Nicholls v Michael Wilson & Partners Ltd - [2012] NSWCA 383

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Nicholls & Ors v Michael Wilson & Partners Ltd [2012] NSWCA 383
Hearing dates: 25, 26 July 2012; 17, 28 August 2012 (further written submissions)
Decision date: 28 November 2012
Before: Meagher JA at [1]
Barrett JA at [2]
Sackville AJA at [3]
Decision:
1. The parties file agreed short minutes of order within 14 days, including provision for interest, costs and any other outstanding issues.
2. In the absence of agreed short minutes, the appellants file and serve their draft short minutes of order and brief submissions in support within 14 days.
3. The respondent file and serve its draft short minutes of order and brief submissions in support within a further 14 days.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:
EQUITY - equitable compensation for breach of fiduciary duties by employees and consultants - assessment after remitter of case by High Court to Court of Appeal - fiduciaries deliberately breached duties by diverting opportunities for legal work from a legal and consulting firm in Kazakhstan to their own firm and by knowingly assisting in other breaches of fiduciary duty - principles governing assessment of equitable compensation for lost opportunity to perform legal work and to receive financial rewards for involvement in projects - need to establish causation - significance of fiduciaries' resignation from firm in order to further their wrongful conduct - extent to which plaintiff is entitled to rely on the presumption against wrongdoers where there are gaps in the evidence.
EVIDENCE - admissibility of expert report - report estimates legal work likely to be performed on particular projects and fees or other rewards likely to be derived by the firm performing the work - whether expert's opinion met the requirements of s 79 of the Evidence Act 1995 - whether opinions shown to be based on the expert's specialised knowledge - whether report should be given any probative weight.
Legislation Cited: Evidence Act 1995
Cases Cited: Armory v Delamirie (1722) 1 Stra 505; 93 ER 664
Barnes v Addy (1874) LR 9 Ch App 244
Beach Petroleum NL v Kennedy [1999] NSWCA 408; 48 NSWLR 1
Canadian Aero Service Ltd v O'Malley [1974] SCR 592; 40 DLR (3d) 371
Canson Enterprises Ltd v Broughton & Co (1991) 85 DLR (4th) 129
Edmonds v Donovan (2005) 12 VR 513
Environment Agency v Empress Car Co (Abertillery) Ltd [1998] 2 WLR 350
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89
Furs Ltd v Tomkies [1936] HCA 3; 54 CLR 583
Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; 56 NSWLR 298
Houghton v Immer (No 155) (1997) 44 NSWLR 46
Maguire v Makaronis (1997) 188 CLR 449
McKenzie v McDonald [1927] VLR 134
Michael Wilson and Partners Ltd v Nicholls [2011] HCA 48; 282 ALR 685
Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1033
Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1377
Mordecai v Mordecai (1988) 12 NSWLR 58
Nicholls v Michael Wilson & Partners Ltd [2010] NSWCA 222
Nocton v Lord Ashburton [1914] AC 932
O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Re Dawson (dec'd) [1966] 2 NSWR 211
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Swindle v Harrison [1997] 4 All ER 705
Target Holdings Ltd v Redferns [1996] 1 AC 421
Warman International Ltd v Dwyer [1995] HCA 18; 182 CLR 544
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484
Texts Cited: I E Davidson, "The Equitable Remedy of Compensation" (1982) 13 Melbourne University Law Review 349
R Meagher, D Heydon and M Leeming, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies 4th ed (2002) LexisNexis Butterworths
W M Gummow, "Compensation for Breach of Fiduciary Duty" in J G Youdan, Equity, Fiduciaries and Trusts (1989)
Category: Principal judgment
Parties: Robert Colin Nicholls (First Appellant and First Cross-Respondent)
David Ross Slater (Second Appellant and Second Cross-Respondent)
Temujin Services Limited (Third Appellant and Third Cross-Respondent)
Temujin International Limited in its own capacity and as trustee of the Temujin Trading Trust (Fourth Appellant and Fourth Cross-Respondent)
Temujin International FZE (Fifth Appellant and Fifth Cross-Respondent)
Michael Wilson & Partners Limited (Respondent and Cross-Appellant)
Representation: Counsel:
G O Blake SC, G W McGrath SC and S Adair (Appellants)
B Walker SC, M Walton SC and D F C Thomas (Respondent)
Solicitors:
Henry Davis York (Appellants)
Clayton Utz (Respondent)

File Number(s): 2009/298561
Decision under appeal

Citation:

Michael Wilson & Partners Ltd v Nicholls [2009] NSWSC 1033
Michael Wilson & Partners Ltd v Nicholls [2009] NSWSC 1377

Before:

Einstein J

File Number(s):

SC 2006/50151

Judgment

MEAGHER JA: I agree with the orders and directions proposed by Sackville AJA for the reasons his Honour gives.

BARRETT JA: I agree with Sackville AJA.

SACKVILLE AJA: On 1 December 2011, the High Court allowed an appeal from orders made by this Court on 15 September 2010 setting aside declarations and orders made by the primary Judge (Einstein J). The High Court remitted the matter to this Court for further consideration of certain grounds in the amended notice of appeal filed by the appellants and of the cross-appeal filed by the respondent: Michael Wilson & Partners Ltd v Nicholls [2011] HCA 48; 282 ALR 685.

The principal issue debated on the remitted appeal is the correctness of the primary Judge's award of equitable compensation to the respondent by reason of the appellants' now uncontested breaches of fiduciary duty. The case is unusual because the respondent, Michael Wilson & Partners Ltd ("MWP"), is an entity which carried on a legal practice and business consultancy in Kazakhstan and the appellants' breaches of fiduciary duty mostly occurred in that country. The outcome of the appeal, however, depends on the application of the law of New South Wales to the particular facts.

COURSE OF THE LITIGATION

Supreme Court Proceedings

MWP instituted the proceedings in the Supreme Court. The defendants (appellants in this Court) were Mr Nicholls, Mr Slater and several corporations associated with them. The corporations included Temujin International Ltd ("TIL"), Temujin Services Ltd ("TSL") and Temujin International FZE ("TFZE"). At the time the proceedings were commenced, Mr Nicholls and Mr Slater were Australian citizens and residents.

Mr Nicholls and Mr Slater were employed by MWP until early 2006. MWP alleged, among other things, that Mr Nicholls and Mr Slater breached their contractual and equitable duties to MWP; conspired with a member of the firm, Mr Emmott, to divert clients and business opportunities from MWP to their own companies, particularly TIL; induced Mr Emmott to breach his own contractual obligations to MWP; and knowingly assisted Mr Emmott to breach his fiduciary duties to MWP. Mr Emmott, who left MWP in mid-2006, was not a party to the Supreme Court proceedings, but was a party to an arbitration in London in which MWP sought relief against him.

The trial of MWP's claims in the Supreme Court took place over 32 hearing days between 12 June 2009 and 10 September 2009. The primary Judge delivered two judgments. The first, handed down on 6 October 2009, recorded his Honour's findings and concluded that MWP was entitled to elect "as between ultimate forms of relief on the sundry causes of action upheld in the reasons": Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1033. The second judgment, handed down on 11 December 2009 dealt with the remedies to which MWP was entitled: Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1377. I shall refer to the first judgment as the "Liability Judgment" and the second as the "Remedies Judgment".

In the result, Einstein J dismissed the proceedings against one of the defendants (Temujin Holdings Ltd ("THL")), but upheld MWP's claims against Messrs Nicholls and Slater and TIL, TSL and TFZE. His Honour granted declaratory relief and made orders that all five defendants pay compensation or damages to MWP. The compensation and damages primarily related to work done by TIL for and benefits obtained by TIL from entities associated with Mr Schoonbrood and Mr Sinclair, both of whom had instructed MWP.

In the case of Mr Nicholls, declarations were made that he:

acted in breach of various fiduciary duties owed to MWP (Declarations 1 and 2);
was liable under the so-called second limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244, in respect of Mr Emmott's breaches of fiduciary duties (Declarations 3 and 4);
acted in breach of several of his contractual duties to MWP (Declaration 5);
committed the tort of inducement of breach of contract with respect to Mr Emmott's breaches of his contractual duties to MWP (Declaration 6); and
was liable for conspiracy to injure MWP by unlawful means (Declaration 7).

The primary Judge, in reliance on Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89, at [160], said (at [273]) that the second limb of Barnes v Addy:

"makes a defendant liable if that defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary".

In addition to declaratory relief, the primary Judge ordered that:

"in consequence of:

(i) the ... breaches by [Mr Nicholls] of equitable obligations owed to [MWP];

(ii) the ... breaches by [Mr Nicholls] of contractual duties owed to [MWP];

(iii) commission by [Mr Nicholls] of the ... tort of inducement of breach of contract with respect to Emmott's breaches of his contractual duties;

[Mr Nicholls] is jointly and severally liable with [Mr Slater, TIL, TSL and TFZE] to pay to [MWP] the sums of $US3,508,793.91, €555,258.94 and [AUD] 4,000,000.00."

Similar declarations and orders were made against Mr Slater.

Declarations were made that TIL, TSL and TFZE were liable under the second limb of Barnes v Addy in respect of the breaches of fiduciary duty by Messrs Nicholls, Slater and Emmott. In addition, declarations were made that they had induced Mr Emmott to breach his contractual duties to MWP. Each of the companies was ordered to pay MWP the same amounts as Messrs Nicholls and Slater were ordered to pay.

The Appeal

The defendants against whom declarations and orders were made ("the appellants") appealed to this Court on numerous grounds. The grounds of appeal included the following (using the numbering in the amended notice of appeal):

(1) The primary Judge should have disqualified himself on the ground of a reasonable apprehension of bias.

(2) The primary Judge should have declined relief because the litigation lacked a territorial connection with New South Wales.

(3) The primary Judge wrongly imposed on the appellants the onus of proving the identity and content of applicable law and thus incorrectly applied the law of New South Wales to various causes of action, rather than the law of Kazakhstan.

(4) The proceedings were an abuse of process by reason of the London arbitration between MWP and Mr Emmott.

(5) The primary Judge failed to give adequate reasons for his decision.

(6-9) The primary Judge erred in making certain findings as to credit and as to the fiduciary obligations of the appellants.

(10) The primary Judge made numerous erroneous factual findings.

(11-15) The findings as to liability were erroneous. Furthermore, the primary Judge ought to have found that there was no causal connection between the appellants' wrongful conduct (if any) and such loss or damage as may have been sustained by MWP.

(16-20) The award of equitable compensation, insofar as it related to fees or benefits concerning specific projects, failed to take into account the evidence of Messrs Sinclair and Schoonbrood, principals of the clients which had instructed MWP and (later) TIL. (Their evidence, in substance, was that they did not wish to engage or be associated with Mr Wilson and only engaged MWP because of their pre-existing association with Mr Emmott. Nor had Mr Emmott solicited their business.) Moreover, the award of AUD 4 million as equitable compensation was arbitrary and bore the character of punitive or exemplary damages.

(21) The primary Judge erroneously admitted into evidence the report of Mr Schilling, a Canadian lawyer practising in Romania, who was said to have experience in providing legal services to developing market economies. His report was tendered by MWP in support of its claim for equitable compensation and damages, but according to the appellants was inadmissible.

(22) The orders made by the primary Judge could not stand because they were inconsistent in material respects with the award made in the London arbitration.

The Court of Appeal (Basten and Young JJA, Lindgren AJA) allowed the appeal on two independent grounds: Nicholls v Michael Wilson & Partners Ltd [2010] NSWCA 222. In substance these were the following:

A fair minded lay observer might reasonably have apprehended, by reason of what occurred in several interlocutory applications made to the primary Judge by MWP without notice to the appellants, that his Honour might not have brought an impartial and unprejudiced mind to the resolution of the issues in the trial.
The institution and prosecution of the proceedings in the Supreme Court constituted an abuse of process, since MWP had sought relief in the arbitration proceedings for substantially the same breaches of fiduciary duty. The Supreme Court proceedings were therefore a form of collateral attack on the arbitrator's findings.

The Court of Appeal made orders for a further hearing of the proceedings in the Equity Division, subject to a direction that the trial not commence until the conclusion of the London arbitration. As a consequence, the Court was not required to deal with MWP's cross-appeal on the quantum of damages and equitable compensation. Thus the cross-appeal was dismissed, but not on the merits.

Although the appeal was upheld on the grounds of apprehension of bias and abuse of process, members of the Court of Appeal addressed other issues. Lindgren AJA (with whom Basten and Young JJA agreed on this issue) rejected (at [335]) the appellants' contention that the primary Judge had erred in placing the onus on them of proving the content of foreign law. Lindgren AJA also rejected the appellants' contention that MWP's equitable claims were to be determined otherwise than in accordance with New South Wales law, as the law of the forum (at [342], [346]).

Young JA (with whom Lindgren AJA agreed on these issues) expressed his opinion on three matters. First, in his view (at [140]), there were good reasons why the primary Judge ought not to have made declarations in favour of MWP. In any event, Young JA considered that the declarations made by the primary Judge were deficient in form.

Secondly, Young JA said (at [145]) that the primary Judge had incorrectly assumed that having assessed equitable compensation for the appellants' breaches of fiduciary duty, he did not need to consider separately the questions of damages for the torts of inducing breach of contract or conspiracy to injure by unlawful means. Young JA pointed out (at [147]-[149]) that the principles governing the assessment of equitable compensation and common law damages for the same basic wrongful act are not necessarily identical.

Thirdly, Young JA criticised the approach taken by the primary Judge to the assessment of equitable compensation, in particular the award of $4 million which was said to be in respect of MWP's loss of fees or business opportunities. The primary Judge justified the award as a "robust" assessment of equitable compensation. Young JA commented (at [179]) that:

"[t]he word 'robust' in this context does not give judges liberty to 'think of a number', nor does it allow exemplary damages to be awarded under some other name".

Young JA also identified what he described as an additional "error" in the primary Judge's assessment of equitable compensation. The error was (at [186]):

"[the] failure to consider whether the gains made by the appellants could have been earned by [MWP]. This was particularly significant in view of the evidence that two of the clients involved [Messrs Sinclair and Schoonbrood] gave firm evidence accepted by the primary judge that they would not have retained MWP to act for them in any event".

Young JA observed (at [188]) that he had made his comments for the "guidance" of the parties and the Judge conducting the rehearing required by the orders of the Court of Appeal.

The Appeal to the High Court

The High Court granted MWP special leave to appeal from the decision of the Court of Appeal and unanimously allowed the appeal. The Court held that there could be no reasonable apprehension that the primary Judge was biased and, further, that the proceedings did not constitute an abuse of the process of the Supreme Court: MWP v Nicholls, at [5], per Gummow ACJ, Hayne, Crennan and Bell JJ; at [118]-[119], per Heydon J.

The High Court made orders:

setting aside the orders of this Court;
remitting the matter for further consideration of specific grounds of appeal, namely grounds 5(b)-(c), 6-15, 17(b)-(d), 18, 20 and 21 of the amended notice of appeal; and
providing that the costs of the appeal to the Court of Appeal were to be in the discretion of the Court.

The orders made by the High Court disposed of the appellants' arguments based on alleged apprehension of bias and abuse of process. In addition, the orders limited the grounds of appeal available to the appellants at the remitted hearing in this Court. In particular, the orders precluded the appellants relying on their contentions relating to choice of law or the alleged lack of territorial connections with New South Wales.

The Resumed Appeal

Narrowing of Issues

The appellants' supplementary written submissions, belatedly filed on the eve of the resumed hearing in this Court, indicated that they did not press a number of the remitted grounds of appeal. A document handed up by the appellants at the conclusion of the hearing recorded that only the following grounds of appeal were pursued: 5(c), 6, 7, 10(e), 13-15, 17(b), (c), 18(a), (b),(i),(ii),(iii),(v), 18(c), 20 and 21.

I shall summarise the appellants' arguments later in this judgment. It is sufficient to note here that they no longer dispute the credit findings made by the primary Judge. Nor do they dispute the findings that MWP made out the pleaded causes of action against the appellants. The remaining issues in dispute concern the assessment of MWP's entitlement to equitable compensation by reason of the appellants' breaches of fiduciary duty. No issue arises on the appeal in relation to damages for MWP's common law causes of action, since MWP relies only on its entitlement to equitable compensation.

Conduct of the Appeal

The belated filing of the appellants' supplementary submissions, meant that the members of the Court had to read written submissions in advance of the hearing, significant portions of which turn out no longer to be relevant to the appeal. Moreover, at no stage have the appellants prepared revised and consolidated written submissions limited to the arguments ultimately relied on by them. Since original written submissions cannot be readily related to those arguments, the task of preparing a judgment has been made substantially more difficult than it should have been. The purposes of written submissions include a clear identification of the remaining issues and a succinct presentation of the arguments advanced in relation to those issues. If the written submissions do not achieve those objectives, their value is diminished, if not eliminated.

Exemplifying the difficulties that the appellants' approach has created, the Orange Book as filed included a schedule of 105 pages listing the findings of the primary Judge challenged by the appellants and MWP's response to each challenge. The appellants' supplementary submissions did not incorporate a revised schedule of challenges to factual findings. A revised schedule was ultimately prepared at the request of the Court and handed up during the second day of the appeal. It is 13 pages in length.

A further major difficulty in the conduct of the appeal concerns the report prepared by Mr Schilling. Mr Schilling was asked, among other things, to give his opinion as a lawyer with experience of practice in emerging legal markets, as to the total fees and disbursements he would reasonably have expected to be billed for certain projects on which MWP or TIL (or both) had performed work. The primary Judge relied heavily on Mr Schilling's report to assess the quantum of equitable compensation to which MWP was entitled. An important issue in the appeal was whether Mr Schilling's report (or sections of it) had been correctly admitted into evidence or had been given undue weight.

The Blue Books prepared for the appeal included those parts of Mr Schilling's report said to have been admitted into evidence. The version of the report reproduced in the Blue Books had some portions crossed out because, so this Court was told, the primary Judge had ruled that those portions were inadmissible. Other sections of Mr Schilling's report were not reproduced in the Blue Books. Counsel for both parties apparently assumed that the sections not reproduced had not been admitted into evidence and the argument proceeded on that assumption.

In the course of oral argument, members of the Bench expressed puzzlement as to the form of the report and the apparent absence of material supporting Mr Schilling's opinions. Neither party suggested at the hearing that the evident gaps in the report were due to mistakes in the preparation of the appeal books.

After the hearing concluded, the solicitors for MWP forwarded a folder of documents which purported to provide answers to queries raised by the Bench in the course of oral argument. The "response to the Court's queries" informed the Court that substantial sections of Mr Schilling's report admitted into evidence had not been reproduced in the Blue Books. MWP asserted that:

"[i]t is plain that this Court cannot properly evaluate Mr Schilling's evidence whilst it is incomplete".

MWP also asserted that Mr Schilling's opinions had been based in part on "transaction summaries" about which some evidence had been given. No reference had been made to these transaction summaries in argument. Nor was any explanation given for the omissions from the Blue Books, other than that an incorrect version of Mr Schilling's report had been reproduced. MWP's response then proceeded, without leave, to supplement the arguments already put by new arguments based, in large part (but not entirely), on the material omitted from the Blue Books.

This unfortunate development necessitated a post-hearing directions hearing. The parties were directed to file further written submissions as to the admissibility of Mr Schilling's report in the form admitted into evidence. These submissions were duly filed, along with a consolidated version of Mr Schilling's report in the form in which it was in fact admitted into evidence. Naturally the filing of supplementary submissions has delayed the preparation of this judgment.

BACKGROUND

Overview

The judgment of the plurality in the High Court recounts the nature of the proceedings and the history of the litigation. It is convenient to reproduce that account here (MWP v Nicholls, at [6]-[16] and [20]-[26], per Gummow ACJ, Hayne, Crennan and Bell JJ). It will be recalled that the respondents to the High Court appeal are the appellants in this Court and were the defendants in the proceedings determined by the primary Judge.

"The parties

6. ... [MWP] was incorporated in the British Virgin Islands. MWP was controlled by Michael Earl Wilson, who described himself as a 'corporate transaction lawyer'. At the times relevant to this matter, MWP practised as a law firm and [on the primary Judge's findings] a business consultancy in the Commonwealth of Independent States [an association of states that had been constituent republics of the Union of Soviet Socialist Republics] from offices in Kazakhstan.

7. In December 2001, MWP made an agreement with John Forster Emmott, an English and Australian solicitor, that Mr Emmott would join MWP as a director and shareholder with effect from January 2002. They agreed that 'in effect' MWP would 'operate as a quasi-[p]artnership between them'. The agreement provided that each party should have and would observe 'the usual partnership obligations and duties to each other'.

8. From 24 April 2004 until 1 March 2006, the first respondent (Mr Nicholls, an Australian barrister) was employed by MWP as a senior associate or, as he described himself, a 'senior expatriate lawyer'. From 1 September 2005 to 9 January 2006, the second respondent (Mr Slater, an Australian solicitor) was employed by MWP as an associate.

9. By the end of June 2006, Messrs Nicholls, Slater and Emmott had all left MWP. Mr Slater did not return to work from annual leave he took from 21 December 2005; Mr Nicholls left employment on 1 March 2006; by letter dated 30 June 2006, Mr Emmott gave notice terminating his agreement with MWP with immediate effect.

10. The third, fourth and fifth respondents ('the Temujin companies') are companies that, at the relevant times, were associated directly or indirectly with some or all of Messrs Nicholls, Slater and Emmott ... [TIL] operated as a business adviser, agent and arranger, and provided legal services. Two of the Temujin companies (TIL and [TSL]) were incorporated in the British Virgin Islands; the third ([TFZE]) was incorporated in a Free Trade Zone in the United Arab Emirates. ...

11. MWP alleged that each of Messrs Nicholls, Slater and Emmott, separately and together, furthered his or their own interests at the expense of MWP. A central allegation was that Messrs Nicholls, Slater and Emmott had conspired together to divert, and had in fact diverted, clients and business opportunities away from MWP to their own benefit by having one or more of the Temujin companies act for the clients in question or by taking advantage of business opportunities that would otherwise have gone to MWP.

Arbitration and action

12. MWP sought relief in several different jurisdictions. The persons and entities MWP sued were located in different places. The principal proceedings brought by MWP were an arbitration in London against Mr Emmott and the proceedings in the Supreme Court of New South Wales against Messrs Nicholls and Slater, the Temujin companies and ... other defendants ...

13. MWP served a notice of arbitration on Mr Emmott in August 2006; it commenced the New South Wales proceedings against Messrs Nicholls and Slater and others in October 2006 ...

14. The London arbitration between MWP and Mr Emmott was instituted in accordance with an arbitration clause contained in the agreement those parties had made. Because Messrs Nicholls and Slater and the other defendants in the New South Wales proceedings were not parties to that (or any other) arbitration agreement with MWP they could not be added as parties to the arbitration between MWP and Mr Emmott.

15. After MWP had commenced its action in New South Wales against Messrs Nicholls and Slater and others, it invited Mr Emmott to consent to being joined as a party to the New South Wales action. Mr Emmott declined that invitation ...

16. Because MWP had made the agreement it had with Mr Emmott, the controversy between MWP and those who it alleged had acted together to harm MWP was to be resolved as to part in one venue (the London arbitration) and as to part in another (the Supreme Court of New South Wales). Although MWP alleged that Mr Emmott had breached fiduciary duties he had owed it, and that Messrs Nicholls and Slater and the corporate defendants in the New South Wales proceedings were liable to MWP because, among other things, they had knowingly assisted Mr Emmott in those breaches, MWP could not have those complaints heard and determined by the one process, whether arbitral or curial.

...

The nature of the claims made by MWP

20. MWP alleged that Mr Emmott had acted in breach of contractual and fiduciary obligations he owed to MWP. It claimed, in the London arbitration, an account of the profits Mr Emmott had made from what it characterised as clients and work he had diverted from MWP to his own benefit. MWP claimed damages for breach of contract, and compensation for the loss occasioned to it by Mr Emmott's breach of fiduciary duties. It appears likely that at some point in the London arbitration MWP also claimed that there should be a general accounting between it and Mr Emmott (in effect, an accounting as between partners) but on the basis of wilful default by Mr Emmott. That was the relief the arbitrators granted.

21. In the New South Wales proceedings, MWP alleged that Messrs Nicholls and Slater had acted in breach of their contractual and fiduciary obligations and had knowingly assisted Mr Emmott in his breaches of his fiduciary obligations. MWP claimed (among other relief) damages, compensation and an account of profits.

22. There was substantial but not exact overlap between the allegations made in both proceedings. ...

The course of the London arbitration and the New South Wales proceedings

23. ... [N]otice of arbitration was given on 14 August 2006 and the New South Wales proceedings were commenced on 9 October 2006. Hearing of the arbitration (on issues of liability only) commenced on 10 November 2008 and concluded on 24 February 2009; trial of the New South Wales proceedings on all issues began on 15 June 2009 and concluded on 10 September 2009.

24. The primary judge ... made final orders granting MWP substantially the relief it had claimed ...

25. On 14 December 2009, the present respondents gave notice of appeal to the Court of Appeal of the Supreme Court of New South Wales.

26. On 22 February 2010, the London arbitrators published, as their 'Second Interim Award', an interim award on questions of liability. That award held that Mr Emmott was liable to MWP in some but not all of the respects in which Einstein J had found Messrs Nicholls and Slater liable to MWP for knowingly assisting in Mr Emmott's breaches of his fiduciary obligations. In particular, the arbitrators found that some of the clients taken from MWP would not have stayed with MWP once Mr Emmott had left, because they did not want to deal with Mr Wilson. Accordingly, the arbitrators gave MWP no relief against Mr Emmott in respect of the loss of those clients. By contrast, Messrs Nicholls and Slater were held liable in the New South Wales proceedings to compensate MWP in amounts that included an assessment of the value of the lost opportunity for MWP to continue to deal with those clients."

Relationship Between Supreme Court Proceedings and the Arbitration

Having regard to the limited issues remaining in the litigation, it is not necessary to refer in detail to the reasoning of the High Court, which in substance dealt with other questions. However, some observations made by the plurality in rejecting the contention that the Supreme Court proceedings were an abuse of process bear on the remaining issues.

Their Honours pointed out (at [100]) that all of the abuse of process contentions had a common starting point, namely that:

"any liability of the respondents to MWP for knowingly assisting Mr Emmott in the breach of his fiduciary duties was limited by the nature and extent of the relief MWP sought and obtained in the arbitration of its claims against Mr Emmott."

This starting point assumed that the liability of the appellants was no more than "ancillary, or co-ordinate with" Mr Emmott's liability.

The plurality gave three reasons for rejecting the starting point:

First, MWP could not recover compensation for more than it had lost (at [101]). The appellants and Mr Emmott had an equity to prevent enforcement of an award or judgment against them where to do so would lead to double recovery. Moreover, as between Mr Emmott and the appellants the doctrine of contribution would regulate the ultimate allocation of the burden of satisfying MWP's claims.
Secondly, the fact that the award made in the London arbitration required a general accounting between MWP and Mr Emmott did not mean that MWP was barred from pursuing to judgment claims against persons who allegedly knowingly assisted Mr Emmott in the breach of his fiduciary duties (at [102]-[103]). The bare fact of the award did not constitute satisfaction of Mr Emmott's liability to MWP. Whether the appellants would have an equity to prevent enforcement of the judgment against them would depend on whether MWP's claims for compensation had been satisfied.
Thirdly, the abuse of process submissions overlooked the nature of the claims made by MWP in the Supreme Court proceedings. They included not only claims for knowingly assisting Mr Emmott in breaches of his fiduciary duty, but claims based on the torts of conspiracy and procuring breach of contract. The tortious claims did not require proof that Mr Emmott had breached his fiduciary obligations. Pursuit of those claims in New South Wales could not be said to be an abuse of process.

The plurality identified a "more fundamental reason" why the abuse of process argument was flawed. Their Honours explained the flaw this way (at [105]-[106]):

"105. ... No matter how the allegation of abuse of process was formulated, the allegation depended upon treating the liability of the respondents as necessarily confined by the extent of Mr Emmott's liability to MWP. This was said to be because the respondents' liability to MWP was no more than accessorial to the principal wrongdoing of Mr Emmott. That is not so. The claims against the respondents, as knowing assistants, were not dependent upon the claims made against Mr Emmott in the fashion asserted by the respondents.

106. As MWP rightly pointed out, this Court has held that liability to account as a constructive trustee is imposed directly upon a person who knowingly assists in a breach of fiduciary duty. The reference to the liability of a knowing assistant as an 'accessorial' liability does no more than recognise that the assistant's liability depends upon establishing, among other things, that there has been a breach of fiduciary duty by another. It follows, as MWP submitted, that the relief that is awarded against a defaulting fiduciary and a knowing assistant will not necessarily coincide in either nature or quantum. So, for example, the claimant may seek compensation from the defaulting fiduciary (who made no profit from the default) and an account of profits from the knowing assistant (who profited from his or her own misconduct). And if an account of profits were to be sought against both the defaulting fiduciary and a knowing assistant, the two accounts would very likely differ. It follows that neither the nature nor the extent of any liability of the respondents to MWP for knowingly assisting Mr Emmott in a breach or breaches of his fiduciary obligations depends upon the nature or extent of the relief that MWP obtained in the arbitration against Mr Emmott."

THE PRIMARY JUDGMENTS

Liability Judgment

Although the liability of the appellants is no longer in contest, the findings of the primary Judge as to the nature of the appellants' breaches are important on the question of equitable compensation. It is thus necessary to recount in some detail the analysis and findings of the primary Judge. Some factual findings are contested by the appellants and these will be dealt with later.

MWP's Case

The primary Judge summarised MWP's case as follows (at [21]-[22]):

"21. [MWP'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 [by MWP] ... [MWP's] conspiracy case is that the whole of the staged departures by these persons from the employ of MWP was carefully planned. [MWP's] case is that during the period from about 19 December 2005, TIL with the assistance and cooperation of THL and Mr Shaikenov [a principal of Shaikenov & Partners LLP, which had an office in Almaty] 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 [sic] 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;

(vi) wrongly provide, make available for use and disclose confidential, copyright and privileged data, documents and information belonging to MWP and its clients.

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 [sic] 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." (Emphasis in original.)

(The Shaikenov interests were not joined as parties to the proceedings because of difficulties in serving them.)

The Parties and their Relationships

MWP was a law firm offering legal services and a business consultancy in Kazakhstan, the Central Asian and Caucasus Region, Russia and Ukraine (at [1]). Mr Nicholls was a senior associate of MWP from 24 April 2004 to 1 March 2006; Mr Slater was an associate from 1 September 2005 until 9 January 2006; and Mr Emmott was a director of MWP from 7 January 2002 until 20 July 2006 (at [2]).

The primary Judge made findings (at [20]) as to the successive departures of Messrs Slater, Nichols and Emmott from MWP:

Mr Slater simply failed to return to work on 19 January 2006, following a period of annual leave. Before leaving, Mr Slater sent from MWP's email account to his own account a "considerable number of important documents". His failure to return to work constituted a unilateral resignation.
On 31 January 2006, Mr Nicholls gave one month's notice of his intention to resign. His last day of employment was 1 March 2006.
Mr Emmott purported to resign with immediate effect on 30 June 2006, by leaving a letter on Mr Wilson's desk when Mr Wilson was away from Almaty, Kazakhstan's largest city.

The primary Judge identified (at [27]) a number of matters illustrating the difficulties faced by MWP in its endeavours to pursue the appellants, particularly TIL. These included the following:

the sole director of TIL was a Mr Vasquez, but he played no part in the proceedings;
Messrs Slater, Nicholls and Emmott described themselves as "consultants" to TIL, but produced no documentation relating to their consultancies;
Mr Slater described himself in correspondence as a director of TIL, but gave evidence that he was not in fact a director;
evidence as to TIL's activities was given by Messrs Slater, Nicholls and Emmott, but their role as "consultants" was "vague"; and
none of the consultants gave evidence of TIL's earnings or profitability.

An essential part of MWP's business involved the structuring of investments in Kazakh energy and mineral assets for listing on a public stock exchange (at [36]). The fee structure often included a success fee or commission component, including an opportunity to take an equity investment (at [37]).

Mr Wilson left legal practice in England in 1998 to establish MWP (at [40]). Mr Nicholls, an Australian lawyer, was employed by MWP as a senior associate in April 2004 (at [42]). Mr Slater, a solicitor admitted to practice in New South Wales, commenced his employment on 1 September 2005 (at [44]).

Mr Emmott is admitted to practice in England and New South Wales. He and MWP entered into a written agreement whereby he agreed to become a director and full-time employee of MWP as from 7 January 2002. He was subject to the usual partnership obligations of co-operation, disclosure and good faith in carrying on MWP's business (at [46]). The agreement provided that:

"their fundamental strategy is to create the leading independent legal and business consultancy firm, not only in Kazakhstan, but also throughout the Region".

It was agreed that MWP would "function and operate as a quasi-Partnership between [the Parties]" and that Mr Emmott would have a 33 per cent profit sharing interest. Mr Emmott and MWP agreed to co-operate in order to "develop and enhance the business of MWP in the Region and shall not compete in any manner whatsoever". Mr Emmott agreed to bring with him to MWP all clients and matters relating to Kazakhstan and the region in which he was involved as instructed. Either party was entitled to terminate the agreement on six months notice (at [47]-[48]).

Mr Nicholls and MWP entered into a contract of employment on the basis of the terms set out in a letter of offer he was asked to sign in March 2004 (at [83]). The terms of employment required him to "maintain strict confidentiality as to all matters" and to give three months notice if he wished to leave MWP. He also agreed that if he left MWP he would not:

"approach, solicit or make offers to any of our contacts, clients or staff and will not seek to work on any projects or developments in which we are involved, without our prior consent."

Mr Slater's contract of employment was very brief, but included provisions similar to those in Mr Nicholl's contract (at [91]).

TIL was incorporated in the British Virgin Islands ("BVI") on or about 19 December 2005, with Mr Slater as the sole shareholder (at [27]). Mr Shaikenov, the legal principal of Shaikenov & Partners LLP which had an office in Almaty, attended to the incorporation at Mr Slater's request. From about 28 March 2006, Mr Slater was the general director of TIL's branch office in Kazakhstan. Curiously enough, as already noted, the sole director of TIL was a Mr Vasquez, who played no part in the proceedings. TIL was the trustee of the Temujin International (Trading) Trust (at [52]).

TSL was incorporated in the BVI on about 8 March 2006 by Messrs Nicholls, Slater and Emmott. Mr Slater described it in his evidence as a functioning law firm, which would also introduce opportunities to investors and take a fee for such introductions (at [51]).

TFZE was incorporated in the United Arab Emirates (UAE) on 8 March 2006. It provided financial and other services to TIL and clients in the UAE. Mr Nicholls was the manager of TFZE and held all shares in the company on trust for TIL (at [53]-[54]).

Credit Findings

The primary Judge made the following findings as to credit:

Mr Wilson had a reasonable recollection of events and, with limited exceptions, could be regarded as a witness of truth (at [221]);
Mr Nicholls was a "difficult witness" whose evidence had to be very carefully checked against contemporaneous documentation before it could be accepted (at [222], [231]);
Mr Slater was a witness whose credit could not be accepted save as corroborated by contemporaneous documentation or other reliable evidence; indeed, except insofar as it was corroborated, Mr Slater's evidence was "worthless" (at [232], [237]);
Mr Schoonbrood was a reliable witness (at [244]); and
Mr Sinclair was a witness of credit despite adopting a fairly partisan approach (at [270]).

The Breaches

Towards the end of September 2005, Mr Slater drafted a proposal for a business arrangement (at [96]). The proposal contemplated the incorporation of a company in the BVI, which would act as an "arranger" to clients of MWP (at [97]). The role of arranger accurately described much of the work undertaken by MWP in Kazakhstan and elsewhere in central Asia (at [98], [104]).

The company was to be the trustee of a trust, the beneficiaries of which would be Messrs Wilson, Emmott and Slater or their nominees (at [99]). Any proposed payment by shares for the provision of services by MWP would be directly transferable to the off-shore entity (at [100]).

The primary Judge considered the circumstances surrounding the creation of the proposal to be "suspicious" (at [102]). Although it was drafted only a month after Mr Slater joined MWP, he was named as an equal beneficiary of the trust (at [103]). Mr Slater's evidence was that he showed the proposal to Mr Wilson, but his Honour rejected that claim (at [105]). The business proposal in fact had many similarities to a Co-operation Agreement subsequently entered into by Messrs Emmott, Slater and Nicholls (at [107]).

The primary Judge found that a series of meetings occurred in the second half of November and early December 2005 to discuss a new venture. The participants were, variously, some or all of Messrs Emmott, Nicholls, Slater, Shaikenov and Kachshapov (the last being a proposed financier of the new venture) (at [110]-[121]). The result was that a series of agreements were signed on 20 December 2005 at a meeting kept secret from Mr Wilson. The agreements were:

a Co-operation Agreement to which Messrs Emmott, Nicholls, Slater and Shaikenov were parties;
a Service Agreement between TIL and Shaikenov LLP;
the Temujin International (Trading) Trust Deed (which was apparently never activated); and
a facility between TIL and a company controlled by Mr Kachshapov (at [125]).

The primary Judge found that:

although the Co-operation Agreement was drafted in a form that suggested that the parties could "elect" to participate in the new Temujin venture, it was intended to be immediately binding (at [128]);
a strange feature of the Co-operation Agreement was that it anticipated that it would make profits from its first month of operation, an assumption Mr Slater could not justify in his evidence (at [129]);
the projected cash flow prepared by Mr Slater anticipated the arrival of Mr Nicholls in March 2006 and Mr Emmott in July 2006 (at [131]); and
the Co-operation Agreement was deliberately drafted in a way to suggest that Messrs Nicholls and Emmott were not bound to join the new venture but this was an attempt to "disguise what really was an immediate partnership involving each of Messrs Nicholls, Slater and Emmott" (at [132]).

In December 2005, Mr Slater sent seven emails to his newly opened Gmail address attaching copies of documents relating to the Karamandybas (Roxi), Chilisai and Urals Gold transactions (at [136]). MWP was acting in relation to these transactions at the time (at [137]). Mr Slater then systematically deleted the emails from MWP's system. These were not the actions of an honest man (at [138]).

The primary Judge found (at [141]) that:

"The combination of Mr Slater's forwarding of MWP documents to his private Gmail address, the deletion of the emails from MWP's servers and the forecast of immediate profits arising from Temujin indicate in the strongest terms that the defendants intended to secretly deploy MWP's clients in their own interests."

When Mr Slater left Almaty on 21 December 2005, he created the impression that he was merely going on holidays. He in fact went to Helsinki where he met with Mr Rassmussen of Kangamiut Seafoods, later a client of TIL (at [142]-[146]). Mr Slater returned to Almaty on 7 January 2006 and commenced TIL's operations on 9 January 2006 from Shaikenov LLP's offices (at [148]).

Mr Wilson became suspicious about Mr Slater's activities from January 2006 onwards, but Mr Emmott gave evasive answers to Mr Wilson's inquiries and endeavoured to "cover the tracks of the master plan" (at [150], [154]). Moreover, Mr Nicholls was fully aware of Mr Emmott's intention to resign from MWP on 30 June 2006 (at [160]-[166]). Mr Nicholls himself "abruptly resigned" on 1 March 2006 as part of the appellants' "cloak and dagger" tactics (at [155]).

The primary Judge found (at [169], [178]) that:

"169. Mr Emmott was highly involved in the affairs of [TIL] after it was established and whilst he was still working at MWP and that Mr Slater was fully aware of Mr Emmott's involvement.

...

178. [T]he position which [Mr Emmott] held with MWP was entirely antithetic to the activities which, following the departure of Mr Slater and then Mr Nicholls, he was secretly undertaking.... Mr Emmott's role was 'leading the transactions'. Mr Sinclair left it entirely to Mr Emmott to use whatever lawyers he chose to assist him. These activities were in flagrant breach of his relevant fiduciary obligations."

The primary Judge enumerated (at [179]) twelve duties to which Mr Emmott was subject as a senior lawyer and a director of MWP. These included a duty to resign his office as soon as he had formed an irrevocable intention to engage in a competitive business, provided the business did not exploit confidential information or business opportunities available to Mr Emmott by virtue of his position in MWP.

The primary Judge found (at [182]) that from the time of the Co-operation Agreement until Mr Emmott left MWP, he was in "flagrant breach" of his fiduciary obligations to MWP. His Honour identified these (at [180]) as:

the "no conflict duty", not to enter into any engagement in which he had a personal interest that conflicted with MWP's interests;
the "no profit duty", not to obtain for himself or a related third party a profit by means of a transaction in which he was concerned on behalf of MWP, unless all material facts were disclosed to MWP and approved by a general meeting;
the "duty of loyalty";
the "no harm duty", not to inflict harm on MWP in furthering his own interests or those of a competitor of MWP; and
the "duty of confidence".

The primary Judge repeated (at [182]) his earlier finding that:

"Mr Emmott from around the time when the Cooperation Agreement came to be made and up until and indeed after he left MWP to join [TIL] was in flagrant breach of these fiduciary obligations. ... Mr Emmott was really the backbone of the plot which had been hatched and likely played the dominant role in every step of [TIL's] initial and ongoing activities."

An analysis of TIL's bank accounts justified the following findings (at [189]-[190]):

"189. TIL was established entirely on the basis of income derived from former clients of MWP and an interest free loan made by Horizon Services [Mr Kachshapov's company] of $US200,000.00. The loan has been repaid by TIL from earnings also derived from income earned from former MWP clients (as featured in Temujin Holdings' Euro account).

190. Secondly, save for minor items, the bank accounts [to 20 November 2006] derived disclosed by [TIL] only show income derived from former MWP clients, the very clients that MWP in these proceedings say are the subject matter of the allegations made against the [appellants]."

Mr Schoonbrood and his Projects

Mr Schoonbrood was the Chief Executive Officer of Roxi Petroleum plc ("Roxi"), a company registered in England and listed on the Alternative Investments Market ("AIM") of the London Stock Exchange (at [244]). He was a director of Pinegrove Equities Inc ("Pinegrove"), a company registered in the BVI, and Executive Chairman of UMC Energy plc ("UMC"), also listed on the AIM (at [245]). In late 2005, UMC instructed MWP, through Mr Emmott, to undertake due diligence in connection with an acquisition known as the North Karamandybas Project. Mr Emmott was the partner responsible and Messrs Nicholls and Slater worked on the project. UMC did not complete the acquisition (at [248]).

In February 2006, Mr Schoonbrood looked for start-up investors to invest in a similar business. Pinegrove was established as a special purpose vehicle to acquire interests in resources in the Commonwealth of Independent States ("CIS"), including Kazakhstan. However, Mr Schoonbrood intended to onsell the interest, if the enterprise was successful, to a company to be listed on the AIM (at [248(iv)]).

In May 2006, Mr Schoonbrood was able to revive Pinegrove's interest in the North Karamandybas Project. That company instructed Mr Emmott at MWP. However, following Mr Emmott's departure in late June 2006, Mr Schoonbrood terminated MWP's retainer to act on behalf of Pinegrove (at [248(v)]).

The primary Judge summarised (at [248(vi)-(xi)]) Mr Schoonbrood's evidence, which his Honour appears to have accepted, as follows:

"vi. The only reason [Mr Schoonbrood] had gone to MWP [in May 2006] was because he wanted to use Mr Emmott, so following his departure Pinegrove had no interest in continuing to instruct MWP. ...

vii To the best of his recollection MWP was only instructed act [sic] for Pinegrove in relation to the North Karamandybas field ...

viii UMC never had any involvement in any negotiations to acquire interests in Ravninnoye or Beibars-Munai oil fields. Pinegrove commenced negotiations with the vendors of the Ravninnoye or Beibars-Munai oil fields in about August 2006.

ix In or about early July 2006 he telephoned Mr Nicholls to ask if he could act for Pinegrove with respect to the North Karamandybas field. After some deliberation on his part, Mr Nicholls agreed to accept his instructions and told him that he was then working at [TIL]. He arranged for Pinegrove to retain TIL. TIL was instructed to assist in the acquisition by Pinegrove of a 50% interest in the North Karamandybas field.

x If Mr Nicholls had refused to act for Pinegrove he would not have instructed MWP to act for Pinegrove in relation to the North Karamandybas field, or for any other projects on behalf of Pinegrove. The only reason that he instructed MWP to act for Pinegrove was because he wanted Mr Emmott acting for Pinegrove.

xi None of Messrs Emmott, Slater or Nicholls ever approached, solicited or encouraged him to instruct TIL on behalf of Pinegrove.

xii He arranged for all outstanding fees owed by Pinegrove to MWP to be paid...". (Emphasis added.)

The primary Judge accepted Mr Schoonbrood's evidence that the business opportunities he was pursuing were "at all times highly uncertain and speculative" (at [250]).

Mr Sinclair and his Projects

Mr Sinclair was associated with Sokol Holdings Inc ("Sokol") which was involved in the Chilisai Phosphate Project. This Project involved arranging the acquisition of a phosphate mine in Kazakhstan by a company which would obtain listing on the AIM. Ultimately the Project led to the flotation of Sunkar Resources plc ("Sunkar") on the AIM in June 2008, with a market capitalisation of £191.8 million.

Mr Sinclair was also the chief financial officer of Frontier Mining Ltd ("Frontier"), which in 2007 acquired an interest in a copper-molybdenum-gold deposit in north-western Kazakhstan. That acquisition, which took place by Frontier purchasing a 50 per cent interest in the company holding rights to the deposit, was known as the "Benkala Copper Project", referred to later (at [95]).

MWP commenced work in August 2005 on the Chilisai Phosphate Project, instructed by Mr Sinclair and others on behalf of Sokol. Messrs Emmott, Nicholls and Slater worked on the Chilisai Phosphate Project while they were at MWP.

Mr Sinclair's evidence was that he was unaware of any fees being paid in cash or kind, other than directly to MWP. Nor was he aware of any benefits given to the appellants or Mr Emmott (such as "free of charge" shares) in relation to any of the Sokol or Frontier projects (at [252(b)]). Mr Sinclair denied that the appellants or Mr Emmott solicited his business; rather he moved the work to TIL on his own accord (at [252(c)]). Mr Sinclair asserted that he had doubts about Mr Wilson's character and wanted to ensure that he (Mr Wilson) was not involved in any of Mr Sinclair's projects (at [252(e)]). It will be recalled that the primary Judge found Mr Sinclair to be a witness of credit.

After 20 December 2005, Mr Sinclair deliberately engaged both MWP and TIL to work on the Chilisai Phosphate Project by means of a split retainer. He did so because he wanted Messrs Emmott, Slater and Nicholls to act in relation to the Project "regardless of which firm they were working for" (at [255]).

Sokol was involved in the Urals Gold Project, which concerned the acquisition of the Maminskoye gold mine in Russia. MWP and TIL worked jointly on this Project from January to May 2006, for the same reasons as they worked jointly on the Chilisai Phosphate Project (at [260]). After Mr Emmott left MWP, that firm was no longer retained. The deal was aborted in September 2006, when Sokol swapped this investment for another, the Benkala Copper Project in Kazakhstan (at [262]).

Mr Sinclair's evidence was that he would not have instructed Messrs Nicholls or Slater had Mr Emmott not been the head lawyer (at [265]).

MWP acted on Mr Sinclair's behalf in relation to the Max Petroleum Project, relating to the proposed initial public offering in a company known as Max and the sale to Max of the Astrakhansky oil field in December 2005 (at [268], [280]).

Second Limb of Barnes v Addy

The primary Judge concluded that the conduct of Messrs Nicholls and Slater satisfied the second limb of Barnes v Addy. This conclusion followed from these findings (at [276]):

"i. both Mr Nicholls as well as Mr Slater had actual knowledge that what was occurring as Mr Emmott, whilst still with MWP, distributed work to Temujin, involved his breaching his duties of fidelity as well as his fiduciary obligations owed to MWP; and

ii. that they were participating with knowledge in that exercise."

No Profit and No Conflict Duties

The primary Judge then identified the breaches of fiduciary duty by reference to the "no profit" and "no conflict" rules, as follows (at [280]-[283]):

"280. They are shown as in breach of the 'no profit' rule in that:

i. Messrs Nicholls and Slater took advantage of their positions within MWP to take establish TIL and TSL. They used MWP's resources to document the establishment of the business. They used MWP's resources to provide them with a set of precedent documents relevant to the deals they intended to work on in the new business.

ii. Once they had left MWP they continued to use MWP's resources, in the form of Emmott, to supervise their work and direct work to them. In fact the business was entirely reliant on Emmott doing this from within MWP.

iii. This too involved a breach of the no-profit duty because Messrs Slater and Nicholls had clearly both resigned in circumstances which meant that this duty was ongoing.

iv. Their resignations from MWP could 'fairly be said to have been prompted or influenced by a wish to acquire for themselves' the business opportunities that MWP had. As [MWP] has submitted no better evidence of this can be given than the fact that Mr Slater emailed out to himself (and therefore TIL) contractual documents dealing with Chilisai, Urals Gold and Karymandybas and the fact that, at the time Mr Nicholls resigned from MWP to join TIL, the only TIL work was in fact MWP work.

v. There is therefore a direct causal relationship or 'historical involvement' between the relevant breach of fiduciary duty, and respectively the 'maturing business opportunity which the company', that is MWP, was not only actively pursuing but actively had.

vi. As MWP has contended the relevant business opportunity is appropriately defined broadly and slightly differently with respect to Mr Sinclair's business and Mr Schoonbrood's business:

a) With respect to both Mr Sinclair's business and Mr Schoonbrood's business it was the opportunity to act in relation to the sales of assets to listed companies.

b) With respect to Mr Sinclair's business this opportunity was more defined because at the relevant time MWP had acted in relation to both the initial IPO of Max ('Max 1') and the selling of an additional oilfield (Astrakhansky) to Max in December 2005.

c) With respect to Mr Schoonbrood's business this strategy - first at UMC and then from February 2006 on his own account - had not led to an asset sale. However in considering what the relevant business opportunity was it should be remembered that:

(i) Mr Schoonbrood's strategy involved him in looking at the acquisition of many possible oilfields.

(ii) MWP's role included a 'watching brief' to introduce oilfields to him.

(iii) By the time Pinegrove had been established, Schoonbrood was acting on behalf of investors not only in relation to North Karymandybas but also the other assets which formed the basis of the Roxi admission which was a natural consequence of the business relationship that existed between MWP and Mr Schoonbrood (whether through UMC or later Pinegrove).

281. It should be remembered that but for the breaches of duty in relation to Chilisai, Urals Gold and Kangamiut, TIL could not have been established and the additional work with Sinclair and Schoonbrood could not have taken place.

282. In the result there has been proven a direct causal connection between the 'no profit' breaches of fiduciary duty and:

i. The establishment of TIL;

ii. The Chilisai Phosphate and Urals Gold/Benkala transactions on behalf of Sinclair; and

iii. Work done for Pinegrove and Roxi on ... the Roxi AIM admission.

283. They are shown as in breach of the 'no conflict of duty' rule in that:

i. Nicholls in the period 20 December 2005 (at the latest) until his resignation on 1 March 2006 was in a position of conflict with respect to the Sokol/Sinclair work that was being undertaken by Slater at TIL;

ii. Slater, Nicholls and through them TIL, well aware of Emmott's position within MWP and his interest in the Temujin business being run through TIL, received work sent their way as a result of that conflict of interest were accessories in Emmott's breach of duty;

[As an aside in relation to Emmott it is also clear that:

a) Emmott in the period 20 December 2005 (at the latest) until his resignation on 30 June 2006 was in a position of conflict with respect to the Sokol/Sinclair work that was being undertaken by Slater at TIL; and

b) Emmott was in a position of conflict when in a telephone conversation with Schoonbrood on or about 30 June 2006 he directed Schoonbrood to Nicholls at TIL.]

iii. Liability for the consequences of breach of the 'no conflict' rule ... is strict because ... 'the consequences of conflict are not discoverable'. In other words, the law recognises that it is simply not practicable to conduct a forensic investigation into what would have happened to the work had Emmott not acted in breach of the 'no conflict' duty."

Torts

The primary Judge found (at [289]) that the tort of conspiracy to injure by unlawful means had been made out, as had the tort of interfering with contractual relations (at [302]).

Remedies

His Honour next turned to the question of remedies. He noted (at [368]) that liability for breaches of equitable obligations could either be of a restitutionary nature such as an account of profits, or compensatory. As to the latter, the Court has an inherent power to grant relief by way of monetary compensation for breach of a fiduciary duty or other equitable obligations (at [374]). MWP was entitled to elect which remedy it would pursue, but it was not required to do so until after judgment had been delivered (at [380]).

After pointing out (at [387]) that different tests of causation apply to equitable and common law remedies, the primary Judge observed (at [390]-[391]) that although the Court had to ascertain what was lost by MWP, "exactitude" was not achievable. A factor requiring close attention was that of time in the continuation of fiduciary duties (at [392]).

His Honour identified two types of benefits which the appellants had obtained from their breaches of fiduciary duty which could be "disgorged" to MWP. These were (at [394]-[395]):

"394. The first type constitutes financial benefits for the services provided by [TIL], in particular for legal services provided to former clients of MWP. These payments were made out to [TIL] from the clients and have been readily identified by the plaintiff.

395. The second type would be non-financial benefits received for the services provided by [TIL]. There is evidence that both the corporate and individual defendants have received shares from former MWP clients through their work on various client projects."

His Honour considered (at [396]) that the appropriate course was to canvass the benefits received by the appellants on a transaction by transaction basis.

Chilisai Phosphate Project

The primary Judge made the following findings in relation to the Chilisai Phosphate Project:

MWP commenced work on the Project on 25 August 2005 on the instructions of Sokol (at [398], [399]);
Messrs Nicholls and Slater both worked on the Project while at MWP (at [400]);
Mr Slater emailed documents to himself relating to the Project on 20 December 2005, in preparation for leaving MWP and commencing operations at TIL (at [400]);
Mr Slater recommenced work on the Project at TIL on 9 January 2006, at which time there was, in effect, a joint retainer between MWP and TIL (at [401]);
Mr Emmott was heavily involved behind the scenes and when he resigned from MWP Mr Sinclair no longer retained that firm (at [402]);
after years of work, the Chilisai Phosphate Project led to the flotation of Sunkar on the AIM (at [403]);
the listing on AIM raised ₤31 million in net proceeds, with a market capitalisation on admission of approximately ₤191.8 million (at [404]);
TIL rendered invoices to Sokol for work between 9 January 2006 and 30 September 2006, totalling USD 266,330, although the invoices appeared to involve some duplication (at [406]);
although no invoices had been produced by TIL for the period after 30 September 2006 and Mr Slater asserted that TIL had ceased to work on the Chilisai Project after that date, TIL had clearly continued to perform work for Sokol after September 2006 (at [408], [411], [412]);
as at December 2006, TIL had an expectation that it would receive shares as part of a pre-IPO placement of "founder's shares" in the ultimately listed entity (Sunkar) (at [413]);
a pre-IPO issue of shares in Sunkar took place on 30 November 2007, as recorded in the AIM admission document (at [417]); and
accordingly, there was "strong evidence to suggest that [TIL] received Sunkar shares from the pre-IPO place[ment]" (at [418]).

The AIM document for Sunkar showed, by reference to "Material Contracts" many different transactions directly involving Sokol, not merely the IPO (at [419]). From this it could be inferred that TIL "could have worked on any number of such transactions under the Material Contracts" heading.

The primary Judge stated (at [421]) his conclusion as follows:

"...notwithstanding the long period of time that had passed between the time when [TIL] began to work on the project in 2006 and the pre-IPO issue of shares in 2007:

(a) It is clear that through Mr Slater copying of confidential documents relating to the transaction and the relaying of work to him by Mr Emmott whilst he was still working at MWP, that a substantial amount of work could not have been carried out but for such breaches of fiduciary duty.

(b) Notwithstanding Mr Slater's assertions, [TIL], in fact, worked on this transaction long after [TIL] was established.

(c) The evidence regarding the [appellants'] expectations of receiving founders' shares demonstrates that the work done on the project was to culminate in the defendants receiving such a return if the project succeeded.

(d) Therefore, it is appropriate to conclude that all instances of work done by the defendants up to 30 November 2007 are interconnected - for the sake of project success.

(e) In a situation where work is interconnected in such a way, any temporal gap between the breaches of fiduciary duty and the completion of the work is irrelevant for determining whether the work is no longer tainted by the breaches."

In short, all work attributed to TIL regarding the Chilisai Phosphate Project up to the pre-IPO issue of shares flowed from the appellants' breach of fiduciary duties owed to MWP (at [422]).

His Honour further accepted (at [424]) that "Material Contracts" related work represented business opportunities lost to MWP as a result of the appellants' actions.

His Honour stated (at [427]) the "ultimate ruling" for the Chilisai Phosphate Project as follows:

"[MWP is] entitled to an election between remedies concerning the Chilisai Phosphate project for all amounts paid to [TIL] in the form of legal fees between September 2006 and the pre-IPO issue on 30 November 2007 relating to success of the transaction."

Urals Gold Project

MWP was instructed to act by Sokol in early September 2005 on the Urals Gold project which involved the acquisition of the Maminskoye goldmine in Russia (at [428]). TIL worked on the deal after it (TIL) commenced operations (at [431]). TIL rendered invoices totalling USD 109,292 in respect of the period 9 January 2006 to 30 November 2006 (at [432]).

These invoices represented benefits received by TIL arising from the appellants' breach of duty, in that:

(a) MWP had worked on the transactions long before TIL was established; and

(b) the appellants had exported the work to TIL through their communications before and after TIL was established (at [433]).

Consequently, MWP was entitled to an election between remedies concerning the Urals Gold project for all amounts paid to TIL in legal fees up to 30 November 2006 (at [436]).

Benkala Copper Project

As I have noted, the Benkala Copper Project involved the acquisition by Frontier of an interest in a company holding rights to a copper-molybdenum-gold deposit in Kazakhstan. MWP was not retained in relation to this project (at [442]).

MWP claimed that it was entitled to the value of the lost opportunity to work on the Benkala Copper Project. It valued the lost opportunity by reference to a "success fee" of 12.5 million, calculated as 5 per cent of the valuation of USD 250 million attributed to the project in a press release by Frontier (at [443]).

The primary Judge rejected (at [444]) MWP's claim for an account of profits or equitable compensation, for two reasons:

"(a) Barring the fact that Frontier Mining was an MWP client, there is no connection between MWP and the Benkala Project. In particular, the shift in resources [sic] Benkala Project occurred months after Mr Emmott left MWP. [MWP has] failed to make out any compensable loss.

(b) There is no or insufficient evidence that [TIL] in fact received any benefits of the 5% variety that [MWP] alleges that can be accounted for."

Roxi Petroleum Project

The primary Judge said (at [446]) that the Roxi Petroleum Project was best characterised as a conglomerate of business opportunities associated with Mr Schoonbrood. His commercial plan was to acquire oilfields ultimately to be "housed" in a public company which came to be Roxi (at [447]). (Roxi was admitted to the AIM on 20 May 2007.) It was clear that the appellants and Mr Emmott, in establishing TIL, appropriated Roxi Petroleum Project work from MWP (at [448]). Mr Emmott, Mr Slater and Mr Nicholls undertook work at MWP in connection with the North Karymandybas acquisition (at [449]) and Mr Slater copied documents relating to that transaction (at [450]).

North Karamandybas, Revninnoye and Beibars (Munai)

By February 2006, Mr Schoonbrood's plan was to sever his ties with UMC and establish Pinegrove to acquire resource interests in the CIS. These would be on-sold to a listed company (at [451]). To this end, Mr Schoonbrood retained MWP to carry out a "watching brief", bringing possible acquisitions to Mr Schoonbrood's attention (at [452]). Thus it was part of MWP's role to find oil fields to introduce to Mr Schoonbrood and Pinegrove (at [453]). In the result, three assets played a part in the listing of Roxi Petroleum, namely the North Karamandybas Area, the Ravinnoye Area and the Beibars (Munai) Area (at [454]).

MWP acted from 26 April 2006 onwards in relation to a proposal that Pinegrove acquire the North Karamandybas Area (at [455]). Mr Schoonbrood switched firms in late June 2006 when Mr Emmott disingenuously told him that MWP could no longer look after the project (at [457], [459]). TIL immediately started work on the Karamandybas project (at [458]).

On about 10 August 2006, Mr Slater sent Mr Schoonbrood a proposal whereby TSL would act as exclusive commercial advisers to Pinegrove in order to arrange for it to acquire a 50 per cent interest in the Ravninnoye deposit. TSL sought a 5 per cent success fee (at [460]). The Beibars Munai Area was merely an area to be explored and was not an oilfield (at [461]).

The primary Judge concluded as follows (at [463]):

"The Roxi Petroleum work was clearly obtained through the [appellant's] breaches of fiduciary duty, in particular, through Mr Slater's theft of the Roxi documents via email and Mr Emmott's dishonesty in telling Mr Schoonbrood that he could no longer work on the project. [MWP] should it determine to do so as between alternate remedies, may elect for an account of profits relating to the above-identified invoices for the three assets: Karamandybas, Ravninnoye and Beibars Munai."

His Honour set out in tabular form the invoices sent by TIL in respect of work performed in relation to the three "sub-projects". In the case of the Karamandybas Project, TIL performed work between 1 July 2006 and 31 December 2006, for which it rendered invoices totalling €163,992 (at [465]). In the case of the Ravninnoye Project, TIL performed work between 1 August 2006 and 31 December 2006, for which it rendered invoices totalling €124,419 (at [466]). In the case of the Beibars Munai Project, TIL performed work between 1 September 2006 and 31 December 2006, for which it rendered invoices totalling €101,817 (at [467]). The total of these three amounts was €390,228.

Project X

Roxi was also involved in the acquisition of other interests in oil fields. These included the possible acquisition of Eragon Petroleum plc, a proposal referred to as "Project X" in an email sent by Mr Slater to Mr Schoonbrood on 12 December 2006 (at [470]). On 13 December 2006, Mr Emmott wrote to Mr Slater indicating that Mr Rigoll (apparently an entrepreneur associated with Mr Sinclair in some way not clarified in the submissions) had agreed "to a 1/3 split to [TIL] of any upside" (at [471]). TIL invoiced Mr Schoonbrood's interests for work connected with Project X in late 2006. The invoices totalled €29,950 for the period 1 November 2006 to 31 December 2006 (at [472]).

The primary Judge found (at [473], [474]) that notwithstanding that Project X involved a former client of MWP, it was beyond the scope of the appellants' breaches, for four reasons:

the first reference to Project X in correspondence occurred six months after Mr Emmott left MWP;
the first invoice from TIL related to a period beyond any breach of fiduciary duty;
MWP was not involved in the transaction; and
Project X was not referred to in Roxi's AIM admission document.

Eragon and ADA Transactions

Roxi was involved in another transaction involving a reverse take-over of Eragon Petroleum plc, followed by a suspension of Eragon from the AIM and its readmission to trading. The contemplated transaction included the acquisition, apparently by Roxi, of an option to acquire a 50 per cent interest in the ADA Group for an aggregate consideration of USD 425 million (at [475], [476]). An Australian company called PJT Corporate Services Pty Ltd ("PJT"), in which Mr Slater and an associate (Ms Lighezzolo) had an interest, acted as an intermediary between Roxi and TIL (at [477]).

On 22 August 2007, TIL entered into an engagement contract with Ms Lighezzolo that confirmed the terms on which legal advisory services would be provided by TIL to PJT (at [479]), [480]). By another agreement executed on the same date Roxi requested PJT to manage all aspects of Roxi's readmission to the AIM (at [481]).

On 25 September 2007, Mr Slater prepared two draft agreements in the form of letters to Mr Schoonbrood in relation to the proposed acquisitions of Eragon and ADA (at [483]). The first letter set out the terms on which PJT was to act as a "facilitator project manager" to Roxi to arrange the acquisition of 59 per cent of Eragon from a company called Baverstock Gmbh (at [484]). The consideration for PJT's services was to be USD 12.5 million, with a non-refundable cash fee of USD 500,000 (at [485]). The primary Judge emphasised (at [484]), however, that this Eragon transaction was not the same as Project X, which occurred earlier in the year.

The second letter, relating to the ADA acquisition provided for assistance in conducting due diligence for a total consideration of USD 17.5 million, including a non-refundable cash fee of USD 500,000, payable by a deposit of USD 200,000 and six equal monthly payments of USD 50,000 (at [486]). On 3 October 2007, Mr Slater wrote to Mr Schoonbrood nominating TIL as the recipient of the cash fees in each case (at [487]).

TIL rendered invoices to PJT for legal work connected to the Eragon and ADA transactions. The invoices covered work for the period January 2007 to January 2008 (at [489], [490]).

There was evidence indicating that in early 2008 Mr Slater obtained a beneficial interest in Roxi as a consequence of Eragon's readmission to the AIM (at [491]). The evidence included correspondence indicating that 6,169,230 shares in Roxi were to be issued to Lynus Development Ltd, a company registered in the Seychelles (at [493]). The correspondence initially suggested that Mr Slater's associate was to be the ultimate beneficial owner of the shares (at [494]).

However, the primary Judge referred to a letter dated 25 January 2008 stating that if certain arrangements relating to a foundation effectively owned by Mr Slater were not completed by the date the shares in Roxi were issued, the shares would be issued to Mr Slater personally (at [503]). Eventually the shares were issued to Mr Slater (at [505]).

The primary Judge observed (at [504]) that a reference in the letter of 25 January 2008 to the "Project X Project Management Agreement" was:

"a frank acknowledgement that the Project X arrangements which were referred to in the email of 13 December 2006 between [TIL] and David Rigoll which at that stage referred to a one third of the upside going to [TIL] had come to fruition."

MWP, in pressing for the benefits received by TIL regarding the AIM readmission transaction relied on Mr Schoonbrood's evidence (at [506]). He said (at [508]) that in the Eragon case, that a "finder's fee" was paid in the form of shares in Roxi because a project was "sent in our direction". The deal would not have been possible without Mr Slater's intervention. Mr Schoonbrood also said that if a deal was genuine and would not have happened without Mr Slater "we are quite happy to defend 5 per cent vis-à-vis shareholders and board" (a reference to paying TIL USD 12.5 million) (at [508]).

The primary Judge rejected MWP's claim that it had lost business opportunities in relation to the Eragon and ADA transactions notwithstanding that there might have been "a connection between [MWP] and the Eragon transaction in that the opportunity may have [arisen] while Mr Schoonbrood was an MWP client". His Honour gave four reasons (at [513]) for rejecting the Eragon claim:

The Roxi readmission to the AIM was separate from its original admission. The former was a distinct business opportunity on which MWP had done no work at all.
Mr Schoonbrood's evidence about a possible finder's fee made no reference to MWP.
The appellant's wrongful actions, for example in copying documents, did not relate to these transactions.
The Roxi readmission occurred on 31 January 2008, almost two years after Mr Emmott left MWP for TIL. It was unjust to allow a plaintiff to "sit back" and wait for a defendant to make a profit.

In the case of the ADA transaction there was even less of a connection. There was no evidence that the opportunity existed while Mr Schoonbrood was MWP's client (at [514]).

an email sent by Mr Slater to Mr Schoonbrood on 10 August 2006 on behalf of TSL, offered to act on Pinegrove's behalf in arranging the purchase of an interest in the Ravninnoye deposit and sought a success fee of 5 per cent of the gross proceeds or total consideration paid in respect of the transaction;
Mr Slater stated in an email of 19 April 2007 to a legal adviser that TSL intended to introduce business opportunities to various parties for a management fee and a percentage of shares that were issued;
agreements prepared and executed by Mr Slater in October 2007 in relation to the acquisition of Eragon and ADA each contemplated success fees calculated at 5 per cent of the value of the company;
Mr Sinclair gave evidence that Sunkar (like Benkala and Max Petroleum) was a "world class potential" project (although he also said that it had only reached the stage of test production);
Mr Emmott received a placement in 2005 of shares in Max Petroleum for his benefit; and
Sunkar, upon its listing on the AIM on 30 June 2008, had a market capitalisation of ₤191.8 million.

MWP also relies on these matters to support its fallback position that an award of AUD 4 million is not unreasonable as compensation for its lost opportunity.

The evidence upon which MWP relies is general and does not relate specifically to any success fee that MWP says might have been received by Mr Emmott or the appellants in connection with the Chilisai Phosphate Project or the listing of Sunkar. I have found that Mr Emmott and the appellants probably received the benefit of an allotment of shares in Sunkar. That does not mean, however, that an allotment was made as a form of "success fee", in the sense of a percentage of the capital raised on the listing of Sunkar on the AIM or of Sunkar's total capitalisation.

Shares might have been issued in Sunkar for reasons other than as a reward or success fee for services rendered in arranging or introducing an entire transaction. For example, the documentary evidence, such as Mr Emmott's email of 22 August 2006, is consistent with shares in Sunkar having been issued for the benefit of Mr Emmott or the appellants as compensation for TIL agreeing to a cap on fees. Another example can be drawn from the primary Judge's acceptance of Mr Sinclair's evidence (Liability Judgment, at [259]) that Mr Slater (and Mr Wilson) located a number of investors in the Chilisai Phosphate Project. It would be consistent with the evidence of Mr Schoonbrood and others that a reward or commission might be paid for introducing investors to the Project. But any reward to Mr Slater or others for introducing investors would be highly unlikely to take the form of a percentage of the entire value of the Project or of all capital raised for the Project, as distinct from a percentage of the capital actually raised through the introduction of an investor. (It will be recalled that the primary Judge found that the listing of Sunkar on the AIM raised ₤31 million and that on admission Sunkar had a market capitalisation of ₤191.8 million (at [88] above)).

I do not think that the evidence justifies a finding that Mr Emmott or the appellants received shares in Sunkar as a reward for arranging the Chilisai Phosphate Project or introducing it as a business opportunity to Mr Sinclair or his associates. MWP did not direct attention to evidence that would establish or be probative of the proposition that such services were provided. Mr Sinclair gave evidence, apparently accepted by the primary Judge (at [76] above), that he was unaware of any benefits given to the appellants or Mr Emmott in respect of Sokol's projects. As I have noted, the issue was not further explored with Mr Sinclair in his evidence, notwithstanding that he presumably would have known whether any success fee had been earned or paid in connection with the Project or the listing of Sunkar, especially a fee calculated as a percentage of the total value of the Project or the total value of capital raised for the Project through the listing of Sunkar.

MWP accepts that the primary Judge gave no reasons for awarding AUD 4 million as compensation for the loss of its opportunity to participate in a success fee in respect of the Chilisai Phosphate Project. However, his Honour appears to have been influenced by the presumption against wrongdoers and the principle that doubts should be resolved against those whose actions make determination of an issue difficult. The primary Judge rejected Mr Slater's evidence that TIL had performed no work on the Chilisai Phosphate Project after September 2006 and found (at [411]) that Mr Slater (and presumably the other appellants) had a continuing desire to conceal TIL's activities from MWP. However, those findings and the rejection of other evidence called on behalf of the appellants do not justify an inference that a success fee worth millions of dollars was paid to or for the benefit of Mr Emmott or the appellants. As I have indicated, MWP could have taken additional steps to fill gaps in the evidence relating to the payment of a success fee but, for whatever reason, did not do so.

The questions that have to be answered are:

What opportunity did MWP lose in relation to the Chilisai Phosphate Project (other than to earn fees) by reason of the appellants' breaches of fiduciary duty?
What was the value of that opportunity?

The limitations of the evidence make both questions difficult to answer and impossible to answer with any precision. The difficulties are compounded by the need to take into account that Mr Sinclair's association was with Mr Emmott, not Mr Wilson. Indeed, Mr Sinclair did not want Mr Wilson involved in any of his projects.

The best answer that can be given to the first question is that MWP lost the opportunity to make contributions to the Project, for example by introducing investors or capping or foregoing fees, that may have resulted in MWP receiving an issue of shares in Sunkar or similar reward based on those contributions. On the evidence, I do not think that there was any realistic chance of MWP, assuming no breaches of fiduciary duty by the appellants, receiving the benefit of a success fee calculated as a percentage of the value of the Project or of total capital raised for the Project.

The second question is even more difficult to answer. I think that the value of MWP's lost opportunity is to be assessed at a relatively modest figure and certainly nowhere near AUD 4 million. There can be no precision in this process. However, an allowance of one third of the total fees charged by MWP and TIL in connection with the Chilisai Phosphate Project represents, in my view, an appropriate allowance for the lost opportunity and the best that can be done in the circumstances.

The primary Judge found that MWP invoiced Sokol for fees totalling USD 97,571.00 in respect of the Chilisai Phosphate Project. His Honour also found that TIL invoiced Sokol a total of USD 218,630.00 in respect of the Project for the period 1 January 2006 to 30 September 2006. I have concluded that it is appropriate to assess the fees charged by TIL to Sokol for the period from October 2006 to January 2007 amounted to USD 97,168.00. Thus the total fees charged by both MWP and TIL in respect of the Chilisai Phosphate Project until 31 January 2007 amounted to USD 413,369.00. As I have explained, one third of that sum should be allowed as equitable compensation for MWP's lost opportunity to gain a reward (other than fees) in relation to the Chilisai Phosphate Project. So calculated, the allowance is USD 137,789.67, which should be rounded to USD 140,000.00.

Urals Gold Project

The primary Judge found that the appellants were liable to pay equitable compensation to MWP for breaches of their fiduciary obligations relating to the Urals Gold Project. As with the Chilisai Phosphate Project, his Honour assessed the quantum of compensation by reference to Mr Schilling's report. This approach cannot stand, given that Mr Schilling's report should not have been admitted into evidence or given any weight.

In their written schedule, the appellants challenge the findings (at [433]) that MWP had worked on the Urals Gold Project long before TIL was established and that the appellants "exported" the work to TIL. The basis of their challenge does not emerge clearly from the various sections of the written submissions cross-referenced in the schedule. Insofar as the challenge is based on the appellants' causation argument, I have already dealt with it.

No issue arises as to the completeness of the invoices discovered by TIL concerning fees charged to Sokol for work performed on the Urals Gold Project. They indicate that work was performed during the period of January 2006 to 30 November 2006. Consistently with my reasoning on the compensation payable in respect of the Chilisai Phosphate Project, MWP is entitled, subject to the allowance for contingencies, to compensation assessed by reference to the total fees charged by TIL to Sokol (USD 109,292). After allowing ten per cent for contingencies, the appropriate amount is USD 98,363.

Roxi Transactions

North Karamandybas, Ravninnoye and Beibars (Munai) Projects

It follows from what I have said that, contrary to the appellants' submissions, no distinction can be drawn, for the purpose of assessing equitable compensation, between the work performed by TIL in respect of the North Karamandybas, Ravninnoye and Beibars (Munai) Projects before 30 June 2006 and work performed after that date. But for the appellants' breaches of fiduciary duty, MWP would have received instructions in relation to these three Projects.

As with the compensation for MWP's lost opportunity to perform work on the Chilisai Phosphate Project, I think it appropriate to award equitable compensation for the lost opportunity to work on the three Projects calculated by reference to the fees actually charged by TIL. This was the approach taken by the primary Judge. However, I can see no reason why the ten per cent discount for contingencies should not be applied to the face value of the invoices. The fees charged by TIL totalled €390,228. After the discount, the compensation to be allowed is €351,205.

Project X

MWP's cross-appeal challenges the primary Judge's finding that there was insufficient connection between the appellant's breaches of fiduciary duties and the losses claimed by MWP for its lost opportunity to participate in Project X. MWP's written submissions contend that MWP should receive compensation for the lost opportunity because TIL's billing for work on Project X commenced in November 2006, well within the six months period of notice Mr Emmott was required to give MWP.

MWP is entitled to compensation for the lost opportunity to perform work in relation to Project X. The lost opportunity relates to the work done by TIL during the period Mr Emmott notionally would have been serving out the six months period of notice he would have had to give to MWP on 30 June 2006.

The primary Judge found that TIL issued invoices in respect of Project X amounting to €29,950, covering work in November and December 2006. No invoices were in evidence relating to any subsequent period and his Honour made no finding that any work was done on Project X after December 2006. In particular there was no finding that TIL performed work on Project X in January 2007.

The measure of MWP's loss, subject to a reduction for contingencies, is the amount of fees charged by TIL for work in connection with Project X during November and December 2006. The appropriate equitable compensation for MWP's lost opportunity is therefore €29,950, less 10 percent for contingencies. This produces a figure of €26,955.

It is a separate question as to whether MWP is entitled to compensation for a lost opportunity to obtain a success fee in relation to Project X. The primary Judge noted (at [504]) that the letter of 25 January 2008 relating to the issue of 6,169,230 shares in Roxi beneficially to Mr Slater was an "acknowledgement" that the Project X arrangements referred to in the email of 13 December 2006 between TIL and Mr Rigell "had come to fruition". It is not entirely clear what his Honour meant by this observation, as he found (at [484]) that the Eragon transaction, to which the issue of shares to Mr Slater in Roxi related, was not the same transaction as Project X.

MWP's submissions on the cross-appeal seek compensation for a lost opportunity to derive benefits similar to the cash fees of million apparently paid to PJT pursuant to the agreements entered into between PJT and Mr Schoonbrood in 2007. The submissions also seek compensation for "success fees" totalling USD 29 million which are said to be the value of the shares issued to Mr Slater pursuant to the two agreements. However, MWP does not attribute its claim to compensation to Project X, presumably because of the finding that the Eragon and ADA transactions were quite separate. Thus no issue as to a success fee arises in relation to Project X.

Eragon and ADA Transactions

By its cross-appeal, MWP contends that the primary Judge erred in not awarding equitable compensation in respect of the Eragon and ADA transactions. The cross-appeal on this issue is to be approached by reference to the principles I have already stated.

The invoices produced by TIL suggest that no work was done by it on the Eragon and ADA acquisitions before January 2007. For some reason not identified in the primary judgment and not explained in submissions, the invoices issued on 12 October 2007 in respect of each of these transactions covered work performed throughout the nine month period from 1 January 2007 to 30 September 2007, but apparently did not segregate work performed according to the month. The fees charged for the nine month period in relation to both transactions amounted to USD 492,500. The primary Judge made no findings as to the proportion of fees attributable to work performed in January 2007. This Court was not taken to the invoices themselves or any documentation that would enable an apportionment to be made.

MWP is entitled to compensation for the lost opportunity to perform work on behalf of Roxi or Mr Schoonbrood in relation to the Eragon and ADA acquisitions during the month of January 2007. (It will be recalled that the assessment of compensation is to be approached on the basis that Mr Emmott would be free to act on instructions from Mr Schoonbrood as from 1 January 2007, but that he would have required approximately a month to set up the necessary infrastructure for the new firm.) It is difficult to assess the value of the chance, since it is by no means clear that even if the infrastructure for the new firm had not been established, Mr Schoonbrood would have instructed MWP to act on a new transaction for a very short period, particularly when Mr Emmott no longer was associated with the firm.

MWP charged fees of an average of approximately USD 55,000 per month in respect of the Eragon and ADA transactions during the period of nine months from January to September 2007. The best that can be done, taking into account the very many uncertainties, is to award a proportion of that average monthly figure as compensation for MWP's lost opportunity. The sum of USD 15,000 is, in my view, adequate as compensation for the lost opportunity.

MWP has not established a basis for claiming compensation in respect of the lost opportunity to have participated in the "success fee" apparently paid by Roxi to Mr Slater or for his benefit in the form of shares in Roxi. On the findings of the primary Judge, the issue of shares was a consequence of agreements entered into in October 2007, long after Mr Emmott and Mr Slater would have been free to accept work from Mr Schoonbrood. Even if MWP had performed some legal work in January 2007 in connection with the Eragon and ADA acquisitions, there was no realistic prospect that it would have received any portion of the success fee agreed to eight or nine months later. Given the relationship between Mr Schoonbrood and Mr Emmott, it is not merely speculative, but fanciful to suggest that a short-term temporary arrangement would have produced any benefit for MWP other than the standard fees charged for services rendered to Roxi or Mr Schoonbrood.

Benkala Copper Project

The primary Judge rejected MWP's claim for equitable compensation for the lost opportunity to work on the Benkala Copper Project and to participate in possible "success fees". He did so for two reasons, reproduced earlier in this judgment (see at [97] above).

MWP's cross appeal challenges the primary Judge's findings that:

the shift in resources to the Benkala Copper Project occurred months after Mr Emmott left MWP (at [444(a)]); and
there was insufficient evidence that TIL received benefits in the form of a success fee in respect of the Project (at [444(b)]).

MWP points to the evidence of Mr Slater who prepared a table describing work done by TIL on behalf of various clients before 20 July 2006. The table includes the following information concerning the Benkala Copper Project:

Client

Description of Client File

Client Representatives

Description of professional services provided

Sokol Holdings Limited

Benkala Copper Project

Tom Sinclair

Attendance at various meetings with representatives of the Seller, and the Purchaser and their local and offshore legal and financial advisors, reviewing and amending memorandum of understanding, reviewing draft subsoil use contract, various telephone and email attendances between representatives of the Seller, and the Purchaser and their local and offshore legal and financial advisors and various TIL staff.

MWP also relies on what it said was Mr Sinclair's evidence that Sokol "swapped" the Urals Gold Project for the Benkala Copper Project. In fact all that Mr Sinclair said in his affidavit was that when Sokol decided, apparently in mid-2006, that it would not proceed with the Urals Gold Project, it decided to swap its investment in that Project for an investment in the Benkala Copper Project. The latter was not simply a continuation of the Urals Gold Project on which MWP had worked.

The evidence does not establish that TIL or Mr Emmott worked on the Benkala Copper Project before Mr Emmott resigned from MWP on 30 June 2006, although Mr Slater's table is consistent with a relatively small amount of work being done by TIL before that date. However, the table is clearly evidence that TIL performed some work on behalf of Sokol in relation to the Benkala Copper Project even though TIL produced no invoices relating to work performed on the Project.

For the reasons I have given, the fact that MWP did not perform any work in relation to the Benkala Copper Project does not rule out a claim for equitable compensation for the lost opportunity to perform that work. Similarly, the fact that most if not all the work done by TIL on the Project was undertaken after Mr Emmott had left MWP, is not a fatal barrier to MWP's claim for equitable compensation. TIL commenced work on the Project at a time when Mr Emmott would have been with MWP had he not been in breach of his fiduciary duties. The likelihood, on the assumption that Mr Emmott would have remained with MWP until December 2006 (and that TIL would not have been established until February 2007), is that Mr Sinclair would have instructed MWP to act in relation to the Benkala Copper Project.

I therefore respectfully disagree with the primary Judge's conclusion that there was insufficient connection between TIL's work on the Benkala Copper Project and the loss of opportunity to work on that Project claimed by MWP. The difficulty is to assess the value of that opportunity.

There was no evidence of the extent of work performed by TIL on the Project, other than Mr Slater's evidence. The primary Judge made no finding that TIL had destroyed or deliberately withheld invoices, but it can be inferred from Mr Slater's evidence that some fees must have been charged to Sokol for the work performed by TIL.

MWP is entitled to the benefit of the principle stated in Houghton v Immer (see at [287] above). But MWP must bear some responsibility for the paucity of evidence as to the fees charged or chargeable by TIL for work on the Benkala Copper Project. For example, the Court was not taken to any cross-examination where Mr Sinclair, the individual appellants or Mr Emmott were asked about the nature and extent of work performed by TIL for the Project. The submissions did not address or draw attention to documentary evidence (not necessarily emanating from TIL) from which inferences might be drawn as to these matters. No explanation was given as to why it was not feasible to have obtained production of relevant documentation, such as the material referred to by Mr Slater in the table prepared for his affidavit.

As both parties seem to accept, in this unsatisfactory state of the evidence, the Court has to do its best. Giving some leeway to MWP (but not too much), I think the loss to it before allowing for contingencies should be assessed at two months' work at the same average monthly fee level revealed by TIL's invoices for the Chilisai Phosphate Project. This produces a figure of USD 59,200. An allowance of 10 per cent for contingencies reduces this figure to USD 53,280.

MWP's submissions do not identify any evidence indicating that TIL or any of the appellants received any success fee, much less benefits amounting to USD 12.5 million (5 per cent of the value attributed by MWP to the Benkala Copper Project). The claim for this amount rose no higher than speculation as to a possible outcome, devoid of a firm evidentiary base. It is one thing to say that a party should not benefit in litigation from a deliberate withholding of evidence or lack of frankness. It is another to use a void in the evidence to justify an extravagant claim.

The primary Judge correctly rejected MWP's claim to equitable compensation for loss of a chance to obtain a highly lucrative success fee from the Benkala Copper Project.

Project Ablai

The primary Judge found (Liability Judgment, at [522]) that TIL received instructions from Mr Sinclair in connection with Project Ablai before Mr Emmott left MWP. Only one invoice was rendered by TIL in respect of Project Ablai, for work performed between 1 June 2006 and 30 June 2006 (at [524]). The amount of this invoice was initially recorded by the primary Judge as USD 36,959, but he seems later (at [561]) to have adjusted this figure to USD 31,959, a figure repeated in the Remedies Judgment (at [27]).

Given the inadmissibility of Mr Schilling's report, there is no evidentiary basis for concluding that TIL performed work in relation to Project Ablai to a value greater than the invoiced fees. It follows that MWP is entitled to compensation assessed by reference to the invoiced fees, less an allowance of ten per cent. This produces a figure of USD 28,764.00.

Maersk Oil Joint Venture and Kangamuit Seafoods

As I have noted (at [143(v)] above) the appellants do not dispute that MWP is entitled to compensation in respect of fees derived by TIL for work in connection with the Maersk Oil Joint Venture and Kangamuit Seafoods. There is agreement that the appropriate figure in relation to the Maersk Oil Joint Venture is USD 16,960. The appellants accept that MWP is entitled to recover the face value of invoices rendered by TIL for work performed on behalf of Kangamuit Seafoods (USD 39,750). (They do not ask for this amount to be reduced for contingencies.) Since the primary Judge's award of compensation in respect of Kangamuit Seafoods was based on Mr Schilling's report and since I have held that the report was inadmissible, the compensation should be assessed at USD 39,750.

CONCLUSION

The appellants have succeeded on their appeal in that the award of equitable compensation made by the primary Judge should be reduced. In particular, the awards made in respect of the Chilisai Phosphate Project, the Urals Gold Project and the Roxi Project must be reduced. In addition, the award of AUD 4 million in respect of MWP's lost opportunity for a success fee in relation to the listing of Sunkar cannot stand.

MWP has succeeded to a limited extent in its cross-appeal. Contrary to the findings of the primary Judge, MWP is entitled to relatively modest equitable compensation in respect of Project X, the Eragon and ADA transactions and the Benkala Copper Project.

The outcome of the appeal and cross-appeal is shown in the following table (exclusive of interest):

Project

Primary Judge's Award

Adjusted Award

Chilisai (Lost Fees)

USD 1,487,186.10

USD 284,218.00

Chilsai (Success Fee)

AUD 4,000,000.00

USD 140,000.00

Urals Gold

USD 358,489.80

USD 98,363.00

Roxi

€390,228.00

€351,205.00

Project X

Nil

€26,955.00

Eragon and ADA

Nil

USD 15,000.00

Benkala Copper

Nil

USD 53,280.00

Project Ablai

USD 450,000

USD 28,764.00

Maersk

USD 19,504.00

USD 16,960.00

Kangamiut Seafoods

USD 150,750.00

USD 39,750.00

Thus in total MWP is entitled to the following amounts:

USD 676,335.00

€378,160.00

It will be necessary for interest to be added to these amounts.

As I have noted, Young JA in the earlier decision of this Court criticised the form of the declarations made by the primary Judge. However, the appellants did not make any submission that the declarations should be set aside. Nor did the High Court make any reference in its decision to the form of the declarations. In these circumstances, the declarations should stand.

Orders should be made allowing the appeal and cross-appeal in part, setting aside the sums specified in Orders 8(iii), 16(iii), 20, 24 and 28 made by the primary Judge on 11 December 2009 and substituting the appropriate sums inclusive of interest.

I propose the following directions:

1. The parties file agreed short minutes of order within 14 days, including provision for interest, costs and any other outstanding issues.

2. In the absence of agreed short minutes, the appellants file and serve their draft short minutes of order and brief submissions in support within 14 days.

3. MWP file and serve its draft short minutes of order and brief submissions in support within a further 14 days.

**********

Decision last updated: 28 November 2012

Medium Neutral Citation:	Nicholls & Ors v Michael Wilson & Partners Ltd [2012] NSWCA 383
Hearing dates:	25, 26 July 2012; 17, 28 August 2012 (further written submissions)
Decision date:	28 November 2012
Before:	Meagher JA at [1] Barrett JA at [2] Sackville AJA at [3]
Decision:	1. The parties file agreed short minutes of order within 14 days, including provision for interest, costs and any other outstanding issues. 2. In the absence of agreed short minutes, the appellants file and serve their draft short minutes of order and brief submissions in support within 14 days. 3. The respondent file and serve its draft short minutes of order and brief submissions in support within a further 14 days. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	EQUITY - equitable compensation for breach of fiduciary duties by employees and consultants - assessment after remitter of case by High Court to Court of Appeal - fiduciaries deliberately breached duties by diverting opportunities for legal work from a legal and consulting firm in Kazakhstan to their own firm and by knowingly assisting in other breaches of fiduciary duty - principles governing assessment of equitable compensation for lost opportunity to perform legal work and to receive financial rewards for involvement in projects - need to establish causation - significance of fiduciaries' resignation from firm in order to further their wrongful conduct - extent to which plaintiff is entitled to rely on the presumption against wrongdoers where there are gaps in the evidence. EVIDENCE - admissibility of expert report - report estimates legal work likely to be performed on particular projects and fees or other rewards likely to be derived by the firm performing the work - whether expert's opinion met the requirements of s 79 of the Evidence Act 1995 - whether opinions shown to be based on the expert's specialised knowledge - whether report should be given any probative weight.
Legislation Cited:	Evidence Act 1995
Cases Cited:	Armory v Delamirie (1722) 1 Stra 505; 93 ER 664 Barnes v Addy (1874) LR 9 Ch App 244 Beach Petroleum NL v Kennedy [1999] NSWCA 408; 48 NSWLR 1 Canadian Aero Service Ltd v O'Malley [1974] SCR 592; 40 DLR (3d) 371 Canson Enterprises Ltd v Broughton & Co (1991) 85 DLR (4th) 129 Edmonds v Donovan (2005) 12 VR 513 Environment Agency v Empress Car Co (Abertillery) Ltd [1998] 2 WLR 350 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 Furs Ltd v Tomkies [1936] HCA 3; 54 CLR 583 Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; 56 NSWLR 298 Houghton v Immer (No 155) (1997) 44 NSWLR 46 Maguire v Makaronis (1997) 188 CLR 449 McKenzie v McDonald [1927] VLR 134 Michael Wilson and Partners Ltd v Nicholls [2011] HCA 48; 282 ALR 685 Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1033 Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1377 Mordecai v Mordecai (1988) 12 NSWLR 58 Nicholls v Michael Wilson & Partners Ltd [2010] NSWCA 222 Nocton v Lord Ashburton [1914] AC 932 O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Re Dawson (dec'd) [1966] 2 NSWR 211 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Swindle v Harrison [1997] 4 All ER 705 Target Holdings Ltd v Redferns [1996] 1 AC 421 Warman International Ltd v Dwyer [1995] HCA 18; 182 CLR 544 Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484
Texts Cited:	I E Davidson, "The Equitable Remedy of Compensation" (1982) 13 Melbourne University Law Review 349 R Meagher, D Heydon and M Leeming, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies 4th ed (2002) LexisNexis Butterworths W M Gummow, "Compensation for Breach of Fiduciary Duty" in J G Youdan, Equity, Fiduciaries and Trusts (1989)
Category:	Principal judgment
Parties:	Robert Colin Nicholls (First Appellant and First Cross-Respondent) David Ross Slater (Second Appellant and Second Cross-Respondent) Temujin Services Limited (Third Appellant and Third Cross-Respondent) Temujin International Limited in its own capacity and as trustee of the Temujin Trading Trust (Fourth Appellant and Fourth Cross-Respondent) Temujin International FZE (Fifth Appellant and Fifth Cross-Respondent) Michael Wilson & Partners Limited (Respondent and Cross-Appellant)
Representation:	Counsel: G O Blake SC, G W McGrath SC and S Adair (Appellants) B Walker SC, M Walton SC and D F C Thomas (Respondent) Solicitors: Henry Davis York (Appellants) Clayton Utz (Respondent)
File Number(s):	2009/298561
Decision under appeal	Citation: Michael Wilson & Partners Ltd v Nicholls [2009] NSWSC 1033 Michael Wilson & Partners Ltd v Nicholls [2009] NSWSC 1377 Before: Einstein J File Number(s): SC 2006/50151

Client	Description of Client File	Client Representatives	Description of professional services provided
Sokol Holdings Limited	Benkala Copper Project	Tom Sinclair	Attendance at various meetings with representatives of the Seller, and the Purchaser and their local and offshore legal and financial advisors, reviewing and amending memorandum of understanding, reviewing draft subsoil use contract, various telephone and email attendances between representatives of the Seller, and the Purchaser and their local and offshore legal and financial advisors and various TIL staff.

Project	Primary Judge's Award	Adjusted Award
Chilisai (Lost Fees)	USD 1,487,186.10	USD 284,218.00
Chilsai (Success Fee)	AUD 4,000,000.00	USD 140,000.00
Urals Gold	USD 358,489.80	USD 98,363.00
Roxi	€390,228.00	€351,205.00
Project X	Nil	€26,955.00
Eragon and ADA	Nil	USD 15,000.00
Benkala Copper	Nil	USD 53,280.00
Project Ablai	USD 450,000	USD 28,764.00
Maersk	USD 19,504.00	USD 16,960.00
Kangamiut Seafoods	USD 150,750.00	USD 39,750.00