Orica Investments Pty Ltd v McCartney

[2007] NSWSC 645

CITATION:	Orica Investments Pty Ltd & 2 Ors v William McCartney & 3 Ors [2007] NSWSC 645
HEARING DATE(S):	3-5 April 2007; 10-13 April 2007; 16-20 April 2007
JUDGMENT DATE :	25 June 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	White J
DECISION:	Counsel to bring in short minutes of order in accordance with reasons.
CATCHWORDS:	CONTRACTS – Construction and interpretation of contracts – Share sale agreement – First defendant’s covenant in restraint of trade – Restraint against directly or indirectly carrying on business – Held restraint applied to acts of first defendant by which the first defendant or the second defendant carried on a proscribed business – Held that first defendant’s providing working capital to and being a beneficial shareholder in second defendant did not contravene restraint - Held that enticing supplier away from second plaintiff to second defendant, proffering internal advice and assistance to second defendant, and dealings with third parties on behalf of the third defendant, contravened restraint. - CONTRACTS – Construction and interpretation of contracts – Prohibition in share sale agreement against enticing away from first plaintiff any customer, supplier or employee of “Restricted Business” – Held that first defendant breached share sale agreement by enticing supplier and certain employees away from first plaintiff. - CONTRACTS – Obligation of confidentiality – Obligation breached by first defendant by disclosure of contact details of supplier to second defendant. - EQUITY – Equitable remedies – Injunctions – Injunction to restrain continued breaches of contract. - EQUITY – Fiduciary duties – Whether fiduciary duties owed by first defendant as a consultant – Where fiduciary duties owed as director and employee ceased when directorship and employment ceased – Where no evidence of first defendant being given tasks to perform from which fiduciary obligation to second plaintiff might arise - Whether fiduciary duties to second plaintiff arose from terms of consultancy contract with third plaintiff and first defendant’s possession of confidential information – Held that fiduciary relationship with second plaintiff not established. - EQUITY – Confidential information – Where second defendant in possession of second plaintiff’s confidential pricing information – Where evidence of misuse of certain confidential information but not other information – Injunction to restrain misuse of such information. - TORTS – Interference with contractual relations – Knowing and intentional interference – Held that second and third defendants liable for knowingly interfering with first defendant’s contractual relations. - TORTS – Other economic torts – Unlawful interference with contractual relations – First defendant’s covert provision of funds amounted to breach of consultancy agreement but not shareholders share sale agreement – Interference by fourth defendant by assisting with covert provision of funds – No knowing interference or intention to cause loss on the part of fourth defendant – Held that fourth defendant did not unlawfully interfere with contractual relations.
LEGISLATION CITED:	Evidence Act 1995 (NSW)
CASES CITED:	Briginshaw v Briginshaw (1938) 60 CLR 336 R v Exall (1866) 4 F & F 922;176 ER 850 The Belhaven & Stenton Peerage [1875] 1 AC 278 Ahern v R (1998) 165 CLR 87 Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272 Hyde v Sullivan (1955) 56 SR (NSW) 113 Hungier v Grace (1972) 127 CLR 210 Hope v Bathurst City Council (1980) 144 CLR 1 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Faisold v Roberts (1997) 70 FCR 489 Toyama Pty Ltd v Landmark Building Developments Pty Ltd (2006) 197 FLR 74 Gillford Motor Co Ltd v Haine [1933] Ch 935 Palmer v Mallett (1887) 36 Ch D 411 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 Hospital Products Ltd v United States Surgical Corporation [1983] 2 NSWLR 157 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26 OBG Ltd & Ors v Allan & Ors [2007] 2 WLR 920 Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691 Zhu v Treasurer of NSW (2004) 218 CLR 530 World Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd [2007] FCA 114 De Francesco v Barnum (1890) 63 LT 514 Sanders v Snell (1998) 196 CLR 329 Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1989) 95 ALR 211
PARTIES:	Orica Investments Pty Ltd & 2 Ors v William McCartney & 3 Ors
FILE NUMBER(S):	SC 3895/05
COUNSEL:	Plaintiffs: I M Jackman SC & J Stoljar 1st Defendant: D Higgs SC & B Shields 2nd - 4th Defendants: T Davie
SOLICITORS:	Plaintiffs: Malleson Stephen Jaques 1st Defendant: Deacons 2nd - 4th Defendants: Hassett Dixon

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Monday, 25 June 2007

3895/05 Orica Investments Pty Ltd & 2 Ors v William McCartney & 3 Ors

JUDGMENT

Introduction

1 HIS HONOUR: This is a claim for damages, equitable compensation, an account of profits, injunctive relief, and the imposition of a remedial constructive trust. It arises from the conduct of a business by the second defendant, Ingredients Plus Pty Ltd (“Ingredients Plus”), in competition with the second plaintiff, Bronson & Jacobs Pty Ltd (“Bronson & Jacobs”).

2 For the most part, I shall refer to the witnesses and actors in the transactions without their titles of Mr or Ms. I do so for ease of reading, and without intending any disrespect.

3 Bronson & Jacobs was and is a supplier of chemical raw materials to the pharmaceutical, cosmetics, food and aromatic industries in Australia, New Zealand, Asia, and the UK.

4 Prior to 1 June 2004, the first defendant, Mr William McCartney, was the managing director of Bronson & Jacobs and a shareholder. On 27 April 2004, he and the other shareholders of Bronson & Jacobs entered into an agreement (the “Share Sale Agreement”) with the first plaintiff, Orica Investments Pty Ltd, to sell their shares in Bronson & Jacobs to Orica Investments. Bronson & Jacobs was also a party to that agreement. McCartney had worked for Bronson & Jacobs from 1968. He was appointed joint managing director in 1982. In 1988, he was appointed chief executive officer and managing director of Bronson & Jacobs and all of its group companies. He formed close relationships with suppliers to and customers of Bronson & Jacobs and of other companies in the Bronson & Jacobs group.

5 Ingredients Plus was registered by the third defendant, Mr Graeme Love. Graeme Love had been employed by Bronson & Jacobs as General Manager, Operations. Graeme Love and his father, Mr Thomas Love, were the initial directors of Ingredients Plus. Thomas Love is the fourth defendant.

6 The sale of shares in Bronson & Jacobs to Orica Investments was completed on 31 May 2004. The base purchase price, before adjustments, was $110,000,000. McCartney received more than $15,000,000 for the sale of his shares in Bronson & Jacobs and in subsidiaries of Bronson & Jacobs.

7 By clause 15.1 of the Share Sale Agreement, McCartney promised, in substance, that for a period of five years, he would not:

a. carry on business similar to or in competition with Bronson & Jacobs, either directly or indirectly, as employee, manager, director, shareholder, member, partner, joint venture participant, consultant, or in any other capacity;

b. entice away from Orica Investments any customer, supplier, or employee of Bronson & Jacobs’ business;

c. canvass or solicit orders for services similar to those provided by Bronson & Jacobs; or

d. use or disclose any confidential information relating to the business or affairs of Bronson & Jacobs or its subsidiaries.

8 The share purchase was completed on 31 May 2004. McCartney resigned as the managing director and as an employee of Bronson & Jacobs. On that day, he entered into a Consultancy Agreement with the third plaintiff, Orica Australia Pty Ltd. The agreement was for a period of twelve months, and would be automatically extended for further periods of six months unless either party gave notice that it did not wish to extend the agreement. McCartney was to be paid a base consulting fee of $350,000 per annum and a bonus of up to forty per cent of the base consulting fee “based partly on business performance and partly on achievement of personal objectives to be agreed with Mr Graham Bird by 31 July 2004.”

9 Mr Graham Bird was the general manager of Orica Chemnet. Orica Chemnet is the business name under which Orica Australia carries on the business of manufacturing, supplying and distributing chemical products to various industries.

10 Under the Consultancy Agreement, McCartney agreed to provide consulting services in connection with the conduct of Bronson & Jacobs’ business proposed to be acquired by Orica, including “assistance with the integration of commercial operations immediately following the acquisition of the Bronson & Jacobs business by Orica Chemnet” and “development of Bronson & Jacobs business in all of its Asian operations.” He was to provide services in accordance with instructions issued by Bird or any person nominated by the Orica board.

11 During the negotiation for the purchase of the shares in Bronson & Jacobs, Orica represented that there would be no change to the day-to-day operations of Bronson & Jacobs, except in the finance area. It gave a presentation to suppliers and customers of Bronson & Jacobs which stated “for B & J, this acquisition will mean business as usual and access to increased resources and systems” and “Bronson & Jacobs will operate as a stand-alone division within the Orica Chemnet business” and “Orica recognises the quality of the existing Bronson & Jacobs business and its employees.” The same message was conveyed to Bronson & Jacobs’ employees.

12 The transition of the control of the Bronson & Jacobs business to Orica was fraught with tension. Orica’s appointment of senior management, including the appointment of Mr Denis Monahan as general manager of Bronson & Jacobs on 1 June 2004, was resented by the existing senior management. Orica changed the roles of some of the senior managers. It introduced to Bronson & Jacobs an operating system known as SAP, which was used by other divisions of Orica. It was used at least for the ordering, control and delivery of stock. All of the data on Bronson & Jacobs’ existing operating system had to be loaded on to the SAP operating system. There were over 8,000 different codes to describe products, pack sizes and manufacturing. Warehouses were re-organised and all customer orders were directed through the Melbourne office. This led to many complaints from customers of Bronson & Jacobs and from suppliers to Bronson & Jacobs. It affected the level of service that Bronson & Jacobs was able to provide to its customers. This in turn led to dissatisfaction amongst a number of the existing staff of Bronson & Jacobs who had close links with suppliers and customers.

13 Orica determined that Graeme Love’s position was redundant and advised him of this in August 2004. It was then expected that he would continue to work until March 2005, but the fact that he had been made redundant was known to at least some of the senior management.

14 McCartney objected to the changes in management. He was concerned that jobs of staff who had worked loyally for him for decades were under threat.

Overview of the Parties’ Claims

15 The plaintiffs allege that whilst still a consultant to Orica and Bronson & Jacobs, McCartney encouraged staff of Bronson & Jacobs who were loyal to him to set up in business in opposition to Bronson & Jacobs with his backing. The staff concerned were Graeme Love, Mr Michael Hadji-Petros, Ms Nguyet Nguyen and Ms Tracey Lynam. Petros had been the National Sales Manager, Pharmaceuticals. Nguyen had been the National Sales Manager, Essential Oils and Aroma Chemicals. Lynam was a technical sales representative. The plaintiffs contend that McCartney told senior employees of Bronson & Jacobs that if Orica did not live up to its representations, he would assist them behind the scenes to set up a rival business and to take Bronson & Jacobs’ business, as the business depended on the goodwill generated by him and his managers.

16 Graeme Love’s redundancy was brought forward to 23 December 2004. Ingredients Plus was registered as a company on 12 January 2005. The initial shareholders and directors were Graeme Love and Thomas Love. Thomas Love was and is a retired chartered accountant. Formerly, he was a partner of the firm Love & Rogers. He is a man of some wealth and well able to support his son in a new business venture.

17 In the next two months, Lynam, Nguyen and Petros joined Ingredients Plus. Ingredients Plus has secured distribution rights from suppliers of chemical products who had formerly supplied those products to Bronson & Jacobs. It has apparently developed a substantial business, although the evidence as to its business was strangely sparse.

18 On 25 February 2005, Orica terminated McCartney’s consultancy. He was paid his base fee up to 31 May 2005. He claims that Orica repudiated the Consultancy Agreement. He claims damages being the lost opportunity to earn a bonus.

19 The Consultancy Agreement was varied on or about 30 June 2004 because McCartney did not supply his services through a company as the agreement he signed contemplated, but as an individual. Orica said that this resulted in its having to pay workers’ compensation and a superannuation contribution for which it would otherwise not have been liable. At Orica’s request, McCartney invoiced his services at a reduced rate on the basis that Orica would make a superannuation contribution to his superannuation fund of $29,000 for the twelve-month period of the consultancy. That amount has not been paid. Orica accepts that it is liable to pay that sum to McCartney’s superannuation fund with interest at the prescribed rates from 25 February 2006.

20 The plaintiffs claim that McCartney made it known that he would support Ingredients Plus and thereby assisted Graeme Love in attracting new staff to Ingredients Plus. The plaintiffs claim that McCartney provided initial working capital to Ingredients Plus of $400,000 in two payments of $200,000 each. The first such payment was made on 17 February 2005. The second was made on 19 April 2005. Neither payment was made directly to Ingredients Plus. On 15 February 2005 and 18 April 2005, Rawlo International Pty Ltd, a company controlled by McCartney and the trustee of his family trust, paid $200,000 to Sanquhar Investments Pty Ltd (“Sanquhar”). Sanquhar is a company controlled by Thomas Love. Sanquhar paid the same amounts to Ingredients Plus on 17 February 2005 and 19 April 2005. The defendants say that these were loans by McCartney or Rawlo International to Thomas Love or Sanquhar, and that Thomas Love in turn lent the same amounts to Ingredients Plus. They deny that McCartney is either a lender to or a beneficial shareholder in Ingredients Plus. If, which they deny, McCartney provided working capital to Ingredients Plus, they say that such conduct would not breach the restraint against competition in the Share Sale Agreement, nor be a breach of his Consultancy Agreement, nor breach any fiduciary duties he might owe. The Consultancy Agreement had been brought to an end before the second payment was made.

21 The second to fourth defendants, Ingredients Plus, Graeme Love and Thomas Love, say that they did not knowingly or intentionally interfere with McCartney’s contract with Orica Investments, or his Consultancy Agreement with Orica Australia, and did not knowingly assist in any breach of fiduciary duty.

22 The plaintiffs claim that McCartney provided further financial assistance to Ingredients Plus by paying $200,000 on 3 May 2005 to meet a debt owed by Ingredients Plus to a supplier. They claim that after proceedings were instituted, Graeme Love and McCartney decided to treat that payment as consideration for the purchase of shares held by Graeme Love in companies which provide software packages to the legal profession, called LEAP Developments Pty Ltd and LEAP Disbursement Management Pty Ltd. The plaintiffs claim that when the payment was made, it was a further loan or contribution to capital made by McCartney to assist Ingredients Plus’ business and, in conjunction with the other matters of which they complain, was a step by McCartney in indirectly carrying on business in competition with Bronson & Jacobs.

23 On 21 June 2005, McCartney lent Graeme Love a further sum of $200,000. Graeme Love provided the money to Ingredients Plus. The loan from McCartney to Graeme Love was a short-term loan whilst Graeme Love was in the process of selling his house to raise capital. It was repaid on 24 August 2005.

24 The plaintiffs also claim that McCartney enticed certain suppliers to Bronson & Jacobs to transfer their business to Ingredients Plus and appoint it their distributors. Some of this conduct is alleged to have taken place before the termination of the Consultancy Agreement, and some after. They claim that McCartney provided direction, advice and assistance to Ingredients Plus in the establishment and operation of its business. They say that without McCartney’s financial assistance, his advice, and his reputation in the industry, of which Ingredients Plus took covert advantage, Ingredients Plus would not have established itself in the marketplace.

25 The plaintiffs’ claim against McCartney is that he breached clause 15 of the Share Sale Agreement, that he breached an implied term of good faith and co-operation in the Consultancy Agreement, that he breached fiduciary obligations he owed to Bronson & Jacobs, and that he permitted or encouraged the use by Ingredients Plus of confidential information he supplied to it. As against McCartney, the plaintiffs claim an injunction, damages and equitable compensation.

26 The fiduciary duty was alleged to arise pursuant to the terms of the Consultancy Agreement with Orica Australia and from the fact that McCartney was in possession of information confidential to Bronson & Jacobs.

27 The claim for damages and equitable compensation was ultimately confined to damages or compensation for losses suffered by Bronson & Jacobs through the loss of business from three suppliers to Bronson & Jacobs for whom it had acted as a distributor. Those suppliers are Clos d’Aguzon, a French company managed by a Mr Remy Bontoux; Su-Heung, a Korean company whose president is a Mr Joo-Hwan Yang; and Dow Corning, who dealt with Bronson & Jacobs and Ingredients Plus through its director for Asia, Mr Brian Nicols. It was common ground that if I found that Bronson & Jacobs’ loss of any of those suppliers was caused by McCartney’s having breached his contract or fiduciary duty, there should be a reference to assess the amount of damages or equitable compensation, if the plaintiff elected to pursue such remedies.

28 As against Ingredients Plus, Graeme Love and Thomas Love, the plaintiffs claim that they knowingly interfered in McCartney’s contractual relations with Orica Investments, Bronson & Jacobs and Orica Australia, that they knowingly assisted in McCartney’s breach of fiduciary duty, and that they knowingly misused confidential information of Bronson & Jacobs. The plaintiffs seek a declaration that Ingredients Plus holds its business, assets, goodwill and undertaking, including its right to use the business name Ingredients Plus, on constructive trust for the plaintiffs. Alternatively, they claim an account of profits against Ingredients Plus. In final submissions, that claim was confined to profits derived by Ingredients Plus from business done with Clos d’Aguzon, Su-Heung and Dow Corning. Alternatively, the plaintiffs claim against each of Ingredients Plus, Graeme Love and Thomas Love, damages in tort for knowing interference with McCartney’s contractual relations with Orica Investments, Bronson & Jacobs and Orica Australia, and equitable compensation for knowing assistance in breach of fiduciary duties allegedly owed by McCartney to Bronson & Jacobs. In final submissions, those claims were confined to damages or compensation for the loss by Bronson & Jacobs of the business of Clos d’Aguzon, Su-Heung and Dow Corning.

29 The plaintiffs’ case was based upon circumstantial evidence. The plaintiffs painstakingly pieced together banking records produced on subpoena or discovery, mobile phone accounts where each call and its duration was individually itemised, and email correspondence, including emails or fragments of emails which had been deleted as live files on the defendants’ computers, but which were retrieved as the result of a forensic examination of the computers. Some emails were “blind copied” by officers of Ingredients Plus to McCartney. The plaintiffs also relied on statements allegedly made by McCartney or Lynam to employees of Bronson & Jacobs before their departure, and surveillance of meetings between McCartney, officers of Ingredients Plus and others. There was no direct evidence that McCartney sought to persuade any supplier or customer of Bronson & Jacobs to transfer its business to Ingredients Plus. There was no direct evidence that he enticed any employee of Bronson & Jacobs to leave employment with Bronson & Jacobs to take up employment with Ingredients Plus. There was no document expressly referring to McCartney as a lender to, or a beneficial shareholder in, Ingredients Plus. Both he and those officers of Ingredients Plus who gave evidence, all denied that he had any such role. They denied his having any involvement in Ingredients Plus’ business.

30 The allegations of covert conduct against McCartney and the allegations against Ingredients Plus, Graeme Love and Thomas Love of knowing assistance are serious. The principles in Briginshaw v Briginshaw (1938) 60 CLR 336 at 347 per Latham CJ; 350 per Rich J; 361-362 per Dixon J; and 372 per McTiernan J apply. However, it is not necessary that each strand of the evidence relied on by the plaintiffs of itself be sufficient to warrant a finding that McCartney conducted himself in the ways alleged. It is legitimate to aggregate the circumstances proved to consider whether on the balance of probabilities, but having regard to the seriousness of the matters alleged, the inference that McCartney breached his contract or duty in any of the ways alleged should be drawn (R v Exall (1866) 4 F & F 922 at 929; 176 ER 850 at 853; The Belhaven & Stenton Peerage [1875] 1 AC 278 at 279). However, an allegation must be proved before it can be used as a basis for more readily drawing an inference from circumstantial evidence that another allegation is established.

Representations by McCartney to Employees of Bronson & Jacobs of His Intentions.

31 Monahan gave evidence to the effect that on a number of occasions between October or November 2003 and April 2004, McCartney said, in substance, that if Orica did not honour its promise to leave Bronson & Jacobs as it was, McCartney and the senior management who wanted to go would set up their own business with McCartney’s financial support, with McCartney pulling the strings from behind the scenes, and would take the best of the business into a new operation, as that business depended on the personal relationships which McCartney and his management had with the suppliers and customers.

32 Monahan said that the first such conversation occurred in about October 2003 in McCartney’s office. At that time, the proposed purchase was still under negotiation. Monahan said that McCartney told him “I am depending on you Denis, to help me lead this sale. They have assured me that nothing will change and if it does, when the sale is over I will have my money and we can do whatever we want. We will take the best people and there will be no Skippers to deal with. We can’t go wrong.” The reference to the Skippers was to the majority shareholders in Bronson & Jacobs.

33 Monahan deposed to a further conversation with McCartney in October or November 2003 in McCartney’s office. He said that McCartney said to him:

“ Let’s go along with it. If it doesn’t work, let’s do our own thing. I will have the money to finance whatever we do. But I have got to get my money out for Frances (McCartney’s wife). … I need you guys to go along with this sale for me. We’ll give it a go, but if they start changing things, I promise you I’ll put in the money to start up again. ”

34 Monahan adhered to that evidence in cross-examination. On 24 October 2003, Monahan wrote a letter to McCartney in which Monahan set out his appreciation of the importance of the job ahead and his hopes for his role in it. The tone of the letter can be gauged from the following: “I am the man for the job as regards delivering the outcome you want here. You tell me what you want done as regards delivering this project, and together with my input and that of the other key people in the business, thy will be done.”

35 It was put to Monahan in cross-examination that he had made no record of the discussions which he claims to have had with McCartney. Monahan said that the letter of 24 October 2003 did include an oblique reference to those discussions, but he had not wanted to put anything in writing about them more plainly for the prejudice that might create if the document were ever seen by Orica. The oblique reference he identified was his statement that:

“ They (Orica) will need people that can get the sales team on board, and to keep their heads up. They will need strong people to face customers and to sell the ideas, and the ‘whys and wherefores?’ that they should be doing business with new owners, albeit in Bronson & Jacobs’ identity. Unless this is done professionally, the people that can carry out this type of work will deliver the business lock, stock and barrel into other good homes. ”

36 Monahan’s letter contains no indication that this was a sentiment conveyed by McCartney to Monahan, or that McCartney had indicated that he would assist any such move. However, I do not regard the absence of any clearer note of the discussions as indicating that no such discussions occurred. If such discussions occurred, it is unlikely that any clearer note would have been kept.

37 Monahan deposed that during a lunch in February or March 2004 between himself, McCartney, Graeme Love and Petros, McCartney said that Orica would be good for Bronson & Jacobs to allow it to grow. He deposed that McCartney said “I am not sure what I am going to do about the non-compete. I have got a real problem with that.” Monahan deposed that he said “Yeah but Frances or Emily (McCartney’s daughter) or any of the rest of us don’t have a non-compete, Bill. You could set up a business in Graeme’s name. He doesn’t have a non-compete.” He pointed to Graeme Love as he said this. McCartney said “Yeah, good idea.” Each of McCartney, Graeme Love and Petros denied that such a conversation occurred.

38 Monahan deposed that at a meeting on 29 March 2004, attended by himself, McCartney, Graeme Love and Petros, McCartney said:

“ I’ve told you, give this a go and if it doesn’t work, I promise you I won’t let you down. We’ll just start up again and take the best suppliers and the people with us. You guys may not believe me but I promise you this, I won’t let you down. I’ll put up the money and start again. We’ll take essential oils and all the best, profitable bits. We’ll take the best people and give them an interest in the business. ”

39 Monahan said that at a meeting in McCartney’s offices between March and April 2004, McCartney again said words to the effect:

“I promise you guys. If Orica does not leave the business as it is, I will stuff it up on them. I will make it my life’s work. I told Graham Bird and Andrew Larke that personally, that I will help you guys to stuff it up.”

He says that McCartney also said:

“ What we’ll do, we’ll take the best suppliers and leave the shit behind. You wouldn’t do food, but we’ll go after Tyco, Dow Corning, the essential oils business and any other nice bits. ”

40 In April 2004, according to Monahan, McCartney told him that:

“ I’ve just had a meeting with Brian Nicols, and Brian said to me ‘Bill, the relationship between Dow Corning and Bronson & Jacobs is with you personally, so if you go elsewhere, we’ll go with you.’ Remy Bontoux will be no problem, too. He’ll support me, no problem. ”

41 In another conversation in April 2004, McCartney is said to have told Monahan:

“ If we go out on our own, we will pick the best people. We’ll be free of the skippers and we can turn this into a $500 million dollar business. You would run it, Denis. Graeme [Love] can run operations. Nguyet [Nguyen] can have essential oils. We wouldn’t take Ian [McClean] but we will take Tracey [Lynam]. I don’t know about Michael [Petros]. He is lazy. And he’d retire if he got half a chance. We’ll do the same with the China team. What you’d do is you’d give everyone a share, say 5 or 10%. Some people you’d give a bit less to and some people would just be employees. Don’t worry. I’m not going anywhere. I’ll pull the strings from behind the scenes because of my non-compete, and when that’s over, I’ll come back on deck. I’m not going to retire yet. I want to work until I’m 80. ”

42 McCartney denied these conversations. Graeme Love and Petros also denied the conversations to which Monahan claimed they were a party. Nicols denied that he told McCartney that the relationship between Dow Corning and Bronson & Jacobs was with McCartney personally, and did not accept (although he did not specifically deny) that he told McCartney that if McCartney went elsewhere, he would go with him. I deal with Nicols’ evidence later in these reasons (paragraph [230]). I do not accept that Nicols made such a statement to McCartney.

43 Monahan was unshaken in cross-examination.

44 In submitting that Monahan’s evidence should be rejected, Mr Higgs SC, who appeared with Mr Shields for McCartney, submitted that a telling factor was that if such statements had been made to Monahan, Monahan could be expected to have reported them to his superiors. That is so because on 1 June 2004, Monahan secured the position of general manager of Bronson & Jacobs under the new management. He then reported to Bird. It could reasonably be expected that Monahan would then report to his superiors the previous conversations to which he had been a party with McCartney, Graeme Love and Petros.

45 In cross-examination, Monahan said that he did discuss with others in Orica his conversations with McCartney about McCartney leaving Bronson & Jacobs and competing. He said he discussed it with Mr McCann, with Bird, with Mr O’Connor, and others (T80). He said those discussions occurred about six or seven months before McCartney left the business. Mr Higgs submitted that Monahan’s evidence of having reported those conversations to his superiors before he prepared his affidavit in February 2006 should not be accepted, and that his evidence was recent invention. It was squarely put to Monahan that at no time in 2004 did he tell such persons that he had such conversations with McCartney about McCartney’s going out to compete (T82). He adhered to his evidence that he did so. None of the persons to whom Monahan said he reported that matter was called to rebut the allegation of recent invention. Mr Higgs submitted that it should be inferred that their evidence would not have assisted the plaintiffs in that regard. He submitted that it is unlikely that such matters had been reported at that time to anyone at Orica.

46 There is some objective support for this in the fact that Monahan’s affidavit was not sworn until February 2006. Proceedings were commenced on 8 July 2005. An application was made for interlocutory relief in July 2005, resulting in McCartney giving undertakings without admissions on 19 July 2005. In support of the plaintiffs’ claim for interlocutory relief, affidavits were sworn by, amongst others, O’Connor and McCann, but not by Monahan. However, there is an explanation for this. Monahan was on sick leave from June 2005 suffering from severe depression and anxiety disorder brought on by stress (T41). Although he had weekly meetings with his boss, he did not start going back to the office until March 2007. There was no indication that that condition affected his memory. However, it does explain why his affidavit was not sworn in July 2005 when proceedings were commenced and a number of other affidavits read by the plaintiffs were sworn.

47 I do not consider that the making of the accusation of recent invention, which Monahan rejected, required the plaintiffs to call those whom Monahan identified as the persons to whom he had conveyed what McCartney had told him. Two of them, O’Connor and McCann, swore affidavits in the proceedings and were not required for cross-examination. They did not depose in their affidavits to having been told by Monahan that he had been told by McCartney that McCartney intended to set up business in competition if Orica did not leave the Bronson & Jacobs business alone. Nor could they have been expected to. They and the other deponents might have been called after Monahan’s cross-examination to corroborate his denial of recent invention. On the other hand, it would also have been open to the defendant to have required McCann and O’Connor to attend for cross-examination and to have cross-examined them on that topic. Unless there is other material from which I should infer that Monahan did not inform his superiors of his conversations with McCartney, I do not consider that I should reject Monahan’s credit on this ground.

48 I do not think there is such material. The relations between McCartney and Orica’s management after 31 May 2004 is not inconsistent with Monahan’s having passed such information on to his superiors. McCartney was not confronted with such advice. However, that may well not have been a practicable option. Orica needed McCartney’s support. Accusing him of planning to breach his contract would not be a sensible way of obtaining his support. However, Orica gave McCartney almost nothing to do in the organisation. Later in 2004, and in early 2005, Orica’s management changed the roles of Nguyen and Petros so that they no longer dealt with their clients (Graeme Love para 56; Petros para 38). Such conduct is consistent with Orica’s apprehending that there were such plans. I see no reason to reject Monahan’s evidence that he told his superiors at Orica what he had been told by McCartney.

49 Although I have rejected these challenges to Monahan’s credit, nonetheless, in the face of the denials of McCartney, Graeme Love, Petros and Nicols, I would not be prepared to accept Monahan’s evidence unless it were corroborated. Although Monahan was not shaken in cross-examination, he was far from a perfect witness. His answers were always discursive and frequently unresponsive. (He was not the only witness whose answers were not always responsive. The same was true also of McCartney and Graeme Love.)

50 Monahan’s evidence that McCartney had said that he intended to set up business in competition if Orica did not leave the Bronson & Jacobs business alone was corroborated by Mr Bruno Ianniello. Ianniello was employed at Bronson & Jacobs as a shipping manager and became the customer services team leader for Bronson & Jacobs’ food division after Orica acquired Bronson & Jacobs. He deposed that in May 2004, he asked McCartney whether they would be losing their jobs when Orica took over. McCartney replied “Bruno, don’t worry. If Orica does not do things my way, I will go out there and fuck them up.” McCartney denied this conversation. Ianniello was not shaken in cross-examination. I was favourably impressed with his evidence and I accept him as a truthful and reliable witness.

51 Ms Susan Rennie was employed by Bronson & Jacobs in Purchasing, Internal Sales and Operations, and from about November 2004, as a customer service representative. She was a friend of Lynam. She gave evidence that from the time of the acquisition, McCartney, Love, Petros, Nguyen and Lynam often went out to coffee together during work time. They were known in the office at the time as the “Fab 5”. Lynam told Rennie in April or May 2004 that “We’re going to give it six months, and then we’ll go out on our own. Bill’s going to start something with Graeme, Michael and Nguyet.” In December 2004, Lynam told her that “Bill & Graeme are going to start a business and I am going too.” This was said in the company of a Ms Lawler. Lawler asked “What about Sue?” (referring to Rennie). Lynam replied “Maybe in six months. We can’t take anyone else on board right now.” Later in December 2004, Lynam told Rennie that she needed to come up with $70,000 “to go into the business with Graeme and Bill.” In late January 2005, Lynam told her that “Graeme and I are looking for premises to rent for the new business.” She told Rennie that Michael (Petros) and Nguyet (Nguyen) would be working there. Shortly before Lynam went to work at Ingredients Plus, Rennie asked her whether she was not worried about losing her wages and entitlements if she went to work for the new company. Lynam told her “No. Bill’s guaranteeing our wages. I will be getting the same salary as I got at B & J.”

52 Lynam denied this evidence. However, I have no hesitation in preferring Rennie’s evidence to Lynam’s. I was favourably impressed by Rennie. She appeared to be honest, and to have a good recollection of events. She was not prepared to go beyond what she actually remembered. She was willing to make concessions. In cross-examination, she accepted that she regarded Lynam as an honest person. From that concession, she was led to admit that if Lynam disputed the accuracy of her evidence, there was a possibility that her evidence was mistaken. Whilst she admitted that possibility, she was confident nonetheless that her recollection was correct. To my mind, her acceptance of the possibility of error made her testimony more credible, not less.

53 I admitted Rennie’s evidence of the statements made to her by Lynam against all defendants. It was evidence of a common plan involving McCartney, Graeme Love and her to establish a new business in competition with Bronson & Jacobs. There is reasonable evidence of such a plan in the affidavit of Monahan, independent of the evidence of Lynam, and which is corroborated by other materials referred to below. Lynam’s words were evidence to establish the common purpose of Graeme Love, McCartney and her, and in that respect, are original evidence and not hearsay (Evidence Act 1995 (NSW) s 57(2); Ahern v R (1998) 165 CLR 87 at 93). I was also satisfied that there was a reasonable basis for finding that Lynam’s conversations with Rennie were part of a furtherance of that plan. Rennie was another person in the organisation who, if dissatisfied with working under Orica’s ownership, might be expected to leave. Lynam said that Rennie might be asked to be involved in the new business in six months from December 2004. I concluded that it was reasonably open to find that the statements made by Lynam were made by her in furtherance of a common purpose which she had with Love and McCartney and the evidence could be taken to be an admission made on their authority (Evidence Act s 87(1)(c) and (2)(a); Ahern v R at 95-100).

54 Having said that, there is no other evidence that McCartney had “guaranteed” the wages of those employed by Ingredients Plus, and I am not satisfied that he gave any such guarantee. There is evidence that he provided the initial finance from which wages were paid.

Exchange of Private Email Addresses

55 There is also corroboration of Monahan’s evidence from an event of 2 December 2004. At that time, all of McCartney, Love, Petros, Nguyen and Lynam were dissatisfied with Orica’s management. On that day, Graeme Love sent an email to the others notifying them of his private email address. He asked for the private email addresses of each of the others and offered to set up a private email address for them if they did not have one already. On the same day, McCartney sent his private email address to Graeme Love, Petros, Nguyen and Lynam. Petros sent Graeme Love his private email address.

56 Unless there is a credible reason for the circulation of the private email addresses between the five individuals concerned, these actions corroborate the thrust of Monahan’s evidence as to what had been planned.

57 McCartney gave three reasons for the establishment of the private email account (affidavit 22 July 2005, paragraph 39). The first was that he was receiving emails from the previous majority owners of the Bronson & Jacobs business concerning a dispute with Orica over the value of Bronson & Jacobs assets which he did not think appropriate to continue to receive at his work email address. That does not explain why Love would send an email to the four persons involved proposing the establishment of private email accounts and the sharing of private email addresses.

58 The second reason McCartney advanced was that he did not wish any emails to be sent to him concerning his interests in Creative Brands Australia Pty Ltd to his email address with Bronson & Jacobs. (McCartney is the major shareholder in Creative Brands. It distributes sunscreen products, perfumes, nail polish and like products to retailers.) Again, that is not a reason for Graeme Love to have written to all four of the persons involved. Nguyen, Petros and Lynam had no connection with Creative Brands.

59 The third reason McCartney advanced was that he did not wish any emails to be sent to him at his Bronson & Jacobs email address concerning his other business interests. Again, that is not a reason for Love to have communicated with all four persons in relation to the establishment of private email addresses and the sharing of that information. The “other business interests” to which McCartney referred did not involve Lynam or Nguyen (T123.20).

60 Graeme Love was asked in cross-examination why he made the request of 2 December 2004 that Nguyen, Petros, McCartney and Lynam send him their private email addresses if they had them and offered otherwise to create such addresses for them. He said that the reason he sent the email was “because I had recently gone onto Hotmail at the time and created a new email address for myself … and was quite surprised how easy it was at no expense to set up an email address which I had never done before.”

61 That answer did not explain why he invited the other four individuals to send their private email addresses to him, as distinct from using their existing email addresses at Bronson & Jacobs. He later said that “I probably wanted to continue communication with these people … after I left Bronson & Jacobs”. Again, that does not explain why he would not wish to communicate with the other individuals at their existing email addresses rather than using their private email addresses. He denied that he wanted to speak to them in the future about Ingredients Plus, but there is no satisfactory alternative explanation.

62 Lynam gave the following evidence:

“ His Honour

Q: Did you ask him why he was asking whether you had a private email address and to send it to him?

A: I probably didn’t think a lot of it. Graeme and I have been friends for a long time and I thought maybe if he was leaving the business he wanted to have our private emails. I really can’t see any explanation for it and I probably didn’t think anything of it. For private friendships and things like that I would easily give my home email address to a friend if they were leaving the company. ”

63 I do not accept this explanation. As at 2 December 2004, Lynam had not learnt that Graeme Love was to be made redundant. McCartney, Petros and Nguyen were all working at Bronson & Jacobs.

64 Petros gave no evidence as to why he understood Graeme Love had asked for his private email address or why he provided it. He was not cross-examined about it.

65 In the absence of a credible alternative explanation, Graeme Love’s request for the other four individuals’ private email addresses and his offer to create such private email addresses if they did not already have them, corroborates Monahan’s evidence of McCartney’s expressing his intention to assist Graeme Love, Nguyen and Petros to set up a competitive business if Orica did not honour their representations that Bronson & Jacobs’ business would continue as usual. There is no doubt that by this time, McCartney believed and asserted that Orica had not honoured that representation.

66 Because the thrust of Monahan’s evidence is corroborated by the evidence of Ianniello and Rennie and by Graeme Love’s email of 2 December 2004, because he was not shaken in cross-examination, and because I do not accept the challenge to his credibility based upon the alleged failure of the plaintiffs to adduce evidence to corroborate his denial of recent invention, I accept his evidence, notwithstanding the denial of it by McCartney, Love and Petros and the denial by Nicols of having made the representation which Monahan attributed to McCartney. In reaching that conclusion, I also take into account my rejection (later in these reasons) of important parts of the evidence of McCartney, Love and Petros, which affects the credibility of their denial of Monahan’s evidence.

67 I conclude that by 2 December 2004, McCartney had made it known to Graeme Love, Petros, Nguyen and Lynam that he would support the establishment by them of a rival business.

Transfer of Mobile Phones

68 Bronson & Jacobs paid for four mobile phones used by McCartney and his family. McCartney had two mobile phones which he used in connection with Bronson & Jacobs’ business in dealing with customers and suppliers. They had their distinctive phone numbers. O’Connor gave evidence, on which he was not cross-examined, that in about December 2004 or January 2005, he asked McCartney to make arrangements to transfer his wife’s and daughter’s mobile phones. McCartney said he would do so. O’Connor did not indicate that the two phones used by McCartney in the Bronson & Jacobs business should be transferred. At the time of the conversation, McCartney was engaged as a consultant in the Bronson & Jacobs business.

69 McCartney said that he was asked in September or October 2004 by the then IT manager of Bronson & Jacobs, Mr Frost, to transfer all of his mobile phones from Bronson & Jacobs to himself. He deposed that he asked Graeme Love to do that for him. Graeme Love gave evidence that he filled out the appropriate forms at that time and sent them to Optus for the transfer of the four mobile phones from Bronson & Jacobs to McCartney. According to Graeme Love, Optus did not act on those forms. Those forms were not produced and there was no evidence to corroborate Graeme Love’s version of events. McCartney said that in a telephone conversation in December 2004, O’Connor told him that his mobile phones were still on the company account and being paid for by Bronson & Jacobs and that, as he was a contractor, they should be his responsibility. According to McCartney, he then contacted Graeme Love to enquire what had been done as Optus had not actioned the transfer. In January 2005, he met Graeme Love at the Optus store at Rhodes. According to McCartney and Love, Love had a copy of the original forms which, according to him, he had previously sent to Optus. The store assistant then filled in the new forms and all four phones were transferred into McCartney’s name. McCartney and Love signed the transfer forms on 31 January 2005. Love signed purportedly on behalf of Bronson & Jacobs. At that time, as McCartney knew, Graeme Love no longer held any position with Bronson & Jacobs. He had no authority to sign on Bronson & Jacobs’ behalf.

70 In March or April 2005, Graeme Love arranged for the transfer of the four mobile phones from McCartney’s name to Ingredients Plus. He did so to obtain a saving by having eight phones on the one account. McCartney reimbursed Ingredients Plus for the cost of the phones on Ingredients Plus’ account with Optus.

71 I accept O’Connor’s evidence that he only asked McCartney to transfer the mobile phones of his wife and daughter. The effect of the arrangements implemented by McCartney and Graeme Love was that suppliers or customers who had done business with McCartney using his mobile phone numbers were able to continue to reach him on the same telephone numbers. McCartney denied that this was the purpose of the arrangements. I do not accept that denial. The fact that Love signed documents purportedly on behalf of Bronson & Jacobs when he was no longer employed by Bronson & Jacobs, and both he and McCartney must have known that his authority had been revoked on the termination of his employment, shows that the transaction was not above board. It was done at a time McCartney was still engaged as a consultant to Bronson & Jacobs. Graeme Love had established Ingredients Plus. Their conduct evidences their having a common purpose that McCartney should retain his links with suppliers and customers, and with Graeme Love, without Bronson & Jacobs receiving the detailed records of telephone calls which appear on the statements of account for the mobile phones.

Enticement of Bronson & Jacobs’ Employees

72 There is no direct evidence of McCartney’s having suggested to any employee of Bronson & Jacobs that she or he resign and take up employment with Ingredients Plus.

73 However, I have accepted Monahan’s evidence that on a number of occasions prior to May 2004, McCartney told Graeme Love and Petros that he would support them in the establishment of a rival business. I have accepted that by 2 December 2004, McCartney had made this known also to Nguyen and Lynam. I conclude that this was a material cause of Lynam’s decision to resign and to take up employment with Ingredients Plus. She believed that McCartney could guarantee her wages.

74 The defendants did not read an affidavit sworn by Nguyen. It appears that she has now left Ingredients Plus’ employment. That is not a sufficient explanation for not calling her as a witness. In the light of the defendants’ failure to call her, I can readily draw the inference that she was encouraged by McCartney’s promise of support to Ingredients Plus to change her employment, although I also accept Petros’ evidence that she was dissatisfied with changes made by Orica.

75 Petros’ position is more difficult. He was upset that Monahan obtained the position of General Manager of Bronson & Jacobs. He was upset with the changes which Orica implemented. He deposed that at the time Graeme Love was made redundant, he was still looking to make a success of his position at Bronson & Jacobs, and had no plans to join him. He was upset by numerous complaints received from customers following the changes Orica implemented. This increased his workload. He deposed that he had to work long hours to fix the new problems and that a depressing atmosphere was created. He deposed that in about November or December 2004, he began to think of moving on.

76 Petros deposed that at that time, McCartney encouraged him to stay at Bronson & Jacobs, although he told McCartney he was no longer happy. He felt that Orica had placed him in an untenable position with one of his suppliers, Su Heung. He deposed that in January 2005 he was invited by Graeme Love to join Ingredients Plus, take up shares in the company and become a director of it.

77 Petros deposed that in early February 2005, he told McCartney he was thinking of leaving, but McCartney said “I don’t want to lose you. Hold in there and it will get better.”

78 Petros said that the catalyst for his leaving was that in mid-February 2005, his role at Bronson & Jacobs was changed to one of finding new products and markets rather than servicing his existing clients. He tendered his resignation on 15 March 2005 after a further run-in with McCann over the new Orica procedures.

79 This evidence was not challenged in cross-examination. It was not put to Petros that he was enticed to leave Bronson & Jacobs by anything done or said by McCartney.

80 I have concluded that Petros was aware that McCartney would provide financial support to Ingredients Plus. This must have been material to his decision to join Ingredients Plus. I have also accepted Rennie’s evidence that Lynam told her in December 2004 that she, Petros and Graeme Love would be starting a new business.

81 However, I would not be justified in rejecting Petros’ unchallenged evidence as to what prompted him to leave, or his unchallenged evidence that in about December 2004 and early February 2005, McCartney encouraged him to stay with Bronson & Jacobs whilst the difficult adjustment phase was working itself out.

82 It is possible to reconcile this evidence. Petros knew that McCartney would support Graeme Love. He had discussions with Graeme Love in December 2004 or January 2005 in which Graeme Love pressed him to join Ingredients Plus. Lynam was told that Petros would be joining Ingredients Plus, but not necessarily by Petros. Petros decided to leave Bronson & Jacobs because of his difficulties with the new Orica management. McCartney provided no further encouragement for him to do so, and asked him to stay to see if things got better. When Petros decided to leave, he joined Ingredients Plus because of his association with Nguyen and Graeme Love, but also, as I find, because he was aware that McCartney was providing financial backing.

Provision of Working Capital for Ingredients Plus

83 Ingredients Plus entered into a lease of premises at 8/9-11 South Street, Rydalmere. Graeme Love provided security of $104,000 for the lease. He paid that sum from his own funds, most of which came from his termination package from Orica. On 31 January 2005, Lynam started work for Ingredients Plus.

84 Graeme Love estimated that he needed $200,000 in working capital to generate $1,000,000 in initial sales. He gave evidence that he asked his father to lend him the money and his father arranged for Sanquhar to pay $200,000 to Ingredients Plus. According to both Graeme and Thomas Love, Graeme Love suggested that Thomas Love borrow the moneys from McCartney. McCartney and Thomas Love were friends.

85 Thomas Love and McCartney both gave evidence to the effect that Thomas Love did not tell McCartney why he wanted to borrow the money. McCartney said that some months previously, Thomas Love had told him that another son of his had got into difficulties by investing with a rogue property developer. McCartney said that he thought that that might have been why Thomas Love wanted the loan. However, he did not inquire about the purpose of the loan and Thomas Love did not volunteer the information. These discussions occurred in February 2005. McCartney said he was not concerned about the purposes of the loan or any risk to him in making the loan because Thomas Love was an old friend of his and he knew him to be independently wealthy. According to both Thomas Love and McCartney they agreed that the loan would be at interest of 10% per annum. McCartney said that it was agreed that the term of the loan would be two years. The agreement was not documented.

86 In his affidavit, Thomas Love swore:

“ I would add that I could have easily arranged this $200,000 from other sources. For one thing, I could have sold shares. I annex and mark ‘B’ a copy of the shares that Sanquhar owns, which were worth about $400,000 as at 30 June 2005. Some of these shares have been held since prior to 1985, and so are CGT exempt. For that reason I did not want to sell them. I could have mortgaged any of my properties, including the Terrigal house which as I have said is unencumbered and worth about $3,000,000. But the simple fact was, Bill’s money was a phone call away with no paperwork involved. No application forms, no waiting for any credit department to assess credit issues, just an immediate cheque. That was the reason I borrowed from him, not because he is the secret owner of Ingredients Plus, as Orica alleges in these proceedings. ”

87 Earlier, he had deposed that the timing of Graeme Love’s requirement for working capital was not the best. He said:

“ In January 2004, I had bought another property at … Roseville for $1.15 million. I borrowed about $900,000 and used cash on hand of about $300,000. So I did not have $200,000 to just write out a cheque which I would have done had I not made this purchase. ”

88 According to Thomas Love and McCartney, Thomas Love borrowed a second amount of $200,000 from McCartney in April 2005. Again, according to them both, McCartney did not ask the purpose of that loan and Thomas Love did not say what the money was for. Thomas Love deposed that he told McCartney “Bill, I need to borrow $200,000.” In oral evidence, he said that was the fact. The second payment of $200,000 was on-lent to Ingredients Plus.

89 The problem with Thomas Love’s evidence is that he did not need to borrow money from McCartney to make either of the loans to Ingredients Plus. Nor did he need to sell shares, or grant mortgages over real property, or apply to a credit department at a bank, or fill out any paperwork to draw the cheque.

90 On 15 February 2005, $200,000 was withdrawn from Rawlo International’s account (TB 3864). The withdrawal was made by a cheque dated 14 February 2005, signed by McCartney and drawn in favour of Sanquhar Investments (TB 771). Those funds were deposited to the account of Sanquhar Investments with Westpac on 15 February 2005 (TB 773). On that day, Thomas Love drew a cheque on Sanquhar Investments in favour of Ingredients Plus for $200,000. Those moneys were deposited to Ingredients Plus’ account on 17 February 2005 (TB 772; 3981).

91 Thomas Love had an account in his own name with the ANZ Bank called an Interest Saver Account. He described this account as an offset account. As a result of a deposit made to that account on 17 February 2005, that account was in credit as at that date in an amount of $365,295.12. It remained in credit in amounts over $300,000 up to 15 April. As a result of a further deposit of $177,911.15 on 15 April, it was in credit in amounts over $475,000 up to the end of April. It then remained in credit in amounts over $400,000 until 20 June 2005 when the credit balance was reduced to $224,000 by a payment of $200,000 made by Thomas Love to Ingredients Plus on that day.

92 The deposit of $300,000 on 17 February 2005 was a repayment of funds advanced by Thomas Love to assist his son-in-law’s mother, a Mrs Walker, in a property development. Although he said he did not recall it, he accepted that he would have known in advance of 17 February that those funds were going to be received (T376.40; 374.52). On the clearance of those funds, he had cash resources of $200,000 to advance to Ingredients Plus simply by drawing a cheque. Likewise, he had cash resources at the time of the second advance on 19 April 2005 from which to lend $200,000 to Ingredients Plus simply by drawing a cheque. He did not need to borrow moneys at 10% interest from McCartney to make the loans. I do not accept his explanation as to why he borrowed the moneys from McCartney.

93 Under cross-examination, Thomas Love initially asserted that he was keeping the cash for some other purpose, although he could not recall what it was (T377.50-57). He then said that, because the account was an offset account, “Whatever credit there was in these funds wasn’t money which was available to me. It was just an offset against the $900,000 I borrowed from the bank to purchase the unit.” (T378). I had the distinct impression that Thomas Love was searching around for a credible explanation having realised that the explanation given in his affidavit had been shown to be untrue. However, this further explanation he gave in cross-examination was not true. He acknowledged that he was free to withdraw the funds in which he was in credit with the ANZ bank, and that he regularly did so. He could just as readily have drawn the moneys down from his interest saver account with the ANZ to lend to Ingredients Plus as borrow those moneys from McCartney. He did exactly that on 20 June 2005. He acknowledged that the interest rate of 10%, to which he said he had agreed with McCartney, was higher than the rate trading banks would charge (T369.47). There is no plausible explanation as to why he would borrow funds at a higher rate of interest from McCartney than by drawing down from his interest saver account with the ANZ.

94 Thomas Love justified the borrowing on the ground that Sanquhar Investments would oncharge interest to Ingredients Plus at the same rate as the rate at which he was borrowing from McCartney. Ingredients Plus has not paid interest on the loans to it from Sanquhar Investments. But if it were the fact that Sanquhar Investments was to charge interest on a loan made by it to Ingredients Plus, that does not explain why Thomas Love would borrow the money at 10% interest from McCartney and Sanquhar Investments charge that amount to Ingredients Plus, rather than Thomas Love borrowing the moneys at a lower rate by drawing down on his credit balance with the ANZ and Sanquhar Investments charging a lower rate to Ingredients Plus.

95 A difficulty with Thomas Love’s and McCartney’s evidence that Thomas Love borrowed two amounts of $200,000 from McCartney at 10% interest was that neither the interest nor the principal has been paid or repaid. That is so notwithstanding that, according to McCartney, the loan was due to be repaid after two years. Hence the first instalment of $200,000 was due to be repaid by 17 February 2007. McCartney’s explanation for this was that he understood that the effect of legal advice he obtained was that he should not accept any such payment or repayment because of undertakings which he gave in July 2005. I do not accept that evidence. McCartney did not give undertakings which would have precluded his accepting repayment of a loan from Thomas Love or Sanquhar Investments. He tendered legal advice which he received in August 2005. Nothing in that legal advice was to the effect that he should not accept payment of interest or repayment of principal. Rather, it was in terms that “We would strongly advise that you do not provide any funding to Ingredients Plus, whether directly or indirectly, including by providing funding or loans to a third party (such as Thomas or Graeme Love) who may direct those funds for the benefit of Ingredients Plus.” I do not accept that McCartney understood that that was advice that he should not accept repayment of loans he had made to Thomas Love or Sanquhar Investments.

96 Thomas Love gave evidence that he offered to pay interest. He said:

“ I remember discussing with (McCartney) towards the end of the financial year 2005 whether I should pay the interest and suggested to him that, if I drew the cheque and sent it on 29 December (sic) he would probably receive it about 2 February (sic) and that would give a deduction in one year on the tax payable in the next. He indicated to me that he had had legal advice that there was to be – that there should not be any further activity in respect of this $200,000 or a further $200,000, which made a total of $400,000, and, on the basis of that advice which he had received, he would prefer not to have the interest paid at that stage. ”

97 I consider that this evidence was detail Thomas Love provided to add verisimilitude to his evidence that he had borrowed the moneys at interest from McCartney. The evidence quickly got him into trouble. Initially, he accepted that because a financial year for tax purposes ends on 30 June, the conversation he had with McCartney must have occurred before 30 June 2005. The problem with that explanation was that Orica’s proceedings were not commenced until July 2005 and McCartney had no legal advice about the subject before 30 June 2005. After a luncheon adjournment, Thomas Love corrected his earlier evidence and said that the conversation must have occurred at some time before 30 June 2006. He was asked why he did not pay interest to McCartney in 2005 to get the tax advantage he proposed. He then said, contrary to his earlier evidence, that the interest was not to be paid until the principal was repaid. If that were so, there was no reason why he would have raised the question of paying interest at the end of either the 2005 or the 2006 financial years. This evidence only further diminished Thomas Love’s credibility.

98 The fact that no interest has been paid on the alleged loans and that the alleged loans have not been repaid, together with the inherent implausibility that the loans would have been made at all when there was no occasion for Thomas Love to borrow, together with the inherent implausibility of the loans being made without any discussion as to their purpose, leads me to reject the evidence of both Thomas Love and McCartney.

99 McCartney’s evidence on the topic was also inconsistent with his dealings with another loan to Graeme Love. It was common ground that on 21 June 2005, he lent $200,000 to Graeme Love which Graeme Love advanced to Ingredients Plus, and that Graeme Love repaid that loan on 24 August 2005. The fact that the loan to Graeme Love was repaid, notwithstanding the commencement of proceedings on 8 July 2005, is inconsistent with McCartney’s evidence that the reason his alleged loans to Thomas Love were not repaid was because of the pendency of the proceedings, or the undertakings which he gave in the proceedings, or the advice which he received about those undertakings.

100 It was suggested in final submissions that there was no such inconsistency because it was not until a statement of claim was filed on 6 September 2005, after the repayment of the loan, that the loans were the subject of attack. But that is not so. On or about 29 July 2005, Messrs Deacons, McCartney’s solicitors, forwarded to McCartney a facsimile from Malleson Stephen Jaques, in which that firm said “We refer to the undertaking given to the Court by Mr McCartney on 27 July 2005. We hereby put Mr McCartney on notice that our clients regard any future funding of Ingredients Plus Pty Ltd by Mr McCartney or any entity controlled by him, whether directly or indirectly through third parties to be a breach of his undertaking to the Court.” The undertaking given by McCartney to the Court on 27 July 2005 was given in the same terms as the covenant in his Share Sale Agreement. Deacons advised that whilst they did not necessarily agree with Malleson’s interpretation of the scope of the undertaking, they were of the view that any response that no specific undertaking about providing funding was proffered might provoke a further application to the Court. Nonetheless, they strongly advised against his providing any funding to Ingredients Plus in terms set out above in these reasons in paragraph [95].

101 Hence, McCartney’s acceptance of the repayment of the principal of Graeme Love’s loan could not have been because at the time it was repaid, the plaintiffs had not attacked the propriety of McCartney making such loans. Nor did McCartney say that that was the reason he accepted the repayment. He said the reason he told Thomas Love not to repay the loans made to Thomas Love was because of the legal advice he received. That evidence was not credible. His acceptance of repayment of the loan to Graeme Love was inconsistent with his having read Deacons’ advice in that way.

102 I do not accept the two payments of $200,000 made by Rawlo International on McCartney’s direction on 17 February and 19 April 2005 were made as loans to Sanquhar Investments (as McCartney deposed), or were loans to Thomas Love, as Thomas Love deposed. Rather, Sanquhar Investments was a conduit to disguise the fact that those funds were provided to Ingredients Plus by McCartney’s company.

103 The mobile phone records for McCartney and Graeme Love show that between 15 and 17 February 2005, McCartney called Love on ten occasions and Love called McCartney on eight occasions. Neither Graeme Love nor McCartney accepted that in any of the calls did they discuss Ingredients Plus or its business. Graeme Love denied even thanking McCartney for providing an advance to his father which provided Ingredients Plus’ initial working capital. I find this quite implausible. Whilst a rejection of their evidence in this respect does not prove the opposite, I can infer from the objective circumstances that they did discuss Ingredients Plus’ requirements for working capital. That arises from the fact that McCartney had previously said that he would provide such finance, from the fact that he did so, and the fact that he did so indirectly through Thomas Love.

104 My conclusion that McCartney provided working capital to Ingredients Plus is also corroborated by email correspondence from Graeme Love to a Mr Cho of Su-Heung and “blind copied” to McCartney. I deal with this evidence below at paragraphs [134]-[162].

105 In May 2005, Graeme Love was actively seeking further investors for Ingredients Plus from third parties.

$200,000 Payment of 3 May 2005

106 Clos d’Aguzon appointed Ingredients Plus as its exclusive distributor for essential oils and aromatic raw materials in Australia and New Zealand on 7 March 2005.

107 Shortly before 2 May 2005, Graeme Love wrote to Bontoux. He said:

“ Just wanted to make you aware we are arranging payment for several outstanding invoices. The invoices were due today, however, the funds are coming out of a term deposit that matures on Monday 2 May. We were planning to transfer funds on Tuesday 3 May, and hope that this does not cause you any problem! We greatly appreciate the 60-day terms and will ensure all future payments are made when they fall due. ”

108 In fact Ingredients Plus did not have funds on term deposit needed to pay the outstanding invoice to Clos d’Aguzon.

109 The email went on to outline an investment proposal for the setting up of an Ingredients Plus in Hong Kong and Indonesia. Bontoux was invited to consider providing an interest-free loan of $250,000 for two years to acquire a 10% share in the business. Although McCartney was not shown as an addressee of the email, the email was forwarded (that is, “blind copied”) to him. Ingredients Plus owed Clos d’Aguzon US$155,575.05.

110 On 3 May 2005, McCartney gave instructions for the Australian dollar equivalent (A$199,910.11) to be paid by Rawlo International to Clos d’Aguzon.

111 According to McCartney, in March 2005, Graeme Love told him that he was short of funds until he could sell his house. McCartney indicated that he was interested in buying some of Graeme Love’s shares in LEAP. He gave evidence that after a meeting with a Mr Christian Beck in late April 2005, “I organised to purchase $200,000 worth of LEAP shares from Mr Love, and Mr Beck said he would arrange the necessary share transfers. At Mr Love’s request I transferred the $200,000 consideration for those shares to an account nominated by him.”

112 There was no documentation of the alleged agreement to buy $200,000 worth of LEAP shares from Graeme Love at that time. The account nominated by Graeme Love was the account of Clos d’Aguzon.

113 McCartney implausibly denied having any conversation with Graeme Love in late April or early May 2005 about the purpose of the payment of $200,000 made by Rawlo International to Clos d’Aguzon (T170.53). However, as he had received a copy of the email from Graeme Love referred to above, it is plain that he must have known that the payment was made to meet a debt owed by Ingredients Plus to Clos d’Aguzon.

114 That is not necessarily inconsistent with the payment being consideration for the transfer of shares by Graeme Love to him, with Graeme Love directing the payment to Clos d’Aguzon. If that were the arrangement at the time, one would expect that the accounting records of Ingredients Plus would show Graeme Love as a creditor of Ingredients Plus for the $200,000 which Graeme Love would have advanced to Ingredients Plus in that way. No documents were tendered by the defendants to show how Ingredients Plus accounted for the payment.

115 McCartney was unable to give any plausible explanation as to why Graeme Love sent the email addressed to Bontoux to him. McCartney surmised that Graeme Love might have been trying to show McCartney how good he was, but he could not say how the email demonstrated that. This evidence was implausible.

116 The “LEAP shares” were sixty shares held by Graeme Love in companies called LEAP Development Pty Ltd and LEAP Disbursement Management Pty Ltd. Beck deposed in his affidavit that in or around May 2005, Graeme Love attended the Roseville RSL Club and told him that cashflow was a pain when starting a business. According to Beck, he advised Graeme Love to try to sell $200,000 worth of his shares to McCartney and still keep some of his interest in LEAP. According to Beck, “sometime after our meeting at the Roseville RSL Club” he was contacted by Love who had informed him that he had arranged to sell some of his shares in the LEAP Group to McCartney. He deposed that “I subsequently contacted the external accountant to the LEAP Group to arrange the share transfer documentation for Mr McCartney and Graeme Love. On 25 June 2005, Mr McCartney completed the purchase of sixty shares in the LEAP Group from Graeme Love.”

117 In oral evidence, Beck swore that his conversation with Graeme Love at the Roseville RSL Club occurred at least a week before a lunch he attened with Love and McCartney on 12 May 2005, but couldn’t say how much longer.

118 The documentation for the transfer of shares was prepared by Beck’s accountant. The accountant was not called. Share transfer forms were prepared which bore a typed date of 25 June 2005. They provided for the transfer of sixty shares in each of LEAP Development Pty Ltd and LEAP Disbursement Management Pty Ltd from Graeme Love to Rawlo International. They were both signed by Graeme Love and McCartney and a handwritten date of 25 July 2005 was inserted on the forms. New share certificates were issued for Rawlo International Pty Ltd for sixty shares in each of the companies. The share certificates were dated 25 June 2005.

119 These proceedings were commenced on 8 July 2005.

120 On 19 July 2005, LEAP Developments and LEAP Disbursement Management lodged forms with ASIC giving details of the change to the register of members. The forms were certified by Mr Beck. He notified that the register of members had been changed by reducing Graeme Love’s shareholding and increasing Rawlo International’s shareholding by sixty. The form recorded the date 25 June 2005 as the “earliest date of change”.

121 Mr Beck was asked in chief about the typewritten date of 25 June 2005 on the share transfer forms and the handwritten date of 25 July 2005 on the forms. He said (T343):

“ I am pretty sure – what sort of happened was – it always takes a while to get these transfers done, … it took me a bit of a while to get organised. When I took it to the accountant to be done – to be honest, the issue is, when I put the date in the past, when it did happen, ASIC fined you for kind of if it is over a month later after you – if you lodge the form over a month later, you get a fine. So I think the accountant suggested that we put that 25th of the sixth, we had it in the correct financial year, but it was still fast enough to get it lodged before the fine applied. ”

122 I take it from that evidence that the share transfer form was not prepared until July 2005. He later said:

“I would have just gone to the accountant and said ‘ We need a transfer done here ’. He would have said ‘ What date? ’ I would have said ‘ Well, it was done in April/May ’, and he would have said ‘ Well, if you do that, it’s a bit late now. If you do that there will be a fine ’, and I think he said ‘ What about if we just put the 25th of the sixth, the same financial year? ’, so I would have just said ‘Y eah, OK ’.”

123 This is a most implausible explanation for this backdating. The form required to be lodged with ASIC was a form notifying changes to the members’ register, that is, changes to the shareholding in the companies. If, as at early July, as Beck, Love and McCartney claimed, Graeme Love had agreed to sell his shares in the two LEAP companies to McCartney and had received payment of the $200,000, there was no need to backdate any document in order to avoid fines from ASIC. At that stage, there had been no change of shareholders. Nothing had to be lodged with ASIC to record a change in beneficial ownership of the shares.

124 Beck said that he understood that there was a period of one month available in which to lodge the appropriate form with ASIC recording the change in shareholding. When asked from when he understood that period of one month started to run, he said “Well, what I understood it to be was that there was a date, and I’m not really sure what that date is supposed to be to be honest, but there’s a date on the transfer form and then that’s supposed to be lodged within a month of that date.” He said, implausibly, that he understood that the share transfer form had to be lodged with ASIC. Even if Beck had the understanding which he deposed to, namely, that he had to lodge the share transfer form with ASIC within a month of its being signed, that was no reason for him to backdate the documents. The share transfer forms were not signed until July and he was well within that one-month period.

125 Eventually, he conceded that his evidence in his affidavit that McCartney completed the purchase of sixty shares in LEAP on 25 June 2005 was wrong. It was palpably wrong. Nothing happened on 25 June 2005. One naturally asks why, if there were an agreement to buy and sell shares for $200,000 entered into in April or very early May 2005, and the consideration for that transfer was paid on 3 May 2005, no share transfer was prepared or executed at the same time? One asks why duty was not paid on the transaction at that time and why steps were not then taken to have the share transfers registered. In the absence of corroboration, I would not accept Beck’s evidence. There was no corroboration that he instructed his accountant in about May 2005 to prepare the necessary documentation.

126 I think it more probable that no agreement was made as at 3 May 2005 for Love to sell his shares in the LEAP companies to McCartney. Instead, once proceedings were commenced on 8 July 2005, Love and McCartney sought to document arrangements that would justify the $200,000 payment of 3 May 2005. Beck sought to say (at T354) that the share transfer was completed in late April or early May 2005, even before any share transfer was prepared or signed or share certificate issued. I do not accept that evidence.

127 On 13, 16 and 17 July 2005, Love made a number of calls to Beck on his mobile phone. On 19 July 2005, Beck sent a letter by fax to McCartney stating:

“The original purchase of shares was around April 2004. Let me know if you need an exact signing date.

You currently own 13.85% of both companies as per the attached statement.

I have also included share certificates covering the shares you purchased from Graeme on 25 June and also the previous transfers on 7 June.”

128 He then asked for cheques to pay stamp duty and enclosed a schedule setting out the share holdings in the respective companies (which were the same for each). The document included the following:

“Agreed company value $5,200,000

Value per share $3,333.33

Number of shares sold 60

Price for shares transferred $200,000”

129 This document was prepared on the same day as the forms were lodged with ASIC.

130 The first paragraph of the letter is nonsense. There was no “signing date” in around April 2004. If Beck meant there was an original agreement to purchase the shares in around April 2004, there could have been no need for “an exact signing date” as that agreement would have been made orally.

131 The third paragraph of the letter stating that “I have also included share certificates covering the shares you purchased from Graeme on 25 June” was false, as Beck acknowledged that nothing happened on 25 June 2005.

132 It was not put to Beck, McCartney or Love that this correspondence was an attempt to create a paper trail to provide evidence of an agreement made in April, and I do not so find. Nonetheless, I do not regard the letter as corroborative of the evidence of McCartney, Love or Beck on this issue.

299 I have found that McCartney did not seek to entice Yang to transfer the Su-Heung distributorship. Su-Heung was motivated to transfer the distributorship for two reasons: that Bronson & Jacobs acted for a competitive supplier in New Zealand and that it had lost key management staff. The key person was Petros. I have not found that McCartney enticed Petros away from Bronson & Jacobs in breach of clause 15.1(b)(iii). But for McCartney’s provision of working capital, and his expressed willingness to support Ingredients Plus, Ingredients Plus would not have been established. But that was not a breach of clause 15.1(a). The breaches I have found of clause 15.1(a) did not cause the loss of the Su-Heung distributorship.

300 For reasons which appear below, the initial funding and the enticement of employees was a breach of the Consultancy Agreement. However, Bronson & Jacobs is not a party to the Consultancy Agreement and cannot recover damages for its breach. In any event, the provision of the first $200,000 of working capital to Ingredients Plus was not causative of the loss of the Su-Heung distributorship. It could not even be said that, but for that breach, Ingredients Plus would not have been established. It would have been established by the provision of working capital after the termination of the Consultancy Agreement on 26 February 2005. McCartney’s later funding of Ingredients Plus was not a breach of either agreement.

Breach of Consultancy Agreement

301 The only parties to the Consultancy Agreement were McCartney and Orica Australia. The plaintiffs did not claim that Orica Australia suffered any loss as a result of breach of the Consultancy Agreement. It was not submitted that Bronson & Jacobs could recover damages for any loss suffered by it as a result of a breach by McCartney of the Consultancy Agreement.

302 The plaintiffs allege that McCartney breached the Consultancy Agreement by failing to co-operate with Orica Australia in order to give it the benefit of the Consultancy Agreement, and by failing to comply with his obligation of good faith implied under the Consultancy Agreement.

303 There was no issue that such terms are implied in the Consultancy Agreement. I accept that by directly or indirectly enticing employees of Bronson & Jacobs to leave their employment to take up employment with Ingredients Plus, and by providing working capital to Ingredients Plus for it to establish itself in business in competition with Bronson & Jacobs, McCartney was in fundamental breach of those terms. McCartney’s duty was to provide assistance as requested in the integration of Bronson & Jacobs within the large Orica organisation and to help its development in Asia. It is too plain for explication that helping to establish a competitor was inimical to the performance in good faith of such a duty. Orica Australia is entitled to nominal damages for breach of the Consultancy Agreement.

304 Orica Australia was entitled to terminate the Consultancy Agreement and on doing so was discharged from further obligations under it. McCartney was not entitled to insist on further performance and is not entitled to any damages for loss of opportunity to obtain a bonus.

305 In any event, the term that Orica would pay McCartney a “bonus of up to 40% of base consulting fee, based partly on business performance and partly on achievement of personal objectives to be agreed with Graham Bird by July 31 2004” was too uncertain to be enforceable (Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 135-137 per Kirby P, 156 per McHugh JA).

306 There was no evidence that either Bird or McCartney sought to agree upon the criteria of “business performance” and “personal objectives” against which entitlement to a bonus would be measured.

307 Accordingly, on all of these grounds, McCartney’s claim for damages for the loss of the opportunity to obtain a bonus fails.

Claim for Breach of Fiduciary Duty

308 McCartney ceased to be a director and employee of Bronson & Jacobs on 31 May 2004. He was engaged by Orica Australia as a consultant to Bronson & Jacobs until 25 February 2005. There is no doubt that up to 31 May 2004, he owed fiduciary duties as a senior employee and director to Bronson & Jacobs.

309 Although statements were made by McCartney to Monahan, Graeme Love and Petros before 31 May 2004 of his intention to assist others to set up business in competition with Orica if Orica did not honour its representations as to how the takeover would be implemented, the plaintiffs did not submit that there had been any breaches of McCartney’s obligations as a fiduciary prior to his ceasing to be an employee and director of Bronson & Jacobs. At that time, McCartney was hopeful that the transition under Orica’s management would be handled successfully and appropriately.

310 The plaintiffs contended that McCartney remained a fiduciary of Bronson & Jacobs until 25 February 2005 by reason of his engagement as a consultant. He was engaged by Orica Australia to provide the “consultancy services” described in clause 1, namely:

“ Consulting services to Orica Chemnet in connection with the conduct of the Bronson & Jacobs Business proposed to be acquired by Orica, including:

· Assistance with the integration of commercial operations immediately following the acquisition of the Bronson & Jacobs Business by Orica Chemnet,

· Development of Bronson and Jacobs’ business in all of its Asian operations, and

· Longer-term integration of Orica’s broader food and fine chemicals business into Bronson and Jacobs.”

311 In the clause quoted above, “Orica Chemnet” was the business name of Orica Australia and “Orica” was Orica Australia.

312 The Consultancy Agreement assumed that a “Bill McCartney company” would be engaged as the “consultant”. Instead, McCartney signed the Consultancy Agreement personally. It is common ground that he was engaged personally as a consultant to Orica Australia. Clause 3(c) provided that he was to provide the consultancy services quoted above in accordance with all instructions issued by Bird or any person nominated by the Orica board.

313 There is no standard relationship of consultant and recipient of consulting services about which it can be said that the former is a fiduciary of the latter. Whether Bronson & Jacobs and McCartney stood in the relationship of principal and fiduciary between 31 May 2004 and 25 February 2005 depends both on the terms of the Consultancy Agreement, and on the particular work McCartney was given to do pursuant to the Consultancy Agreement.

314 The fact that the parties decided to terminate the relationship of employer and employee, with all the reciprocal rights and obligations, including fiduciary obligations, which that relationship imports, is highly significant. Mr Higgs SC submitted that following the termination of McCartney’s employment and his resignation from the office of director, McCartney’s rights against and duties to the plaintiffs were wholly governed by contract, unless and until McCartney was given particular work to perform pursuant to the Consultancy Agreement which imposed a fiduciary obligation on him. I agree with that submission.

315 In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Mason J said (at 96-97):

“The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf Phipps v Boardman [1967] 2 AC 46 at 127), viz, trustee and beneficary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions ‘for’, ‘on behalf of’ and ‘in the interests of’ signify that the fiduciary acts in a ‘representative’ character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.
...
That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all-important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. “

316 If, after Orica’s acquisition, Bird had given instructions to McCartney to deal with suppliers or customers, for example, by seeking to cement their continued loyalty to Bronson & Jacobs, and McCartney had then dealt with suppliers on behalf of Bronson & Jacobs and Bronson & Jacobs was vulnerable to his abusing his position, he would have owed fiduciary obligations to Bronson & Jacobs in respect of such dealings. However, that was not the position. There was no evidence of Orica’s instructing him to do anything as consultant. He complained that he had nothing to do, and that he was sidelined. Mr Jackman SC, who appeared with Mr Stoljar for the plaintiffs, fairly acknowledged that whether or not a fiduciary relationship existed turned on the terms of the Consultancy Agreement rather than on any instructions McCartney was given, or any work he did, pursuant to the Consultancy Agreement.

317 As the relationship between the parties was not within an established class of relationships which gives rise to a fiduciary duty, such as the relationship between employer and employee, or principal and agent, it is by no means obvious that the relationship between the parties was anything other than a contractual one. McCartney was required to keep himself available to be able to perform such services falling within clause 1 of the Consultancy Agreement as he might be instructed to undertake. For him to seek to advance his own interests by taking a shareholding in a competitor, or to advance the interests of Ingredients Plus, was a repudiation of the contract which would have entitled Orica immediately to terminate it if it had known the facts. By so doing, McCartney disabled himself from future faithful performance of the contract.

318 It does not follow, however, that because as a consultant he owed a contractual duty to act faithfully towards Bronson & Jacobs, there was a fiduciary relationship between them, cognisable in equity and extending beyond their contractual relationship. Rather, Orica Australia and McCartney negotiated commercial agreements to regulate the restraints to which McCartney would be subject after the completion of the purchase of his shares. Of course, a fiduciary relationship can co-exist with a contractual relationship, however courts are generally reluctant to find that fiduciary duties exist where the relationship between the parties is of a purely commercial kind and regulated by contract (Hospital Products Ltd v United States Surgical Corporation Ltd at 70, 118-119, 147, 149). The relationship of consultant and principal was a relationship between McCartney and Orica Australia, not between McCartney and Bronson & Jacobs. Whilst the performance of tasks under the Consultancy Agreement for or on behalf of Bronson & Jacobs could have given rise to fiduciary duties owed to Bronson & Jacobs, particularly if in the performance of those tasks Bronson & Jacobs had been vulnerable to McCartney’s acting in his own interest, his mere engagement as a consultant on the terms of the Consultancy Agreement did not.

319 The plaintiffs submitted that a fiduciary relationship existed between Bronson & Jacobs and McCartney after 31 May 2004 because he was in possession of its confidential information. The only such information which has been proved to have been in McCartney’s possession (as distinct from Ingredients Plus’ possession) was the contact details of suppliers or customers. Any fiduciary duty he owed arising from his possession of such information did not extend beyond the duty to respect the confidence. His possession of such information did not make his dealings with Ingredients Plus and his actions on behalf of Ingredients Plus a breach of fiduciary duty.

Remedies Against McCartney

320 I conclude that the plaintiffs are entitled to relief against McCartney solely in respect of his breaches of contract and his misuse of confidential information relating to the contract details of a supplier he disclosed to Nguyen. They are entitled to declarations that McCartney breached clause 15.1 of the Share Sale Agreement, and the Consultancy Agreement, in the ways indicated in these reasons. Bronson & Jacobs and Orica Investments are entitled to an injunction to restrain continued breaches of the Share Sale Agreement. Bronson & Jacobs is entitled to an injunction to restrain any further misuse of confidential information. Orica Investments and Orica Australia are entitled to nominal damages. Bronson & Jacobs is entitled to an inquiry as to damages for the loss of the Clos d’Aguzon business. The plaintiffs are not entitled to equitable compensation, nor an account of profits, nor the imposition or declaration of a constructive trust.

321 Had I been of the view that McCartney owed fiduciary duties to Bronson & Jacobs arising from the Consultancy Agreement, it would not have followed that the plaintiffs would have been entitled to the relief they claimed, that is, that Ingredients Plus held its business and assets on constructive trust for Bronson & Jacobs. Assuming I accepted the plaintiffs’ argument that Ingredients Plus provided knowing or dishonest assistance to any breach of such fiduciary duty, nonetheless, a remedy by way of constructive trust would not have been appropriate. There was very little evidence as to Ingredients Plus’ current assets and business. However, it is clear that it has made sales to a very large number of customers of a wide range of products. Mulvena and Taylor of Dow Corning opined that by August 2006 it had obtained sales in the year to date of US$234,000,000 .

322 In contrast to Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488, and the view taken by the Court of Appeal in Hospital Products Ltd v United States Surgical Corporation [1983] 2 NSWLR 157, it could not have been said in this case that the whole of the business of Ingredients Plus represents the profit or gain made from any such breach of fiduciary duty (Hospital Products Ltd v United States Surgical Corporation per Mason J at 107, 110, 112, 115-116).

Liability of Second to Fourth Defendants

323 The plaintiffs claim that each of Graeme Love, Thomas Love and Ingredients Plus is liable for damages in tort for having knowingly interfered in McCartney’s contractual relations with Orica Investments and Bronson & Jacobs in the Share Sale Agreement, and his contractual relations with Orica Australia in the Consultancy Agreement.

324 The plaintiffs’ claim against Ingredients Plus for knowingly participating in the breach of contract by McCartney is confined to a claim based on the knowledge and assistance or participation of Graeme Love and Thomas Love.

325 Graeme Love knew that McCartney had “signed a non-compete for five years”. He said he did not know the terms of the “non-compete” but agreed it was obvious that McCartney had promised not to compete in the area of business in which Bronson & Jacobs was conducting itself (T408.49 – 409.2).

326 In his affidavit, Thomas Love deposed that “I have never seen nor read the terms and condition of either Bill’s Consultancy Agreement or the Share Sale Agreement whereby Bill sold his shares to Orica. None of that is of any interest to me.” In cross-examination, Thomas Love said he did not know any details about any restraint of trade and that he had no “specific knowledge” of a restraint of trade. He said:

“ I knew there was something – I didn’t know what it was or what – I knew no details about any restraint of trade, other than I understood that there was some form of restraint of trade, I suppose. It’s usual when you are a seller of a company .”

327 He said that he had assumed that McCartney had given a covenant to the Orica group of companies to the effect that he would not compete with the business which had been sold for a particular period of time (T365).

328 There was no evidence as to whether, in January and February 2005, Thomas Love knew that McCartney had entered into a consultancy agreement with Orica. If he did, I accept that he did not know the terms of that agreement. He was not cross-examined on his evidence in his affidavit that he had never seen those terms.

329 In Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473, the Court of Appeal approved of the judgment of Lindgren J (with whose judgment Lockhart and Tamberlin JJ agreed) in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (1995) 58 FCR 26 concerning the requirements of knowledge or intention in the tort of interfering with contractual relations. Lindgren J said (at 43):

“ In my opinion, the authorities establish conclusively that the gravamen of the tort is intention. Although the requirement of knowledge of the contract is sometimes discussed as if it was a separate ingredient of the tort, it is in fact an aspect of intention. The requirement that the alleged tortfeasor have ‘sufficient knowledge of the contract’ is a requirement he have sufficient knowledge to ground an intention to interfere with contractual rights.

Both this intention to interfere with contractual rights and the necessary supporting knowledge of the contract refer to the ‘actual’ or ‘subjective’ state of mind of the alleged tortfeasor. ...

Although an alleged tortfeasor must have ‘a fairly good idea’ that the contract benefits another in the relevant respect, knowledge of the contract may be sufficient for the purpose of grounding the necessary intention to interfere with contractual rights although the precise term breached is not known ... ” (Citation of authority omitted.)

Recent English authority is to the same effect ( OBG Ltd & Ors v Allan & Ors [2007] 2 WLR 920 at [39]-[41] per Lord Hoffman, and [202] per Lord Nicholls of Birkenhead).

330 In Fightvision Pty Ltd v Onisforou, the Court of Appeal said (at 512, [171]):

“ The position may be stated, we think, as follows. The plaintiff must prove that the defendant intentionally procured the breach. The requirement that the defendant have sufficient knowledge of the contract is a requirement that he have sufficient knowledge to ground an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of the necessary intention. “

In OBG Ltd v Allan & Ors at [40]-[41], Lord Hoffman approved the statement of Lord Denning MR in Emerald Construction Co Ltd v Lowthian [1966] 1 WLR 691 at 700-701 to that effect.

331 Moreover, although the tort is often described as a tort of inducing or procuring a breach of contract, it extends to participation in the breach:

“ ... if a third party, with knowledge of a contract between the contract-breaker and another, has dealings with the contract-breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference. ” ( DC Thompson & Co Ltd v Deakin [1952] Ch 646 at 694 per Jenkins LJ).

332 The High Court approved this reasoning without further discussion in Zhu v Treasurer of NSW (2004) 218 CLR 530 (at 586 [157]) where it stated that “to continue to deal with TOC would have been tortious after the plaintiff obtained notice of the Licence Agreement” and cited DC Thomson & Co Ltd v Deakin. The above passage from DC Thomson & Co Ltd v Deakin also was approved by Lindgren J in Allstate Life Insurance Co v Australia and New Zealand Banking Group Ltd (at 44), although his Honour was there dealing with a case of procurement or inducement of breach. Jessup J in World Technologies (Aust) Pty Ltd v Tempo (Aust) Pty Ltd [2007] FCA 114 treated this statement by Lindgren J as correct (at [107]). Jessup J considered the authorities relied upon by Jenkins LJ, and although his Honour expressed reservations about the strength of support to be gained from two of those authorities, thought that De Francesco v Barnum (1890) 63 LT 514 provided support for the proposition. It is clear that the tort extends to participation in the breach once the third party knows that the relevant act is inconsistent with the contract.

333 The claims for damages against the second to fourth defendants were in respect of the loss of the Clos d’Aguzon, Su-Heung and Dow Corning business.

334 I do not consider that Thomas Love is liable for damages in relation to the loss of business of any of those suppliers arising from McCartney’s breach of contract. The only loss of business caused by McCartney’s breach of contract was the loss of business of Clos d’Aguzon. There is no evidence that Thomas Love knew of or assisted in any way in McCartney’s soliciting of Bontoux to terminate his distributorship with Bronson & Jacobs and to appoint Ingredients Plus as its distributor. There is no evidence that Thomas Love knew of or facilitated McCartney’s enticement of Nguyen away from Bronson & Jacobs to take up employment with Ingredients Plus. He assisted McCartney to invest clandestinely in Ingredients Plus. However, that was not a breach of the Share Sale Agreement. The first advance was a breach by McCartney of the Consultancy Agreement. Although the question was not the subject of argument, I will assume that Bronson & Jacobs could recover damages in tort against Thomas Love for losses suffered by it if he knowingly interfered with McCartney’s Consultancy Agreement intending to cause loss to Bronson & Jacobs, even though it cannot recover damages for such a breach against McCartney because it is not a party to the contract interfered with (OBG Ltd v Allan & Ors per Lord Hoffman at [47], [51] and [62]; see also Sanders v Snell (1998) 196 CLR 329 at 341-342; Ansett Transport Industries (Operations) Pty Ltd v Australian Federation of Air Pilots (1989) 95 ALR 211). However, it has not been shown that Thomas Love had any such knowledge or intention.

335 The question then is whether Graeme Love, and through him Ingredients Plus, is liable in tort for knowing assistance and participation in McCartney’s breach of the Share Sale Agreement or the Consultancy Agreement as the result of which Bronson & Jacobs lost the business of Clos d’Aguzon.

336 Notwithstanding his denials, I consider that Graeme Love well knew of McCartney’s inducements to Bontoux to change distributorships. I infer that fact from the position of Graeme Love as the general manager or managing director of Ingredients Plus and from the high volume of telephone communications at the time of the transaction between Graeme Love and McCartney. I infer that he and McCartney discussed the transfer of the Clos d’Aguzon distributorship and he either encouraged or welcomed McCartney’s efforts in inducing Bontoux to transfer the business. I can more readily draw the inference from the failure of both McCartney and Graeme Love to call Nguyen. The same is true of the inference that I draw that McCartney enticed Nguyen to transfer her employment to Ingredients Plus, and that Graeme Love knew that McCartney had done so.

337 I conclude that Graeme Love is liable in tort for knowingly interfering with McCartney’s contractual relations with Bronson & Jacobs in respect of the Share Sale Agreement resulting in the loss of the Clos d’Aguzon distributorship. In doing so, Graeme Love was acting as a director of Ingredients Plus. His knowledge and conduct should be attributed to the company, which is also liable for those damages.

338 Bronson & Jacobs is entitled to damages in contract against McCartney and damages in tort against Graeme Love and Ingredients Plus for the loss of the Clos d’Aguzon distributorship. The damages in tort are not reduced by the value of its contractual remedy against McCartney. If it recovers those damages against McCartney, it cannot also recover against Graeme Love and Ingredients Plus because of the rule against double recovery (Fightvision Pty Ltd v Onisforou at 534 [276]). That will not affect the judgments to be entered.

339 There is no evidence of Ingredients Plus having used the pricing information Petros transferred to his computer at Ingredients Plus. Nonetheless, it is shown to have retained such information and to have misused other confidential information of Bronson & Jacobs. In light of the findings set out at [250]-[251], [255] and [292] that Ingredients Plus misused confidential information of Bronson & Jacobs, Bronson & Jacobs is entitled to an injunction to restrain any further misuse of its confidential information by Ingredients Plus.

340 If the parties are not agreed upon the appropriate course, I will hear argument as to whether the assessment of damages should be referred to an Associate Judge for inquiry and certification, or to a referee for inquiry and report.

Orders

341 I direct that counsel for the plaintiffs bring in short minutes of order in accordance with these reasons. I will then hear the parties on costs.

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