Michael Wilson and Partners Ltd v Nicholls - [2009] NSWSC 1033

No judgment structure available for this case.

CITATION: Michael Wilson and Partners Limited v Robert Colin Nicholls & Ors [2009] NSWSC 1033

HEARING DATE(S): 15/6/09, 16/6/09, 23/6/09, 24/06/09, 29/06/09, 30/06/09, 13/07/09, 14/07/09, 23/07/09, 24/07/09, 27/07/09 - 30/07/09,6/08/09, 10/08/09, 11/08/09, 13/08/09 17/08/09- 20/08/09, 24/08/09 - 28/08/09, 1/09/09, 2/09/09, 7/09/09, 9/09/09. 10/09/09

JUDGMENT DATE :
6 October 2009

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Plaintiff disentitled to relief by way of a constructive trust. Plaintiff entitled to elect as between ultimate forms of relief on the sundry causes of action upheld in the reasons inter alia including an election for an equitable account of profits or equitable compensation.

CATCHWORDS: Equity - Fiduciary obligations - When and to what extent may employees owe fiduciary obligations to employer - Circumstances in which fiduciary obligations may be regarded as ‘spent’ - Accessorial liability under second limb of rule in Barnes and Addy - Breaches of contract - Secret profits - Diverting business opportunities from former employer to competing business - Confidential information - Plaintiff law firm offering legal services and business consultancy in Kazakhstan brings proceedings against former employees for having furthered their own interests to their employers detriment by various means - Jurisdiction - Enquiry as to whether foreign law applies to determination of matters litigated - Principled approach to determining questions of foreign law - Proceedings involve consideration of several potentially applicable systems of law - Multiplicity and overlapping nature of issues require Court to consider the level of abstraction appropriate to address issues so as to discharge its ultimate mandate of doing justice between the parties - Fraud - Principles which inform the proper approach to whether or not particular conduct is proven to have been fraudulent - Conspiracy to defraud - Principles - Interference with contractual relations-Principles-Causation-Abuse of process - Defendants claim that proceedings amount to an abuse of process and required to be summarily dismissed-Consideration of what amounts to an abuse of process - Case management - Allegations of abuse of process intertwined with principal issues litigated - Efficiently dictates that both the plaintiffs pleaded case as well as the defendant's abuse of process case be litigated together - Causation - Remedies - Constructive trusts - Election - Split election - Nullus commodum capere potest de injuria sua propria - Overriding purpose rule - Achievement of a just, timely and cost-effective resolution of dispute has an effect upon the Court and upon other litigants - Commercial life depends on timely and just payment of money such that those who claim to be entitled to money should know, as soon as possible, whether they will be paid and those against whom the entitlement is asserted should know, as soon as possible, whether they will have to pay - Ethos of Commercial List to determine disputes speedily

LEGISLATION CITED: Civil Procedure Act 2005 (NSW)
Evidence Act 1995 [NSW]
Insolvency Act 1968 (Eng)
Revised Professional Conduct and Practice Rules 1995 (NSW)
Supreme Court Rules (NSW)

CATEGORY: Principal judgment

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James, Ex parte (1803) 8 Ves 337
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Keech v Sandford (1726) Cas temp King 61
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Lloyd v Guibert (1865) LR1QB 115
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Maguire & Tansey v Makaronis (1996-1997) 188 CLR 449
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Nottingham University v Fishel [2000] ICR 1462; [2000] IRLR 471
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PARTIES: Michael Wilson & Partners (Plaintiff)
Robert Colin Nicholls (First Defendant)
David Ross Slater (Second Defendant)
Temujin Services Limited (Third Defendant)
Temujin International Limited (Fourth Defendant)
Temujin International FZE (Fifth Defendant)
Shaikenov & Partners, LLP (Sixth Defendant)
Temujin Holdings Limited (Seventh Defendant)

FILE NUMBER(S): SC 50151/06

COUNSEL: Mr M Walton SC, Mr J Carney (Plaintiff)
Mr G McGrath, Mr A Fox (First Defendants)
Mr G Lindsay SC, Mr A Fox, Mr S Adair (Second to Fifth Defendants)

SOLICITORS: Clayton Utz (Plaintiff)
Henry Davis York (First to Fifth Defendants)

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

Einstein J

Tuesday 6 October 2009

50151/06 Michael Wilson & Partners Limited v Robert Colin Nicholls & Ors

JUDGMENT

The proceedings

1 At their core, these strongly contested proceedings involve allegations that nominate former employees of the plaintiff, Michael Wilson and Partners Pty Ltd [MWP] [a law firm which offers legal services and a business consultancy in Kazakhstan, the Central Asian and Caucasus Region, Russia and Ukraine] have furthered their own interests to their employer’s detriment by various means.

2 MWP employed:

i. An Australian barrister, Mr Robert Colin Nicholls as a senior associate during the period from 24 April 2004 to 1 March 2006.

ii. An Australian solicitor, Mr David Ross Slater as an associate during the period from 1 September 2005 to 9 January 2006.

The United Kingdom arbitration

3 Pursuant to inter-se contractual arrangements, MWP in August 2006 commenced arbitral proceedings against Mr Emmott in the United Kingdom. Later the present proceedings were commenced but relying upon his contractual rights with MWP, Mr Emmott refused to permit the former to proceed against him in New South Wales. The arbitrators are presently reserved in terms of the handing down of an award.

The unusual parameter

4 The unusual parameter arises from the fact that the jurisdiction of the Supreme Court of New South Wales is said to be available to the plaintiff notwithstanding that close to no part of the events which occurred took place in New South Wales or indeed in Australia. The reservation concerns the negotiation in Australia of the contractual arrangements reached between MWP and first Mr Nicholls and then Mr Slater.

5 There is also an enquiry as to whether foreign law applies to the determination of the facts of this case and, if so, on what basis and for what causes of action.

6 It is fair to observe that the present proceedings pose for the court's determination a set of questions which differ from those considered by the relatively few reported Australian cases and academic dissertations dealing with 'choice of law' issues. This is because:

i. The proceedings involve reliance by the plaintiff upon multiple "causes of action" and "claims for relief" (using those expressions in their most generic sense), not simply a single form of "cause of action" accompanied by a closely associated form of "claim for relief";

ii. The proceedings involve reliance by the plaintiff upon both "causes of action" [in the classic Common Law sense] and "claims for relief" in Equity rather than only one head of jurisdiction (at Law or Equity) or the other;

iii. The proceedings involve consideration of several potentially applicable systems of law (namely, NSW, Kazakhstan, United Kingdom and the British Virgin Islands) and require the court to be aware of the nature of proceedings pending in jurisdictions that serve still other systems of law (the Bahamas, Switzerland, Colorado and Florida) rather than having a less complex focus upon a choice between two competing systems;

(a) the evidence has required to examine alleged differences and/or similarities as between the law of New South Wales (historically derived from the law of England) and Kazakhstan (historically derived from the Soviet Union and having some affinity with a Roman law-based, civil law system);

(a) the plaintiff claim of an abuse of process;

(b) whether there is sufficient connection between the facts and allegations underlying the proceedings (on the one hand) and the jurisdiction of the Court (on the other hand) to warrant any grant of relief to the plaintiff;

7 I accept as correct the defendants proposition that because of the multiplicity and overlapping nature of the issues that arise from all of these different considerations, the Court needs to consider the level of abstraction appropriate to address them so as to discharge its ultimate mandate of "doing justice between the parties", in the resolution of "all questions in dispute" between them, as part of the 'proper administration ' of justice in the exercise of its jurisdiction.

The overriding purpose rule

8 There are many levels necessary to be closely examined in unravelling both the material facts as well as the principles of law which inform the party's rights in this complex litigation. The reasons require very close analysis of disparate areas of the law including:

i. the principles which inform the proper approach to whether or not particular conduct is proven to have been fraudulent;

ii. a close focus upon a number of parameters concerning the extent to which, and reasons why, partners or employees may be seen to owe particular fiduciary obligations in particular circumstances, and whether those fiduciary obligations may in particular circumstances be regarded as 'spent';

iii. a necessity to deal with the parameters of accessorial liability under the second limb of the rule in Barnes and Addy ;

iv. the causes of action for the tort of conspiracy and for interference with contractual relations;

v. the conflict of law questions;

vi. matters concerning causation;

vii. close questions as to remedy as well as the election;

9 None of these matters can be worked through without considerable care. To my mind the legal issues which arise fairly permit the Court to travel closely into a number of areas of principle and to do so in considerable detail where relevant to the ultimate rights of the parties.

10 Finally the Court is well aware that the instant litigation has had a considerable gestation period and that, consistently with the overriding purpose rule which underpins the approach to litigation in this State, parties are entitled to as rapid a decision as is practicable in the circumstances. Justice delayed is justice denied:

i. cf Aon Risk Services Australia Limited v Australian National University [2009] HCA 27 at 93 per Gummow, Hayne, Crennan, Kiefel and Bell JJ, observing that the achievement of a just but timely and cost-effective resolution of a dispute has an effect upon the Court and upon other litigants;

as soon as possible

11 The ethos of the Commercial List is to determine matters concerning businessmen and others who come before the Court, to have their disputes determined speedily. This I have endeavoured to do [even at the risk of the occasional duplication of quotes from authorities].

Regie Nationale des Usines Renault SA v Zhang (2002) 210 CLR 491

12 In Regie Nationale des Usines Renault SA v Zhang the High Court considered a claim arising out of a motor vehicle accident in New Caledonia in which a New South Wales resident had been seriously injured.

13 Gleeson CJ and Gaudron, McHugh, Gummow and Hayne JJ at [68] stated the primary rule to be that “there is no obligation upon either party to plead foreign law in order to render a claim or cross-claim justifiable”. However if a party is going to rely on that law, it must be pleaded.

14 The passage in which they so found merits quoting in full (at [68-72], (footnotes omitted):

Bullen & Leake & Jacob's Precedents of Pleadings

"Where a party relies on foreign law to support his claim or as a ground of defence thereto, he must specially plead the foreign law relied on in his statement of claim or defence, as the case may be, and he should give full particulars of the precise statute, code, rule, regulation, ordinance or case law relied on, with the material sections, clauses or provisions thereof. A mere allegation that an instrument depending on foreign law is null and void is too vague."

15 Their Honours continued:

Walker v W A Pickles Pty Ltd

Mostyn v Fabrigas

A pleading of a cause of action in tort which did not allege that the facts occurred in any particular law district would be formally valid.

This approach is reinforced by the principle that foreign law, which is, except between the States and the Territories of the Commonwealth, a fact, is presumed to be the same as local law; and a fact presumed to be true does not have to be pleaded: See Supreme Court Rules , Pt 15, r 10(a)."

On the other hand, if the defendant seeks to rely upon a foreign lex causae, then, in the ordinary way, it is for the defendant to allege and prove that law as an exculpatory fact.”

The second question is whether, whilst not obliged to do so, it is for a plaintiff who sees a forensic advantage in the foreign law (for example, in its provision for strict liability) to plead that law in its statement of claim or other initiating pleading. In Walker [[1980] 2 NSWLR 281 at 285], Hutley JA concluded not only that it was unnecessary for the plaintiff to plead the foreign law but wrong to do so. However, what is involved here is the application of a choice of law rule. It cannot be beyond the competence of the plaintiff to invoke that rule and be solely for the defendant to rely upon it for any exculpation it offers. The term "justifiable" may have conveyed a suggestion of exculpation but since the reformulation of the second limb by Brennan J in Breavington [(1988) 169 CLR 41 at 110-111], that term has not appeared and it cannot control the operation of a choice of law rule which selects the lex loci delicti as that to be applied in Australia to govern questions of substance in a proceeding arising from a foreign tort. It follows that the rule must be that which Dicey regards as "well established", namely that "a party" who relies on a foreign lex loci delicti "must allege, and, if necessary, prove it " [Collins (ed), Dicey and Morris on The conflict of Laws, 13 ^th ed (2000), vol 2 at 1568].

16 This topic is of course dealt with in the reasons which follow. However bearing in mind the disputes separating the parties in terms of the formalities concerning certain parameters of a formal nature it presently appropriate to repeat sections 174 and 175 of the Evidence Act 1995 [NSW]:

(1) Evidence of a statute, proclamation, treaty or act of state of a foreign country may be adduced in a proceeding by producing:

(a) a book or pamphlet, containing the statute, proclamation, treaty or act of state, that purports to have been printed by the government or official printer of the country or by the authority of the government or administration of the country, or

(b) a book or other publication, containing the statute, proclamation, treaty or act of state, that appears to the court to be a reliable source of information, or

(c) a book or pamphlet that is or would be used in the courts of the country to inform the courts about, or prove, the statute, proclamation, treaty or act of state, or

(2) A reference in this section to a statute of a foreign country includes a reference to a regulation or by-law of the country.

(1) Evidence of the unwritten or common law of a foreign country may be adduced by producing a book containing reports of judgments of courts of the country if the book is or would be used in the courts of the country to inform the courts about the unwritten or common law of the country.

Corporate vehicles and trusts

17 There are a number of corporate vehicles and trusts which the plaintiff contends played a part in the alleged web of wrongdoing. These will be introduced in detail below. For present introductory purposes it may be noted that MWP claims that Messrs Nicholls and Slater, Temujin International Ltd (TIL), Temujin Services Ltd (TSL), Temujin International FZE (TFZE), Temujin Holdings Ltd (THL) and Shaikenov & Partners LLP (Shaikenov):

i. acted to injure MWP’s interests and

ii. acting with the intent to cause loss to MWP, conspired with Emmott to defraud MWP and conceal the proceeds of the fraud from MWP.

[But see below where the plaintiff accepts that it is disentitled from pursuing any case against Shaikenov & Partners LLP for reasons concerning service]

18 The name "Temujin" was the childhood name of Genghis Khan, a name adopted at the suggestion of Mr Nicholls.

MWP's case

19 MWP's case which traverses a number of causes of action centrally concerns allegations that:

Messrs Nicholls and Slater

Messrs Nicholls and Slater had breached sundry duties owed to MWP by soliciting MWP’s contacts, clients, employees and consultants inter alia by:

i. breaching express and implied terms of their employment contracts with MWP: The respective employment contracts between MWP, Messrs Nicholls and Slater are said to have contained restrictive covenants and obligations of confidentiality to MWP

ii. dishonestly and fraudulently breaching their fiduciary duties and duty of care owed to MWP;

iii. acted fraudulently;

iv. knowingly participating and assisting in Mr Emmott’s alleged wrongdoings;

v. Mr Slater is said to have failed to act to the standard one would expect of a solicitor of ordinary competence in NSW.

vi. MWP also contends that Slater breached his alleged duty to exercise all reasonable skill, care, diligence and competence that he owed to MWP as a result of negligent advice he gave to a now former client of the plaintiff:

Mr Emmott

vii. Emmott is said to have breached fiduciary duties towards the plaintiff.

viii. he is said to have breached the terms and conditions of his employment contracts with the plaintiff.

ix he is accused of earning secret commissions and benefits through his position within MWP

Destruction of document allegations

x. There have also been particular allegations levelled at Messrs Slater, Nicholls and Emmott, claiming that they took, used and destroyed MWP’s documents from October 2005 and continuing throughout the period of their employment.

Under billing

xi. the same defendants are said to have under billed MWP’s clients for work performed by the three of them on behalf of MWP.

Allegations against the remaining six defendants

That is, the plaintiff pleads causes of action grounded upon allegations of conspiracy and accessorial liability.

xiii. All or some of the remaining six defendants are said to have knowingly participated and/or assisted in any breaches of fiduciary duties or terms and conditions of contract.

20 Attention requires to be given to the successive departure from the employ of MWP:

i. Slater was the first to leave and before leaving sent from his MWP e-mail account to his personal e-mail address, a considerable number of important documents including MWP's precedence, documents and correspondence. He simply fail to return to work at MWP 19 January 2006 following his annual leave taken in the period 21 December 2005 to 8 January 2006 thus unilaterally resigning his employment with MWP;

ii. Nicholls was the second to leave purporting to resign his employment by providing one months notice of his intention to do so on about 31 January 2006. His last day of employment with MWP was on 1 March 2006;

21 The plaintiff's case is that before, during and after the occasions when Messrs Slater, Nicholls and Emmott left the employ of MWP, sundry activities were engaged in by each of these persons which constituted wrongdoing of the kind pleaded in the extensive and detailed the Third Further Amended Commercial List Statement. The plaintiff’s conspiracy case is that the whole of the staged departures by these persons from the employ of MWP was carefully planned. The plaintiff's case is that during the period from about 19 December 2005, TIL with the assistance and cooperation of THL and Mr Shaikenov assisted, procured and solicited Messrs Nicholls, Slater and Emmott to:

(i) prefer the business and interest of TIL and Shaikenov to the business and interests of MWP;

(ii) compete with the business of MWP;

(iii) divert clients and contacts of MWP to become clients and contacts of TIL and Shaikenov;

(iv) solicit staff, consultants ad other personnel and cause them to act in breach of their contract and obligations to MWP;

(v) divert fee and other income, remuneration and compensation from MWP to themselves, TIL, THL and Shaikenov at the expense of MWP;

22 The case is that Mr Emmott continued with MWP and during the period when he alone had not yet departed from his employ with MWP, his activities involved his having one foot in his employers camp and the other foot squarely planted in the business activities in which [unknown to MWP] he already had an interest and to which he would migrate once he left MWP.

23 I have already mentioned that one of the difficulties in dealing with the proceedings is by reason of the number of corporate instruments through which Messrs Nicholls, Slater and Emmott operated. The plaintiff's case is that TSL, TFZE and THL were under the control of Messrs Nicholls, Slater and Emmott and with the assistance and cooperation of Mr Shaikenov, were the instruments by which they carried out their respective breaches.

24 The conspiracy to defraud case is put in a number of alternative ways. For present purposes it should suffice to repeat paragraph 72 of the pleading which alleges as follows:

At some point from February/March 2005 but before August 2005, at least Messrs Nicholls, Slater and Emmott unlawfully conspired to:

(a) injure MWP by unlawful means; or, alternatively,

(i) assisting in the setting up of their agency, advisory and legal business (ultimately trading as TIL with the co-operation of Shaikenov);

(ii) entering into co-operative arrangements with each other and with Shaikenov for the establishment of those businesses;

(iii) preferring those businesses to the business and interests of MWP;

(iv) competing with MWP’s business;

(v) diverting clients and contacts of MWP to become clients and contacts of those businesses;

(vi) diverting fee and other income, remuneration and compensation (in whatever form) from MWP to TIL, TSL, TFZE, Shaikenov and/or themselves or their nominees personally, without accounting to MWP;

(vii) whilst still working with MWP, working for the benefit of themselves, TIL, TSL, TFZE and/or Shaikenov (doing work during the period they should have been engaged for MWP’s benefit, and not billing their time for the benefit of MWP);

(viii) soliciting and/or making offers of employment to MWP’s staff to leave MWP and take up employment with TIL, TSL, TFZE and Shaikenov; and

Loss/remedies

25 The claims for relief include questions concerning:

i. Whether the plaintiff has suffered loss due to the actions of the remaining six defendants and/or Emmott;

The specific relief sought

26 Notwithstanding MWP's claims for relief as originally pleaded in the summons, in final address the plaintiff made clear that its relief sought was as follows:

i. a constructive trust over the shares of TIL,TSL and TFZE;

ii. in the alternative an equitable account of profits from each of the defendants;

iii. in the further alternative, equitable compensation sought from each of the remaining six defendants;

iv. an enquiry as to damages;

v. costs;

vi. Interest up to judgement as per s 100 of the Civil Procedure Act 2005 (NSW).

An overview of the difficulties faced by the plaintiff in unravelling the defendant's activities and in endeavouring to frame its claims for relief

27 The following matters serve to emphasise the difficulties which faced the plaintiff in its endeavours to pursue the defendants and in particular Temujin:

Establishment of TIL

TIL was incorporated on or about 19 December 2005 with Slater as its sole shareholder with 50,000 shares. The company had been incorporated as a result of a request that he had made to Mr. Shaikenov in early December 2005. This came about in the following way:

i. Mr. Shaikenov attended to its incorporation with one of his associates in Moscow (Slater cross-examination at T 1359.20-25). Slater gave evidence that this was done at his request, which was made either at the meeting with Mr Kachshapov or shortly thereafter (Slater cross-examination at T 1361.15-25).

ii. Slater dated the meeting with Kachshapov as being held sometime in early December 2005 (the “fifth meeting” at the Ankara hotel was on the weekend of 26/27 November 2005 and Slater's evidence was that the meeting with Mr. Kachshapov occurred between three and 10 days but he thinks it was at least a week after the Hotel Ankara meeting: see Slater cross-examination at first week of December 2005 (Slater cross-examination at T 1358.20-35)).

iii. Slater gave evidence that at the time of its incorporation Mr. Shaikenov was initially the only shareholder in Temujin International Limited. Sometime later, between August and October 2006, Slater became the owner of the company (Slater cross-examination at T 1359.35-45). The documentation however suggests that on 19 December 2005 Mr. Slater was issued 50,000 shares in TIL on 19 December 2005 (5/136 at 139, where there is a resolution that 50,000 shares be issued to Slater and see cross-examination of Slater at T 1359.1-45).

iv. In February 2006 TIL established a branch office in Almaty, which was registered with the assistance of Mr. Shaikenov (Slater affidavit at paragraph 82).

v. From about 28 March 2006 Slater has been the general director of the Kazakhstan branch office of TIL (see Response at paragraph 14 (iii)).

vi. The establishment of the branch with Slater as general director was in accordance with what was anticipated in Cooperation Agreement (see clause 1 of the second schedule of the Cooperation Agreement at 6/149).

Messrs Slater, Nicholls and Emmott’s roles at TIL

i. The sole director of TIL is a Mr. Vasquez (Slater cross-examination at T 1361.1-5). Slater has never met Mr. Vasquez (Slater cross-examination at T 1359.45-50). There is no evidence that Mr. Vasquez is even aware of these proceedings.

ii. In the ordinary course one would expect that instructions in this proceeding, discovery and evidence on behalf of TIL would be given by its only director, Mr Vasquez. TIL has been ordered to attend two mediations in this matter without the participation of Mr. Vasquez. He has not verified TIL’s discovery.

(a) Slater, Nicholls and Emmott only describe themselves as “consultants” to TIL (Slater, paragraph 14 (iv) of the Response, Nicholls says he ceased to be a consultant to TIL on or about 14 September 2008 (see paragraph 13 (iv) of the Response and see Nicholls’ confirmation of paragraph 11 of his affidavit of 17 August 2009 at 1058) and Emmott paragraph 15 (a) of the Response). Save for Nicholls, no documentation relating to their “consultancy” has ever been produced. (In the case of Nicholls a letter of appointment dated 8 April 2007, well after the commencement of these proceedings confirming his appointment as “of counsel” or “senior consultant” was discovered: see 12/38 and cross-examination of Nicholls at T 1186-87.)

(b) Slater generally described himself as a “partner” on TIL invoices and up to October 2006 Emmott was also described on the invoices as a “partner” . Slater said in cross-examination that Emmott gave him no explanation as to why he had requested that the description of himself be changed to that of “consultant” (Slater cross-examination at T 1470).

(c) Although Slater sometimes described himself as a “director” of TIL without any qualification limiting that role to the Almaty branch he made it clear in evidence that he was not, in fact, a director of TIL. See, for example the evidence he gave about letter he wrote as a “director” of TIL at 27/52 about which he was cross-examined at 1364.

(d) Although from about 28 March 2006 Slater has been the general director of the Kazakhstan branch office of TIL (see Response at paragraph 14 (iii)), Slater's own evidence was that a branch is not a separate entity under Kazakhstan law (Slater affidavit at paragraph 83) and this office has no relevance as a matter of English law.

“General Power of Attorney”

(a) the sole director of that company has not participated at all in these proceedings;

(b) the sole director of that company has not been responsible for discovery in these proceedings (discovery was made on the unusual basis that Slater was the ultimate beneficial owner of the third to fifth defendants to the proceedings

(c) Evidence as to the company's activities has been led through Slater, Nicholls and Emmott whose role as "consultants" to the company has remained vague.

(d) No evidence has been given by a person who has a legal responsibility for overseeing TIL’s affairs. This is of particular significance given the limited evidence that TIL has given of bank accounts (as to which, see below) and other records which might disclose its business activities.

28 Against that background it is to be noted that the plaintiff contends that the conclusion to be drawn from the evidence is that:

i. from 20 December 2005 onwards Slater, Nicholls and Emmott effectively operated in partnership together;

Who stands behind MWP

29 Amongst the many cloak and dagger secrecy parameters which have beset this case is the simple question of establishing which person or persons [or structure or structures] are behind Windsor Fine Arts Establishment Ltd [WFA] which is apparently MWP's sole shareholder.

30 Mr Wilson claimed that he did not know who was behind WFA, giving evidence that he did not consult with anyone behind WFA regarding decisions such as the issue of 49,998 shares in MWP and their subsequent cancellation or the commencement of proceedings against the alleged wrongdoers. It is fair to say that Mr Wilson was evasive regarding questions put to him under cross-examination about the 'family structure' [referred to in an affidavit which he had sworn on 6 October 2006], his evidence simply being that the family structure was WFA and going no further.

The scale of the proceedings

31 There have been several interlocutory judgments delivered since the commencement of the final hearing and even prior thereto. It is pertinent to observe that the respective parties cases [and most particularly the plaintiff's case] have involved an enormous amount of detail with mountains of documents being placed into evidence and with many overseas witnesses giving evidence; sometimes on video link and sometimes in person. The case management of the proceedings has thrown up enormous difficulties with both parties deploying a variety of forensic tactics usually involving notices to produce and subpoenas but also extending outside of those steps.

The defendants’ abuse of process cases

32 The defendants have also sought by notice of motion to have the proceedings set aside as an abuse of the process of this Court. The very allegations of abuse of process of this Court are so intertwined with the principal issues being litigated in the proceedings that it has been efficient to permit both the plaintiff pleaded cases as well as the defendants abuse of process cases to be litigated together on the basis that in due course and after final submissions both parameters would be the subject of decision. The abuse of process cases have been carefully considered along with the MWP's cases. As a matter of convenience only, the abuse of process cases are dealt with towards the end of these reasons where they are dismissed.

The fiduciary obligation parameter

33 Later in these reasons an extensive examination is undertaken of the authorities which inform when fiduciary obligations will or will not arise, with particular reference to different classes of employee prior to and then after they leave the relevant employ.

34 For present purposes it suffices to be reminded of the following observations:

Boardman v Phipps

New Zealand Netherlands Society "Oranje" Incorporated v Kuys

Consul Development Pty Ltd v DPC Estates Pty Ltd

Securities Commission & Exchange Commission v Chenery Corporation

"But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?"

Pilmer v The Duke Group Ltd (in liq)

Returning to briefly sketch in additional detail of the particular entities and persons who play a part in the narrative of events

Michael Wilson & Partners, Ltd (MWP)

35 MWP is a company incorporated in the British Virgin Islands (BVI) in 1998. It has branch offices in Almaty, Kazakhstan and Baku, Azerbaijan. Through its Almaty office, it operates a full service law firm and business consultancy in Kazakhstan, the central Asian region, the Caucasus, Russia and Ukraine.

36 An essential part of MWP’s business involves the structuring of investments in Kazakh assets, in particular energy and mineral assets to attract foreign investors, and for listing on a public stock exchange. MWP refers to this aspect of its business as the “Structured Investments Business”.

37 This Structured Investments Business has a fee structure which often includes a success fee or commission component and which also includes an opportunity to take equity in the investment.

38 Remuneration arrangements of this nature would be unheard of in this jurisdiction. Such unorthodox business practices would inevitably lead to conflicts of interest and greed, as ultimate remuneration would theoretically be uncapped.

Mr Michael Earl Wilson

39 Mr Wilson is the founder and current managing director of MWP since its formation. He was awarded a Bachelor of Laws from Manchester University in 1980 and was admitted as a solicitor in London in 1984, working at Baker and McKenzie. In 1991 became a partner at Baker and McKenzie eventually establishing a practice branch in the Central Asia region.

40 In 1998, Mr Wilson left Baker and McKenzie to establish MWP on or about 14 July 1998. At MWP, Mr Wilson has continued a practice in commercial law.

Mr Robert Colin Nicholls

41 Mr Nicholls is an Australian barrister, admitted to the Barrister's Roll in New South Wales. Most of his legal career has been spent at Freehills, where he had been a partner.

42 Mr Nicholls was employed as a senior associate by MWP from 24 April 2004. On 31 January 2006 Nicholls provided Mr Wilson one month's notice of the termination of his employment with MWP. Mr Nicholls ceased employment with MWP on 1 March 2006.

Mr David Ross Slater

43 Mr Slater is a solicitor admitted to practise in New South Wales.

44 Mr Slater was employed by MWP from 1 September 2005. He left the firm on 23 December 2005 and never returned.

Mr John Forster Emmott

45 Mr Emmott is a solicitor admitted to practise in England and Wales and also New South Wales.

Mr Emmott 's contract

46 The contract with Mr Emmott provided that on and from 7 January 2002 he would become a director and full-time employee of MWP and would be subject to the usual partnership obligations and duties of cooperation, disclosure and good faith in carrying on business in common with MWP with a view to making profit.

47 Following the recitals the agreement recorded the following:

AGREED

1. Agreement in Principle

1.1 Mr Emmott and MWP have agreed that Mr Emmott will join MWP, as a director and shareholder, with effect from 7 January 2002 in accordance with the terms set out in this Agreement

1.2 MWP and Mr Emmott have agreed to enter into a long-term and mutually acceptable business relationship and association and that they will share and be party to much sensitive, confidential and valuable information, not least as to MWP’s clients and contracts established in the Region since 1994 and as to Mr Emmott’s own clients and contacts .

1.3 MWP and Mr Emmott have agreed that their fundamental strategy is to create the leading independent legal and business consultancy firm, not only in Kazakhstan, but also throughout the Region, which will be developed pursuant to a strategic plan and budgets to be negotiated and agreed between the Parties and to be updated on a regular basis. The Parties expect that this can be achieved by them acting in partnership over a period of three to five (3-5) years and they will mutually devote all of their time, energy and efforts in order to achieve this as quickly as is possible and in order to maximise the value, client base, name and reputation of MWP in Kazakhstan and throughout the Region. In particular, the Parties have agreed to consider and, if viable, acquire existing firms, practices or businesses or recruit staff in order to pen and establish offices or presences throughout the Region as soon as is possible (economics permitting) and, in particular, in Tashkent and Baku and, possible in the future, in other regional important business centres such as Tbilisi, Yerevan, Ashgabat, Bishkek, Ulan-Bator, Teheran and Istanbul. Any such expansion shall be funded, insofar as it is possible, from the cash-flows of MWP, from debt or equity financing and/or from Mr Emmott and the shareholders of MWP (should they agreed) in proportion to their respective net profit sharing interests in the business;

Although the cooperation established between the Parties pursuant to this Agreement is as co-shareholders and co-directors in MWP, a legal entity, the Parties have agreed that in effect MWP will function and operate as a quasi-Partnership between them and the Parties shall have and observe the usual partnership obligations and duties to each other i.e. co-operation, of disclosure and of good faith as partners carrying on business in common with a view to making profits

[emphasis added]

48 Clause 2 provided inter alia as follows:

2. Terms Agreed

2.1 Mr Emmott will join MWP, on a full-time basis, primarily based in and operating out of its office in Almaty by no later than 7 January 2002;

2.2.2 by devoting his full time and attention to developing the practice and business of MWP;

2.4 Mr Emmott and MWP will full and closely cooperate together in order to promote, develop and enhance the business of MWP in the Region and shall not compete in any manner whatsoever. In particular, they shall discuss and reach agreement before any new partner is introduced to MWP;…

2.6 The Parties have agreed that, if and when any solicitations or proposals are received from other firms they shall discuss and agree how to respond to the same and that when MWP and its business reaches what the Parties agree to be an appropriate scale and size, they will consider and agree the strategic options for the future of the business of MWP which may include the merger with or take-over by one or more other firms or the continuance on an independent basis;

2.7 Mr Emmott shall be entitled to have access to the books and records of MWP and to copies of all relevant documents on a strictly private and confidential basis recognising the commercial and in-confidence nature of the same . Equally, MWP shall be entitl3ed to a copy of any agreement or agreements or other documents concluded between Mr Emmott and Messrs Richards Butler relating to the termination of his partnership with them and any on-going consultancy or other arrangements;

2.8 Mr Emmott and MWP shall freely share all of their clients and contacts and shall give each other free and unrestricted access to their databases, precedent systems, client files and work products;…

2.12 Mr Emmott and MWP will agree on appropriate client in-take, engagement, termination, time recording, billing and collection arrangements, practices and procedures;

2.13 Mr Emmott will use all reasonable endeavours (and subject to clients’ instructions) refer to and bring with him to MWP all and any clients, contacts or matters howsoever relating to Kazakhstan and the Region in or with which he is currently involved in any manner whatsoever and on or in relation to which he is instructed or with whom he has established contact or relations, it being recognised that this Agreement creates sole and exclusive relations between Mr Emmott and MWP.

3. Termination

5.2 This Agreement shall be governed by and interpreted in accordance with the laws of England and Wales and all and any disputes shall be referred to and subject to arbitration in London before a tribunal of three (3) arbitrators with one (1) arbitrator to be appointed by each Party and the chairman of the tribunal to be appointed by the President of the Law Society…

5.9 Each Party shall carry out and provide all necessary acts, matters and things and shall deliver, negotiate, finalise and sign all manner documentation in order to give effect to the provisions of this Agreement, as soon as is reasonably possible, following the date of this Agreement, time being of the essence;

[emphasis added]

Findings as to the implied terms and conditions of Mr Emmott's agreement

49 I accept that in all of the circumstances the following were implied terms and conditions of Mr Emmott's agreement, namely that he would at all times:

i. act with fidelity in carrying out his duties as an employee of MWP;

ii. act in good faith in carrying out his duties as an employee of MWP;

iii. acting MWP's interest in carrying out his duties as an employee of MWP;

iv. act is a reasonably competent lawyer;

50 Each of those implied terms arose by virtue of his employment by MWP as a senior lawyer and his practice as a lawyer on behalf of MWP.

Temujin Services Ltd (TSL)

51 TSL, the third defendant was incorporated in the BVI and was established by Messrs Nicholls, Slater and Emmott on or about 8 March 2006. It operates as a service company providing services to TIL.

Temujin International Limited (TIL)

52 TIL, the fourth defendant, was incorporated in the BVI and is the trustee of the Temujin International (Trading) Trust (the Trust). TIL was established by Messrs Nicholls, Slater and Emmott on or about 19 December 2005 and operates as business advisor, agent and arranger and provides legal services. A Trust Deed executed on or about 20 December 2005 established the Trust.

TFZE

53 TFZE, the fifth defendant, was incorporated in the Free Trade Zone of Ras Al Khaimah in the United Arab Emirates (UAE) also on 8 March 2006. It operates as a service company and provides financial and other services to TIL and clients in the UAE. Mr Nicholls has been a manager of TFZE since that time.

54 Mr Nicholls is the legal owner of shares in TFZE which he holds on trust for TIL. “FZE” stand for Free Zone Establishment and granted under of authority of the UAE.

Shaikenov & Partners LLP (Shaikenov LLP)

55 Shaikenov LLP, the sixth defendant is a Kazakhstani limited liability company that operates as a full service law firm in Almaty, Kazakhstan. Its principal is Mr Arman Shaikenov [Shaikenov].

56 As already indicated, during address Mr Walton [leading counsel for the plaintiff] made clear that the sixth defendant although originally served, had played no part in the proceedings and had not been subsequently served with later emanations of the Commercial Statement. In consequence the plaintiff accepted that there was no case against the sixth defendant.

Temujin Holdings Ltd (THL)

57 THL, the seventh defendant, was incorporated in the Commonwealth of the Bahamas on 15 September 2006 as Arcadian Overseas Inc and changed its name to THL on 19 October 2006. Mr Slater wholly owns this entity.

58 It is the company into whose bank accounts all monies are now paid by the clients of TIL. It operates as a service company and for a fee provides administrative and bookkeeping support services to TIL pursuant to an Administration Support Agreement with TIL dated 9 November 2006.

59 No appearance has been filed for THL but leave to proceed against this defendant was granted by the court on 30 May 2008 pursuant to UCPR 11.4.

60 During the hearing Mr Slater gave evidence that Mr David Risbey is the owner of THL and a director of that company.

61 Close to the final minutes of the final address in reply by the plaintiff, Mr Walton sought leave to tender an affidavit filed in the proceedings by the defendants during an interlocutory stage. This is said to have been an affidavit made by Mr Slater which had been overlooked by the plaintiff during the final proceedings and in which affidavit Mr Slater apparently conceded that he is in fact the beneficial owner of the shares in THL.

62 The significance of the new evidence would go to the plaintiff claim to relief in relation to THL in that it seeks a constructive trust over its shares which it now wishes to contend are held by Mr Slater

63 Mr Slater was not cross-examined to suggest any such thing and has long departed from the witness box. The application to tender material parts of this affidavit was objected to on behalf of all the defendants who had taken an active role in the proceedings. The Court indicated that a determination as to whether or not the tender would be permitted would be made privately and that the decision would be announced in the final judgment.

64 The decision rejects the tender. It would have been necessary to put the matter to Mr Slater in order to permit him to respond. There could be any number of reasons to explain the suggested inconsistency. The dictates of natural justice require that the tender be rejected there not even having been an application to re- call Mr Slater.

The principles: fraudulent conduct

65 There is a plethora of authority in support of the proposition that the Court is bound to see that a case of fraud is clearly proved. An allegation of fraudulent intent is one of the most serious allegations capable of being made. Actual dishonesty is said to be “the hallmark of fraud”. The gravity of the allegation has been said to be such that whereas section 140(1) of the Evidence Act 1995 (NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, Section 140(2) preserves the doctrine in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; Pedler v Richardson (unreported, Supreme Court of NSW, 16 October 1997, Young J) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315, 319. More recently in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 the High Court has put the matter in the following terms:

66 The High Court has pointed out that the evidence given by a man of his intention and state of mind, must be tested:

Pascoe v Federal Commissioner of Taxation

67 Courts have emphasized that the best evidence of a man’s purpose is to look at what was actually done: ASX Operations Pty Limited v Pont Data Australia Pty Limited (No 1) (1990) 27 FCR 460 at 482 - 483.

Fiduciary duties – when, to what extent and why may an employee owe fiduciary obligations to his/her employer

68 I intend next and before launching into the massive and unwieldy detail requisite in finding the facts, to first set the scene, at least insofar as the fiduciary obligation case is concerned.

69 I take the following propositions [which are supported by the authorities which follow] as trite:

i. fiduciary duties arise not as result of the mere fact that there is an employment relationship, but rather from the fact that within a particular contractual relationship, there are specific contractual obligations which the employee has undertaken which have placed him/her in a situation where equity imposes fiduciary duties in addition to the contractual obligations;

ii an implied contractual term is not to be equated with a fiduciary obligation;

iii. the critical feature of fiduciary relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect in a legal or practical sense the interests of that other person: [ Concut Pty Limited v Worrell (2000) 176 ALR 693 at [17] per Gleeson CJ, Gaudron and Gummow JJ; Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165 at [70] per McHugh, Gummow, Hayne and Callinan JJ]

precise

solely

70 In Youyang Pty Limited v Minter Ellison Morris Fletcher [2003] 212 CLR 484 the Court [Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ at [40]] approved the statement of principle of McLachlin J in Canson Enterprises Limited v Boughton & Co [1991] 3 SCR 534 at 543 that “The essence of a fiduciary relationship, …is that one party pledges itself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged.”

71 Elias J in Nottingham University v Fishel [2000] IRLR 471 [followed in Comax Secure Business Services Limited v Wilson (unreported, Queens Bench Division, Richard Seymour QC, 21 June 2001); PMC Holdings v Smith [2002] EWHC 1575 (QB) per Burton J; see also Macken & Ors, Law of Employment (5^th ed) at pp 139-143]] accurately summarised the position:

“Establishing fiduciary obligations: the legal principles

What then are the underlying principles which enable the court to determine whether or not fiduciary obligations arise? Lord Millett, writing extra-judicially has identified three distinct categories of relationship (see his article 'Equity's Place in the Law of Commerce' [1998] Vol 114 LQR 214). Two of them have no application in this case. These are first, where the obligations arise out of the fact that one party is in a position of influence over another; and second, where they arise from the fact that one is in receipt of information imparted in confidence by the other. Employees frequently fall into this latter category, because their work will often involve their being made privy to trade or business secrets of their employer. But although the existence of the employment relationship explains why the employee comes to be in possession of such information, and the contract of employment will define the purposes for which such information may be used, the employment relationship itself in such cases is really only incidental to the imposition of the fiduciary duties. As the Court of Appeal noted in Attorney General v Blake [1998] Ch 439, this fiduciary obligation of confidence often arises in the course of another fiduciary relationship but it is not derived from it. It is for this reason that the obligation of confidence can continue to subsist even when the employment relationship, and any fiduciary duties arising out of it, has terminated.

Bristol and West Building Society v Mothew

It is vital to recognise that although the key feature identified is the obligation of loyalty, that has a precise meaning, namely the duty to act in the interests of another. This is the fundamental feature which, in this category of relationship at least, marks out the relationship as a fiduciary one…

Employees as fiduciaries
…

Henderson v Merrett Syndicates Ltd

This is particularly true in the employment context.

The employment relationship is obviously not a fiduciary relationship in the classic sense. It is to be contrasted with a number of other relationships which can readily and universally be recognised as 'fiduciary relationships' because the very essence of the relationship is that one party must exercise his powers for the benefit of another. Trustees, company directors and liquidators classically fall into this category which Dr Finn, in his seminal work on fiduciaries, has termed 'fiduciary offices'. (See PD Finn, Fiduciary Obligations (1977)). As he has pointed out, typically there are two characteristics of these relationships, apart from duty on the office holder to act in the interests of another. The first is that the powers are conferred by someone other than the beneficiaries in whose interests the fiduciary must act; and the second is that these fiduciaries have considerable autonomy over decision making and are not subject to the control of those beneficiaries.

By contrast, the essence of an employment relationship is not typically fiduciary at all. Its purpose is not to place the employee in a position where he is obliged to pursue his employer's interests at the expense of his own. The relationship is a contractual one and the powers imposed on the employee are conferred by the employer himself. The employee's freedom of action is regulated by the contract, the scope of his powers is determined by the terms (express or implied) of the contract, and as a consequence the employer can exercise (or at least he can place himself in a position where he has the opportunity to exercise) considerable control over the employee's decision-making powers.

This is not to say that fiduciary duties cannot arise out of the employment relationship itself. But they arise not as a result of the mere fact that there is an employment relationship. Rather they result from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to the contractual obligations

Hospital Products Ltd v United States Surgical Corporation

… in analysing the employment cases in this field, care must be taken not automatically to equate the duties of good faith and loyalty or trust and confidence, with fiduciary obligations. Very often in such cases the court has simply been concerned with the question whether the employee's conduct has been such as to justify summary dismissal, and there has been no need to decide whether the duties infringed, properly analysed, are contractual or fiduciary obligations. As a consequence, the two are sometimes wrongly treated as identical: see eg Neary v Dean of Westminster [1999] IRLR 288 at 290 where the mutual duty of trust and confidence was described as constituting a 'fiduciary relationship'.

, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer.

Boardman v Phipps

611 Only during the course of the hearing of the arbitral proceedings (at or about the time Mr Wilson served his first Witness Statement, Exhibit “MEW 21”, dated 22 September 2008, in those proceedings) did the plaintiff first disclose to Mr Emmott the alleged existence of the putative deed dated 22 September 2004, a putative Loan Agreement dated 23 July 1998 (referred in clause 1 of the Deed) and a putative Charge dated 23 November 1998 (referred in clause 1 of the Deed as a “pledge” related to the Loan Agreement) between the plaintiff and Kazholdings Incorporated. Each of the Loan Agreement the Charge was ostensibly executed by Mr Wilson on behalf of the plaintiff and by his wife Mrs Carol A Wilson on behalf of Kazholdings Incorporated. The Deed was ostensibly executed by Alexander M Gusev and Dilyara Alimbayeva (employees of the plaintiff) as directors of Kazholdings Incorporated and by Mr and Mrs Wilson as directors of the plaintiff. By a letter dated 12 January 2009 addressed by the London solicitors of the plaintiff (Holman Fenwick Willan) to the solicitor of Mr Emmott (Michael Robinson), the plaintiff asserted that the Deed, the Loan Agreement and the Charge were authentic transactional documents. Nevertheless, the following factors suggest that they are a recent invention designed to obstruct, defeat or delay any attempt to enforce a judgment or order against the plaintiff: (A) the existence of the putative Deed and Mrs Wilson’s alleged directorship of the plaintiff were not disclosed to Mr Emmott until belatedly during the course of the arbitral proceedings; (B) the effect of the documentation, in the context of the plaintiff’s “reconstruction” of its accounts for the purpose of the arbitral proceedings and these NSW proceedings, is that the plaintiff is financially dependent upon Kazholdings Incorporated and possibly other entities that are, or might be, beyond the reach of ordinary court process and about which the plaintiff and Mr Wilson refuse to make disclosures in these proceedings; (C) the Charge describes the plaintiff as having a postcode (namely, “0500059”) which was not in existence as at the date of the Charge (namely, 23 November 1998) or until December 2004; (D) the plaintiff did not exist as at the date of the putative Loan Agreement (namely, 23 July 1998) and, upon incorporation, it was not known by the name attributed to it in the putative Agreement as it was only incorporated on 17 August 1998 (with the name “Michael E Wilson & Co Ltd”), changing its name to “Michael Wilson & Partners Ltd” on 9 September 1998.

Ground 3: Improper Ex parte Applications

612 The proceedings are an abuse of the processes of the Court in that the plaintiff has obtained coercive orders against the defendants, on ex parte applications to the Court, without full or proper disclosure of facts bearing upon those applications.

613 On 9 October 2006 the plaintiff obtained Freezing Orders against the defendants in an ex parte hearing in which it represented (by paragraph C8 of a commercial list statement filed on that date and by paragraph 5 of an Affidavit sworn by Mr Wilson as a principal of the plaintiff on 6 October 2006) that a family structure of Mr Wilson was the ultimate beneficial shareholder of the plaintiff. It did not disclose to the Court that Mr Emmott (against whom the plaintiff alleged wrongdoing in which the defendants were alleged to have participated) was entitled to 33.3% of the shares in the plaintiff or that Mr Wilson had, on or about 20 February 2006, signed a certified copy of the Share Register of the plaintiff to the effect that the shareholders of the plaintiff were himself (as to 67.7%) and Mr Emmott (as to 33.3%).

614 On 9 October 2006, 26 March 2007, 12 April 2007 and 18 October 2007 the plaintiff obtained ex parte orders, relying upon evidence that the principal of the plaintiff (Mr Wilson) was a former partner of Baker & McKenzie, solicitors, without disclosing to the Court that: (A) whilst a partner of that firm, Mr Wilson had, on his own admission, engaged in “unethical activities” involving “ghost tenders” and overcharging; or (B) that the termination of his relationship with the firm occurred amidst allegations by the firm that he had engaged in further unethical activity.

615 On those same occasions the plaintiff obtained ex parte relief from the Court without disclosure to it that a report of Mr Wilson’s unethical activities (characterised as fraud) whilst at Baker & McKenzie was published in The Almaty Herald (a newspaper circulating in Kazakhstan) in and about June and July 2005, and that a written admission of “unethical activities” by Mr Wilson dated 28 May 1997 was in the public domain in Kazakhstan from June or July 2005 or thereabouts.

616 On the same occasions the plaintiff obtained ex parte relief from the Court without disclosure to it that any contract of employment made between the plaintiff and the First and Second defendants respectively was made without disclosure of Mr Wilson’s admission of engagement in unethical activities to either the First or the Second defendants.

617 In or about March and April 2007 the plaintiff obtained ex parte orders from the Court, granting leave to the plaintiff to use material obtained in these proceedings for the purposes of a criminal investigation overseas (in Switzerland), based upon a false assertion that the affairs of the plaintiff were managed by Mr Emmott.

618 In or about March, April, June and October 2007 the plaintiff obtained ex parte confidential orders from the Court to facilitate the making of a Criminal Complaint overseas without disclosing to the Court that the terms of the Complaint proposed to be made (and made) falsely asserted that Mr Emmott was the managing director of the plaintiff in Kazakhstan and misrepresented the terms of clauses 1.1, 2.1 and 2.2 of the Agreement dated 7 December 2001 (between Mr Emmott and the plaintiff) in aid of that assertion. In Exhibit “D19” see the expression “managing director” (in paragraph 2 on page 3; in paragraph 12 on page 7; in clauses 1.2 and 2.2 extracted on page 8; and in paragraph 17 on page 10) and the expression “full-time employed basis” (in the purported extract of clause 2.1 on page 8) and compare those expressions with the terms of clauses 1.1, 2.1 and 2.2 of the Agreement (Exhibit “D9” at Tab 18). The plaintiff induced the Court to maintain the confidentiality of orders made ex parte without disclosing to the Court the terms of the Complaint or discrepancies between those terms and the Agreement dated 7 December 2001. At no time since the Complaint was filed with the Swiss Prosecutor has the plaintiff brought that discrepancy to the attention of the Court or admitted it.

Ground 4: False and Misleading Statements

619 The proceedings are an abuse of the processes of the Court in that on 17 June 2009 Mr Wilson swore an Affidavit in these proceedings on behalf of the plaintiff in which he swore, inter alia, that: (i) Kazholdings Incorporated is not involved in these proceedings, either as a party “or otherwise”; (ii) the plaintiff is not and never has been a shareholder in Kazholdings Incorporated; (iii) the plaintiff does not have and has never had possession or custody of any documents “howsoever” relating to Kazholdings Incorporated; (iv) Mr Wilson is not a director, officer or shareholder of Kazholdings Incorporated; and (v) Mr Wilson does not have possession or custody of any documents relating to Kazholdings Inc. Those statements are false or misleading in that: (A) in evidence given by Mr Wilson in other proceedings (including paragraphs 98, 305, 354(3), 356(3), 365(3), 430(2), 431(5), 673 and 680 of the First Witness Statement of Mr Wilson, being Exhibit “MEW1” dated 22 September 2008, in the arbitral proceedings) he has made statements to the effect that Kazholdings Incorporated is, and has been throughout the life of the plaintiff a financier of the plaintiff and under the control of Mr Wilson; (B) by a letter dated 12 January 2009 addressed by the London solicitors of the plaintiff (Holman Fenwick Willan) to the solicitor of Mr Emmott (Michael Robinson) the plaintiff, expressly or by implication, asserted that the putative Deed dated 22 September 2004, the putative Loan Agreement dated 23 July 1998 and the putative Charge dated 23 November 1998 between the plaintiff and Kazholdings Incorporated were authentic; and (C) if authentic, those documents evidence a close and long association between the plaintiff and Kazholdings Incorporated.

Ground 5: Constraint of the defendants’ Capacity to Defend the Proceedings

620 The proceedings are an abuse of the processes of the Court in that the plaintiff has sought in its conduct of these proceedings to constrain the defendants’ capacity to defend the proceedings and to limit or interfere with the legal representation available to the defendants in the proceedings.

621 Between 18 October 2006 and 6 November 2006 or thereabouts the plaintiff (by letters dated 18 October 2006, 27 October 2006 and 3 November 2006 addressed by Clayton Utz to Blake Dawson Waldron) objected to the First defendant’s representation in these proceedings by Blake Dawson Waldron. The objection was based upon representations by the plaintiff to Blake Dawson Waldron that: (A) Blake Dawson Waldron was once instructed by the plaintiff (as a client of Blake Dawson Waldron) to act for clients of the plaintiff in a particular matter relating to Emperor Mines Ltd; (B) in the course of that matter information confidential to the plaintiff was imparted to Blake Dawson Waldron; (C) the plaintiff proposed to amend its Commercial List Statement to include allegations of negligence against the First defendant (in contract and tort), including an allegation that, whilst in the employ of the plaintiff, the First defendant was negligent in handling the Emperor Mines matter; (D) several members of Blake Dawson Waldron would be required to give evidence in these proceedings material to the determination of the Emperor Mines negligence allegation; and (E) by reason of r.19 of the Revised Professional Conduct and Practice Rules 1995 (NSW), Blake Dawson Waldron was obliged to cease acting for the First defendant. In response to the plaintiff’s objection, on 6 November 2006 Blake Dawson Waldron filed a Notice of Intention to Cease to Act. On 29 January 2007 the plaintiff filed (pursuant to leave granted on 8 December 2006) an Amended Commercial List Statement which incorporated, in paragraphs 75-80, allegations of negligence against the First defendant. Having secured Blake Dawson Waldron’s withdrawal from the proceedings by a representation that it had been a client of that firm: (F) on or about 23 July 2007 the principal of the plaintiff (Mr Michael Wilson) swore an Affidavit in proceedings numbered 307 of 2006 in the Eastern Caribbean Supreme Court (in the High Court of Justice of the British Virgin Islands) in paragraph 11(d) of which he denied that the plaintiff owed any moneys to Blake Dawson Waldron in respect of the Emperor Mines matter because, he said, Blake Dawson Waldron had contracted directly with the clients and the plaintiff was not itself a client of Blake Dawson Waldron; and (G) on 26 November 2007 the plaintiff filed a Further Amended Summons and a Further Amended Commercial List Statement in which all allegations of negligence against the First defendant were abandoned.

622 On 12 June 2009 (the last working day before the commencement of a trial listed to commence on 15 June 2009) the plaintiff served on the defendants a Notice to Produce bearing that date demanding production of records relating to the defendants’ retainer of solicitors and counsel. On the same date the solicitors for the defendants (Henry Davis York) notified the plaintiff’s solicitors (Clayton Utz) that, in the contention of the defendants, the Notice to Produce was an abuse of process. On the morning of 15 June 2009 (shortly before the scheduled commencement of the trial) each of Henry Davis York and counsel retained in the proceedings on behalf of the defendants received a letter (Exhibit “D2”) dated 12 June 2009 from the office of PriceWaterhouseCoopers in Almaty, Kazakhstan, (where Mr Wilson of the plaintiff is resident) requesting, under cover of an order apparently made in the British Virgin Islands proceedings on the application of the plaintiff, substantially the same information as demanded in the plaintiff’s Notice to Produce.

623 On or about 17 June 2009 the plaintiff (by a facsimile transmission described as a “Fax Message” bearing that date and addressed to the Managing Director of Cheviot Asset Management Ltd and Cheviot Capital (Nominees) Ltd) intermeddled in a sale by the Second defendant of shares held by him in Roxi Petroleum Plc designed to obtain funds for transmission to the solicitors for the defendants (Henry Davis York), to be held in trust on account of costs and disbursements referable to these proceedings. Under cover of its Fax Message, the plaintiff provided to the addressee of the Fax an incomplete copy of Freezing Orders made in the proceedings, omitting to provide or refer to an order made by Bergin J on 20 October 2006 that provided for Freezing Orders to be continued on the basis that “each of the defendants is entitled to pay out of his assets all reasonable legal expenses and costs associated with his defence of these proceedings.”

Ground 6: No Connection with Australia

624 The proceedings are an abuse of the processes of the Court in that the plaintiff has conducted these proceedings notwithstanding that it has no presence in Australia apart from the proceedings, no assets in Australia and no connection with Australia apart from the fact that its principal (Mr Wilson, a non-resident Australian citizen) is, or purports to be, an Australian lawyer. The undertakings as to damages given by the plaintiff in these proceedings in support of coercive orders obtained against the defendants are illusory to the extent that they are not, or might not be, supported by security ordered in favour of the defendants by the Court, bearing in mind that: (A) the “reconstructed accounts” of the plaintiff produced by the plaintiff at the hearing of the arbitral proceedings suggest that, during the course of these proceedings, the plaintiff has been trading whilst insolvent or near insolvency; (B) the putative Deed dated 22 September 2004, the putative Loan Agreement dated 23 July 1998 and the putative Charge dated 23 November 1998 made between the plaintiff and Kazholdings Incorporated suggest that, commercially, the affairs of the plaintiff can be dictated by Kazholdings Incorporated as a financier of the plaintiff entitled to a first charge over “all present and future assets” of the plaintiff and (C) the plaintiff and Mr Wilson refuse to make disclosures about ownership and control of Kazholdings Incorporated notwithstanding evidence given by Mr Wilson in the arbitral proceedings to the effect that he exercises control over Kazholdings Incorporated.

Ground 7: The plaintiff’s Objections to Making Disclosures

625 The proceedings are an abuse of the processes of the Court insofar as the plaintiff has objected to making disclosures, in the course of these proceedings or in the course of the arbitral proceedings, about its financial circumstances or ownership and control of it.

Ground 8: Concealment of “Unethical Activities”

626 The proceedings are an abuse of the processes of the Court insofar as the plaintiff claims relief against the defendants referrable to obligations said to have been owed to the plaintiff by Mr Nicholls and Mr Slater as its employees in circumstances in which, prior to engagement of Messrs Nicholls and Slater respectively, the plaintiff concealed from them that its principal (Mr Wilson) had engaged in “unethical activities” whilst acting as a lawyer in Kazakhstan in partnership with Baker & McKenzie, thereby inducing each of Mr Nicholls and Mr Slater to undertake work for the plaintiff.

Dealing with the respective abuse of process contentions

627 It is trite that it is unnecessary for the Court to record in its reasons each and every piece of evidence adduced during the hearing. For that reason the rulings in relation to the respective abuse of process contentions are unable to be fairly shortly made.

Ground 1 Collateral, Improper Purposes

628 Notwithstanding the concerted efforts of the plaintiff and Mr Wilson to use many jurisdictions in the attempt to obtain freezing orders and similar against the defendants, nothing in the evidence before the court negates the proposition that they were perfectly entitled to so approach what they regarded as their litigious rights. To the extent, if at all, that the defendants are able, following the handing down of these reasons, to establish that in relation to any pleaded issue, the plaintiff stance taken during the hearing in ultimately not pursuing that issue, proves that the issue was pursued with an anterior motive, that matter may be the subject of argument in terms of costs. However that simply does not establish, [on its own or in conjunction with any of the other grounds put forward by the defendants] that these proceedings constitute an abuse of the process of this Court. Nor are any of the other claims pursued in ground 1 of substance or proved to the necessary level as to engage a finding of an abuse of process.

Ground 2 Vexatious and Oppressive Conduct of the proceedings

629 The circumstances in which the plaintiff was unable to join Mr Emmott in these proceedings are common ground. Mr Emmott was entitled to require that the plaintiff comply with the contractual rights provided for in the contract between these parties. He in fact did so:

630 Nothing in the extensive complaints set out in ground 2 suffices to establish an abuse of process of this Court. None of the claims of wrongdoing justifies a finding of an abuse of process.

Ground 3 Improper ex parte applications

631 The issues raised in ground 3 are of very specific importance for obvious reasons. The duties of a party making an ex parte application to make full disclosure to the Court are well-known: cf Meagher Gummow & Lehane’s Equity. Doctrines and Remedies Fourth Ed at21-425. The authors observe that an ex parte injunction may be dissolved ex parte or on an inter partes application. They further observed as follows:

632 On the other hand Equitable Remedies - Injunctions and Specific Performance by I C F Spry, 1971 puts the matter as follows at pages 450 - 451:

633 As I see the matter were the defendants found to have been correct in their contention of the failure by the plaintiff to comply with its onerous obligations to make full disclosure to the Court, the matter would likely sound in indemnity costs.

634 The freezing orders initially made in these proceedings by Palmer J on 9 October 2006 are said to have been based on an incorrect affidavit made by Mr Wilson on 6 October 2006. The affidavit was cross-examined upon [transcript 665-694]. Having examined that cross examination and the nuances concerning the meaning of "family structure" I am not satisfied that the plaintiff claim as to intentional misleading of the Court in the person of Justice Palmer is made out.

635 There is no substance in the suggestion that the matters concerning failure to disclose Mr Wilson's so-called unethical activities would require that these proceedings be dismissed on the ground of an abuse of process.

636 The complaints concerning the proposition that the plaintiff obtained ex parte orders from the Court granting leave to it to use material obtained in these proceedings for the purposes of the criminal investigation in Switzerland based upon a false assertions:

i. that the affairs of the plaintiff were managed by Mr Emmott;

ii. misrepresenting the terms of certain clauses of the 7 December 2001 Agreement [between Mr Emmott and the plaintiff);

637 Much time was taken in examination of the events leading to the final complaint lodged in Switzerland. Both Mr Wilson as well as Mr Radosavlejic, the latter being a lawyer resident of Kazakhstan, had worked on the Swiss complaint.

638 A number of documents required to be examined in terms of the iterative circumstance from the commencement of work on the Swiss complaint until the lodging of the final complaint. The cross examinations traversed the manner in which English drafts were ultimately translated into German. Nothing in those cross-examinations justifies the proceedings being dismissed on the grounds of an abuse of process.

Ground 4 False and misleading statements

639 Nothing in these grounds merit the proceedings being dismissed on the ground of an abuse of process.

Ground 5 Constraint of defendant's capacity to defend the proceedings

640 Nothing in these grounds merits the proceedings being dismissed on the ground of an abuse of process.

Ground 6 No connection with Australia

641 Nothing in ground 6 merits the proceedings being dismissed on the ground of an abuse of process. It must never be forgotten that both Slater and Nicholls filed submitting appearances. Nor that the defendants’ pleadings [literally up to the commencement of the final hearing] had not sought to suggest that the law operating in Kazakhstan was different to the law in this present jurisdiction.

Ground 7 The plaintiff's objections in making disclosures

642 Nothing in this ground merits the proceedings being dismissed on the ground of an abuse of process

Ground 8 Concealment of so-called 'unethical activities'

643 No doubt this ground is put last for obvious reasons. It is a fine example of the general lack of merit running through all of the grounds referred to above. Indeed it suggests a lack of understanding of the principles first set out in these reasons in so far as dealing with this subject. As those authorities made clear, the power to exercise a stay in civil proceedings is only to be exercised with the 'utmost caution'.

Conclusion

644 Notwithstanding that in my view none of the above grounds is shown on close examination to have had any merit at all, I have endeavoured resisted the temptation to simply dismiss all of them out of hand. As will have been observed, some of them have been fairly closely analysed and in other instances that form of analysis is simply unnecessary.

Restraints against public policy/non-solicitation restraints

645 In light of the defendant's conduct exposed in these reasons, the defendants submissions contending that the alleged breaches of the restraint of trade provisions were against public policy and/or were and reasonable are seen to be misconceived. Consideration of those matters are:

i. simply otiose in light of the Court having upheld MWP's accessorial liability cases;

646 In this regard one need travel no further than the reasons given by Heydon JA in Harris v Digital Pulse Ply Ltd (2003) 56 NSWLR 298 at 406-409: and in particular at 413 and 414:

413 The rules that a plaintiff need not show damage and need not show that the fiduciary has taken a profit which the plaintiff could have gained are prophylactic in the sense that they tend to prevent the disease of temptation in the fiduciary –they preserve or protect the fiduciary from that disease. The temptation might be assisted if the fiduciary had in contemplation the possibility of escaping liability by arguing that the principal was caused no loss, or that the profit made was never available to the principal.

and the

absence of defences justifying departures from it..

Remaining matters

647 There were sundry loose ends or remaining matters left for the courts decision. These were as follows:

i. A decision as to the defendants endeavour to tender particular documents [cf transcript 1807-1814];

ii. The matter was dealt with in a table where under the parties identified their positions in relation to the proposed tenders. That table was furnished to the court by e-mail from the defendants on 11 September 2009;

a) allow the tender of the affidavits of Mr Radosavljevic;

648 Furthermore the court having reserved a decision on the admissibility of MFI P27 has determined to reject that material: the evidence before the court from Mr Butler [transcript at 958] was that the translators of the document now sought to be placed into evidence had erred in not correctly translating the document and that evidence is accepted as reliable. Nor was the genealogy of MFI P27 appropriately identified. There simply was no verification nor authentication of the translation so that the Court is not even in a position to know the identity of the author of the translation. In the circumstances the probative value of the document is substantially outweighed by the danger that the admission of this MFI evidence would be misleading or confusing, and/or would result in an undue waste of time, and would further be unfairly prejudicial to the plaintiff.

MWP's rights to elect as between remedies

649 Outside of the finding against MWP that it is disentitled to the remedy of a constructive trust, the Court will permit MWP to address on the remedies in respect of which it contends that it is entitled to an election. That will include its entitlement to address on the so-called 'split election' option. Naturally the defendant will also be entitled to make submissions on these matters. At the same time the parties will be permitted to address on questions relating to the propriety of provision being made for just allowances.

Matters not litigated

650 During the hearing the plaintiff successfully moved to strike out:

i. a misrepresentation defence as well as

651 The strike out application was dealt with formally and the judgment [2009] NSWSC 721 was delivered on 6 August 2009.

652 In consequence these defences fail in limini. That matter not withstanding, the defendants in final submissions sought to maintain their contention that they were entitled to rely upon these defences. They had no entitlement so to do but presumably were merely wanting to keep alive prospects of succeeding on one or both of these defences in the Court of Appeal.

Other outstanding issues?

653 Bearing in mind the very extensive causes of action and defences relied upon it is appropriate to reserve to the parties liberty, should either wish to contend that the reasons have omitted to deal with a pleaded cause of action or defence, to make submissions accordingly. If those submissions proved to be of substance, the Court may give short additional reasons to cover any such hiatus.

Transaction	Remedy
General Cut-Off Date	6 February 2007
Chilisai Phosphate	Election granted for all Temujin invoices up to and including 30 November 2007.
Urals Gold	Election granted for all Temujin invoices up to and including the General Cut-off Date.
Benkala Copper	No election granted.
Roxi Petroleum	Election granted for all Temujin invoices for the following transactions up to and including General Cut-off Date: (a) Karamandybas (b) Ravninnoye (c) Beibars Munai No election granted for Project X. No election granted for Temujin invoices for the Roxi re-admission transactions including: (a) Eragon (b) ADA No election granted for Roxi shares held by any defendant resulting from Temujin work.
Ablai	Election granted for all Temujin invoices up to and including the General Cut-off Date.
Maersk Oil	Election granted for all Temujin invoices up to and including the General Cut-off Date.
Kangamiut Seafoods	Election granted for all Temujin invoices up to and including General Cut-off Date.
Miscellaneous	No election granted.

Short minutes of order

654 The parties will be required to bring in short minutes of order on which occasion they will be given an opportunity to address on costs.

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Citations

Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1033

Most Recent Citation

Parker v Tucker [2010] FCA 263

Cases Citing This Decision

10

Michael Wilson & Partners Ltd v Nicholls [2011] HCA 48

Michael Wilson & Partners Ltd v Nicholls (No 12) [2024] ACTCA 1

Michael Wilson and Partners Ltd v Emmott [2021] NSWCA 315

Cases Cited

88

Statutory Material Cited

5

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27

Regie Nationale Des Usines Renault SA v Zhang [2002] HCA 10

CITATION:	Michael Wilson and Partners Limited v Robert Colin Nicholls & Ors [2009] NSWSC 1033
HEARING DATE(S):	15/6/09, 16/6/09, 23/6/09, 24/06/09, 29/06/09, 30/06/09, 13/07/09, 14/07/09, 23/07/09, 24/07/09, 27/07/09 - 30/07/09,6/08/09, 10/08/09, 11/08/09, 13/08/09 17/08/09- 20/08/09, 24/08/09 - 28/08/09, 1/09/09, 2/09/09, 7/09/09, 9/09/09. 10/09/09
JUDGMENT DATE :	6 October 2009
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Plaintiff disentitled to relief by way of a constructive trust. Plaintiff entitled to elect as between ultimate forms of relief on the sundry causes of action upheld in the reasons inter alia including an election for an equitable account of profits or equitable compensation.
CATCHWORDS:	Equity - Fiduciary obligations - When and to what extent may employees owe fiduciary obligations to employer - Circumstances in which fiduciary obligations may be regarded as ‘spent’ - Accessorial liability under second limb of rule in Barnes and Addy - Breaches of contract - Secret profits - Diverting business opportunities from former employer to competing business - Confidential information - Plaintiff law firm offering legal services and business consultancy in Kazakhstan brings proceedings against former employees for having furthered their own interests to their employers detriment by various means - Jurisdiction - Enquiry as to whether foreign law applies to determination of matters litigated - Principled approach to determining questions of foreign law - Proceedings involve consideration of several potentially applicable systems of law - Multiplicity and overlapping nature of issues require Court to consider the level of abstraction appropriate to address issues so as to discharge its ultimate mandate of doing justice between the parties - Fraud - Principles which inform the proper approach to whether or not particular conduct is proven to have been fraudulent - Conspiracy to defraud - Principles - Interference with contractual relations-Principles-Causation-Abuse of process - Defendants claim that proceedings amount to an abuse of process and required to be summarily dismissed-Consideration of what amounts to an abuse of process - Case management - Allegations of abuse of process intertwined with principal issues litigated - Efficiently dictates that both the plaintiffs pleaded case as well as the defendant's abuse of process case be litigated together - Causation - Remedies - Constructive trusts - Election - Split election - Nullus commodum capere potest de injuria sua propria - Overriding purpose rule - Achievement of a just, timely and cost-effective resolution of dispute has an effect upon the Court and upon other litigants - Commercial life depends on timely and just payment of money such that those who claim to be entitled to money should know, as soon as possible, whether they will be paid and those against whom the entitlement is asserted should know, as soon as possible, whether they will have to pay - Ethos of Commercial List to determine disputes speedily
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) Evidence Act 1995 [NSW] Insolvency Act 1968 (Eng) Revised Professional Conduct and Practice Rules 1995 (NSW) Supreme Court Rules (NSW)
CATEGORY:	Principal judgment
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Coomber [1911] 1 Ch 174: Coomera Resort Pty Ltd v Securities Ltd [2004] 1 Qd R 1 D’Orta-Ekenaike v of Victorian Legal Aid (2005) 223 CLR 1 Daher v Doulaveras [2009] NSWCA 58; [2008] NSWSC 583 Damberg v Damberg [2001] 52 NSWCA 87 Dawkins v Prince Edward of Saxe Weimar (1876) 1 QBD 499 Dawson,Re; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399 De Reneville v De Reneville [1948] P 100 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 Director of Public Prosecutions v Humphrys [1977] AC 1. 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PARTIES:	Michael Wilson & Partners (Plaintiff) Robert Colin Nicholls (First Defendant) David Ross Slater (Second Defendant) Temujin Services Limited (Third Defendant) Temujin International Limited (Fourth Defendant) Temujin International FZE (Fifth Defendant) Shaikenov & Partners, LLP (Sixth Defendant) Temujin Holdings Limited (Seventh Defendant)
FILE NUMBER(S):	SC 50151/06
COUNSEL:	Mr M Walton SC, Mr J Carney (Plaintiff) Mr G McGrath, Mr A Fox (First Defendants) Mr G Lindsay SC, Mr A Fox, Mr S Adair (Second to Fifth Defendants)
SOLICITORS:	Clayton Utz (Plaintiff) Henry Davis York (First to Fifth Defendants)