FEDERAL COURT OF AUSTRALIA
Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 4) [2013] FCA 1227
Citation: Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 4) [2013] FCA 1227 Parties: LABELMAKERS GROUP PTY LTD (ACN 114 717 814) and LABELMAKERS GROUP WA PTY LTD (ACN 061 909 788) v LL FORCE PTY LTD (TRADING AS LABELFORCE), ERNEST SAMPSON COOLEY, JASON EARNEST COOLEY, PAUL RICHARD DEVENEY, SCOTT SWEENEY and CHLOE LEECH File number: VID 555 of 2009 Judge: TRACEY J Date of judgment: 21 November 2013 Catchwords: COSTS – breach of fiduciary, contractual and statutory obligations – election made for equitable compensation – discussion of principles governing the award of costs, including indemnity costs – whether costs to be assessed on an indemnity basis Legislation: Federal Court of Australia Act 1976 (Cth) ss 37P, 43
Federal Court Rules 2011 (Cth) Pt 25Cases cited: Barrett Property Group Limited v Metricon Homes Pty Ltd (No 2) [2007] FCA 1823 – cited
Cirillo v Consolidated Press Property Limited (No 2) [2007] FCA 179 – considered
Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 – considered
Cretazzo v Lombardi (1975) 13 SASR 4 – cited
Denlay v Commissioner of Taxation(No 2) (2013) 302 ALR 237 – cited
Dowling v Fairfax Media Publications Pty Ltd (No 2) [2010] FCAFC 28 – considered
Gersten v Minister for Immigration and Multicultural Affairs [2001] FCA 260 – considered
Hamod v New South Wales (2002) 188 ALR 659 – applied
Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd (No 2)(2012) 88 ACSR 679 – cited
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 – considered
Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 2)[2012] FCA 512 – cited
Labelmakers Group Pty Ltd v LL Force Pty Ltd (No 3) [2013] FCA 1059 – cited
Menkens v Wintour [2011] QSC 53 – cited
Oshlack v Richmond River Council (1998) 193 CLR 72 – cited
Ruddock v Vadarlis(No 2) (2001) 115 FCR 229 – citedDate of hearing: Determined on the papers Date of last submissions: 6 November 2013 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 38 Counsel for the First and Second Applicants: Mr S M Anderson SC and Mr J P Slattery Solicitor for the First and Second Applicants: Clayton Utz Counsel for the First, Second, Third, Fourth, Fifth and Sixth Respondents: Mr G T Bigmore QC and Mr S B Rosewarne Solicitor for the First, Second, Third, Fourth, Fifth and Sixth Respondents: Tottle Partners
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 555 of 2009
BETWEEN: LABELMAKERS GROUP PTY LTD (ACN 114 717 814)
First ApplicantLABELMAKERS GROUP WA PTY LTD (ACN 061 909 788)
Second ApplicantAND: LL FORCE PTY LTD (TRADING AS LABELFORCE)
First RespondentERNEST SAMPSON COOLEY
Second RespondentJASON EARNEST COOLEY
Third RespondentPAUL RICHARD DEVENEY
Fourth RespondentSCOTT SWEENEY
Fifth RespondentCHLOE LEECH
Sixth Respondent
JUDGE:
TRACEY J
DATE…
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- Case
- [2013] FCA 1227
- Decision Date
CaseChat Overview and Summary
The legal issues the court had to decide included whether the respondents had breached their fiduciary duties and whether the applicant was entitled to equitable compensation. Another significant issue was the principles governing the award of costs, particularly whether costs should be assessed on an indemnity basis. The court also had to consider the offers of compromise made by the respondents and their implications for the costs order.
The court found that the respondents had indeed breached their fiduciary obligations. The court awarded the applicant $2,660,043 in damages, plus interest, against the first, second, third, fourth, and fifth respondents. The court also ordered the sixth respondent to pay $1,000. The court granted the respondents leave to apply for a determination of their individual liabilities within 21 days. The court further ordered that the first, second, third, fourth, and fifth respondents pay the applicant's costs on an indemnity basis, while the sixth respondent was not ordered to pay any costs. The applicant was ordered to pay the respondents' costs relating to the claim concerning the loss of paper sales.
Orders
Orders of the court
1. The claims made by the first applicant in the proceeding be dismissed.
AGAINST THE FIRST, SECOND, THIRD, FOURTH AND FIFTH RESPONDENTS:
2. There be judgment for the second applicant and the first, second, third, fourth and fifth respondents are jointly and severally liable to pay the second applicant the sum of $2,660,043 together with interest in the sum of $916,002.04.
3. The first, second, third, fourth, and fifth respondents be granted leave to apply for a determination as to what proportions as between themselves each should contribute to their joint and several liability to the second applicant for the judgment sum the subject of order 2 above, any such application to be made within 21 days from this day.
ADDITIONALLY AGAINST THE SIXTH RESPONDENT:
4. There be judgment for the second applicant and the sixth respondent pay the second applicant the sum of $1,000.
ADDITIONALLY AGAINST ALL RESPONDENTS:
5. There be a stay on the execution of this order and judgment for a period of 21 days from this day.
COSTS
6. The first, second, third, fourth and fifth respondents pay the second applicant’s costs of the application on an indemnity basis.
7. There be no order for costs against the sixth respondent.
8. The first applicant pay the respondents’ costs of its claim relating to its loss of paper sales.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Full text does not contain this section.
Evidence
Evidence Before The Court
Full text does not contain this section.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
In resisting an order for costs to be paid on an indemnity basis the respondents also referred to offers of compromise which they had made on 13 November 2009 and 17 May 2010. Reference was also to made to a letter from the respondents’ solicitors to the applicants’ solicitors dated 16 September 2009 in which the respondents offered the applicants open access to working papers and client communications for each print job undertaken by LL Force. The offers of compromise which were attached to the respondents’ written submissions were heavily redacted. Full copies were provided to the Court as attachments to the applicants’ reply submissions. The respondents did not seek to submit that these offers of compromise and their rejection by the applicant justified the making of orders under Part 25 of the Federal Court Rules 2011 (Cth) or that the offers invoked Calderbank principles. The offers were relied on defensively.Consideration – indemnity costs orders against respondents The respondents did not seek to dispute the applicants’ allegations about their conduct before and at trial. Nor could they, consistently with my findings in Labelmakers (No 2). The applicants’ pleaded cases alleged that Mr Ernie Cooley, Mr Jason Cooley, Mr Scott Sweeney and Mr Paul Deveney (“the investor respondents”) had, over varying periods during their employment by Labelmakers WA, set about the establishment of a new business which was to compete with their employer. They went to considerable lengths to ensure that their employer did not become aware of their activities. These activities involved the solicitation of clients of Labelmakers WA, the raising of capital, the ordering of machinery and the recruiting of Labelmakers WA’s staff to work in the new business. In their defences the investor respondents, for the most part, denied that they had engaged in these activities. In some instances conduct such as financial planning was admitted but it was claimed that such conduct had been undertaken in circumstances which did not involve any conflict with their fiduciary obligations to their employer. The investor respondents steadfastly denied having sought to ensure the viability of their new business by obtaining commitments from customers of Labelmakers WA to transfer their business to the new entity. In order to establish the falsity of these denials it was necessary for the applicants to obtain documentary evidence from third parties. Loan applications, for example, were obtained from banks from whom the investor respondents had sought funding for their new venture. Those applications, which had been certified by some of the respondents as being true and correct, asserted that named customers of Labelmakers WA (including its largest customer) had committed themselves to supporting the new business. At the request of one of the banks one large customer had provided a letter of comfort confirming that it would place significant orders with the proposed competitor.