Peffer v Taylor and Co Pty Ltd

[1997] QCA 449

IN THE COURT OF APPEAL	[1997] QCA 449
SUPREME COURT OF QUEENSLAND

Appeal No. 151 of 1997

Brisbane

[Peffer v. Taylor & Co. P/L]

BETWEEN:

ALWYN LINDSAY PEFFER

(Defendant) Appellant

AND:

TAYLOR & COMPANY PTY. LTD. ACN 011 047 671

(Plaintiff) Respondent

Davies J.A.
Lee J.

Cullinane J.

Judgment delivered 19 December 1997

Judgment of the Court

APPEAL ALLOWED. JUDGMENT BELOW SET ASIDE ONLY TO THE EXTENT OF SUBSTITUTING THE SUM OF $70,000 FOR THE SUM OF $130,000 DAMAGES FOR BREACH OF OBLIGATION AND SUBSTITUTING FOR THE SUM OF $124,845.70 FOR INTEREST THE SUM OF $72,105.48.

CATCHWORDS:	CIVIL - appellant was an accountant formerly in the employ of the respondent - judgment was awarded against the appellant below for damages or equitable compensation for breach of an obligation, contractual and equitable, to act in the respondent's interest rather than his own - whether the appellant breached this obligation
Colour Control Centre Pty. Ltd. & Anor. v. Ty & Ors. unreported,

Supreme Court of New South Wales, 1689 of 1993, 24 July 1995

Hivac Ltd. v. Park Royal Scientific Instruments Ltd. & Ors. [1946] 1

Ch.169

Hospital Products Ltd. v. United States Surgical Corporation (1984) 156

C.L.R. 41

Sanders v. Parry [1967] 1 W.L.R. 753
Warman International Limited v. Dwyer (1995) 182 C.L.R. 544

Counsel:	Mr. P. Keane Q.C., with him Mr. R. Traves for the appellant Mr. G. Gibson Q.C., with him Mr. P. O'Shea for the respondent
Solicitors:	Allen Allen & Hemsley for the appellant Clayton Utz for the respondent
Hearing Date:	23 October 1997

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 151 of 1997

Brisbane

Before Davies J.A.
Lee J.
Cullinane J.

[Peffer v. Taylor & Co. P/L]

BETWEEN:

ALWYN LINDSAY PEFFER

(Defendant) Appellant

AND:

TAYLOR & COMPANY PTY. LTD. ACN 011 047 671

(Plaintiff) Respondent

REASONS FOR JUDGMENT - THE COURT

Judgment delivered 19 December 1997

The appellant, who was the defendant in the action below, is an accountant. The respondent,

who was the plaintiff below, is a firm of accountants for whom or for whose predecessor the appellant

worked from September 1990 to 16 August 1991. The judgment against the appellant in the court

below was for $130,000.00 damages or equitable compensation for breach of an obligation to which

we shall shortly refer, $1,650.00 for damages for a conversion and $10,380.90 on account of profits

received in respect of certain work done by the appellant. The appeal is limited to that part of the

judgment for $130,000.00 damages or equitable compensation. That sum was awarded for breach of

the appellant's obligation, contractual and equitable, to act in the respondent's interests rather than his own. It was put both as one of implied term[1] and of fiduciary duty.[2] Breach of that obligation is said

[1]            Statement of claim para.3(a); Sanders v. Parry [1967] 1 W.L.R. 753 at 755, 765-6.

[2]            Statement of claim paras.4 and 5; Hospital Products Ltd. v. United States Surgical

to have had the consequence that certain of the respondent's clients followed the appellant with their

business when he left on 16 August 1991.

We shall return later to the content of that duty in this case and the breach of it found by the

learned trial Judge. It is necessary first to say something about the context in which the duty arose.

The appellant commenced work as an accountant for Messrs. Lind & Dean in an accountancy

practice then called Lind, Dean & Associates in 1981. He became a partner in that practice in 1983.

Lind, Dean and the appellant were all members of the Ashgrove Congregation of the Baptist Church

and a substantial part of their practice derived from their association with that church and that

congregation.

In December 1988 the partners sold that practice to Mr. Taylor, one of the principals of the

respondent, for $313,138.00 of which $279,000.00 comprised goodwill. The goodwill was based on

fees generated by the practice, substantially from the associations to which we have already referred.

Lind thereupon retired; Dean continued working in the practice under its new ownership on a part time

basis; and the appellant continued working in it as a full time employee. He entered into a restraint of

trade clause for two years. The new owner of the practice was a company owned by Mr. Taylor.

Mr. Taylor at all relevant times resided and practised in Adelaide. The above practice was
conducted by the appellant, Taylor becoming involved only in respect of policy and capital expenditure

decisions. The appellant immediately became a director of the company.

In 1990 Mr. Taylor agreed with Mr. Wright to merge practices. Thenceforth the joint practices

were conducted by the respondent, Taylor and Wright being the principal shareholders. Wright resided

and practised in Brisbane. After the merger he continued to conduct that part of the practice which had

come from his former practice and the appellant continued to conduct that part of the practice which

had previously been owned, in effect, by Taylor. Dean continued as a part time employee and was still

so employed on 16 August 1991.

On 26 July 1991, without any prior warning to Taylor or Wright, the appellant gave notice of

resignation, effective on 23 August. In fact Taylor and Wright elected to terminate his employment a

week early and he finished on 16 August. He commenced employment with the firm of Ernst & Young

on 2 September. A large number (about 74) of the former clients of the Taylor side of the practice

followed him to Ernst & Young.

If that was all that had occurred the respondent would plainly have had no cause of action

against the appellant for damages or equitable compensation arising out of the loss of its clientele to

Ernst & Young. It was conceded by the respondent that the appellant owed no duty to give advance

warning of his intention of resigning and seeking other employment and it was never contended that the

appellant could not accept the former clients of the respondent as his clients at Ernst & Young or indeed

that, after he had left the respondent, he could not solicit their business for Ernst & Young. Nor did his

Honour reach any conclusions to the contrary. However there was a good deal more to the appellant's

conduct whilst still an employee, a director and, in effect, the manager of the relevant part of the

respondent's business.

As the learned trial Judge pointed out, it was accepted by the respondent that the appellant did

not expressly approach and canvass the respondent's clients, whilst still so employed, to follow him to

Ernst & Young or, as was his earlier intention, to his own practice. However, for reasons which the

learned trial Judge canvassed, as his Honour put it, "he did not need to". As counsel for the respondent

said during the course of submissions in this Court:

"The defendant did not directly solicit clients in the sense of doing a door knock or a telephone call but he did that which was tantamount to it and which was in the circumstances of the case equally effective through the particular contact that he had."

Before turning to the evidence relevant to the allegations and the finding that the appellant's

conduct amounted, in effect, to solicitation of the respondent's clients whilst still employed by it, it is

necessary to refer to some other findings and evidence in order to understand the inference which the

learned trial Judge, in our view quite properly, drew that there had been such indirect solicitation of the

respondent's clients by the appellant whilst still so employed.

In the first place the learned trial Judge made adverse findings of credit against the appellant.

Some of these relate to the conversion issue and the issue in respect of which the learned trial Judge

ordered a sum of money on account of profits, neither of which is directly relevant to the issue under

appeal. However the findings of credit made on those issues have general relevance in the sense that

the learned trial Judge appears to have concluded that the appellant gave deliberately false evidence on

those issues. It was not contended for the appellant before this Court that we should approach the

matter other than on the basis that the appellant's evidence, except to the extent that it was self-serving,

must be rejected.

In addition to making findings of credit against the appellant the learned trial Judge also

concluded, in effect, that the appellant acted deviously in his relations with Taylor and Wright. One

example of this involved discussions about a restraint of trade agreement in late 1990 and early 1991. The restraint of trade agreement referred to earlier expired in January 1991. Taylor and Wright were

keen to have the appellant execute a further such agreement, no doubt because of his influential position

with respect to clients of the Taylor side of the practice. They offered to pay certain of the appellant's

insurance premiums in consideration of the appellant signing such an agreement and the appellant, as his

Honour found, tacitly agreed but prevaricated, saying that he was happy working for the respondent

and that Wright and Taylor had no occasion for concern. It is in the light of these findings that the

evidence of the appellant's negotiations with Ernst & Young, his activities in accumulating client

information and his conversations with clients about his intentions should be assessed.

Nevertheless it must be said that there was no one piece of evidence from which it could be

inferred that the appellant had, whilst still employed, indirectly solicited his employer's clients to go with

him when he left. Rather there were a number of pieces of evidence from which the learned trial Judge

was entitled to and did infer that.

Through a friend the appellant secured an interview with Mr. Walker of Ernst & Young on 13

May 1991. Mr. Walker told him that there was no suitable position immediately available in that firm.

Nevertheless on 17 May the appellant wrote a letter to Mr. Walker which included the following:

"One of the business sections identified by Ernst & Young as a strategic 'target' was the professional services sector and it is primarily in this area that I believe I can provide skills and resources which will complement those of the firm in satisfying the objectives of the firm. As you will recall from our discussion, a significant component of my current client base are persons and businesses in the professional services sector and I have enclosed for your perusal a schedule which identifies the industry grouping of my more important clients.

As you would no doubt appreciate, the enclosed listing is not exhaustive in any way and I have clients involved in the provision of professional services which do not appear on this schedule. To illustrate this point more fully, I have listed below clients with whom I have a good rapport and who are not on the schedule:

*	a director of a large national firm of quantity surveyors
*	a director of a large national firm of construction project managers
*	a commercial partner with a large Brisbane legal firm
*	a litigation partner with a large Brisbane legal firm
*	the Queensland manager of a national firm of engineering consultants
*	two partners of a large provincial legal practice
*	the Queensland director of a fine arts gallery
*	a senior associate with a large Brisbane legal firm
*	the medial superintendent of a major Brisbane hospital
*	a director and a senior employer of a Brisbane based firm of consulting geologists

In addition to those clients listed above and on the schedule, there are also a number of other clients engaged in the provision of health care services, eg. physiotherapists, medical specialists and psychiatrists, either in an employed capacity or conducting their own practices."

Attached to the letter was a schedule containing a list of top 25 clients, most if not all of whom

must have been clients of the respondent. Some, his Honour said, could be identified as such. It is true

that, in the same letter, after describing the meeting as both frank and enlightening and assuring Mr.

Walker that he was no longer subject to "client practice restrictions" the appellant said that moral

considerations would prevent him "actively" seeking to induce clients to follow him to new employment.

However the word "actively" is underlined by the appellant and the letter, on the whole, is plainly an

offer to deliver those clients or most of them to Ernst & Young if offered suitable employment. Despite

some somewhat guarded evidence from Mr. Walker, that seems plainly to be the way in which the offer

was construed by Ernst & Young. In their letter of 22 July 1991, signed by the managing partner Mr.

Rogers, offering employment to the appellant, they said:

"... we respect your rights, as discussed, as to the provision of services to any clients you may bring with you to your employment with Ernst & Young. In this regard, the introduction of your clients to the firm has been critical to negotiations with you in recent weeks."

The appellant admitted that on 6 July 1991, a Saturday, which may well have been during the course of the negotiations referred to in that letter, he down loaded from the respondent's computerised records 62 client files as well as some precedents. He denied that that information was confidential to

the respondent because he said the respondent acquiesced in this. Nevertheless it is plain that he

concealed this from his fellow workers and falsely denied, when it appeared that there was difficulty

later in accessing these files, that he had obtained access to them.

The acquiescence on which the appellant relied was based on what he said was an arrangement

between Taylor and him that he should be allowed to have private clients and that the files related solely

to those. As his Honour found there had been an arrangement pursuant to which it was agreed that the

appellant could do family work and church work for which he did not charge. But it was never agreed

(and it could not have been believed by the appellant that it had) that otherwise the appellant was

permitted to take private paying clients. The list of files referred to included many which were neither

family nor charitable files.

That evidence and those findings support the conclusion, which in any event seems plainly right,

that the appellant intended on leaving to take clients of the Taylor side of the practice with him. His own

version of conversations with some of those clients supports, in addition, a conclusion that he was

inviting them, whilst he was still employed by the respondent, to follow him to his new practice. It is

important in considering the appellant's evidence in this respect, and the learned trial Judge's findings in

respect of it, that his Honour was entitled to assess it having regard to his findings with respect to the

appellant's credit and to his deviousness in his dealings with Taylor and Wright and his fellow

employees. It must also be looked at in a context in which he had promised Ernst & Young that he

would, in effect, deliver to them the clients referred to in his letter of 17 May or, at least, use his best

endeavours to do so. And it must also be looked at in the light of the position which he occupied vis-à-

vis those clients, with the respondent. He had been the only person with whom they had dealt during the whole of his time with the respondent and, in many cases, with whom they had dealt before he and

others sold that practice, including their goodwill, to Taylor. By that and other means he had built a

personal relationship with many of them.

All of this, no doubt, made it more likely that, even without any approach by the appellant to

the respondent's clients whilst he remained in the respondent's employment and even with his willing

participation in an appropriate handover procedure of the kind referred to below, they would follow him

when he left. But it also meant that a fairly subtle approach by him to those clients, free of any

involvement by Taylor or Wright or Dean, would be sufficient to induce them to follow him; and it

demonstrated conduct and an intention which made it unlikely that he would participate in any

worthwhile handover procedure.

On Saturday 27 July, the day after he tendered his resignation to the respondent, the appellant

spoke to Mr. Ebbott, a client of the respondent, whose work the appellant performed. According to

the appellant he told Mr. Ebbott that he had resigned the previous day, that he had accepted a position

with a chartered accountancy firm in the city as a senior manager and that, in that capacity he would be

happy to continue doing Mr. Ebbott's work. However, no doubt because of his concern about

proceedings such as this, he declined to tell him the name of the firm to which he was moving but told

him that public articles would appear in the newspapers at the time of his move and that the Institute of

Chartered Accountants would, in any event, know where to find him. He told Mr. Ebbott that he had

an obligation to tell both the Society of Certified Practising Accountants and the Institute of any change

of employment. He did not tell Mr. Ebbott who might be doing Mr. Ebbott's work if the latter chose

to stay with the respondent or offer to introduce him to anyone at the respondent or in any other way

to facilitate that course. However it should be added that he was not asked to and that Mr. Ebbott expressed the wish that the appellant continue to do his work. The appellant admitted to similar

conversations with several other clients of the respondent.

The appellant did not have the same compunction about disclosing the name of his future

employer to members of his Bible study group in the Baptist Church who included several clients of the

respondent. And he conceded that, once he had told some members of the Baptist community of his

intention, word of it would spread to others of it who were clients of the respondent.

It is true that many of the people to whom he spoke the appellant counted as friends as well as

clients and, if these conversations were taken in isolation, none would necessarily be construed as an

attempt to solicit the respondent's clients while still employed by it. But when taken together with the

facts which we have already mentioned, especially his undertaking to Ernst & Young to deliver clients

to it and the ease with which he would have been entitled to assume that he could achieve this without

express soliciting, his conduct assumes a more sinister character; and his Honour's remark that the

appellant did not need to expressly solicit was, in our view, correct.

It was common ground that it was recognised in the accounting profession that, in order to

maximise client retention when an employee is leaving, some sort of handover procedure, usually

involving the client, the departing employee, the person who is to take over the client's work and,

sometimes, a partner in the firm, should be followed in order to ensure a transfer of the client's work

which is satisfactory to the client. No such procedure took place here. Both Taylor and Wright said

that, if they had been approached by the appellant, before he approached clients about his move, with

a view to some such procedure taking place they would certainly have participated in such procedure.

Dean who, as we have said, continued to work in the practice on a part time basis, maintained an

involvement in the Baptist Church and its Ashgrove Congregation and would have been willing to assist

the parties in such a procedure.

However, as the learned trial Judge pointed out, by the time any such procedure could have

been initiated or engaged in by Taylor or Wright the "damage had already been done". The appellant

had, as we have said, already committed himself to Ernst & Young to bring the respondent's clients with

him, he had obtained copies of some of their files and, almost contemporaneously with his notice of

resignation, he had been telling some of them that he was going and that he would like to do their work

in his new position. In those circumstances, by the time Taylor and Wright could reasonably have

become aware of what the appellant was doing, such handover procedures would probably have been

pointless; some clients had already committed themselves to the appellant and, in any event, it was most

unlikely that the appellant would have participated in any such procedure in a meaningful way.

In his reasons for making further orders the learned trial Judge summarised his reasons for

awarding damages as follows:

"The allegation in question is to the effect that the defendant failed to take any action to enhance the plaintiff's chances of retaining clients. Damages in the action were awarded on the basis that the [defendant] failed to act with good faith and fidelity by deliberately putting himself in a position where his private interests conflicted with the plaintiff's and acted to advance his interests to the detriment of the plaintiff. Damages were assessed on the basis that his conduct deprived the plaintiff [of] an opportunity to retain clients in circumstances where the occasion of his actively assisting the plaintiff to do so never arose, see p.46 of the published reasons."

The passage referred to in the earlier published reasons, when read in the context of those

reasons as a whole, more extensively sets out the basis referred to in the above passage which is, in

substance, the basis which we have already canvassed: the commitment by the appellant to Ernst &

Young to deliver the respondent's clients to it and the removal of some of their files, the appellant's

position of trust with the respondent and influence over its clients, and his exercise of that influence to

the respondent's disadvantage, whilst still in the respondent's employment, without disclosure to the

respondent, all before the respondent had a reasonable opportunity to engage in handover procedures which, with the appellant's bona fide co-operation, might have prevented at least some of the loss of

clientele which occurred.

His Honour did not expressly say whether that basis of liability was a breach of an implied term

or of fiduciary duty. However we do not think that, in this case, that matters. For present purposes the

duty may be expressed in similar terms and, on either basis, on the facts as found by his Honour, there

was a breach of that duty. His Honour stated the implied contractual obligation in the terms stated in

Sanders v. Parry[3], Hivac Ltd. v. Park Royal Scientific Instruments Ltd. & Ors.[4], Warman International

[3]            See fn.1.

[4] [1946] 1 Ch. 169.

Limited v. Dwyer[5] and Colour Control Centre Pty. Ltd. & Anor. v. Ty & Ors.[6]. His Honour then

[5] (1995) 182 C.L.R. 544 at 556.

[6]            Unreported, Supreme Court of New South Wales, 1689 of 1993, 24 July 1995.

referred to the duty of an officer of a corporation under the Corporations Law[7]. And finally his Honour

[7]            Section 232(2).

referred to the obligations of a fiduciary where the relationship arises out of contract.[8] The appellant

[8]          Hospital Products Ltd. v. United States Surgical Corporation fn.2.

did not contest the principles stated in any of the authorities referred to by his Honour. His principal

contentions were that the learned trial Judge's finding of liability was based upon a finding that, prior to his resignation, the appellant misled the respondent into thinking he would not leave the respondent's

employ or, if he did leave, he would not compete with the respondent in the field known as business

services and it was not open to him to so find; and that his Honour wrongly held that the appellant was

under a duty, prior to his resignation, to inform the respondent that he had formed the intention to leave

the respondent's employ. Before turning to those contentions it is necessary to say a little more about

Sanders v. Parry, the principle and its application in which was not questioned by the appellant.

The defendant in that case, who was a solicitor, was engaged by the plaintiff, also a solicitor,

as an assistant in his practice. One of his principal duties was to undertake the legal work brought in

by an important client. During the course of his duties, and whilst he was negotiating with his employer

for a partnership, he was approached by the client with a view to leaving the plaintiff and, on his own

account, doing that client's work exclusively. He agreed and left for that purpose. The action was one

for breach of the implied term of the contract that the defendant would serve the plaintiff with good faith

and fidelity. The defendant asserted that he was not in breach of that term since the agreement between

him and the client had been initiated by the client and he had merely accepted the client's offer. The

learned trial Judge, in giving judgment for the plaintiff, said:[9]

[9]            At 765.

"Now in my view there was a duty on the defendant at all times during the subsistence of that agreement to protect his master's interests, especially to do his best to retain Mr. Tully as a client of his master and in regard to the letter to which I have already referred, there was a duty on the defendant to look after and protect Tully's interests on behalf of his principal, the plaintiff. Now, in accepting this offer the defendant was not protecting his master's interests. He made no effort to try and retain Mr. Tully as a client of his master. The defendant was placing himself in a position in which there was conflict of interests between him and his principal and he was looking after his own interests to the detriment of his master's interests. He was knowingly, deliberately and secretly acting, setting out to do something which would inevitably inflict great harm on his principal."

The application of the principle in that case has some similarity to its application here. Indeed

the two main differences between the cases factually appear to be that here the appellant had much

greater influence over the respondent's clients and consequently the respondent was more vulnerable

than the plaintiff in that case; and, as his Honour found, the appellant did indirectly solicit the

respondent's clients whereas in that case the defendant simply responded to an offer made to him. In

that case the learned trial Judge continued:

"There being a duty on the defendant to protect the interests of his principal, if Tully had expressed any dissatisfaction as to the position, then the defendant should have gone to the plaintiff, his principal, to give him an opportunity to find out any grievance which Mr. Tully thought he had."

It does not matter, for present purposes, whether that duty is expressed in positive terms as in

the above passage, or in negative terms, such as not to harm the interests of his principal. What

occurred here, as his Honour found, similarly to that which occurred in Sanders, was that the appellant,

instead of approaching the respondent's clients jointly with Taylor and Wright with a view to enhancing

the prospects of their retention by the respondent, promised to deliver their work to Ernst & Young,

for that purpose using his employer's confidential client records to compile a list of clients and the value

of their work, spoke to some of them unilaterally immediately after he had tendered his resignation and

before his employer had any opportunity to do so and, by his commitment to Ernst & Young, rendered

any meaningful handover procedures pointless.

The learned trial Judge's finding that the appellant, prior to his resignation, duplicitously misled

the respondent in respect of his employment intentions was, according to the appellant, not open on the

pleadings or in the way in which the respondent's case was conducted. Moreover, according to the

appellant, that finding was crucial to his Honour's decision. It was submitted that an allegation of fraud

and dishonesty must be pleaded clearly and with particularity and that there was no such pleading here.
These submissions, in our view, misunderstood the relevance of that finding. It was no more

than one of credit, supporting the inference, which was otherwise open, that the appellant indirectly

solicited some of his employer's clients or, which was much the same thing in the circumstances,

informed them, in the absence of his employer and before his employer could speak to them, of his

intention of going to another firm, thereby circumventing the utility of meaningful handover procedures;

and acted in other devious ways, such as by committing himself to deliver the respondent's clients to

Ernst & Young and by copying clients' files, which would render pointless any attempt to involve him

in meaningful handover procedures. It was not a substantive finding of fraud or dishonesty on the basis

of which relief was granted. Consequently it was unnecessary to plead it. It was nevertheless an

inference which was open.

The appellant's other contention also, in our view, misunderstood the learned trial Judge's

findings. His Honour did not conclude that the appellant was under a positive duty to disclose his

intention to leave and indeed it was conceded by the respondent that there was no such duty. What his

Honour found, as appears earlier in these reasons, was that, by telling the respondent of his intention

of resigning only after he had made a commitment to Ernst & Young to bring to it the respondent's

clients, and by conveying to some of those clients news of his intended move and, albeit implicity in

some cases, of his willingness to do their work in his new position before the respondent had an

opportunity to consider the implementation of appropriate handover procedures, the appellant had

circumvented the utility of any such procedures.

For reasons which we have already given the learned trial Judge in our view was right in

concluding that the appellant was in breach of his duty to the respondent which resulted in loss of a

chance by the respondent of retaining some of its clients. The final contention of the appellant relates
to the valuation by the learned trial Judge of that chance at $130,000.00.

It is plain that his Honour, in arriving at that sum, accepted, as one might expect, that the

exercise was a very inexact one. That was a matter relied on by the respondent in defending his

Honour's assessment. Nevertheless it is important to see what proportion this represents of the total

fees lost.

It was accepted that the total value of yearly fees lost by reason of loss of the clients who went

with the appellant was $211,000.00. Ms. Micalizzi, an accountant with expertise in this area whose

opinion the learned trial Judge accepted, adopted a multiplier of two or three years in order to determine

the value of the loss of those clients. This yielded sums of $422,000.00 or $633,000.00 respectively.

It can be seen that the sum which his Honour awarded was approximately 30 percent of the first of

these sums and 20 percent of the second. In this his Honour appears to have accepted the evidence

of Ms. Micalizzi that, in her view, the respondent would have retained 20 to 30 percent of the expected

level of professional fees of $211,000.00 if it had had a proper opportunity to retain clients.

At the trial of this action the appellant tendered statements by 74 former clients of the

respondent who followed him to Ernst & Young. Each had responded to a questionnaire and a

statement had then been drawn on the basis of the response. The respondent did not seek to cross-

examine any of the makers of the statements. It was accepted that those who made statements

comprised most if not all of the clients who followed the appellant to Ernst & Young.

Mr. Keane Q.C. for the appellant took us to one of these questionnaires and statements, that

of Dr. Isles, which he submitted was fairly typical. It appears from Dr. Isles' answers to the

questionnaire and his statement that he regarded himself as a private client of the appellant and that he

heard of the appellant's leaving by ringing Taylor & Co. to speak to him two days after he had left. It appears from his statement that he chose to follow the appellant, not because of any inducement by the

appellant, but because he wanted the appellant to continue to be his accountant. Not only does it

appear that he was not induced by the appellant to leave Taylor & Co. but it also seems likely that,

whatever handover procedures had been adopted involving him and his work, he would have chosen

to continue to engage the appellant. Although it is impossible to generalize about such a large number

of statements, 74 in all, it was accepted by the respondent that this one was fairly typical. However the

respondent did not accept that appropriate handover procedures might not have persuaded Dr. Isles

to change his mind and pointed to the natural bias of a witness after he had made the choice to continue

with the appellant.

Ms. Micalizzi did not have the advantage of seeing these completed questionnaires and

statements before she wrote her report. Nevertheless she adhered to her views in evidence in court.

The probability, it seems to us from a reading of these statements, is that most, if not all, of those

of the respondent's clients who followed the appellant to Ernst & Young would have done so even if

the appellant had not engaged in indirect solicitation and had been in a position to and had participated

in handover procedures aimed at enhancing the respondent's prospects of retaining clients. After

recognizing that the evidence founded a conclusion that it was more probable than not that some clients

would have followed the appellant in any event the learned trial Judge pointed to a number of what he

described as formidable obstacles to the respondent's retaining clients had the appellant acted as he

ought rather than in breach of his obligations. These were, his Honour said:

"·	the strength of the defendant's relationship with individual clients in terms of exclusivity, continuity, church and personal connections and other circumstances which are canvassed earlier ... Dean would have assisted in countering some of the force of these factors but apart from anything else he was not full time
·	the defendant's replacement may not have been able to participate fully in the handover process
·	there would no doubt have been practical difficulties in conducting effective meetings with all of the clients given the time available and demands on the clients and the time of the plaintiff's staff
·	most clients had not met either Taylor (who was in any event based in Adelaide) or Wright previously. Dean would have been known to some of the clients earlier but as I have said his role was necessarily limited. They would not know the replacement. The only other staff member (Morrison) with whom clients had contact worked to [sic] the defendant and was relatively young and inexperienced.
·	some clients may in any event have been and remained dissatisfied with the plaintiff."

The question is not, of course, one of probability but of valuation of the chance that, but for the

appellant's breaches, appropriate handover procedures would have resulted in retention by the

respondent of some of the clients lost. In considering that question we have come to the conclusion that

both Ms. Micalizzi and the learned trial Judge underestimated the strength of the personal relationship

between the appellant and most of those clients as evidenced by the answers to the questionnaire and

accompanying statements. Consequently both, in our view, overestimated the value of the chance of

retention of some of that client work by the appellant. The result is, in our view, an award of damages

which is wholly disproportionate to the value of that chance.

Nevertheless some allowance must be made in assessing these statements, even in the absence

of cross-examination, for an unconscious bias on the part of many of the makers from the fact that they

remain as clients of the appellant. Some allowance must also be made for the influence which Mr. Dean

may have had on some of them arising out of his continuing association with them. And, as the

respondent pointed out, some client concerns may have been met by assurances which could have been

given in the course of such procedures. Having regard to all of those factors we would estimate the

value of that chance at $70,000.00.

Accordingly we would allow the appeal and set aside the judgment below only to the extent of substituting the sum of $70,000.00 for the sum of $130,000.00 damages for breach of obligation and substituting for the sum of $124,845.70 for interest the sum of $72,105.48 (calculated, using the

reduced sum, on the same basis as that agreed by the parties at trial).

Corporation (1984) 156 C.L.R. 41 at 97, 102-4.