has taken, so long as they are not risks to which the principal’s property has been exposed.”

Conclusions

1. At best, the evidence was that indeed Mr. Midgley was responsible for marketing and selling the subdivisions referred to in 25(f)(i) of the Second Further Amended Defence and Counter-Claim. His evidence that he was responsible for introducing these lucrative business opportunities into the Noosa business from 2003 – 2006 was never disputed. The difficulty for Mr. Gerber is that his undoubted contribution of “skill and efforts” occurred prior to the breach of fiduciary duty. It was common ground that the commissions generated from the sale of land in these subdivisions was generally around 80% of the commission income through Noosa at the time of the discussions between Mr. Guy and Mr. Midgley in late 2006 – early 2007.

1. It is correct as the Court observed in Warman it is for the defendant (Mr. Midgley) to establish that it is inequitable to order an account of the entire profits

1. Unlike Warman, in this case the enrichment of Mr. Midgley as a result of his breach of fiduciary duty is relatively easy to calculate, especially with access to the bank statements of Mr. Midgley’s company, (Ex 76) obtained by non-party disclosure from Suncorp Metway Bank Limited, and the analysis of those statement by Ms. Bundensen (Ex 86).

1. Here the breach, albeit egregious, was over a short period of time. The terms of the 29.11.00 letter were operable during the April/October period, and had Mr. Midgley not acted in breach of his fiduciary duty, the commission income from the Bli Bli office would have flowed through Noosa. It was inevitable that Mr. Guy would discover what was going on. He had become aware of the separate trust account in June. He was not closely cross-examined on this but I infer that he still trusted Mr. Midgley and accepted his explanation because he had in mind that once Noosa was sold, a separately licensed Ken Guy Real Estate at Bli Bli operated by Mr. Midgley was in contemplation. To order an account for the full amount would in my opinion operate as an impermissible form of penalty not justified by the facts of the case. In my view, the facts of this particular case, would render it inequitable to order Mr. Midgley to now disgorge all of the commissions received in breach of his fiduciary duty, especially as, in the light of my factual conclusions he should, as a matter of fairness and equity, be completely disentitled to any profit from the sale of Noosa which did not take place until 2008.

1. I agree with Mr. Perry QC that the evidence does not support the claim made by Mr. Midgley that he was underpaid for commissions earned from 2000 – 2007. Mr. Gerber attempted to prove this aspect of the counter-claim (on the basis of a partnership, not on the basis of the 29.11.00 letter) by tendering various financial documents through Mr. Guy, which were annexed to Mr. Haley’s report. I accept Mr. Lunn’s evidence that based on the best possible source documentation, namely the company’s tax returns and profit and loss statements prepared by Love and Partners on a yearly basis (at the time when there was no dispute between the parties), there had never been included in the company’s returns a deduction referrable to liability for what is said to be a significant unclaimed commission amount owed to Mr. Midgley. I accept his opinion that if such a debt existed, it would have been claimed as a valid tax deduction.

1. On the basis of the evidence, a number of adjustments need to be made to the particulars of loss arising from Mr. Midgley’s breach of fiduciary duty set out above from paragraph [16] of the Amended Statement of Claim.

1. Deposits to Mr. Midgley’s company’s account which he accepted were referable to commissions amount to $709,890.77. To that should be added $26,235 paid by the company for wages for employees of Mr. Midgley’s company; a total of $736,125.77.

1. Prior to delivery of these reasons, I provided a copy of them to the parties to enable submissions to be made in relation to final orders and costs. Both parties provided written submissions on the 30.1.15. The company’s solicitor provided an affidavit which indicated that the plaintiff had offered to settle at a figure well below the judgment sum. Mr. Gerber in effect conceded it was a proper case for the award of indemnity costs. He did not pursue his written submission that Mr. Guy, as defendant by counter-claim, had not made a final offer and was not entitled to indemnity costs pursuant to r. 360 UCPR. Given that the counter-claim (as I have found) had no reasonable prospects of success, Mr. Guy would have been entitled to indemnity costs of defending the counter-claim in any event. Counsel have reached agreement as to appropriate orders in light of my reasoning.

1. I order that the counter-claim is dismissed. The defendant Mr. Midgley, is to pay the plaintiff Mr. Guy, the sum of $632,087.28 inclusive of interest of $254,359.84 to the date of judgment; and that the defendant Mr. Midgley, is to pay the plaintiff’s costs of the proceeding including defending the defendant’s counter-claim, assessed on an indemnity basis.