Manildra Laboratories Pty Ltd v Campbell

[2009] NSWSC 987

CITATION:	Manildra Laboratories v Campbell [2009] NSWSC 987
HEARING DATE(S):	25/08/09, 26/08/09, 27/08/09 and 28/08/09
JUDGMENT DATE :	23 September 2009
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	McDougall J at 1
DECISION:	See paragraph [198] of the judgment.
CATCHWORDS:	CONTRACTS - employment - scope of fiduciary relationship - scope of contractual duty of fidelity - whether opportunity pursued in competition with employer - whether existing or maturing business opportunity of employer - whether breach of duty of confidentiality - whether confidential information identified with sufficient specificity - whether information actually confidential or capable of being learned through experience - whether information misused - whether knowing assistance or knowing procurement of breach of fiduciary duty - whether fraudulent and improper design. - COMPANIES - directors - whether first defendant shadow director of fourth defendant - no question of principle.
LEGISLATION CITED:	Corporations Act 2001
CATEGORY:	Principal judgment
CASES CITED:	Barnes v Addy (1874) LR 9 Ch App 244 Blyth Chemicals Limited v Bushnell (1933) 49 CLR 66 Bolkiah (Prince Jefri) v KPMG (a firm) [1999] 2 AC 222 Broken Hill Proprietary Company Ltd v Waugh (1988) 14 NSWLR 360 Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371 Corrs Pavey Whiting and Byrne v Collector of Customs (Vic) and Alphapharm Pty Ltd (1987) 14 FCR 434 Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 Edmonds v Donovan (2005) 12 VR 513 at 537 Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd [1987] 78 ALR 193 Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 Smith Kline and French Laboratories (Aust) Limited v Secretary, Department of Community Services and Health (1990) 22 FCR 73 Steinberg v The Commissioner of Taxation of the Commonwealth of Australia (1975) 134 CLR 640 Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272
PARTIES:	Manildra Laboratories Pty Limited (First Plaintiff) Honan Holdings Pty Limited (Second Plaintiff) John Bruce Campbell (First Defendant) The Young Roller Flour Mill Company Ltd (Second Defendant) YSF Pty Ltd (Third Defendant) Aust Asia Milling Pty Ltd (Fourth Defendant)
FILE NUMBER(S):	SC 50151/09
COUNSEL:	F M Douglas QC / L T Linvingston (Plaintiffs) M Dempsey SC / J S Darams (First Defendant) F G Lever SC / L R Young (Second and Third Defendants) M L Williams SC / C Colquhoun (Fourth Defendant)
SOLICITORS:	Baker & McKenzie (Plaintiffs) PricewaterhouseCoopers (First Defendant) Bartier Perry (Second and Third Defendants) Eakin McCaffery Cox (Fourth Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

23 September 2009

50151/09 MANILDRA LABORATORIES PTY LIMITED v JOHN BRUCE CAMPBELL

JUDGMENT

1 HIS HONOUR: The first plaintiff (Manildra) is part of the Manildra group of companies. The Group’s business includes the milling of wheat flour for both human consumption and industrial use. One of its mills is at Manildra. That mill was managed by the first defendant (Mr Campbell) for about 12 years until 24 April 2009.

2 The second and third defendants (collectively, Young) operate a flour mill at Young (the Young mill). That mill too produces wheat flour for human consumption and industrial use.

3 Mr Campbell has been negotiating for some time, both before and after the termination of his employment with Manildra, to buy the Young mill. Contracts for the sale of the Young mill and its business have been exchanged, with the two Young companies as vendors and the fourth defendant (Aust Asia) as purchaser. Mr Campbell will have a substantial shareholding – of the order of 40% - in Aust Asia after completion of the contracts for sale. Aust Asia is a company incorporated for the purpose of buying the Young mill. At present, its sole director is Mr David Julian Turner. Mr Turner is, and for about three years has been, Mr Campbell’s accountant.

4 Manildra says in substance that Mr Campbell has breached fiduciary and contractual obligations owed by him to Manildra, and has contravened ss 182(1) and 183(1) of the Corporations Act 2001. Further, Manildra says, Young and Aust Asia have induced or procured Mr Campbell’s alleged breaches of fiduciary and contractual duties, and his contraventions of the Corporation Act.

The issues

5 The parties agreed that the real issues in dispute were as follows:

1. The scope of the fiduciary and other duties owed by the first defendant to the plaintiffs.

2. Whether the first defendant owes or owed any fiduciary or other duties to the second plaintiff or the Manildra Group and, if so, the scope of any such duties.

3. Whether the first defendant has acted in breach of:

a. fiduciary duties owed to the plaintiffs;
b. sections 182(1) or 183(1) of the Corporations Act 2001 (Cth) (“ Corporations Act ”);
c. an implied contractual obligation to the first plaintiff to act in good faith and with fidelity to the first plaintiff at all times; or
d. an equitable duty of confidence owed to the plaintiffs.

4. Whether the opportunity to acquire or pursue the acquisition of the Young Business arose by reason of the first defendant’s position as an employee of the first plaintiff or any knowledge or opportunity arising from that position.
5. Whether there was a sufficient temporal and causal connection between:


a. the opportunity for profit presented by the proposed acquisition of the Young Business; and

b. the obligations owed by the first defendant to the plaintiffs;
so as to support a conclusion that the first defendant acted in breach of his fiduciary duties to the plaintiffs by pursuing the acquisition of the Young Business without the knowledge, assent and authorisation of the plaintiffs.


6. Whether the “Confidential Information” referred to in paragraph 10 of the Amended Commercial List Statement has been identified with the requisite degree of specificity so as to establish a duty of confidence in any information.

7. Whether the “Confidential Information” referred to in paragraph 10 of the Amended Commercial List Statement was confidential and gave rise to an obligation in the first defendant to preserve its confidentiality.

8. Whether there was any connection between the Confidential Information and the pursuit by the first defendant of the proposed acquisition of the Young Business.

9. Whether the second to fourth defendants knowingly induced, or immediately procured, a breach by the first defendant of fiduciary duties owed to the plaintiffs.

10. Whether the second to fourth defendants knowingly assisted a breach by the first defendant of fiduciary duties owed to the plaintiffs.

11. As alleged against the second to fourth defendants, whether the alleged breaches of fiduciary duty by the first defendant were dishonest and fraudulent or constituted a dishonest and fraudulent design.

12. Whether the second to fourth defendants, in contravention of sections 182(2) or 183(2) respectively of the Corporations Act, were involved in a contravention by the first defendant of sections 182(1) or 183(1) of the Corporations Act.

13. Whether the second to fourth defendants knowingly induced a breach by the first defendant of an implied contractual obligation to act in good faith and with fidelity to the first plaintiff.

14. Whether the first defendant is a shadow director of the fourth defendant.

15. Whether the plaintiffs are disentitled from relief by reason of laches, acquiescence or delay.

16. Whether the plaintiffs are entitled to relief.

17. The appropriate form of relief.

Factual background

Manildra’s operations

6 The chairman of the board of Manildra is Mr John Thomas Honan Jnr. He acquired the Manildra mill, then one of Australia’s smallest flour mills, in 1952. Over the intervening 57 years, he has built the Manildra Group up to the point where it is the largest producer of wheat flour in Australia. For each of the last three financial years, it has produced in excess of 575,000 tonnes of flour. Some of that flour is used for human consumption. Some of it is used for industrial purposes (in particular, the production of ethanol). By-products of the milling process have other industrial, and agricultural, uses. Manildra has been a substantial exporter of flour. However, over the last three financial years, the volume exported by it has dropped more than 50%. That is due in substance to the rapidly increasing use of wheat flour for the production of ethanol.

7 Most of Manildra’s exports were to South East Asia, and to Indonesia in particular. Mr Campbell’s responsibilities, as general manager of the Manildra Mill, included some responsibility for sales in Indonesia.

8 Manildra operates three flour mills: at Manildra, Gunnedah and Narrandera. It is constructing a fourth mill at Nowra, adjacent to its ethanol plant. That mill should become operational around the end of 2010. It is intended that its output will be devoted to the manufacture of ethanol, and that an equivalent tonnage from the other mills will then be available for export. The export market in South East Asia is expanding rapidly, although it is supplied by producers from a number of countries, not just from Australia.

The Young mill

9 The Young mill (or the Young Roller Flour Mill, to give it its correct title) was established more than 100 years ago. The managing director of Young, and the manager of the Young mill, is Mr Allan Murphy. Young’s operations are miniscule compared to Manildra’s. At present, the Young mill operates at substantially less than full capacity. Even if it were operated at what Mr Campbell estimates to be a realistic level of production, its annual output would be somewhat less than 4% of the annual production of Manildra. (Of course, Manildra produces flour from three mills at present.) If some relatively simple changes were made to the operation of the Young mill, its capacity, and no doubt annual output, would more than double.

Mr Campbell’s plan

10 On Mr Campbell’s evidence, he first considered buying the Young mill in the late 1990s. He did nothing about this idea until, in the period from 2003 to 2005 (in this respect, as in many others, Mr Campbell’s evidence was lacking in specificity) he approached Mr Murphy on a number of occasions to see whether Mr Murphy was interested in selling the mill (which he was) and, if so, on what terms. Nothing happened then as a result of those discussions.

11 During this period, Mr Campbell developed a business plan for the acquisition and operation for the Young mill. Other (later) versions of that document were referred to in the evidence as a “sales document”. He gave a copy of that plan to Mr Turner. Mr Turner thought that it was a good business opportunity, and said that he would be interested in being part of a consortium to buy the Young mill. Mr Campbell continued to cease work on the business plan, and Mr Turner assisted with analysis of its financial aspects. Mr Campbell said that “[t]he work that I did on the business proposal during 2007 or… was done sporadically in my own time outside the work I was doing for Manildra” (affidavit sworn 24 August 2009, para 53).

12 In about April 2008, Mr Murphy put specific terms to Mr Campbell. He presented four alternatives, ranging from lease through partial sale (with Young retaining the stock feed business) or a joint venture involving Mr Murphy in the whole business, to outright sale.

13 Thereafter, Messrs Campbell, Murphy and Turner had a number of discussions, and Messrs Turner and Murphy held separate discussions. Those discussions resulted in the production of notes, which matured into a “heads of agreement” between the Young companies as “seller 1” and “seller 2” and Aust Asia as “buyer” signed on 3 February 2009. Although that document contemplated the execution of formal agreements for sale, it was expressed to be binding. It specified the subject matter (fixed and movable assets of the Young mill and the land on which it is constructed), the price (a total of $4 million plus stock at valuation) and a time for completion (6 months from execution of the formal contracts for sale).

14 Formal contracts for sale were exchanged on 10 March 2009.

Did Manildra want the Young mill?

15 It is Manildra’s case that “[t]he Manildra group was having difficulty with meeting its wheat flour export orders since about 2009… primarily because the Nowra [ethanol] facility was increasingly using more wheat flour for industrial purposes” (Mr Honan’s affidavit sworn 18 August 2009, para 13). Mr Honan said that throughout 2009, he had a number of telephone conversations with Mr Campbell to see if “other flour mills [could] supply the Manildra Group with tolled flour”. This refers to a practice whereby a flour mill with spare capacity will mill wheat for another miller, at an agreed price (or “toll”) per tonne. Mr Honan said that he directed Mr Campbell to approach other flour millers, including Young. Specifically, Mr Honan said that in about February 2009, he directed Mr Campbell to “[a]pproach Allan Murphy of Young mills to try to secure a toll mill flour arrangement with us. You’ll need to get a price from them and then we can discuss it further” (same affidavit, para 16).

16 Mr Campbell denied that he had had such a conversation with Mr Honan.

17 I do not accept that Mr Honan gave that instruction to Mr Campbell. Mr Honan agreed in cross-examination that the passage of his affidavit that I have quoted was the only instruction that he gave to Mr Campbell to approach Mr Murphy, and that he had no note, or document, or follow-up email, in which he recorded or referred to that direction (T34.10-.40). Nor could he recall when in February 2009 he gave that instruction (T35.10,.40). Mr Honan said that when he gave an instruction to an employee, he expected it to be followed up immediately, and that he expected the employee to report back as soon as the instruction had been executed (T23.40-24.10). My impression of Mr Honan in the witness box was that he was not someone who would suffer lightly any perceived dereliction of duty, or failure of attention, on the part of an employee. Nonetheless, Mr Campbell did not report back to Mr Honan, in February or March 2009 or at all, in relation to the alleged direction; nor did Mr Honan follow it up.

18 Mr Honan said that the direction was a matter of importance to him (T38.10-15). I do not accept that if Mr Honan had given what he regarded as an important direction to an employee, he would not have taken any step to follow it up if the employee had not reported back promptly. Nor do I accept that Mr Honan would have remained silent (as he said he did) if there were no response whatsoever (as he says was the case), in relation to a matter thought by Mr Honan to be of importance. When these matters were put to Mr Honan, his response was less than direct (T36.45):

Q. I suggest to you that is completely inconsistent with your management style and what you have told his Honour about it this morning?
A. I am telling you that I called John Campbell in February and gave him that direction.

19 Mr Honan’s further attempts to explain this (by saying, for example, that “[i]t was up to him to report to me” – T37.27; or “most employees would call me back” (T38.38)) did not make this apparently aberrant failure of his normal management style any easier to understand.

20 Finally, in this context, Mr Honan said that he held the view in April 2009, and had held it for a long time previously, that “there was no money in toll milling” at least “in relation to Young Flour Mills” (T66.19-.35). It was then put to him that, he holding this view, there was no reason for him to have asked anyone to investigate a toll milling arrangement with the Young mill. He was unable to explain this apparent inconsistency, and what seemed to me to be his attempts to evade it suggested that he was unable to do so (T66.35-67.6).

21 To my mind, having regard to Mr Honan’s firmly held views on the undesirability of entering into a toll milling arrangement with Young, it is unlikely that he would have instructed Mr Campbell to investigate that very subject matter. It is even less likely that, had Mr Honan given Mr Campbell such an instruction, he would have put up with a failure on the part of Mr Campbell either to execute it or to report back.

22 As I have said, I do not accept that Mr Honan gave the instruction in question. I accept Mr Campbell’s denial that any such instruction was given.

Mr Campbell approaches Manildra’s staff

23 As Mr Campbell’s plans to acquire the Young mill developed, he turned his mind to the subject of staff to operate the mill. Versions of the business plan prepared by Mr Campbell and revised from time to time, from at least 2007 or 2008, deal with this topic. One version of this document, produced at some time in 2008 (again, Mr Campbell was unable to be specific about the date) had a section headed “Management and Key Personnel”. Under the heading “Management” there appeared Mr Campbell’s name, and details of his relevant experience. Under the heading “Key Personnel” there were descriptions of a “proposed Head Miller”, a “proposed Head of Maintenance” and a person to “manage Administration and Export Management”.

24 Mr Campbell agreed that the descriptions given of those people corresponded to Mr Gary Douglas, Mr Keith Cox and Mr Wayne Gersbach. They were, during 2008 and until recently, respectively the head miller and maintenance manager at the Manildra Mill and a senior export coordinator employed by Manildra. Each of them has resigned from Manildra (after Mr Campbell’s employment came to an end on 24 April 2009) and joined in with Mr Campbell’s consortium. It appears that, assuming the sales go ahead, each is prepared to assume the role identified for him in the business plan.

25 Mr Campbell denied that he had solicited those gentleman to leave their employment, and follow him, before 24 April 2009. He said merely that he had discussed with them in general terms his thoughts about leaving the employ of Manildra and setting up his own business at Young, and that each of them expressed an interest in joining him if he did so. I do not accept that evidence. I do not think that Mr Campbell would have made the statements to which I have referred in the business plan unless he was assured that the people in question would join him in due course. I accept that, as he said, there may not have been “formal contracts” for each of those men. I do not accept that there was no clear arrangement, even if not one amounting to a binding contract. In this context, I note that neither Mr Campbell nor Aust Asia called any of those gentlemen to give evidence of the circumstances in which he came to throw his lot in with the Aust Asia enterprise, or of his discussions with Mr Campbell during 2008 and 2009. Given that each has left the employ of Manildra, there is no reason (on the evidence) why he could not have been called to support this aspect of Mr Campbell’s evidence.

The business opportunity in Indonesia

26 Mr Campbell identified the principal business opportunity for the Young mill as being to supply part of the increasing demand for wheat flour in Indonesia: specifically, what he regarded as a “gap” in supply arising from the fact that Manildra was, increasingly diverting its own flour to the production of ethanol. Clearly enough, it was important that there be an effective sales staff in Indonesia. Mr Campbell identified, as a candidate for someone to head his sales staff in Indonesia, a Mr Wagiman Tandun. Mr Tandun is the head representative of the Manildra Group based in Medan in the Republic of Indonesia. His areas of responsibility extend beyond Indonesia to the South East Asian region generally. In essence, his role is to find customers for Manildra’s flour in Indonesia (and elsewhere) at a price acceptable to Manildra. Mr Tandun said that he had developed contacts with customers (or potential customers) throughout Indonesia, and that throughout his employment Mr Campbell and he had visited the majority of those customers. There is no doubt that Mr Campbell went on what were in essence sales or marketing trips to Indonesia on a number of occasions, and that on each of those trips he, in company with Mr Tandun and others, visited a substantial number of customers or potential customers.

27 Mr Tandun said that, in about 2006, Mr Campbell said that he wanted to introduce him to a business opportunity in Australia, and that Mr Campbell provided him with a draft of the business plan (as it then existed) in 2007 or 2008. Mr Tandun said that Mr Campbell offered him both employment and a share in the business.

28 Further, Mr Tandun said, Mr Campbell repeated the offer of employment, and a share in the business, at some time during the week (commencing 20 April 2009) when Mr Campbell’s employment ceased, and that Mr Campbell repeated the offer thereafter.

29 Mr Tandun’s evidence was admitted without objection, and he was not required for cross-examination on it.

30 The version of the business plan given to Mr Tandun in 2007 or 2008 said among other things:

“The leading marketer of Australian Wheat Flour based in South- Asia [sic] will enhance marketing expertise. He has the most extensive contacts not only throughout the South-East Asian region but most specifically with the entire Indonesian wheat flour market.”

31 It is clear that this was a reference to Mr Tandun.

32 A later version of the document, from which I have taken the details as to Mr Douglas and others at [23] above, also referred to Mr Tandun (although not by name). Under the heading “Profiles of Indonesian Partners” it referred to “[a]n experienced wheat flour marketer, who has 11 years of productive sales achievement in South-East Asia in particular Indonesia market”. Clearly, as Mr Campbell accepted, this was a reference to Mr Tandun. The document went on to extol Mr Tandun’s qualifications, abilities and experience.

33 It follows that for some time prior to the termination of his employment, Mr Campbell solicited Mr Tandun to sever his connection with Manildra and to join him in the new venture based on acquisition of the Young mill.

Mr Campbell’s silence

34 Mr Campbell did not mention to Mr Honan, or to any other superior at Manildra or in the Manildra Group, his steadily maturing plans to acquire the Young mill, or his approaches to employees of Manildra. He said that he did not do so because he was “concerned that Mr Honan and/or Manildra would take some kind of commercial or financial action or step through Mr Honan’s extensive business and financial connections to prevent the purchase of the Young Mill” (affidavit, para 78).

35 Although Mr Campbell was challenged on that explanation (and on the reasons that he gave for it, which I will not set out) I do not think that it can be discounted entirely. Particularly given that Mr Honan was looking to increase the milling capacity of the Manildra Group, I think it at least possible that, had he known that the Young mill was for sale, he would have looked closely at buying it. The financial resources of the Manildra Group are, no doubt, very much greater than the financial resources available to Mr Campbell and the other members of his consortium, and the Manildra Group would have been able to outbid Mr Campbell’s consortium if it chose to do so. (Having said that, my impression of Mr Honan is that he is not a man given to paying what he would regard as an excessive price for any business asset.)

36 Nonetheless, it is clear that rumours were circulating throughout Manildra that Mr Campbell was contemplating the purchase of the Young mill.

37 On 23 April 2009, Mr Campbell told Mr Honan of his decision to resign. Even then, Mr Campbell did not disclose frankly or in full what he proposed to do. On his evidence he said that he was going to export grain and other processed products. On Mr Honan’s evidence, he asked Mr Campbell who his business associates would be and Mr Campbell said that he would speak to them to see if he could disclose their identities. Mr Campbell denies that there were words to this effect spoken, but I think it likely that there were.

38 Mr Honan said also that he asked Mr Campbell whether he was involved with any other flour milling company, and that Mr Campbell said that he was not. Mr Campbell denied that there was such a conversation. I think it likely that Mr Honan would have asked a question to this effect. It is likely that Mr Honan would have had concerns if Mr Campbell were going to work for a competitor.

39 The next day, 24 April 2009, Mr Honan was at the Manildra mill. He spoke to an employee there, who said that there were rumours that Mr Campbell was involved in the purchase of the Young mill and that he had approached some of Manildra’s staff to work there. Mr Honan called for Mr Campbell and taxed him with this, and with the less than frank disclosure made by Mr Campbell the previous day. There is a significant discrepancy between the tone of the account of that conversation given by Mr Campbell, and the tone of the account given by Mr Honan. To the extent that it is necessary to express a preference, I prefer the evidence of Mr Honan. Mr Campbell’s evidence is to the effect that Mr Honan used foul and abusive language. Mr Honan denies this. There was a party of bankers in the adjoining room, waiting to be taken around the mill by Messrs Honan and Campbell. I think it unlikely that Mr Honan would have allowed his temper to get the better of him to the point where he used such language, in circumstances where it was quite likely to have been overheard by those bankers.

40 On the afternoon of that day (and presumably after the bankers had left), Mr Honan addressed the staff at the Manildra mill. He referred to Mr Campbell’s accepted resignation. An employee present at that meeting, Mr John Chilcott (the human resources manager of the Manildra Group) said that Mr Honan referred to a list, in Mr Campbell’s office, of flour mills that once, but no longer, operated in New South Wales and said “soon the Young Flour Mill will be on that list”. Mr Honan denied that he used those words. There was a list of mills, many of which had ceased to operate, in Mr Campbell’s office. I see no reason why Mr Chilcott would mistakenly attribute those words to Mr Honan. The implied threat is something that an employee in Mr Chilcott’s position would be likely to remember.

41 It was put to Mr Honan that he said, in addition, that he would “crush” Mr Campbell. Mr Chilcott could not recall hearing Mr Honan say that, and Mr Honan denied that he said it. No witness was called to give evidence to the contrary. I do not accept that Mr Honan did use the word “crush”. Having said that, the remark that he made about the Young mill being soon to joint the list of disappeared mills is not remarkably different in substance or effect.

Credibility

42 The witnesses whose affidavits were read were Messrs Honan (who swore three affidavits), Peter Edwin Stretton (the chief financial officer of the Manildra Group), Chilcott and Tandun (all for Manildra); Mr Campbell; and Mr Murphy.

43 Messrs Stretton and Tandun were not required for cross-examination and I accept their evidence, so far as it goes. Mr Chilcott was cross-examined briefly, but not in a way that cast any doubt upon his credibility. I accept his evidence so far as it goes.

44 Mr Murphy’s affidavit (although sworn in his capacity as a director of, and filed for, Young) was read in the plaintiffs’ case. Perhaps not surprisingly in those circumstances, Mr Murphy was not cross-examined in a way that cast any doubt on his credibility. I accept his evidence.

45 Before I deal with the remaining witnesses, I should say that there were some conflicts, relatively small in extent if not significance, between the evidence of Mr Murphy on the one hand and Mr Honan on the other. Those differences turned mostly on the content of conversations that took place between Mr Honan and Mr Murphy during April 2009.

46 According to Mr Honan, in some of those conversations, (specifically, on and after 28 April 2009), Mr Murphy said things from which it could be inferred that he knew that Mr Campbell was interested in buying the Young mill for himself, and not for Manildra. (Mr Murphy’s evidence was that at all times he believed that Mr Campbell was representing the interests of the Manildra Group.) Mr Honan said that Mr Murphy said, in one of those conversations: “I told John when the deposit was paid that he should inform you. I was surprised to receive a telephone call from you about your interest in leasing the mill. I told this to John and once again told him that he should tell you about his interest in the Young mill”. Mr Murphy denied that he used those words.

47 As I have noted, Mr Murphy was not challenged on his evidence (although he was briefly cross-examined). In those circumstances, I accept this aspect of his evidence in preference to Mr Honan’s evidence. It follows that I am not prepared to find that Mr Murphy used to Mr Honan words from which it could be inferred that Mr Murphy knew that Mr Campbell was negotiating in his own right. It follows further that I should accept Mr Murphy’s evidence to the effect that at all material times, during his negotiations with Mr Campbell, he believed that Mr Campbell was representing the interests of Manildra. Mr Murphy said that this continued to be his belief up until the time the binding heads of agreement were signed and that “I fully expected that following the sale, the Young Business would be rebadged as part of Manildra’s flour milling business in Young” (affidavit sworn 24 August 2009, para 45). Again, Mr Murphy was not challenged on this aspect of his evidence.

48 I turn to Mr Honan. I have outlined above concerns that I have with two particular aspects of his evidence. Those concerns gave me cause to think carefully about whether I should accept his evidence. The instruction allegedly given to Mr Campbell in February 2009 was an important part Manildra’s case. The inconsistencies to which I have referred in this aspect of Mr Honan’s evidence troubled me. Likewise, the inconsistency between Mr Honan and Mr Chilcott (as to the list of disappeared mills) was a source of concern. I thought that Mr Honan’s denial represented a conscious attempt to portray himself as a reasonable, but not vindictive, businessman; and that it was not a mere lapse of memory.

49 Again, I was concerned at the inconsistency between Mr Honan’s evidence and the unchallenged evidence of Mr Murphy. What could have been regarded as an admission by Mr Murphy was an important part of Manildra’s case against Young. However, in circumstances where (for obvious reasons) the discrepancy was not explored, I do not propose to take that into account in my assessment of credibility.

50 Another problem with Mr Honan’s evidence was that (particularly as to matters of confidential information said to have been known to Mr Campbell through his employment) it was pitched at a level of some considerable generality.

51 In one particular respect, Mr Honan’s recollection was shown to be faulty. In his affidavit sworn 18 August 2009, Mr Honan said at para 18 that he himself contacted Mr Murphy on 9 April 2009 to discuss the possibility of Manildra’s leasing the Young mill. In para 19, Mr Honan said that on 14 April 2009 that he sent an email to Mr Murphy confirming that conversation. However, in cross-examination, Mr Honan insisted that the email was sent on the day of the conversation (T56.22-.23):

Q. You followed that conversation up five days later with an Email?
A. No. That day. I believe the Email was sent that day.

52 It was not until Mr Honan was taken to para 19 of his affidavit that he acknowledged “[y]es, I can see now that it wasn’t sent on that day” (T57.14). There is greater significance than a mere slip of memory. The email was intended to confirm the conversation. It did not do so. Specifically, Mr Honan said that he told Mr Murphy that he wished to lease the mill for two years; Mr Murphy said that there was no mention of a two year (or any) term. The email made no mention of any term of years.

53 It is unnecessary to express a concluded view as to Mr Honan’s credibility. It is sufficient to say that, in some areas, I prefer his evidence to that of Mr Campbell; and in others (specifically, the conversation of February 2009) I prefer Mr Campbell’s evidence. However, to the extent that there is a conflict between the evidence of Mr Honan and the evidence of Mr Murphy, I prefer the evidence of Mr Murphy.

54 I have to say that I did not regard Mr Campbell as an entirely satisfactory witness. During his long (and to some extent repetitive) cross-examination, he displayed a considerable ability to evade the point of a question, and to furnish more or less non-responsive answers. That may be seen, for example, in his evidence:

(1) in relation to his approaches to employees of Manildra (see T147.32-.48; and, as to Messrs Cox, Douglas and Gerbach, at T150.8-152.5);

(2) as to his knowledge of Manildra’s difficulties in obtaining sufficient flour (see, generally, T133);

(3) as to his marketing responsibilities in Indonesia (T136.8-.43); and

(4) as to the proposition that the identity of those involved in the Aust Asia venture should be kept separate – “under wraps” – for as long as possible (T165.20 – 166.36).

55 I do not propose to go into greater detail on this topic, although I rely on observations later in these reasons as to other specific unsatisfactory aspects of Mr Campbell’s evidence. I note however that even if I were to disbelieve Mr Campbell completely (giving detailed reasons for doing so), it would not follow from that alone that the converse of what he said should be found to be correct. See Gibbs J in Steinberg v The Commissioner of Taxation of the Commonwealth of Australia (1975) 134 CLR 640 at 694. This is not a case where “the truth must lie between two alternative states of fact” (and see also Clarke JA, with whom Kirby P and Hope JA agreed, in Broken Hill Proprietary Company Ltd v Waugh (1988) 14 NSWLR 360 at 366).

First issue: the duties owed by Mr Campbell to Manildra

56 It is clear that, as an employee of Manildra, Mr Campbell owed contractual duties (in this case, duties implied into his contract of employment, since it appears that there was no express agreement) and fiduciary obligations.

57 It was in substance (leaving aside questions of verbiage) common ground that Mr Campbell owed his employer, Manildra:

(1) a fiduciary obligation not to obtain a personal benefit by use of his position or from an opportunity or knowledge gained by him by reason of that position;

(2) a fiduciary obligation to avoid conflict, or a real or substantial possibility of conflict, between the interests of Manildra and his own interests (and interests of or duties owed by him to others); and

(3) a fiduciary obligation to account to Manildra for any benefit or gain obtained by him in breach of either of those duties.

58 Mr Douglas of Queens Counsel, who appeared with Mr Livingston of counsel for Manildra, submitted that, in addition, Mr Campbell owed Manildra an implied contractual obligation of good faith and fidelity. He cited the judgment of Dixon and McTiernan JJ in Blyth Chemicals Limited v Bushnell (1933) 49 CLR 66 at 81-82, and on the judgment of Kearney J in Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 at 493. Mr Dempsey of Senior Counsel, who appeared with Mr Darams of counsel for Mr Campbell, did not deal in terms with this submission.

59 In Timber Engineering, Kearney J said at 493 (3) that the defendants breached their contractual duty of good faith to their employer, the plaintiff, by starting up a competing business in their own interests whilst they were employed.

60 In Blyth Chemicals, Dixon and McTiernan JJ at 81 gave, as examples of conduct that would justify dismissal, an employee’s destroying his employer’s confidence in him by entering into a competitive business; or, more generally, by conduct which “is incompatible with the fulfilment of an employee’s duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee”. Further, their Honours said at 82, the conduct must of itself “involve the incompatibility, conflict, or impediment, or be destructive of confidence”. It was not enough “that ground for uneasiness as to… future conduct arises”.

61 In Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172, the Court of Appeal considered the sources and nature of an ex-employee’s obligations as to confidential information that he had acquired during the course of his employment. Hodgson JA (with whom McColl JA agreed) said at [32] that “it is clear that a contract of employment generally includes an implied term imposing a duty of good faith on the employee, and that this turn [sic] carries with it an obligation on the employee not to divulge confidential information or to use it in a way that could be detrimental to the employer”.

62 In the same case Campbell JA (with whom also McColl JA agreed) said at [76] that all contracts of employment included an implied term whereby the employee undertook honestly and faithfully to serve the employer, not to abuse the employer’s confidence in matters relating to the employment and to protect the employer’s interests in respect of confidential information.

63 In substance, I think, the duty to which their Honours referred can be identified as one of fidelity or loyalty. I proceed on the basis that Mr Campbell owed such an implied duty to Manildra. What is important, however, is not so much the existence of such a duty but its precise content, or scope, or incidents. Mr Douglas did not suggest that his clients could succeed on breach of the implied contractual obligation even if they failed on breach of fiduciary duty (or vice versa).

64 Mr Douglas submitted further that Mr Campbell owed Manildra an “equitable duty of confidence.” Mr Dempsey did not deal with this in submissions. I proceed on the basis that Mr Campbell owed Manildra, as an incident of his fiduciary obligations to it, a duty of confidentiality; and that this duty survived the termination of his employment (see Bolkiah (Prince Jefri) v KPMG (a firm) [1999] 2 AC 222). On the analysis of Campbell JA in Del Casale, that would be an implied contractual duty as well.

65 In truth, the real area of dispute is not so much as to the general nature of the duties owed but as to their scope or extent, and of course as to their application to the particular facts of this case. Since the question of the scope of the fiduciary obligation is one to be dealt with on the facts of the particular case (as Mason J, although in dissent, pointed out in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 102), I think it best to deal with this when looking at the individual complaints of breach: that is, in connection with issue 3.

66 It is convenient at this point to deal with the proposition that the fiduciary duties survived the termination of the relationship that brought them into being. There is no doubt that, in some circumstances, this is so. See the judgment of Laskin J in the oft-cited case of Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371 at 382. As his Lordship there said, this will often be the case where a director or senior officer of a company resigns so as to usurp for himself or divert to another “a maturing business opportunity which his company is actively pursuing”, in circumstances “where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired”.

67 However, as Phillips JA (speaking with the concurrence of Winneke P and Charles JA) said in Edmonds v Donovan (2005) 12 VR 513 at 537 [58], “the existence and scope of fiduciary obligations must always be assessed in the particular context in which they are claimed to arise”. Thus, as his Honour pointed out, it is unwise to seek to generalise from one case, involving its own particular facts, to another.

Second issue: did Mr Campbell owe fiduciary or other duties to the second plaintiff or the Manildra group?

68 The fiduciary duties that Mr Campbell owed to Manildra arose out of his employment. The implied contractual obligation of fidelity (as for convenience I shall call it) was necessarily referable to the contract of employment.

69 There may be cases where a person employed by one company in a group owes fiduciary obligations to another company within that group. For example, if a person is employed by company A to render services to company B, and is for all effective purposes, even if not in law, an employee of company B, it may be legitimate to find that the person owes fiduciary duties to company B. But this is not such a case. The contract of employment was between Manildra and Mr Campbell. Mr Campbell performed his duties for Manildra. There is nothing in the evidence to suggest that his fiduciary obligations should extend beyond Manildra to the second plaintiff, or to other members of the Manildra Group (noting, of course, that the only members of the Group that were parties to the proceedings were the two plaintiffs).

70 A fortiori, so it seems to me, there could have been no contractual duty owed by Mr Campbell to anyone other than Manildra, the counterparty to his contract of his employment.

Third, fourth and fifth issues: did Mr Campbell breach the duties that he owed to Manildra?

71 It is convenient to consider these issues together.

The competing submissions

72 Mr Douglas submitted that:

(1) Mr Campbell, during the course of his employment by Manildra, was setting up to compete with it in the Indonesian market;

(2) the opportunity that he sought to exploit – the opportunity to export wheat flour to Indonesia – was a business opportunity of Manildra’s;

(3) the knowledge used by Mr Campbell to formulate his business plan was knowledge gained by him in the course of his employment;

(4) Mr Campbell knew, through his employment by Manildra, of the abilities of those Manildra employees whom he poached (or sought to poach);

(5) Mr Campbell knew, again through his employment, of the constraints in Manildra’s ability to produce wheat flour, and that those constraints would not ease until the new mill at Nowra began production in late 2010 or early 2011;

(6) Mr Campbell became aware, before 24 April 2009, that Manildra was interested in entering into lease or toll milling arrangements with other millers in general, and with Young in particular (this latter aspect of knowledge was said to have arisen after Easter 2009 – i.e., within a fortnight before the termination of Mr Campbell’s employment); and

(7) the opportunity to acquire the Young mill was a business opportunity, or maturing business opportunity, of Manildra; and an opportunity or maturing opportunity that Mr Campbell had diverted or usurped for himself and his associates.

73 In addition, Mr Douglas admitted, the Court should accept Mr Honan’s evidence that he directed Mr Campbell to approach Young mill. For the reasons that I give at [17] to [20] above, I do not accept that evidence, and I do accept Mr Campbell’s evidence that no such direction was given.

74 Mr Dempsey submitted that:

(1) Mr Campbell was not constrained by any restraint of trade clause in his contract of employment;

(2) at no stage in the course of his employment by Manildra did Mr Campbell compete with Manildra;

(3) it was not unlawful, nor in breach of duty, for Mr Campbell, in the course of his employment by Manildra, to make preparations to compete with it after he left its employ;

(4) the opportunity to acquire the Young mill was not an opportunity that came to Mr Campbell in the course of, or by reason of his employment, nor was it an opportunity (present or maturing) of Manildra, nor was it an opportunity of the kind that Mr Campbell, in the course of performing his duties for Manildra, was required to seek out or exploit;

(5) it was not unlawful, nor in breach of duty, for Mr Campbell to use his general know-how or knowledge built up in the course of his employment by Manildra for the purpose of setting up a competing business, because that know-how or knowledge could not be said to be confidential to Manildra;

(6) the opportunity to export wheat flour to Indonesia was not a maturing business opportunity of the kind that equity would protect; Manildra was well aware of the opportunity, but had made a deliberate commercial decision to divert its wheat flour to the production of ethanol rather than the export market;

(7) Mr Campbell had not diverted, or attempted to divert, to himself or Aust Asia any of Manildra’s contracts for the supply of flour in the South East Asian market in general or the Indonesian market in particular.

75 In addition, Mr Dempsey submitted that Mr Campbell’s fiduciary obligations came to an end when his contract of employment terminated. For the reasons that I have given at [66] and [67] above, I do not think that this can be accepted as a proposition of law capable of application in all circumstances. Whether or not any fiduciary obligation survives the termination of the relationship that engenders it, and the scope or content of any surviving obligation, are questions to be considered on the facts of the particular case.

Decision

76 It is convenient to look at these issues by reference to six subjects:

(1) the general principles applicable (to the extent that I have not dealt with them already);

(2) Mr Campbell’s responsibilities;

(3) the nature of the opportunity to acquire the Young mill and whether that was an existing or maturing business opportunity of Manildra;

(4) the nature of the opportunity to supply wheat flour to Indonesia and whether that was an existing or maturing business opportunity of Manildra;

(5) the way in which Mr Campbell put together his business plan and developed the model for his competing business; and

(6) the way in which Mr Campbell went about securing staff for his new business.

The applicable principles

77 In this context, Mr Dempsey raised two specific points. The first was that it was not necessarily a breach of duty for Mr Campbell, during the course of his employment by Manildra, to prepare to compete with it once his employment came to an end. He relied on the decision of Bryson J in Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272. The second point was that an employee may exploit, in competition with his employer after termination of employment, general know-how or knowledge built up in the course of that employment unless the knowledge is truly confidential. He relied on the decision of the Court of Appeal in Del Casale.

78 In my view, both of those propositions are correct, at least at the level of principle.

79 The facts in Weldon were that the defendant, who had been employed by the plaintiff as an accountant in the plaintiff’s public accountancy practice for more than 10 years, took steps, whilst she was still employed, to set up a practice as a public accountant on her own. She did not tell the plaintiff that she was taking those steps. Once the necessary steps had been taken, she gave notice. At the expiration of her notice, she left the employ of the plaintiff and started work on her own account. As soon as she did so, she canvassed many people who had been clients of the plaintiff.

80 Bryson J proceeded on the basis that:

(1) the contract of the employment contained an implied promise to serve with good faith and fidelity; and

(2) the defendant owed fiduciary obligations, the effect of which included that she could not divert to herself maturing business opportunities of the plaintiff.

81 It is clear from his Honour’s reasons that he did not regard the mere fact that the defendant had taken steps, during the currency of her employment by the plaintiff, to leave and set up business in competition with the plaintiff as of itself demonstrating a breach of her implied contractual or fiduciary obligations. The judgment demonstrates that it is necessary to pay close attention to the individual steps taken, to see whether they demonstrate a breach of obligation. If none of those steps individually involves a breach of any contractual or fiduciary obligation, then collectively they will not do so.

82 Of course, his Honour’s decision does not support the proposition that it can never be a breach of contractual or fiduciary obligation to take steps, during the currency of employment, to set up a business that will, after the termination of employment, compete with the employer. What it does show is that if this conclusion is to be reached, it will be because some or all of the steps taken involve a breach of duty, not because, collectively, they can be described as “preparing to compete”.

83 In this case, it is not sufficient to say that Mr Campbell breached his fiduciary or contractual obligations to Manildra simply because, during the currency of his employment, he took steps to set up a business that would, after the termination of his employment, compete with Manildra. It is necessary to look at the steps that he took to see whether any of them involved a breach of obligation.

84 As to the second point: the decision in Del Casale demonstrates that not all confidential information becoming known to an employee during or by reason of his or her employment will be protected on termination of that employment. Where confidential information acquired by an employee during or in the course of his or her employment becomes part of the general know-how of the employee, or cannot realistically be separated from that know-how, equity will not protect it unless it is of the nature of a secret formula or process, or, more generally, something that is unlikely to be ascertained by independent inquiry or experience.

85 An example of the distinction can be found in the case of Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317. The confidential information in that case was said to be that, of about 3000 Taiwanese suppliers of particular products, only four were reliable. The identity of those four reliable suppliers became known to the appellant in the course of his employment by the respondent. The Court of Appeal held that the information, although “valuable commercial information which the respondent [kept] to itself as far as it [could]” (Gleeson CJ at 320), was not confidential information of a kind that would be protected in equity. As Hodgson JA said in Del Casale at [46], it was implicit in that conclusion that the relevant information “was very difficult to isolate from the ex-employee’s general experience and know-how”. Thus, “there would be the artificiality of requiring the ex-employee to engage in some exercise of trial and error to ascertain reliable suppliers, in circumstances where the ex-employee already had the knowledge that these four suppliers were reliable.”

86 Strictly speaking, I do not think that it is correct to say that the distinction to be drawn is (as Mr Dempsey’s submissions appeared to suggest) between know-how on the one hand and confidential information on the other. The real question, I think, is whether:

(1) the confidential information is of a kind that can be ascertained by trial and error, in which case (as Hodgson JA said) there is little point in requiring the ex-employee to go through the artificial exercise of conducting that process of trial and error; or

(2) the confidential information is of a kind that is unlikely to be capable of independent discovery.

87 If the confidential information falls into the second category then, notwithstanding that it may form part of the ex-employee’s know-how, equity may restrain its use, after employment, in a manner adverse to the interests of the ex-employer.

Mr Campbell’s responsibilities

88 As I have said, Mr Campbell was the general manager of the Manildra mill. In this capacity, he received a substantial salary, together with superannuation and other benefits, and had the use of a company car.

89 Mr Campbell’s responsibilities included the following:

(1) he managed the Manildra mill;

(2) he was one of a team responsible for buying wheat for Manildra;

(3) from time to time, he negotiated with Mr Murphy in relation to matters such as contract packaging and contamination issues; and

(4) he had a substantial role in relation to Manildra’s sale of wheat to Indonesia.

90 In relation to the fourth aspect of Mr Campbell’s responsibilities, he worked with Manildra’s sales staff in Indonesia. Mr Campbell gave qualified assent to the proposition that he was “the point person at Manildra who at the direction of Mr Honan dealt with the Indonesian export market” (T206.6-.14):

Q. Now, in paragraph 28 of that affidavit, you set out the tasks which you were required to perform. In that paragraph, you say you dealt with, at the direction of Mr Honan - sorry, I will commence at the beginning of it. You refer to export sales from the Manildra mill which you dealt with at the direction of Mr Honan by liaising with Manildra's sales offices in Indonesia which handled the negotiation and sales of wheat to Indonesian customers. So you were the point person at Manildra who at the direction of Mr Honan dealt with the Indonesian export market?
A. I think so, yes.

91 I have to say that I am not quite sure why Mr Campbell thought it necessary to express his assent in this qualified manner.

92 Mr Campbell:

(1) visited Manildra’s sale staff in Indonesia about three to four times per year;

(2) when he did so, met Mr Tandun to discuss sales;

(3) in company with Mr Tandun or other sales staff, met customers and prospective customers for Manildra’s wheat flour; and

(4) relayed to the Indonesian sales staff Manildra’s (or Mr Honan’s) expectations of selling prices.

93 There was no evidence that at any time it formed any part of Mr Campbell’s responsibilities to seek out opportunities for Manildra to grow by acquiring competitive businesses. Nor was there any evidence that at any time it formed any part of Mr Campbell’s responsibilities to seek out, of his own volition, opportunities to increase Manildra’s output of milled wheat flour through leasing or toll milling arrangements. On the contrary, the proper inference from Mr Honan’s evidence is that it was he who from time to time made the decision to look for leasing and toll milling opportunities, and that, at most, the responsibility of Mr Campbell and others was to execute such instructions as Mr Honan might give them. Indeed, the alleged instruction given to Mr Honan by Mr Campbell in February 2009 (see at [15] above), had it been given, would have been exceptional because, so far as the evidence appears, every other attempt to procure toll milling arrangements was undertaken by Mr Honan himself (see paras 2 to 15 of his affidavit sworn 20 August 2009).

The Young mill as a business opportunity

94 On Mr Campbell’s evidence, which on this point I accept, he first considered the possibility of buying the Young mill at some time between 1997 and 2000, but did not give serious consideration to it until some time between 2003 and 2005. He did not become aware of the possible availability of the Young mill through any aspect of his duties or responsibilities as an employee of Manildra.

95 Mr Murphy’s evidence is that Mr Campbell’s first approach, in relation to buying the Young mill, was in about 2003 or 2004. That is consistent with Mr Campbell’s evidence that the approach took place at some time between 2003 and 2005. As I have said at [92], it was not part of Mr Campbell’s responsibilities, then (or at any time, so far as the evidence shows) to seek out opportunities such as the purchase of the Young mill on behalf of Manildra. I have no doubt that, once Mr Campbell became aware that the Young mill might be “on the market”, he could have reported that matter to Mr Honan. I have no doubt that Mr Honan would have considered on its merits the possibility of acquiring the Young mill. But it does not follow that, because Mr Campbell could have reported the opportunity, he was obliged to do so.

96 Equally, I have no doubt that if in 2003 or at any time thereafter Mr Honan had been interested in acquiring the Young mill, he would have acted accordingly. He might have done so himself; or he might have directed a subordinate to make inquiries. But there is no evidence to suggest that Mr Honan did have any interest in the Young mill at that time. Equally, there is no evidence that he gave any direction to Mr Campbell, in relation to the Young mill or acquisitions generally, at that time. On the contrary, Mr Honan’s evidence is that it was not until about early 2009 that the Manildra group experienced difficulty in meeting its wheat flour export orders (affidavit sworn 18 August 2009, para 13). There was thus no reason for Manildra to look to the acquisition of another flour mill before that time; and indeed, when demand outstripped supply, Mr Honan’s response was:

(1) to construct a new mill at Nowra; and

(2) to seek out toll milling arrangements in the meantime.

97 Thus, I conclude, the acquisition of the Young mill cannot be characterised as a business opportunity, or as a maturing or even prospective business opportunity, of Manildra at the time Mr Campbell first discussed the possibility of acquisition with Mr Murphy.

98 Nor did that position change, over the intervening years, until the heads of agreement were executed. The first document described as “heads of agreement” appears to have been prepared in late May and early June 2008, and signed on 24 June 2008. The second document so described, prepared after a lunch in early September 2008, was signed on 5 September 2008. (Somewhat confusingly, it is said to have been made “further to the heads of agreement dated 24^th June 2004”.) The third document so described is the heads of agreement dated 3 February 2009, referred to at [13] above. That is I think the first document expressed to name as parties, and to be signed on behalf of, the Young companies and Aust Asia.

99 Even as at 3 February 2009, there is no evidence that Mr Honan was interested in Manildra’s acquiring the Young mill. Nor (given that I have rejected Mr Honan’s evidence as to his alleged direction to Mr Campbell said to have been given in February 2009) was there any reason for Mr Campbell to think that Manildra might be interested in acquiring the Young mill. At most, Mr Campbell might have realised that Manildra might be interested in entering a toll milling arrangement with Young. But that is something that could have proceeded, until the Nowra mill became operational, regardless of Aust Asia’s proposed acquisition of the Young mill. In this context, I note that Aust Asia has offered more than once to negotiate in good faith with Manildra to undertake toll milling activities for Manildra, but that Mr Honan has rejected those offers on the basis (to which I refer at [20] above) that there is no money in toll milling, at least in relation to the Young mill.

100 I conclude that, in negotiating for and securing, ultimately on behalf of Aust Asia, the acquisition of the Young mill, Mr Campbell did not divert or usurp any existing or maturing or prospective business opportunity of Manildra. I conclude further that knowledge of the opportunity to acquire (or possibility of acquiring) the Young mill did not come to Mr Campbell through his position as general manager of the Manildra mill, or in the performance of any of the duties or responsibilities attaching to that position. Nor did his duties or responsibilities require him to look out for, or to be aware of, such opportunities.

The business opportunity in Indonesia

101 Mr Honan’s evidence was that the business strategy of the Manildra Group, at least in relation to wheat flour, involved the expansion of the Group’s milling capacity and the export of flour to Indonesia and other countries in South East Asia and elsewhere. I have no doubt that Mr Campbell was aware of this business strategy.

186 “Knowing assistance”, for the purposes of the second limb of the rule in Barnes v Addy, may fall into a somewhat different category. However, the second limb of Barnes v Addy only arises for consideration if Mr Campbell’s plan can be categorised as a dishonest and fraudulent design.

187 The only breach that I have found is a breach of the implied contractual obligation of fidelity, in relation to the poaching of employees. Whilst that reflects no credit on Mr Campbell, it is a long way from constituting a dishonest and fraudulent design.

Twelfth issue: involvement in breaches of the Corporations Act

188 I have concluded at [133] above that Mr Campbell did not contravene ss 182 or 183 of the Corporations Act. It follows that there is no room for the operation of ss 182(2) or 183(2).

Thirteenth issue: inducing breach of contract

189 I conclude that Young and Aust Asia did not knowingly induce the breach of contract that I have found. This follows, as to Young, from my finding that Mr Murphy was not aware of any breach of contract. As to Aust Asia, it follows from the fact that the breach of contract – solicitation of fellow employees – occurred before Aust Asia was incorporated.

Fourteenth issue: shadow director

190 As I have said, the sole director and shareholder of Aust Asia is, and at all material times has been, Mr Turner.

191 Mr Campbell agreed that he had put up “a substantial sum of money for the purposes of the acquisition… [I]n the order of $1 million” (T163.14-19). It appears to be accepted that, if the purchases proceed and Aust Asia commences business, Mr Campbell, or entities controlled by or related to him, will hold about 40% of the issued share capital in Aust Asia. Mr Turner, or entities controlled by or associated with him, will remain a substantial shareholder. Other shares will be available for other investors and for employees.

192 I have no doubt that, although Mr Turner is and has been the sole director of Aust Asia, nonetheless it acts at the direction of him and Mr Campbell. There is however nothing in the evidence to suggest that Mr Turner subordinates his judgment to that of Mr Campbell, or that (to adapt the words of the statutory test: see Corporations Act, s9, “director”) he is accustomed to act in accordance with Mr Campbell’s instructions or wishes. On the contrary, such evidence as there is suggests that Mr Turner has applied his independent judgment and analysis to the business plan and the proposed acquisition of the Young mill.

193 I do not think that it was put to Mr Campbell that Mr Turner was accustomed to act in accordance with his instructions or wishes; if this was put, Mr Douglas did not refer to it in submissions.

194 I conclude that, on the evidence, Mr Campbell was not a shadow director of Aust Asia.

Fifteenth and sixteen issues: relief

195 The plaintiffs’ claims fail against Young and Aust Asia.

196 The second plaintiff’s claim fails against Mr Campbell.

197 I have found that, in relation to the solicitation of employees, Mr Campbell breached his implied contractual duty of fidelity. Manildra is entitled to damages for that breach of contract. My present view is that I should assess a nominal amount of damages. However, against the eventuality that Manildra may wish to submit that it is entitled to more than nominal damages, I will reserve that topic for further consideration.

Orders

198 I make the following orders:

(1) Order that the proceedings be dismissed as against the second, third and fourth defendants.

(2) Order that the proceedings be dismissed as between the second plaintiff and the first defendant.

(3) Direct entry of judgment for the first plaintiff against the first defendant for damages to be assessed.

(4) Reserve liberty to apply in respect of the assessment of damages.

(5) Subject to order 6, order the plaintiffs to pay the defendants’ costs of the proceedings.

(6) Reserve liberty to any party to apply to discharge or vary order 5; any such application to be made by written notice to the other parties, with a copy to my Associate; any such notice to be delivered within 28 days of the date of publication of these reasons, and to specify both the orders sought in lieu of order 5 and, in brief, the reasons why they are sought.

(7) Reserve general liberty to apply on 7 days’ notice.

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