Re Colorado Products Pty Ltd (in prov liq) - [2014] NSWSC 789

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789
Hearing dates: 19 - 22, 26 - 29 November 2013; 29 - 31 January 2014, 6 February 2014, 19 - 21 February 2014, 5, 7, 10 March 2014
Decision date: 16 June 2014
Jurisdiction: Equity Division - Corporations List
Before: Black J
Decision:
Plaintiffs required to make an election between equitable compensation and account of profits in respect of diversion of business. Parties to be heard as form of orders and costs.

Catchwords:
TRADE PRACTICES - misleading or deceptive conduct - whether alleged representations were made by relevant defendant - representations as to future matters - whether relevant representations were misleading or deceptive or likely to mislead or deceive - whether defendant had reasonable grounds in making alleged representations - whether plaintiffs had relied on alleged representations - whether it can be established that loss and damage suffered by plaintiffs was caused by alleged representations - application of Corporations Act ss 1041, 1041E and 1041H, Fair Trading Act 1987 (NSW) ss 41, 42, 68 and Trade Practices Act 1974 (Cth).

CONTRACTS - construction - where parties relevantly entered into share sale deed and shareholders agreement - where claims have been made in respect of, inter alia, misappropriation of monies, diversion of business and misuse of confidential information - whether relevant defendant had breached provisions under relevant agreements - post-contractual conduct - whether post-contractual conduct admissible to prove existence of relevant setoff agreement.

CONTRACTS - restraint of trade - where relevant clauses contained in share sale deed and shareholders agreement prohibited parties from being involved in business which is the same or similar type of business conducted by relevant company - whether relevant clause is void for uncertainty - requirement to offer participation to company before taking up opportunity - whether relevant clause can be characterised as a restraint of trade clause - whether relevant clauses were reasonable as between parties - whether relevant clauses protected a legitimate interest - whether relevant clauses are contrary to public policy under Restraint of Trades Act 1976 (NSW) - whether relevant defendant had breached restraint of trade provisions.

CORPORATIONS - assignment of choses in actions - where provisional liquidator had assigned equitable and statutory causes of action of company to relevant plaintiffs under Corporations Act s 477(2)(c) - whether assignment by provisional liquidator was effective - whether causes of action constituted 'property' so as to be capable of assignment by liquidator.

CORPORATIONS - management and administration - duties and liabilities of officers of corporation - directors' duties - claim for breach of fiduciary duties and breach of directors' duties at general law - where relevant defendant was non-executive director of relevant company and director of other competing companies - conflict of interest - whether informed consent can be established - whether existing management structure narrowed scope of relevant defendant's fiduciary duties - where claims have been made in respect of, inter alia, misappropriation of monies, diversion of business and misuse of confidential information - whether relevant defendant's conduct amounted to breach of fiduciary duties.

CORPORATIONS - management and administration - duties and liabilities of officers of corporation - claim for breach of Corporations Act 2001 (Cth) ss 180, 181, 182, 183 and 191 - duty of care and diligence - duty to act in good faith in the company's best interests - duty to not improperly use position to gain advantage or cause detriment to company - duty of disclosure - where claims have been made in respect of, inter alia, misappropriation of monies, diversion of business and misuse of confidential information - whether conduct of relevant defendants amounted to breach of statutory duties - accessorial liability - whether it can be established that relevant parties were knowingly concerned and involved in alleged contraventions of statutory duties under Corporations Act s 79.

LANDLORD AND TENANT - agreement for lease - rent - claim for outstanding rent - whether claim for rent can be established - whether entry into lease was induced by misleading or deceptive conduct or breach of fiduciary or statutory duties - whether landlord is estopped from claiming rent - public policy considerations - whether lease was wrongfully terminated.

REMEDIES - where relevant plaintiffs have been assigned causes of action in respect of breach of statutory duties by provisional liquidator of relevant company - whether relevant plaintiffs have standing to obtain compensatory relief under Corporations Act 2001 (Cth) s 1317H - whether plaintiffs are entitled to damages in respect of contravention of civil liability provisions under Corporations Act s 1324(10) - whether jurisdiction for granting injunction sufficiently enlivened for award of damages under s 1324(10).
REMEDIES - equitable compensation - account of profits - whether plaintiffs entitled to await judgment before proceeding with election of remedies - whether plaintiffs or relevant company suffered loss and damage as result of any established breach - loss of business and opportunity - whether there was a diminution in value of company's business in respect of diversion of sales.
Legislation Cited: - Australian Consumer Law s 18
- Companies (SA) Code s 229(4), 574(8)
- Competition and Consumer Act 2010 (Cth) Sch 2
- Corporations Act 2001 (Cth) ss 57A, 79, 79(a), 79(c), 180, 180(1), 181, 181(1), 182, 182(1), 183, 183(1), 191, 232, 440D, 471B, 477, 477(2)(c), 477(2B), 601AB, 769C, 1041E, 1041F, 1041H, 1041I(1), 1317H, 1317H(1), 1317J, 1317J(2), 1317J(4), 1332, 1324, 1324(10)
- Corporations Law ss 232(2), 232(4), 232(5), 232(6)
- Evidence Act 1990 (NSW) ss 128, 140
- Fair Trading Act 1987 (NSW) ss 41, 42, 68
- Restraint of Trades Act 1976 (NSW) ss 4, 4(1), 4(2)
Cases Cited: - Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1
- Al Raied v Minister for Immigration & Multicultural Affairs [2000] FCA 1357
- Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507
- Armagas Ltd v Mundogas SA [1985] 1 Ll R 1
- Artistic Builders Pty Ltd v Elliot and Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16
- Australian Competition and Consumer Commission v Jewellery Group Pty Ltd [2012] FCA 848; (2012) 293 ALR 335
- Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 1904; (2007) 244 ALR 470
- Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261; (1988) 6 ACLC 529
- Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43
- Australian Securities & Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253
- Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58; (2009) 224 FLR 50
- Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345
- Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1
- Australian Securities & Investments Commission v Vines [2005] NSWSC 738; (2005) 55 ACSR 617
- Austress-Freyssinet Pty Ltd v Kowalski [2007] NSWSC 399
- Ballard v Multiplex Ltd [2008] NSWSC 1019; (2008) 68 ACSR 208
- Bank of Melbourne Ltd v HPM Pty Ltd (in liq) (1997) 26 ACSR 110
- Barescape Pty Ltd as Trustee for the V's Family Trust v Bacchus Holdings Pty Ltd as Trustee for the Bacchus Holdings Trust (No 9) [2012] NSWSC 984
- Barnes v Addy (1874) LR 9 Ch App 244
- Birtchnell v Equity Trustees, Executors & Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384
- Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
- Boardman v Phipps [1967] 2 AC 46; [1966] 3 All ER 721
- Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
- Bray v Ford [1896] AC 44
- Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
- Buckley v Tutty [1971] HCA 71; (1971) 125 CLR 353
- Bull v Lee (No 2) [2009] NSWCA 362
- Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
- Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9
- Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39
- Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
- Carey v Freehills [2013] FCA 954; (2013) 303 ALR 445
- Carr v Finance Corp of Australia Ltd (No 1) [1981] HCA 20; (1981) 147 CLR 246
- Celermajer Holdings Pty Ltd v Kopas [2011] NSWSC 40
- Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178
- Chen v Karandonis [2002] NSWCA 412
- Chew v R (1991) 4 WAR 21; 5 ACSR 473
- Chew v R [1992] HCA 18; (1992) 173 CLR 626
- Colour Control Centre Pty Ltd v Ty [1995] NSWSC 96
- Commissioner for Corporate Affairs v Green [1978] VR 505
- Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64
- Cook's Constructions Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62
- County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
- Craig v Silverbrook [2013] NSWSC 1687
- Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd [2011] VSC 288; (2011) 84 ACSR 616
- Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300; (2011) 284 ALR 601
- Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557
- Doyle v Australian Securities and Investments Commission [2005] HCA 78; (2005) 227 CLR 18
- EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183
- Executor Trustee Australia Ltd v Deloitte Haskins & Sells (1996) 135 FLR 314; (1996) 22 ACSR 270
- Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
- Fawcett Properties Ltd v Buckingham County Council [1961] AC 636; [1960] 3 All ER 503
- Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574
- Forkserve Pty Ltd v Jack [2000] NSWSC 1064; (2000) 19 ACLC 299
- Forty Two International Pty Ltd v Barnes [2014] FCA 85; (2014) 97 ACSR 450
- Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583
- GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 180 FLR 250
- GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113
- Georgiadis v Australian and Overseas Telecommunications Corporation [1994] HCA 6; (1994) 179 CLR 297
- Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296
- Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357, (1999) 43 IPR 545
- Grove v Flavel (1986) 43 SASR 410; (1986) 11 ACLR 161
- Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
- Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd [2011] FCA 1154; (2011) 86 ACSR 393
- Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
- Howard v Commissioner of Taxation [2014] HCA 21
- Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810
- Hydrocool Pty Ltd v Hepburn (No 4) [2011] FCA 495; (2011) 279 ALR 646
- Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653
- In the matter of Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 1613
- In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 64
- Jackson v Conway [2000] FCA 1530
- Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150
- Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
- JT International SA v Commonwealth [2012] HCA 43; (2012) 86 ALJR 1297
- Kosciuszko Thredbo Pty Ltd v ThredboNet Marketing Pty Ltd [2013] FCA 563
- Krishell Pty Ltd v Nilant [2006] WASCA 223; (2006) 32 WAR 540
- Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361
- Macquarie Developments Pty Ltd v Forrester [2005] NSWSC 674
- Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638
- McCracken v Phoenix Constructions (Qld) Pty Ltd [2012] QCA 129; [2013] 2 Qd R 27
- McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477
- McHugh v Australian Jockey Club Ltd [2014] FCAFC 45
- McNamara v Flavel (1988) 13 ACLR 619; (1988) 6 ACLC 802
- Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd [2011] VSCA 392; (2011) 86 ACSR 277
- MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383; (2012) 202 FCR 354
- Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773; (2009) 72 ACSR 684
- Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 81 ACSR 285
- MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 4
- Nifsan Developments Pty Ltd v Buskey [2011] QSC 314
- Nocton v Lord Ashburton [1914] AC 932
- Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1
- Notaras v Waverley Council [2007] NSWCA 333
- O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262; 29 ACSR 148
- Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd [2011] FCAFC 166; (2011) 285 ALR 63
- On the Street Pty Ltd v Cott (1990) 101 FLR 234; (1990) 3 ACSR 54
- Osgaig Pty Ltd v Ajisen (Melbourne) Pty Ltd [2004] FCA 1394; (2004) 213 ALR 153
- Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168; (2011) 81 NSWLR 285
- Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191
- Parker v Tucker [2010] FCA 263; (2010) 77 ACSR 525
- Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109
- Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] AC 514; 1 All ER 193
- Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126
- Petrofina (Great Britain) Ltd v Martin [1966] Ch 146
- Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165
- Potts v Miller [1940] HCA 43; (1940) 64 CLR 282
- R v Byrnes [1995] HCA 1; (1995) 183 CLR 501
- R v Towey (1996) 132 FLR 434; 21 ACSR 46
- Re Cant (in his capacity as liquidator of Novaline Pty Ltd (ACN 006 622 933) (in liq)) [2011] FCA 898; (2011) 282 ALR 49
- Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211; (1966) 84 WN (Pt 1) (NSW) 399
- Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253
- Re Movitor Pty Ltd (in liq) (1996) 64 FCR 380; 19 ACSR 440
- Re New Tel (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176
- Re Park Gate Waggon Works Company (1881) 17 Ch D 234
- Re Rossfield Group Operations Pty Ltd and Morton Holdings (ACT) Pty Ltd [1981] Qd R 372; (1980) 5 ACLR 237
- Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593
- Reed Business Information Pty Ltd v Seymour [2010] NSWSC 790
- Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; [1942] 1 All ER 378
- Rosebanner Pty Ltd v Energy Australia [2009] NSWSC 43; (2009) 223 FLR 460
- Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779; 12 ACLC 269
- Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53
- Seamez v McLaughlin [1999] NSWSC 9
- Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332
- Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386
- Shears v Chisholm [1994] 2 VR 535; (1994) 9 ACSR 691
- Societe d'Avances Commerciales (Societe Anonyme Egyptienne) v Merchants' Marine Insurance Co (The "Palitana") [1924] 20 Ll L Rep 140
- State of New South Wales v Hunt [2014] NSWCA 47
- Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 278 ALR 291
- Sutherland v Pascoe (No 2) [2012] FCA 1361; (2012) 297 ALR 328
- Trendtex Trading Corp v Credit Suisse [1982] AC 679; [1981] 3 All ER 520
- United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1
- UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457
- UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667; (1996) 132 FLR 363
- Varma v Varma [2010] NSWSC 786
Vines v Australian Securities & Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451
- Visnic v Sywak [2009] NSWCA 173; (2009) 257 ALR 517
- Vrisakis v Australian Securities Commission (1993) 9 WAR 395; 11 ACSR 162
- VPlus Holdings Pty Ltd v Bank of Western Australia Ltd [2012] NSWSC 1327; (2012) 91 ACSR 545
- Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514
- Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544
- Waterhouse v Waterhouse (1999) 148 FLR 312; 46 NSWLR 449
- Watson v Foxman (1995) 49 NSWLR 315
- Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1
- Woolworths Ltd v Kelly (1991) 22 NSWLR 189; 4 ACSR 431
- Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458; (2012) 299 ALR 621
Texts Cited: - J D Heydon, The Restraint of Trade Doctrine (3rd ed 2008, LexisNexis Butterworths)
- Meagher, Gummow & Lehane, Equity: Doctrines and Remedies (4th ed 2002, Butterworths)
- R P Austin, 'Fiduciary Accountability for Business Opportunities' in P D Finn, Equity and Commercial Relationships (1987, Lawbook Co)
- Sir Frederick Jordan, Chapters in Equity in New South Wales (6th ed 1947)
Category: Principal judgment
Parties: HY International (Aust) Pty Ltd (First Plaintiff)
Phoenix Explorer Pty Ltd (Second Plaintiff)
Clare Shu Rong Huang (First Defendant)
CH Design Solutions Pty Ltd (Second Defendant)
Gold Label Products Pty Ltd (Third Defendant)
ACN 141 843 370 Pty Ltd (Fourth Defendant)
Colorado Products Pty Ltd (in prov liq) (Fifth Defendant)
Representation: Counsel:
R Harper SC/F Assaf (Plaintiffs)
P S Braham SC/D Neggo (First, Second and Third Defendants)
Solicitors:
Jackson Lalic (Plaintiffs)
Macpherson & Kelley (First, Second and Third Defendants)

File Number(s): 2011/214522

Judgment

Introduction

The Plaintiffs in these proceedings, HY International (Aust) Pty Ltd ("HY International") and Phoenix Explorer Pty Ltd ("Phoenix"), each acquired an interest in the Fifth Defendant, Colorado Products Pty Ltd (in prov liq) ("Colorado"), in mid-2009.

The First Plaintiff, HY International, is a company associated with Ms Lao Ning Huang (to whom I will refer, without disrespect, as "Helen" to distinguish her from the First Defendant, Ms Clare Huang, who shares the same surname but is not related to Helen) and her husband, Mr Huang Yi ("Mr Huang"), and Helen and Mr Huang were each directors of HY International at relevant times. Prior to its acquisition of its interest in Colorado, HY International conducted various businesses including the export of wine, beef and sheepskin products from Australia to China and importing bathroom wares (Helen 1.3.12 [11], T82). The Second Plaintiff, Phoenix, is a company associated with Mr Kenneth Tan (to whom I will refer, without disrespect, as "Kenneth") and was the trustee of his family trust. Kenneth's wife, Ms Hong Ying Ruan, was and is the sole director of Phoenix. Kenneth was previously employed, on a part-time basis, by HY International from March to September 2009 (T82) and was later employed by Colorado.

The First Defendant in the proceedings is Ms Clare Huang (to whom I will refer, without disrespect, as "Clare"). The Second Defendant is CH Design Solutions Pty Ltd ("CH Design"). Clare was and is the sole director and shareholder of CH Design (Clare 20.10.2013 [3]) and CH Design was in turn the registered proprietor of the premises occupied by Colorado at relevant times. After the hearing and submissions had been completed, and judgment was reserved, the Court was advised that CH Design had been deregistered by the Australian Securities and Investments Commission ("ASIC") under s 601AB of the Corporations Act 2001 (Cth) on 26 January 2014, apparently as a result of a failure to lodge annual returns. CH Design was subsequently reinstated by ASIC on 9 April 2014 and, by consent of the parties, the Court made orders validating acts of CH Design in respect of the proceedings during the period of its deregistration. That matter therefore has no effect on the position of CH Design in the proceedings.

The Fourth Defendant is ACN 141 843 370 Pty Ltd, formerly known as Sorrento Kitchens Pty Ltd ("Sorrento Kitchens"), which was incorporated on 4 February 2010 and, until about mid-September 2010, traded under that name. On 1 June 2010, it registered the business name of Black Label Wholesale Kitchens and it traded under that name from mid-September 2010 until late November 2010 or early 2011 when it returned to trading under the name "Sorrento Kitchens". The Third Defendant is Gold Label Products Pty Ltd, which was incorporated in March 2011 under the name Black Label Wholesale Kitchens Pty Ltd and changed its name to Gold Label Products Pty Ltd in November 2011. Clare is now the sole director and holds 90% of the shares in that entity (Clare 20.10.2013 [4]). I will refer to that entity by the somewhat inelegant abbreviation "BL/GLCo", to signify the fact that the single entity traded under both names and to distinguish that entity from "Black Label Wholesale Kitchens" which was, as I noted above, a business name used by Sorrento Kitchens.

The Fifth Defendant, Colorado, at relevant times, imported vanities, basins, mirrors, sinks and laundry tubs to Australia for distribution and sale on a wholesale basis. There is a dispute as to whether Colorado also imported bathroom accessories, laundry accessories and toilet products at the relevant time, which it is not necessary to determine for the purposes of these proceedings. Clare incorporated Colorado (under a different name) in August 1994 and it commenced importing and selling sinks, including sinks that she had designed, on a wholesale basis in late 1995 or early 1996 (Clare 20.10.2013 [17]-[21]). Colorado subsequently expanded the range of kitchen sinks that it imported and, from about 1998, its business expanded to include laundry tubs and laundry cabinets (Clare 20.10.2013 [28]), and further expanded to include bathroom vanities and basins in about 2003 (Clare 20.10.2013 [30]ff). Colorado's business was conducted at premises owned by CH Design at Rydalmere from at least December 1997 until it ceased to trade in early 2011.

Clare was a director and also managing director of Colorado from its incorporation until HY International and Phoenix acquired their shares in Colorado in July 2009. Clare was also appointed as the General Manager of Colorado from about June 2009 to about 31 December 2009 under cl 3.5 of a Shareholders Agreement (to which I will refer below), although the Defendants contend that Kenneth and Helen were also involved in the day-to-day management of the business and affairs of Colorado in that period and that Kenneth and Helen exclusively managed Colorado's business and affairs for 3 weeks in August/September 2009 when she was overseas (Further Amended Statement of Claim ("FASC") [9], Amended Defence [9]). Colorado was placed in provisional liquidation in October 2011.

Another entity ("Sorrento China"), which was not party to the proceedings, was involved in important aspects of the dealings in issue in the proceedings. Sorrento China manufactured, sourced and exported products including vanities, "man-made" (polymarble) basins and cabinets including to Colorado.

The issues in the proceedings and the parties' evidence

The Plaintiffs' FASC filed on 6 June 2011 is complex and seeks a wide range of relief including declaratory relief, orders that certain transaction documents be declared void, compensation, damages for breach of contract, an accounting, remedies in tracing and other relief. The comprehensibility of that pleading is not assisted by the fact that relevant material facts, the alleged duties, the alleged breaches of them and any damage or loss suffered as a result of them are frequently widely separated in different parts of the pleading. The parties have reached a degree of agreement as to the issues in the proceedings. I have structured this judgment by reference both to the pleadings and the parties' agreement as to the relevant issues.

Several pleaded issues are no longer pressed. These are, first, several matters which were initially said to impugn the Share Sale Deed by which the Plaintiffs acquired shares in Colorado, namely, the conditions precedent pleaded at FASC [22] - [27] and [93] - [101], and paragraphs [22] - [23], [25] - [27] and [93] - [101] of the Amended Defence no longer arise in consequence; second, matters which were said to impugn a lease between Colorado and CH Design, namely, issues as to the authority of Kenneth and Helen to execute the lease on behalf of Colorado (FASC [33] - [34]) and the consequential pleading of invalidity of the lease (FASC [37(a)]); and, third, estoppels in relation to a debt claimed by CH Design (FASC [166] - [170]). I have also sought to identify below various claims pleaded that were not expressly abandoned but, as far as I can tell, were not the subject of substantive submissions.

The witnesses and applicable evidentiary principles

The evidence given by Clare, on the one hand, and Helen and Kenneth, on the other hand, was starkly inconsistent in numerous respects. I have been conscious of the importance of the credit of witnesses in cases where a trial judge is faced with a stark choice between irreconcilable accounts: McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477 at [28]; Craig v Silverbrook [2013] NSWSC 1687 at [142] per Sackar J. I recognise that, as the Plaintiffs point out, the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to his or her motives, and to the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57. I have also had regard to Atkin LJ's observation in Societe d'Avances Commerciales (Societe Anonyme Egyptienne) v Merchants' Marine Insurance Co (The "Palitana") [1924] 20 LI L Rep 140 at 152 that "an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour", recently cited by Sackar J in Craig above at [141]. In Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34], Keane JA (as his Honour then was) similarly noted that:

"[u]sually, the rational resolution of an issue involving the credibility of witnesses will require reference to, and analysis of, any evidence independent of the parties which is apt to cast light on the probabilities of the situation."

That observation was recently cited with approval by Leeming JA (with whom Barrett JA and Tobias AJA agreed) in State of New South Wales v Hunt [2014] NSWCA 47 at [56].

I also recognise that all lay witnesses' evidence relates to events which commenced several years ago in mid-2009. Apart from other difficulties to which I will refer below in respect of Helen's, Kenneth's and Clare's evidence, it is important to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. That difficulty is exacerbated where there are substantial issues as to the credit of the three primary witnesses' evidence, in a case which depends in large part on conversations not confirmed in writing and on a document sent by Kenneth, part of which is in error and other parts of which (as I will note below) may have been exaggerated to advance his personal interests.

The Plaintiffs' submissions also rightly draw attention to well-established principles concerning the application of s 140 of the Evidence Act 1995 (NSW) and s 1332 of the Corporations Act and to the authorities concerning the application of those sections where serious allegations are made: Briginshaw v Briginshaw [1938] HCA 34, (1938) 60 CLR 336 at 362 per Dixon J; Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 81 ACSR 285 at [750]-[754]. I have had regard to those principles in finding the facts set out below.

The Plaintiffs rely on Helen's affidavits dated 1 March 2012, 30 August 2013, 7 November 2013 and 20 November 2013. Helen's fourth affidavit of 20 November 2013 largely addressed matters that had been dealt with in her first affidavit as to which her evidence had not been admitted by reason of its form. Helen's affidavits were sworn without the assistance of a registered translator (although it appears she had some other assistance in that regard) and her evidence was that the conversations referred to in her affidavit were conducted in Mandarin, Cantonese, English or a combination of those languages and that she was proficient in Mandarin and Cantonese and functional in English.

Helen's cross-examination was conducted with the assistance of an interpreter and, although Helen answered some simpler questions, particularly earlier in her cross-examination, in English, she largely sought to have more complex questions and answers translated for her. That course is readily understandable where the process of cross-examination is plainly a stressful one for all witnesses, and presumably particularly so for a witness who is being cross-examined in a language which is not her first language. Helen's evidence acknowledged, in some respects, the involvement of her husband, Mr Huang, in events but was not forthcoming as to other aspects of her husband's and his staff's involvement in matters to which I will refer below. Helen set out lengthy, detailed and precise accounts of conversations in her affidavits but she was frequently uncertain of the content of conversations and other matters in cross-examination, frequently indicating in cross-examination that she was "not clear" about matters that may have given rise to difficulty for the Plaintiffs' case.

The Plaintiffs also rely on Kenneth's affidavits dated 22 August 2011, 29 August 2013, 4 November 2013 and 27 November 2013. Many aspects of Kenneth's affidavit evidence were consistent with Helen's affidavit evidence. However, Kenneth's evidence does not corroborate Helen's evidence in any meaningful way, because it is clear that large parts of Helen's affidavit and Kenneth's affidavit had been copied, generally word for word, from each other, and the copied passages include many of the critical disputed conversations. For example, the critical evidence of a disputed conversation at a meeting on 1 June 2009 between Clare, Helen, Kenneth and Mr Huang appears in substantially identical form in paragraph 20 of Kenneth's affidavit dated 22 August 2011 and paragraph 16 of Helen's affidavit dated 1 March 2012; evidence as to a meeting on 29 June 2009 appears in substantially identical form in paragraph 35 of Kenneth's affidavit and paragraph 30 of Helen's affidavit; evidence of a critical meeting in Hong Kong on 10 July 2009 appears in substantially identical form in paragraph 38 of Kenneth's and paragraph 38 of Helen's affidavit; evidence of a discussion of a Supply and Buy Agreement and Lease Agreement at a suggested meeting on 23 July 2009 (which, as will emerge below, did not occur on that date) appears in the same form in paragraph 40 of Kenneth's affidavit and paragraph 41 of Helen's affidavit and, perhaps not surprisingly in those circumstances, Helen and Kenneth make the same error as to the date of the meeting; paragraph 43 of Kenneth's affidavit and paragraph 45 of Helen's affidavit deal with a meeting on 28 July 2009 and contain several sentences in the same form; and the words attributed to Helen in respect of a conversation concerning rent in early December 2010 in paragraph 78 of Kenneth's affidavit are identical to those which appear in paragraph 172 of Helen's affidavit.

I raised this matter with Mr Harper, who appeared with Mr Assaf for the Plaintiffs, in the course of submissions but no satisfactory explanation of it was given. I recognise that Helen's evidence was that she had not seen Kenneth's affidavit sworn in the proceedings and had not discussed her evidence or Kenneth's evidence in the proceedings with him (T274-275) and Kenneth's evidence was also that he had not discussed his evidence in the proceedings with Helen (T320). However, that provides no explanation of how substantial passages of her and Kenneth's affidavit as to critical disputed conversations came to be in the same form. An inference may be available that the Plaintiffs' solicitors copied passages from one affidavit to the other, but they did not seek to provide any explanation of those matters, by contrast with the position in some other cases in which issues of this kind have arisen: for example, Macquarie DevelopmentsPty Ltd v Forrester [2005] NSWSC 674 at [85]ff per Palmer J. It does not seem to me to matter whether the identical passages in Helen's and Kenneth's affidavit evidence was the result of collusion between the witnesses personally or was the result of Helen's adopting evidence that had been copied from Kenneth's affidavit, or Kenneth's adopting evidence that had been copied from Helen's affidavit, since each substantially devalues both witnesses' affidavit evidence where no explanation has been given of what occurred. It is not possible for the Court to be satisfied in this situation, in my view, that Helen's and Kenneth's evidence reflects a genuine recollection of events. The Plaintiffs sought to mitigate the impact of the identical passages in the affidavit evidence of Helen and Kenneth by pointing to the fact that successive affidavits of Clare had also included identical paragraphs. With respect, it seems to me that the copying of evidence in successive affidavits of one witness is not analogous to the copying of affidavit evidence between two different witnesses, since the latter necessarily distorts the evidence of the relevant witnesses in a way which the former typically does not.

In Seamez v McLaughlin [1999] NSWSC 9, Sperling J concluded from the high degree of similarity in content, detail, terminology and sequence between the affidavits of three witnesses that they could not have come into existence without direct or indirect collaboration and observed at [40]) that:

"[a]cceptance of one of the three accounts of the events ... means not only that the other two are not genuinely recollected, independent accounts. It also means that the authors of those other accounts have misstated the way in which their respective accounts came into existence, and seriously so. The credit of the others would then be worthless."

The difficulty which arises from these matters is not merely the possibility of collusion between witnesses that prejudices the value of their evidence but also, as Palmer J noted in Macquarie Developments above, the possibility (and in this case the virtual certainty) that the affidavits did not use the actual words of the respective deponents. His Honour there observed (at [90]) that:

"Save in the case of proving formal or non-contentious matters, affidavit evidence of a witness which is in the same words as affidavit evidence of another witness is highly suggestive either of collusion between the witnesses or that the person drafting the affidavit has not used the actual words of one or both the deponents. Both possibilities seriously prejudice the value of the evidence and Counsel usually attacks the credit of such witnesses, with good reason."

Obviously enough, as Ward J (as her Honour then was) noted in Celermajer Holdings Pty Ltd v Kopas [2011] NSWSC 40, it is unlikely that two deponents would have a precisely identical recollection, uninfluenced by the recollections of others, of shared experiences. Her Honour also noted, and I agree, that (at [186]):

"even if there has not been collusion as such between the witnesses, in the sense of changing their evidence to make it fit with that of another, the fact that the affidavits may not contain the actual words of one or other of the deponents devalues their evidence."

I accept that, in some cases, the courts have taken the view that difficulties of this kind do not render the credit of a witness worthless, although they require care before accepting the evidence of one or other of the witnesses: Macquarie Developments above at [89]-[91]; Rosebanner Pty Ltd v Energy Australia [2009] NSWSC 43; (2009) 223 FLR 460 at [324], [326] per Ward J; Celermajer Holdings above at [183]-[189]. In this case, where the difficulties relate to the most important disputed conversations and where the manner in which they arose remains unexplained by the Plaintiffs, I consider that they substantially devalue the weight to be given to the affidavit evidence of each of Helen and Kenneth as to those matters, to the point that neither's affidavit evidence can be treated as reflecting a genuine individual recollection of events as distinct from a collective reconstruction of them.

These difficulties are exacerbated by the fact that Kenneth was provided by the Plaintiffs' solicitors, prior to his cross-examination, with access to the transcript of Helen's cross-examination, although he claimed in cross-examination that he had read only some parts of that transcript (T328). This further undermined the likelihood that Kenneth could give independent evidence under cross-examination.

There were also other difficulties with Kenneth's evidence. I recognise that Kenneth was, on occasions, prepared to make concessions in cross-examination, including as to possible wrongdoing by him, that were against his interests. However, he often contradicted his affidavit evidence in doing so, and then retreated to his affidavit evidence when he was made aware of the contradiction. For example, Kenneth retreated from his evidence in cross-examination (T335) that he first spoke to Mr Huang rather than Helen as to an investment in Colorado, in a manner that is strongly indicative of his appreciating that his evidence in cross-examination had been inconsistent with his affidavit evidence and with the Plaintiffs' case that Helen was the primary decision-maker and that he then sought to revise that evidence to avoid contradicting that case. He similarly gave evidence that Mr Huang first suggested the Phoenix acquire an interest in Colorado after the 1 June meeting (T337) but then altered that evidence to conform to his affidavit evidence (T350). Kenneth's evidence in cross-examination was initially that he was "sure" that Mr Huang, Helen and he did not ask to see written agreements with Tradelink and Harvey Norman on 1 June (T393) but he also changed that evidence to seek to reflect his affidavit evidence and acknowledged that he had done so (T393). His evidence in cross-examination that he did not recall discussion of the proposed lease of the Rydalmere premises in the meetings in Hong Kong in July (T423-424) was inconsistent with his affidavit evidence and was also reversed when that inconsistency was pointed out (T425). Kenneth also denied in his affidavit evidence significant parts of Clare's evidence with which he later agreed in cross-examination, including that there had been discussion at a critical meeting on 1 June 2009 about Harvey Norman's Commercial Division and of the difficulty of Colorado dealing both with Harvey Norman and Tradelink as customers (T383, T386).

There was also a wider difficulty with Kenneth's credit, namely that, in January 2011, he directed several of Colorado's customers to make payments to his company rather than to Colorado and that he had also misappropriated stock of Colorado to be used in his own business. Kenneth was cross-examined as to these matters under the protection of a certificate under s 128 of the Evidence Act and accepted that his conduct from January 2011 was contrary to the interests of HY International, and indeed involved an attempt to "cheat" Mr Huang (T367). He also accepted in cross-examination that he did not tell Mr Huang or Helen of what he was doing, because he knew he was doing the wrong thing and that his conduct was dishonest (T369). Kenneth was also cross-examined as to whether he was prepared to deceive Mr Huang (T401) as follows:

"Q. In June 2009 you had no difficulty in deceiving Huang Yi if you thought it would benefit you financially?

A. Yes.

Q. You are agreeing with me?

A. Yes."

In my view, Kenneth must have understood the concept of "deceive" when that cross-examination took place. However, he then sought to suggest in re-examination that his understanding of the word "deceiving" was as "the opposite meaning of receiving" (T476), which was not consistent with the reference to financial benefit in the cross-examination to which I have referred above. I do not accept that evidence and the fact that it was given further undermines his credit.

The Plaintiffs also relied on the affidavit of Mr Derrick Keating dated 5 November 2013. The Plaintiffs submit, and I accept, that Mr Keating's evidence - which was significant although in narrow scope - was honestly given. The Plaintiffs also rely on an affidavit of Kenneth's wife, Ms Hong Ying Ruan, dated 17 November 2013. Ms Ruan gave evidence of Kenneth's authority to act on behalf of Phoenix, but not of knowing of representations alleged to have been made by Clare to induce the Plaintiffs to acquire shares in Colorado, and was not cross-examined. Her evidence did not support Kenneth's evidence that he had told her about those representations (Kenneth 27.11.2013 [5]). The Plaintiffs also rely on affidavits of several other witnesses who addressed narrower issues and were not cross-examined, namely, Mr Daoming Huang dated 22 November 2012; Ms Lina He Zhaohong dated 16 July 2013; Ms Luciana Martins De Andrade dated 22 August 2013; Ms Joan Chow dated 20 November 2013 and Mr John Stevens dated 21 November 2013. The Plaintiffs also rely on three expert reports of Ms Julie Planinic dated 2 March 2012, 2 August 2013 and 30 August 2013. The Defendants properly accept Ms Planinic's qualifications and that she was a witness of credit.

The Defendants rely on the affidavits of Clare dated 20 October 2013 and 29 January 2014 and her son, Mr David Xie, dated 18 October 2013. The Plaintiffs submit (T942), and I accept, that Clare's affidavit reflects significant drafting input from her legal advisers, in the sense that the language of that affidavit was significantly more precise and "legalistic" than the manner in which Ms Huang expressed herself in other correspondence. That is, however, not necessarily a matter which impugns her credit, since affidavits drafted with the assistance of solicitors or Counsel will commonly have that characteristic to some extent. There were, in my view, other significant difficulties with Clare's evidence. She gave evidence in cross-examination of significant conversations and events that she had previously not mentioned in her affidavit and on several occasions gave accounts of significant matters that were inconsistent with documentary evidence, or that she then varied when confronted with inconsistent evidence, and often gave lengthy and self-serving answers which failed to answer the question asked. For example, I set out below Clare's explanation, late in her cross-examination, of Sorrento Kitchen's involvement in dealings with Tradelink, which she had previously not accepted. The Plaintiffs contend that the Court should reject all of Clare's evidence unless that evidence is corroborated by contemporaneous documentary records or by other witnesses of truth. In my view, Clare's evidence needs to be treated with caution.

Witnesses not called by the Plaintiffs

The Plaintiffs did not call evidence of two persons who played significant roles in the relevant events. Helen's husband, Mr Huang, is a successful businessman with very substantial business interests in Hong Kong and China and is astute in business matters (T123). He was a director of HY International from 24 August 2006 until at least 25 February 2010 (Ex D9 518). Although Helen's evidence in cross-examination was initially that she could not remember whether he had been a director of HY International at the time it acquired an interest in Colorado (T88), financial reports for HY International for the period 1 January 2009 - 31 December 2009, provided to the Department of Immigration in February 2010, recorded Mr Huang as a director of HY International (Ex D9, p 75) and Helen ultimately accepted in cross-examination that he had not resigned as a director before those accounts were signed (T96). It appears that the reference to "HY" in "HY International" may be a reference to Mr Huang's name, a proposition that was accepted by Kenneth in cross-examination but denied by Helen whose evidence was that those initials referred to "happy" (T89). That evidence seems to me to be somewhat implausible, although it is not necessary to reach a firm finding in that regard. Mr Huang was involved in several critical aspects of HY International's acquisition of an interest in Colorado. He was present at the significant meetings relating to the acquisition, including a meeting on 1 June 2009 and meetings that took place in Hong Kong in July 2009; Kenneth's report dated 6 June 2009 concerning the potential purchase of Colorado's business (Ex P1 1/425) was sent to him; he loaned money to Kenneth to enable Phoenix to purchase shares in Colorado; and he is, incidentally, funding the proceedings (T87).

Helen's evidence sought to minimise Mr Huang's role in the matter. Her evidence in cross-examination was that she was looking for a long term business investment for future income so Mr Huang left it with her to decide whether she wanted to go ahead or not and that she made the relevant decision to acquire an interest in Colorado, to Mr Huang's exclusion (T89). That position seems to me to be inconsistent with Helen's approach when the possibility of the acquisition of an interest in Colorado was first raised with her by Kenneth, which was simply to refer it (and at least some of the subsequent correspondence) to Mr Huang (Ex P1 2/636; T90). Helen's evidence was that she did not read the Share Sale Deed or have it read to her (T175) and that approach seems to me to be inconsistent with any suggestion that Helen was the primary decision-maker in respect of the transaction (T179-180). Helen's evidence was also that she made strategic decisions in respect of Colorado to the exclusion of Mr Huang (T118) and that he left all matters to her to decide (T119), but that evidence was in turn contradicted by information provided by Helen's immigration agent to the Immigration Department in March 2010, which represented that all strategic decisions in respect of Colorado were made in conjunction with Mr Huang (Ex D9, 514). The nature of Mr Huang's role was obviously an important matter given the emphasis that the Defendants had placed on the fact that he was not giving evidence. I do not accept Helen's evidence as to that matter, which does not seem to me to have been the product of any error of recollection, and this matter seriously undermines Helen's credit generally.

Helen's evidence as to Mr Huang's role was also inconsistent with Kenneth's evidence as to that role. Kenneth's evidence, in answer to a question whether Mr Huang was the person in charge of HY International, was that he assumed that HY International, for which he worked for a period, was named after Mr Huang (T332). His evidence in cross-examination was also that he first contacted Mr Huang in respect of the possible investment of HY International in Colorado, because he understood that Mr Huang would make any decision in respect of that investment (T334). That evidence contradicted the account in his affidavit (Kenneth 22.08.2011 [17]) that he initially telephoned Helen to discuss Colorado, although he retreated from his evidence in cross-examination when that contradiction was raised with him, while still acknowledging that "my focus is to discuss the issue with Huang Yi, not with Helen" (T349). Kenneth's evidence was that Mr Huang then instructed him to investigate the opportunity and did not suggest that he should speak to Helen in respect of the matter (T335). Kenneth's evidence was also that Mr Huang attended the meeting of 1 June because Mr Huang wanted to know more about the Colorado business and that the purposes of his visit from Hong Kong at that time were both to visit his family and see the Colorado business (T336-337). Kenneth also acknowledged that it was possible that Mr Huang had asked questions during that meeting (T337).

The financial controller of Mr Huang's company, Mr Harry Lai, also did not give evidence although he was present when key representations were alleged to have been made at meetings in Hong Kong in July 2009 and Helen, Kenneth and Mr Huang had relied upon his review of financial material prior to entry into the Share Sale Deed in respect of the interest in Colorado. Helen referred to Mr Lai's role in her affidavit evidence as follows:

"Mr Lai ("Mr Lai") is a qualified accountant with CPA Australia as well as with the Hong Kong Institute of CPA. He has been an accountant since 1997. Mr Lai's role included reading, interpreting, analysing data provided by [Clare] on the Colorado shares deal and reporting to me. He would raise questions to clarify accounting and financial issues but he did not recommend any investment decisions to Huang Yi or [Helen]." (Helen 1.3.2012 [22]).

Helen's evidence in cross-examination (T148-149) was that she left it to Mr Lai to look at Colorado's financial accounts on her behalf "[b]ecause after all he's [sic] more professional person and I need his professional opinion". Mr Lai was also emailed documents relating to the proposed purchase by Kenneth and took part in telephone discussions concerning the proposed transaction with Kenneth (Ex P1 2/685).

Ms Grace Wan, an employee of Helen's migration agent (T80), also advised Helen in respect of matters relating to Colorado from July 2010, although Helen was initially reluctant to disclose that matter in cross-examination (T81). Ms Wan also had a significant role in respect of a critical amendment to HY International's accounts to which I will refer below. She also did not give evidence.

Where a party would be expected to, but does not, call a witness who could give evidence on a relevant matter, and the failure to call that evidence is unexplained, an inference may in appropriate circumstances be drawn that the uncalled evidence would not have assisted the party's case: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at [63]-[64] per Heydon, Crennan and Bell JJ; MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 (at [53]) per Macfarlan JA (with whom Ward and Gleeson JJA agreed). The inference may be significant if the absent witness is a person who was a senior executive of a corporate party who was personally engaged in the transactions in question: Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557 at 582 per Street J; Australian Securities & Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [448] per Santow J (as his Honour then was). The Defendants rely on the further proposition that, where a witness is not called, the Court may more confidently draw any inference unfavourable to the party that failed to call that witness, if that witness appears to be in a position to cast light on whether the inference should be drawn: Jones v Dunkel above at 308 per Kitto J, at 312 per Menzies J and at 320-321 per Windeyer J; Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 at [78] per Besanko, Perram and Katzmann JJ. I consider that I can and should infer that the evidence of Mr Huang and Mr Lai would not have assisted the Plaintiffs' case and that I may more confidently draw inferences contrary to that case where such evidence was not led.

The Defendants also refer to the principle in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970, where Lord Mansfield referred to "a maxim that all evidence is to be weighed according to the proof that it was in the power of one side to have produced and in the power of the other to have contradicted". In Cook's Constructions Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 at [42], Hodgson JA observed that:

"[w]here a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party's favour from indirect and second-hand evidence, when the party doesn't call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation."

However, in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 at [250], Heydon J referred to cases which had applied that principle, and noted that many of the applications of the principle were no more than an application of the rule in Jones v Dunkel above and (at [253]) that a failure to call certain evidence would not lead to a discounting of other evidence actually called.

Misleading or deceptive conduct claims

The first category of claims identified by the parties is the Plaintiffs' claims in respect of misleading or deceptive conduct. The first issue arising from those claims is whether the representations pleaded at paragraphs 20 and 60 of the FASC were made by Clare. The parties note that the next issue arising in respect of this claim is whether causation in the nature of reliance by the Plaintiffs is established. The parties agree that this issue involves questions as to reliance by Helen and Kenneth; the corporate governance of Phoenix; the involvement of Mr Huang and Mr Lai in the transaction; and the identification of the parties who advanced capital sums of $800,000 to Colorado in August 2009.

Before turning to those issues, it will be convenient to set out the events leading to the Plaintiffs' acquisition of shares in Colorado. Clare gives evidence of meeting Kenneth, apparently for the first time, at her business premises in March 2009 and telling him that, if she could find the right buyer for the Colorado business, she might consider selling the business (Clare 20.10.2013 [52]). Her evidence is that she said the price for the business was "$1,500,000 for goodwill. Not negotiable" and that she had not put any thought into how she arrived at that figure, which was an amount "that just occurred to [her] at the time as an amount [she] would be willing to accept" (Clare 20.10.2013 [52]). Mr Keating's evidence (Keating 5.11.2013 [6]), contrary to Clare's evidence that she first considered the sale of the business when approached by Kenneth, is that Clare had discussed the possible sale of Colorado with him from about 2007 and had referred to a sale price of $1.5 million for the business from that time. In her affidavit dated 29 January 2014, Clare denied saying to Mr Keating that she wanted $1.5 million for Colorado or having any conversation along those lines before mid-2009, when the sale of shares to the Plaintiffs was taking place; denied discussing with Mr Keating the possible sale of Colorado's business or shares in Colorado; and said that she had not given serious thought to the sale of Colorado's business or shares in it until after she met Kenneth in late March 2009 (Clare 29.1.2014 [5]). The proposition that Clare would decide, without any particular thought, the price at which she would sell the business that she had operated for many years is strikingly implausible, as a matter of general experience, and also inconsistent with the care with which Clare has approached all other aspects of the conduct of these proceedings. Its implausibility undermines her evidence as to this matter and her credit generally and I prefer Mr Keating's evidence that she had been considering selling her business and had decided the price at which she would do so some time before.

Clare's evidence is that, in a telephone call with Kenneth in mid-May 2009, he referred to a potential purchaser of the business who wanted to invest in the business "for immigration purposes" and he said that the family already had its own business in Australia "but it is not big enough to support their immigration and they need a substantial business for immigration purposes" (Clare 20.10.2013 [58]). That evidence, if accepted, would point to a motivation for the purchase of the business by HY International which was not wholly financial in character. Clare's evidence is, at least to some extent, consistent with the objective probabilities given the other evidence to which I will refer below.

Kenneth's evidence was that he was approached by Clare in respect of the sale of the Colorado business in about May 2009 (Kenneth 20.08.2011 [15]-[16]). His evidence is that Clare indicated that she would like $1.5 million for the "trading business" and that she said that the "price is not negotiable" (Kenneth 22.8.2011 [16]). Kenneth's evidence is that he initially telephoned Helen, who invited him to speak to Mr Huang, and that he subsequently put the proposal to Mr Huang in May 2009 (Kenneth 22.8.2011 [17]-[18]). Helen's evidence (Helen 1.3.2012 [12]) was that she was approached by Kenneth in May 2009 about the possibility of acquiring an interest in Colorado from Clare and her evidence was that she responded to that approach by saying:

"Can you please speak to my husband Mr Huang in Hong Kong about the business opportunity?"

I have referred above to the significance of Mr Huang's role in respect of these matters.

A meeting took place on 1 June 2009 attended by Kenneth, Clare and Mr Huang and Helen's affidavit evidence (to which no objection was taken) (Helen 1.3.2012 [14]) was that she and Mr Huang attended the meeting on behalf of HY International. On the other hand, Helen's evidence in cross-examination was that Mr Huang attended the meeting of 1 June because he happened to be in Sydney on a regular visit with the family. It was not entirely clear whether she also acknowledged that he had also attended the meeting to participate in the decision whether HY International would proceed with the acquisition of an interest in Colorado. She responded to that proposition when it was put to her in cross-examination with the statement "[y]es, he went with me" (T123). As I noted above, Mr Huang did not give evidence of what occurred at the meeting.

Helen's evidence (Helen 1.3.2012 [16]) is that Clare made a critical statement at that meeting, on which the Plaintiffs' rely for several of the pleaded representations, as follows:

[Clare]: "Druin Pty Ltd trading as 'Harvey Norman Commercial' ("Harvey Norman") has promised to purchase a minimum of $1 million to $1.2 million in stock per annum from Colorado for the financial year 2009/2010. Because of these sales, the turnover of Colorado for the financial year 2009/2010 will be about $3.5 million. The turnover for this current financial year [2008/2009] is about $2 million. I am prepared to sell my shares for $1.5 million but the deal must be done no later than 30 June 2009 for tax purposes."

Helen acknowledged in cross-examination that Clare did not refer to Druin Pty Ltd but only to "Harvey Norman" in that conversation, and that Clare may have referred to "Harvey Norman" or to "Harvey Norman Commercial" (T124). Helen was cross-examined at some length as to whether any representation as to the amount of business with Harvey Norman related to new or additional business and she acknowledged that she then did not know the amount of existing business done with Harvey Norman (T126); however, I accept that the necessary implication of the reference to Harvey Norman, if there had also been reference to a suggested increase of turnover from about $2 million to $3.5 million, would have been that the business was substantially new business.

Helen's evidence (Helen 1.3.2012 [17]) is also that Clare said the following to Mr Huang, Kenneth and her at the meeting:

[Clare]: "I am a successful businesswoman. I have been operating and managing Colorado for a long time on my own. Colorado is a successful business and has a good name in the industry. I design Colorado's products and make them in my own factory in China. I then sell them to my customers in Australia.

Crane Distribution Limited trading as 'Tradelink' ("Tradelink") has been the major customer of Colorado for some years. I have known the managers at Tradelink for quite some time and I have good relationship with them. Harvey Norman has been buying from Colorado for years and the managers there promised to buy $1 million to $1.2 million of stock from Colorado in the coming year. These two customers are big and reputable companies in Australia. Colorado's business with them has been growing."

Again, Helen conceded in cross-examination (T128) that Clare had not used the phrase "Crane Distribution Limited trading as 'Tradelink'" in that conversation. Helen also referred to Clare's comments as to these matters in cross-examination, not always in a responsive manner. For example, her evidence was that:

"Later on after we go back we calculate what Clare told us Harvey Norman sell and bringing in new business, $1 million to $1.2 million. For the next year the sales turnover to $3.5 million. So according to that figure we calculate the figure, so we clearly remember what she say and what she told us." (T86)

Helen's evidence in cross-examination was also that she could not remember whether Mr Huang asked questions at the meeting on 1 June (T132). That lack of recollection is wholly inconsistent with her detailed account, in direct speech, of what was said at the meeting and is a matter that also undermines her credit.

In cross-examination, Helen denied that Clare had said, at the meeting on 1 June, that she had asked Harvey Norman for some more support in the past but Harvey Norman had asked her to cut off her business with Tradelink (T176). She could not remember Clare having said that Harvey Norman had given Colorado about $250,000 - $300,000 worth of sales in the past (T176). She denied that a conversation concerning a proposal to put Colorado products into Harvey Norman Commercial display rooms in certain stores had taken place (T176). Helen's evidence was also that she or Kenneth requested a copy of the financials and the supply agreements with Harvey Norman and other major suppliers and that Clare responded that she was not prepared to provide that information because, if she did, "you will know everything you need to know about my business", and reiterated the purchase price for all of the shares was $1.5 million (Helen 1.3.2012 [16]).

Kenneth also gave evidence as to the meeting on 1 June 2009 (Kenneth 22.8.2011 [19]ff). The Plaintiffs contend that Helen's evidence is "corroborated" by Kenneth's evidence dated 22 August 2011. I do not accept that submission since the consistency between their affidavit evidence is at least equally likely to reflect the pervasive copying of passages in their respective affidavits to which I referred above rather than any genuine consistency of recollection. Kenneth acknowledged in cross-examination, contrary to his affidavit evidence, that Clare had mentioned the difficulties of dealing with both Harvey Norman and Tradelink, but denied that she had then mentioned that Harvey Norman had asked her to cut off Colorado's trade with Tradelink (T383). He accepted that there was reference to the Harvey Norman Commercial showrooms at that meeting (T383) and acknowledged in cross-examination that, when he made his affidavit in August 2011 and again in November 2012, he did not pay careful attention to their content in respect of the relevant conversation at the meeting on 1 June (T386).

Kenneth did not give any affidavit evidence as to any statement by Clare as to the turnover of the business made at the meeting on 1 June 2009, although he claimed in cross-examination that he had a recollection of Clare saying something about the current turnover and, indeed, accepted that Clare said something to the effect that Colorado's turnover for the financial year 2009/2010 would be doubled (T390). Any such representation would not be consistent with the amount of the suggested additional business from Harvey Norman, which would have been well short of the amount necessary to cause Colorado's turnover to double (T389-391). I do not accept Kenneth's evidence in this regard.

Kenneth accepted that he had changed his evidence concerning whether he had asked to see a copy of Colorado's financial statements at the meeting on 1 June, having initially denied in cross-examination that he asked for those financial statements and then reversed that position when he was reminded that his affidavit had said he had made that request (T393). Kenneth also accepted that he had not had experience of any previous contract where a large supplier had promised to buy goods in the future before they needed them and that a contract between Colorado and Harvey Norman containing such a promise would have been quite extraordinary in his experience (T395).

Clare's affidavit evidence as to this meeting is that she gave an oral presentation as to the Colorado business and she sets out what she said, in direct speech, at substantial length, in evidence that is strongly suggestive of reconstruction. Clare's evidence (20.10.2013 [63]) is that she said words to the following effect in the meeting in June:

"... Harvey Norman has given us about $250,000 to $300,000 worth of sales but I would like it if it was more. The managers of Harvey Norman's commercial division have promised Colorado more support allowing Colorado to put products into their commercial display rooms in Taren Point, Canberra and Somersby. They have agreed for us to put our products in Canberra first and Taren Point and Somersby later on. We will be renewing the contract with Harvey Norman at the end of the month as we renew those contracts annually."

Clare denies that she said that Harvey Norman had promised to purchase a minimum of $1 million to $1.2 million in stock per annum from Colorado for the financial year 2009/2010 or any financial year (Clare 20.10.2013 [63]-[64]) and she also denies that she said that Colorado's turnover for the financial year 2009/2010 would be about $3,500,000 (Clare 20.10.2013 [65]). She also denies that she said that she was prepared to sell her shares for $1.5 million but that the deal must be done no later than 30 June for tax purposes (Clare 20.10.2013 [66]); the price at which the transaction took place was in fact equivalent to $1.5 million and Clare ultimately required that payment to occur by that date.

Clare's evidence is that there was no discussion at that meeting in relation to various matters, including the price that the purchaser was willing to pay for Colorado or the price that she would accept for the business or the time at which the sale must be completed (Clare 20.10.2013 [67]), although her evidence is that she had indicated a non-negotiable price for goodwill to Kenneth in her first conversation with him (Clare 20.10.2013 [52]). Mr Harper submitted, in oral submissions for the Plaintiffs, that it was incredible that there was no discussion of the purchase price, on Clare's account of the meeting on 1 June 2009 and that, on her account, Clare did not give a reason why that price was justifiable. It would perhaps be less surprising if the price was not discussed if it had previously been disclosed to Kenneth, and Clare had made clear that it was non-negotiable as both she and Kenneth say.

Clare acknowledges that she said at that meeting that the turnover of Colorado for the financial year 2008/2009 would be approximately $2 million, and says that she also said that she expected that next year "won't be less than what we have now" (Clare 20.10.2013 [69]). She seeks to establish a reasonable basis for the latter statement, having regard to Harvey Norman's indication that it would provide more support to Colorado; the proposal to permit Colorado display products in Harvey Norman Commercial's showrooms; and her view as to the market environment and the Australian dollar (Clare 20.10.2013 [69]). She denies making any statement as to the expected turnover of Colorado beyond 2009/2010 (Clare 20.10.2013 [71]). She contends that only Mr Huang and not Helen or Kenneth asked questions and made comments about the business during that meeting (Clare 20.10.2013 [72]). Clare also contends that there was a discussion at that meeting of "gross margin" using the Mandarin term which corresponds to "gross margin" in English, and that she answered "about 40%" to a question about that matter, and advised that she did not know the "net margin" or profit margin of the business, which was determined by the accountants at the end of each year (Clare 20.10.2013 [73]-[74]).

Clare was also asked to give evidence of that meeting orally, in cross-examination, without reference to her affidavit, and her oral evidence was substantially consistent with her affidavit evidence. However, that matter did not seem to me to provide any real support for any finding as to Clare's recollection of the meeting, since it is equally consistent with Clare having taken careful steps to familiarise herself with the content of her affidavit.

Kenneth's evidence was, after the 1 June meeting, that Mr Huang expressed his view that the business seemed to be mature and well-established and "not a bad business to invest" and suggested that Phoenix could participate with HY International in the acquisition and offered to lend Kenneth money for that purpose (T337-338). Kenneth also forwarded any documents that were important for the transaction to Mr Huang to look at (T340).

Kenneth also gives detailed evidence of a further meeting with Clare, in Helen's absence, on 5 June 2009 (Kenneth 22.8.2011 [23]-[24], [27]), at which he says that Clare provided him with detailed information about the Colorado business, including the amount of wages paid to individual employees; the rent payable on the warehouse and the warehouse area; and the turnover of the business in 2006-2007, 2007-2008 and 2008-2009. His evidence is that Clare also said:

"In addition, we will sign the actual supply agreement with Harvey Norman in early July 2009. They have promised a minimum order of $1.2 million to $1.5 million each year. On this basis, the turnover for 2009/2010 should be $3.5 million.

The company is worth at least $1.5 million. The purchase price is not negotiable." (Kenneth 22.08.2011 [24])

Kenneth's evidence is also that Clare provided him information about the three main products sold by Colorado - vanities, laundry tubs and kitchen sinks - and about the profit margin on each of the products; the level of stock in the warehouse; the period of credit extended to customers; and the amount then owed by customers. Clare denies that such a meeting took place (Clare 20.10.2013 [79]).

Kenneth's evidence is that he made handwritten notes of the issues discussed at the meeting although he says he did not retain them, and used those notes to draft a note to Mr Huang and Helen (Ex P1 1/427A). By his further affidavit dated 27 November 2013, Kenneth gives evidence (at [7]) that he sent that note to Mr Huang by facsimile from his home facsimile machine and he annexes a telephone bill which records a communication with the facsimile number for Mr Huang. There is other evidence of the transmission of that note to Mr Huang, including the copy of that facsimile printed out by Mr Huang's secretary in Hong Kong; evidence of that secretary; and a further copy of that facsimile sent by that secretary to Mr Huang who was then in China. The fact that that note was also sent to Mr Huang is supported by a reference to it in an email from Mr Lai dated 4 August 2009 (Ex P1 3/965) well before the dispute arose. I accept that Kenneth provided that information to Mr Huang, although there is a question as to whether a critical part of it accurately reflected any comment made by Clare.

That note records several matters that are critical to the Plaintiffs' representational case. The relevant portions of the translation of that note from the original text, written partly in Chinese, are as follows:

"2. Product and profit:

Company turnover: 2006/2007 $1.6 - $1.7m

2007/2008 $2m

2008/2009 $2.1m

The contract with Harvey Norman is signed. Harvey Norman promised minimum $1.2 - $1.5m order per year. So Clare expect the turnover for 2009/2010 is around $3.5m."

The note then refers to the return on each of vanities, laundry tubs and kitchen sinks, and notes that the average return on turnover is around 40%. The note continues:

"3. Sale price, stock and cashflow:

Sale price: Clare insist $1.5m, no discussion.

Stock: Currently she has $800,000 stock in Warehouse. She promised to reduce to around $500,000. But I believe if the turnover is around $3m next year, we need to keep 2 months stock at lease [sic].

Cashflow:

Because most of the buyers have credit account with Colorado. Some is 14 days. Some 30 days and 60 days. Currently, the company has $300,000 to be paid by their customers. Those money will return to company account day by day, and week by week. At same time, new orders will send out.

In the meantime, Tradelink's order is more than 50% of company total order. Other small orders take another 50%. In the future, after Harvey Norman join in, these two major buyer will take nearly 70% of the company's order."

Much of the detailed information contained in that note accurately reflected the position of Colorado as at June 2009, at a level of detail that Kenneth could not have achieved unless Clare had communicated the information to him. That fact posed an obvious difficulty for Clare's unequivocal denial that a meeting had occurred with Kenneth on 5 June, which would have left unexplained how Kenneth obtained the information that he provided to Mr Huang. Mr Harper sought, in cross-examination, to have Clare confirm the accuracy of the relevant information. In my view, Clare deliberately sought to avoid providing that confirmation, by responding to questions of that kind by denying that she had made the relevant statements, rather than addressing the correctness of the information contained in them. I am comfortably satisfied that, although English is not Clare's first language, she understood the relevant questions and was deliberately seeking to avoid answering them. I draw this conclusion because, throughout the large part of her cross-examination, Clare was plainly capable of understanding questions asked in English and answering them, often with considerable subtlety, in English. It does not seem to me, based on my observation of her in the witness box and the logic of her answers to questions generally, that she would have had the slightest difficulty in understanding that Mr Harper's questions were directed to the accuracy of the factual information, not to whether she had made the relevant statements, particularly after Mr Harper had repeatedly explained that matter to her.

In cross-examination, Clare plainly anticipated the difficulty that I noted above in respect of the source of the information provided by Kenneth to Mr Huang, and responded to it by suggesting, in a manner not addressed in any of her affidavits in the proceedings, that she might have provided the information contained in Kenneth's note to him in earlier conversations in May to assist him in introducing a purchaser to the business. Mr Harper squarely put to Clare that this evidence was an invention and was false and she denied that proposition. It seems to me to be possible that this evidence was in fact a late invention, in the witness box, in order to address the difficulty which Clare recognised from her denial of the 5 June meeting and the specificity of the information provided by Kenneth to Mr Huang. It ultimately does not seem to be necessary to decide whether a meeting on 5 June occurred, because it is plain that, even if a meeting on that date did not occur, the large part of the information contained in Kenneth's note must previously have been conveyed by Clare to Kenneth and was then conveyed by Kenneth to Mr Huang. However, it does not follow that all of the information contained in that note reflected information provided by Clare to Kenneth, since it is of course possible that a person who conveys generally accurate information by a note may introduce inaccurate information in it.

The Defendants accepted in oral submissions that a representation had been made to Mr Huang, in the note sent by Kenneth to Mr Huang on 6 June, that Harvey Norman had promised $1.2 to $1.5 million worth of sales but do not accept that Clare was the source of that representation (T994). The Defendants contend that the reference to a meeting with Clare on 5 June 2009 is a fabrication reflecting Kenneth's willingness to deceive Mr Huang when his own financial interests were at stake (T401). They point out that the note claims that Clare had said the agreement with Harvey Norman was signed and that Kenneth acknowledged in his evidence he had not been told that (T406). Kenneth's evidence in cross-examination was at one point that he was told at the meeting on 5 June that Colorado's turnover was $1.6 to $1.8 million per annum (T396) but in his note to Mr Huang he claimed to have been told that turnover was $2.1 million. His recollection was that he was told of an expectation of "three plus million turnover" (T398) but the note to Mr Huang referred to a representation of turnover of $3.5 million. Kenneth's further evidence in cross-examination was that the figure of $2.1 million in his note to Mr Huang reflected a figure of under $2 million referred to by Clare, which he had adjusted because there were 4 weeks left to run between the date of that meeting and the end of the financial year (T403). Kenneth also accepted that he stated in the note to Mr Huang that the contract with Harvey Norman was signed, whereas Clare had told him that the contract was going to be signed, and he suggested that he had made a "mistake" in that regard (T404). In cross-examination, Kenneth was less precise than his note in respect of the information that Clare had provided as to the content of the Harvey Norman promise, suggesting that that figure may have been from $1 million up to $1.5 million (T404), but then reaffirming that Clare had promised a minimum of $1.2 million (T405). There was also an inconsistency between Kenneth's affidavit evidence, which referred to Clare having said that Tradelink provided more than 70%-80% of Colorado's total turnover (Kenneth 22.08.2011 [24]), and the note provided to Mr Huang which stated that Tradelink contributed more than 50% of Colorado's turnover (T407-T408); although those figures are not, strictly, contradictory, the difference between them is substantial.

It was put to Kenneth, in cross-examination, that he had exaggerated aspects of the information provided to Mr Huang in order to deceive him, because he was seeking to encourage Mr Huang to invest in Colorado as that would be to Kenneth's financial benefit (T411). I accept that Kenneth stood to benefit from the transaction, to the extent that he would derive a salary from his proposed role as Colorado's new General Manager and had also been offered the opportunity to participate in the investment through Phoenix, although he would need to borrow significant sums from Mr Huang in order to take up that opportunity. There is a significant difficulty with the accuracy of the note in respect of an important matter recorded in it, namely, that Kenneth conceded in cross-examination that his statement in the document that the Harvey Norman contract was "signed" was a "mistake", and that he should have said "going to be signed", without providing any real explanation of how he could make such a significant mistake (T383, 385, 392-394, 397, 404). It seems to me more likely than not that, as the Defendants contend, Kenneth overstated the progress of that matter in order to encourage Mr Huang to proceed with the transaction, and that raises concern as to the accuracy of the other references to the position in respect of Harvey Norman in that note.

The only relevant breach that has been established is a breach of ss 181 and 182 of the Corporations Act in respect of the diversion of Tradelink's business to Sorrento Kitchens within the period in which Colorado was conducting business to early 2011. Mr Xie's evidence that Clare's conduct was undertaken on behalf of Sorrento Kitchens in significant respects, and the extent of her role within that entity would arguably be sufficient to establish a claim for knowing involvement against that entity, in respect of that breach. No breach has been established in respect of BL/GLCo, which was established and conducted business after Colorado was no longer doing so. However, it is not necessary to express a final view as to that matter where the Plaintiffs do not have standing to bring such a claim under s 1317H of the Corporations Act and s 1324(10) of the Corporations Act is not available for the reasons noted above.

I should add, for completeness, that the Plaintiffs did not plead a claim under the second limb of Barnes v Addy (1874) LR 9 Ch App 244, often referred to as "knowing assistance", which makes a third party liable if it assists a fiduciary in a breach of fiduciary duty, with knowledge of a dishonest and fraudulent design on the part of the fiduciary: see, for example, Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at 160; EC Dawson Investments above at [655]. An allegation of that kind is a serious allegation which requires to be pleaded and particularised (Farah Constructions above at [170]; EC Dawson Investments above at [657]) and I need not address it where it was not pleaded and the Defendants did not conduct themselves in a manner that treated it as in issue despite the pleadings. In submissions in reply, the Plaintiffs also sought to rely on the principle that a third party may also be held liable in respect of a breach of duty by a fiduciary where it is the corporate creature, vehicle or alter ego of the wrongdoing fiduciary who uses it to secure the profits of the breach of duty: Grimaldi v Chameleon Mining NL (No 2) above at [243]; EC Dawson Investments Pty Ltd above at [641]. Mr Harper accepted in oral submissions that a case of knowing receipt against third parties was not pleaded, although he contended that a claim of knowing involvement (presumably, within the meaning of s 79 of the Corporations Act) and knowing receipt would rely upon the same factual matters (T1056). Again, it seems to me that procedural fairness required that a case relying on knowing receipt in equity, as distinct from knowing involvement in a breach of ss 180-183 of the Corporations Act, needed to be identified in the pleadings if it was to be put.

Remedies - compensation

The Plaintiffs accepted that the Court should now determine the amount of any compensation to which they were entitled given that questions of liability and quantum had not been split and given the manner in which the case had been run. In particular, the Plaintiffs have had disclosure going to the question of quantification, expert accounting evidence has been led as to that question and that expert has been cross-examined.

The parties note that this question raises questions as to whether, if breach is established, the Plaintiffs or Colorado suffered loss and damage as a result of the breach and as to the appropriate measure of loss, including loss of the business of Colorado. There was initially a question whether the Plaintiffs suffered any loss after Colorado ceased to trade in January 2011; however, the Plaintiffs now do not press any claim for loss after that date so far as equitable compensation is concerned, while reserving their position in respect of any account of profits. The loss claimed in respect of Colorado is particularised as the loss of its entire business, loss of valuable business and unnecessary stock purchased (FASC [155], [162]). The Plaintiffs (as distinct from Colorado) claim the loss of use of funds and the loss of the entire business of Colorado (FASC [163]).

The only breaches that the Plaintiffs have standing to rely upon, and which have been established, are breaches of the Shareholders Agreement and a breach of fiduciary duty by Clare in respect of the diversion of Tradelink's business from Colorado to Sorrento Kitchens during 2010. An order for equitable compensation for breach of fiduciary duty is intended to put the beneficiary in the same position as if no breach had occurred and equitable compensation is assessed by reference to the plaintiff's loss and irrespective of whether the defendant made a profit: Nocton v Lord Ashburton [1914] AC 932 at 952 per Viscount Haldane LC; Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 at 215; (1966) 84 WN (Pt 1) (NSW) 399 per Street J; O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262; 29 ACSR 148 at 157 per Spigelman CJ (with whom Priestley and Meagher JJA agreed); GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 at [65] per Warren CJ (with whom Chernov JA and Dodds-Streeton AJA agreed).

The Defendants contend, and I accept, that the Plaintiffs have not proved a diminution in the value of Colorado's business over the period of the diversion of sales to Tradelink from Colorado to Sorrento Kitchens during 2010. The evidence of the Plaintiffs' accounting expert, Ms Planinic, was that, as at June 2010, her view was that the shares in Colorado were worth no more than $36,500 and could have been worth nothing (T922), and this position existed prior to any diversion of sales.

The lost sales originally claimed by the Plaintiffs in respect of diversion of business are quantified in Ms Planinic's report dated 30 August 2013. Ms Planinic quantifies diverted sales made by Sorrento Kitchens and BL/GLCo to Colorado's customers in the period 2010-2012, being sales to Tradelink and Raymor in the amount of $785,559.95, made up of sales by Sorrento Kitchens in the period to December 2010 and by BL/GLCo in the period from July 2011 to February 2012; sales by BL/GLCo to Austfly and Osman (which are associated entities) in July and November 2011 in the amounts of $20,124 and $34,981 respectively; sales by BL/GLCo to Tradeworld in March 2013 in the amount of $31,190.16; sales by BL/GLCo to Crown Group between September 2011 and October 2012 in the amount of $127,833.86; and three miscellaneous deposits into BL/GLCo's bank accounts between November and December 2012 in the amount of $465. The total amount of diverted sales initially quantified by Ms Planinic was $1,001,406.90. Based on the original quantification of diverted sales in that amount, Ms Planinic quantified Colorado's loss of profits based on the profit margin of 40% alleged to have been represented by Clare as $400,563 and based on her quantification of Colorado's actual gross profit margin of 27.2% as $272,383.

In closing submissions, the Plaintiffs limited their claim for compensation, in respect of the diversion of sales, to diverted sales for the calendar year 2010, and Mr Harper acknowledged in oral submissions that the compensation now claimed by the Plaintiffs was wholly attributable to dealings between Sorrento Kitchens and Tradelink in that year (T1058). I set out Clare's role in those dealings in paragraphs 286-313 above. Claims for compensation for lost business of approximately $900,866 referable to the 2011, 2012 and 2013 years were not pressed, where Colorado was not conducting business in those years and would not have had the capacity to make sales in those years in any event. The Plaintiffs quantified their claim in respect of diverted business for the year calendar 2010 as $444,302 inclusive of GST, corresponding to Ms Planinic's calculation of that amount for that year as $413,297 exclusive of GST. The Plaintiff's primary position in oral submissions was that they were entitled to compensation in that year in that amount. That claim cannot be sustained since, as Mr Harper accepted in oral submissions, the calculation of compensation would in fact have had to have regard to the cost of sales (T1060).

Mr Harper indicates that the Plaintiffs fall-back position is that Colorado's compensation is 40% of that amount, being the gross profit margin that it was allegedly represented that Colorado would make. As I noted above, the Plaintiffs have not established that Clare made a representation that the gross profit margin, as distinct from the markup on products, was 40% and that basis of calculation cannot be sustained. Even if Clare had made such a representation, the better view is that Colorado's loss would be quantified by reference to the actual profit that had been lost, rather than by reference to a representation as to a profit margin that it could not have achieved.

Mr Braham pointed out, in reply to Colorado's submissions as to the quantification of loss, that Ms Planinic had not applied the gross margin of 40% in calculating the Plaintiffs' loss, but instead pointed out that the gross margin that Colorado's books and records recorded that it achieved in the financial year ending June 2010 was 27.2%. The corresponding claim calculated by reference to Colorado's actual gross profit margin of 27.2% would be $112,416.78 exclusive of GST. Ms Planinic in turn expressed the view that a one-off adjustment relating to the treatment of the acquisition of stock needed to be made which would reduce Colorado's gross profit margin to 5.45% (Planinic Report 30.08.2013 [34]; T914]). I do not consider that the percentage of 27.2% would be discounted by the further one-off accounting adjustment to which Ms Planinic referred, which does not reflect Colorado's actual profit made on an ongoing basis.

The Defendants submit that no damage has been shown to have been caused by the alleged diversion of business away from Colorado and that the Plaintiffs have not demonstrated that Colorado could or would have made the sales that were in fact made by Sorrento Kitchens to Tradelink. They contend that Ms Planinic accepted in cross-examination that risk factors for Colorado's business included its reliance on one major customer, Tradelink, where there was no certainty that the relationship will continue, especially after a change in management (T891, 893). They also point to the difficulties between Kenneth and Tradelink to which I have referred above, which Ms Planinic accepted in cross-examination would be relevant to any consideration of the cause of lost sales (T917). They also point out that Ms Planinic accepted in cross-examination that Colorado had experienced a decline in sales to other major customers such as Harvey Norman, Capitol and IAG (T915) and had also experienced a significant decline in sales to Tradelink before any competitive sales by Sorrento Kitchens were made (T916). The Defendants point out that, in 2009/2010, Colorado had experienced a decline in sales equivalent to 32% of 2009 reported sales or 23% if all of the IAG sales (rather than 95% of them, as I have held) were due to Colorado (T914). They point out that Ms Planinic accepted in cross-examination that "there are likely to be other reasons" for the decline in sales to Tradelink, in addition to Clare's or Sorrento Kitchens' conduct (T920).

The Defendants also contend that Colorado's ability to make the relevant sales was limited because Colorado was short of capital and could not buy in more stock from Sorrento China so as to supply further Tradelink orders. Colorado's liquidity difficulties are set out in Ms Planinic's report dated 2 August 2013, which refers to a range of communications referring to those difficulties (Planinic Report 2.8.2013 [91]). Ms Planinic expresses the view that Colorado's working capital deficiency caused disruption to its operations and earnings capacity, while also recognising that other factors such as changes in economic and industry conditions and customer demand would also impact its financial performance (Planinic Report 2.8.2013 [92]-[95]). Kenneth's evidence in cross-examination also was that at the time during which Sorrento Kitchens was making sales to Tradelink, Colorado would have been unable to make any additional sales even if orders had come in, since there was insufficient stock and, perhaps more fundamentally, a lack of funds to purchase stock (T446-448). Ms Planinic accepted in cross-examination that this evidence would be relevant to an assessment of causation, because it suggests that even if Colorado had received more orders in that period, it would have made no more sales (T918).

Mr Harper acknowledged Kenneth's evidence that there was a tightness of cashflow, although the Plaintiffs contended that that was brought about by Clare's conduct (T1064), and pressed a lost opportunity claim in the alternative to the Plaintiffs' primary claim (T1064). The Defendants also submit that the evidence does not support any attribution of that difficulty to Clare's conduct in particular, a fortiori where, on the Plaintiffs' evidence, Clare had paid approximately $152,000 out of the ANZ accounts for business expenses of Colorado between August 2009 and January 2010 (Helen 7.11.2013 [60]). Ms Planinic accepted in cross-examination that that information, which had not been provided to her, would be relevant to assessing the impact of Clare's behaviour on the cash flow of Colorado (T905). However, that proposition needs to be qualified by noting that the amount paid out by Clare from those accounts was less than the amounts paid into them by Colorado's customers; the excess gives rise to the Acknowledged Amount, to which I have referred above.

The Defendants also contend that any business opportunity that was diverted from Colorado to Sorrento Kitchens was the opportunity to participate in a commission of 5% of any container sale that is made and Colorado never lost that entitlement (T1012). Mr Harper responded that the sales made by Sorrento Kitchens were not "container sales" direct to a customer but were of the same kind as the sales undertaken by Colorado, by which goods were delivered, held in a warehouse and sold in individual orders (T1061). While the relevant invoices refer to "container sales", Mr Harper pointed out that the relevant goods would necessarily be delivered from China to Australia in a container, and that was not determinative of the character of the sales. However, the delivery address recorded in the invoices for the relevant sales was that of the customer, indicating the likelihood that delivery was made of the container directly from the port to the customer. Mr Harper accepted in oral submissions that the Court would draw the inference from the invoices that containers were delivered directly from Sorrento China to the customer, and there was no evidence that the containers were unpacked at any intermediate point (T1063). However, he contended that the sales were not sales permitted by the Supply and Buy Agreement and the "container sales" agreement, because of Sorrento Kitchen's involvement and because they were undertaken without Colorado's knowledge. Alternatively, he contended that Colorado would be entitled to the 5% commission on those sales, if they were container sales directly from Sorrento China.

Mr Braham summarised the Defendants' position as to sales by Sorrento China, in oral submissions, as that Clare was entitled to cause Sorrento China to make sales to Australian customers, specifically container sales, excluding Colorado brands, on the basis that Sorrento China would account to Colorado for 5% of the sale (T1005). The Defendants contended that Colorado was in the same position, whether a container sale was made through Sorrento China or Sorrento Kitchens, in that it had an entitlement to 5% and no more than 5% on such a sale. Mr Braham contended that no loss was suffered by Colorado because it retained its entitlement to a 5% commission on such sales in any event. I do not accept that submission, because the 5% entitlement was directed to sales by Sorrento China, and Clare's conduct and Tradelink's unwillingness to pay in US dollars had the result that the relevant sales were made by Sorrento Kitchens, not Sorrento China.

Mr Braham also submitted that there is no evidence to support an inference that, if container sales had not been made by Sorrento Kitchens, corresponding sales would have been made by Colorado out of its warehouse, rather than container sales being made by Sorrento China on which the 5% commission would have been payable. I also do not accept that submission, so far as the relevant sales to Tradelink are concerned, given the evidence that Tradelink was not prepared to make payment in US dollars as dealings with Sorrento China would have required and, absent Sorrento Kitchen's sales to it, its most obvious alternative would have been to make the relevant purchases through Colorado.

It seems to me to be likely that, but for Clare's dealings with Tradelink, Tradelink would have dealt with Colorado to purchase the relevant products, had Colorado been able to fund the acquisition of those products from Sorrento China. The loss suffered from the loss of sale of those products was the gross margin in the order of 27% of the gross amount of those sales. However, that loss needs to be substantially discounted by the evidence as to the lack of funds of Colorado to acquire the relevant stock so as to hold it in the warehouse. In that sense, Colorado is driven to its alternative claim based on the loss of opportunity to make the relevant sales.

Although the parties did not address the principles applicable to such a claim in submissions, the authorities establish that a claimant in a loss of opportunity case must establish that loss and damage was caused by the alleged breach: Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 at 364 per Brennan J. Once causation is established, the fact that a claimed loss involves a degree of speculation does not necessarily exclude recovery for that loss: Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 at 643 per Deane, Gaudron and McHugh JJ; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64; Sellars v Adelaide Petroleum NL above at 353 per Mason CJ, Dawson, Toohey and Gaudron JJ. The Court may also place a monetary value on a loss of opportunity in assessing equitable compensation, although that loss is incapable of precise measurement, and may use subjective "tools" in arriving at that value, such as common sense and general notions of justice and fairness, and may determine the amount of equitable compensation by a process of "judicial estimation" on the available indications: O'Halloran v RT Thomas & Family Pty Ltd above at 273; AMP Services Ltd v Manning [2006] FCA 256 at [69] per Finkelstein J.

It seems to me, doing the best I can with limited evidence, that treating Colorado as having a prospect in the order of 50% of funding the acquisition of the relevant products and making such sales to Tradelink, but for Clare's conduct, so as to derive the profit of in the order of 27% on those sales, would be consistent with common sense and fairness, where the absence of funds within the business would reflect at least to some extent, the fact that sales were diverted from it. In the result, the outcome from Colorado undertaking such sales in its own right would be somewhat higher than the 5% commission to which it would have been entitled had the relevant transactions taken place as direct container sales from Sorrento China to Tradelink. The damages recoverable by Colorado in respect of the diversion of sales in 2010 are therefore in the order of 13.5% of the value of the sales made by Sorrento Kitchens to Tradelink in that year in respect of the second - thirteenth items in the Plaintiffs' schedule (MFI 20), and a lost 5% commission on the first sale in that schedule which is a sale (made by Sorrento China by its sales agent, Capri International) for which a 5% commission would be payable under the Supply and Buy Agreement. I will leave the parties to calculate that amount, should the Plaintiffs elect for equitable compensation rather than an account of profits.

Account of profits

The Plaintiffs contend that the successful party in a claim for breach of fiduciary duty is entitled to wait until after judgment to make an election as to whether it wishes to obtain relief by way of equitable compensation or an account of profits and that they (or more precisely, HY International which brings that claim as Colorado's assignee) intend to exercise that entitlement and wait until after judgment before making such an election: Warman International Ltd above at 569-570; Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] AC 514 at 521; 1 All ER 193; Visnic v Sywak [2009] NSWCA 173; (2009) 257 ALR 517 at [4]-[5] per Spigelman CJ (with whom Campbell and Macfarlan JJA agreed); Barescape Pty Ltd as Trustee for the V's Family Trust v Bacchus Holdings Pty Ltd as Trustee for the Bacchus Holdings Trust (No 9) [2012] NSWSC 984 at [281] per Black J. The Defendants accept that the Plaintiffs are entitled to await the judgment before making an election as regards to account of profits and any other potential relief which may be available.

The Defendants submit, and I accept, that the manner in which the case has been conducted requires that any account of profits should be determined by reference to the evidence already led in the proceedings. The Plaintiffs should have the opportunity to make that election prior to the entry of judgment and I will hear any necessary further submissions as to any account of profits at that point. Although the Defendants submitted that the basis for an account of profits is not established, it seems to me preferable that I address those submissions only if the Plaintiffs elect for an account of profits rather than compensation.

Cross-claim

By a Cross-Claim filed on 21 September 2012, CH Design claims unpaid rent in the sum of $49,500, unpaid rates and other expenses and damages in an amount to be determined against Colorado. CH Design claims that Colorado failed to pay rent due under the lease of the Rydalmere premises on 31 October and 30 November 2010 totalling $33,000 and failed to pay rent due under the lease on 31 December 2010 in the amount of $16,500; that CH Design terminated that lease by re-entry and repossessing the premises on 7 January 2011; and that CH Design has suffered loss and damage as a result of Colorado's breach of the lease. The Cross-Claim acknowledges the receipt of certain monies reducing the amount of the claim against Colorado. CH Design also pleads that each of Colorado, Kenneth and Helen are jointly and severally liable to pay CH Design the specified amount. By cl 24 of the lease, Helen and Kenneth had guaranteed that Colorado would punctually pay the rent and other money payable under it and would perform its obligations and undertook to CH Design that they would be liable separately and together with Colorado to CH Design for the payment of rent and other money and the performance of Colorado's obligations and given an associated indemnity.

By their Defence to the Cross-Claim, Helen and Kenneth variously denied Colorado's entry into the lease, although accepting that the lease was purportedly executed by Colorado on or about 28 July 2009 and contended that the lease was induced by misleading or deceptive conduct (paragraphs 17-26); claimed that Clare breached fiduciary and statutory duties in inducing Colorado to enter into the lease (paragraphs 27-32); that the lease was wrongfully terminated and claim relief from forfeiture (paragraphs 33-39); claimed that CH Design was estopped from claiming rent for November 2010, rates, taxes and outgoings (paragraphs 40-52); and that leave under s 471B of the Corporations Act should be refused. I do not understand the challenges in respect of the entry into the lease to have been pressed.

I have addressed the terms of the lease between CH Design and Colorado and the parties' dealings in respect of that lease in paragraphs 216-237 above. Clare's evidence is that Colorado did not pay rent after October 2010, other than a payment of $16,500 received in May 2011 (Clare 20.10.2013 [323]). On that basis, $33,000 would be owing. The Defence to Cross-Claim did not admit non-payment of those arrears. As I noted above, Mr Harper, properly, conceded that matter in submissions. Subject to the several defences raised by Helen and Kenneth, CH Design would be entitled to judgment against Colorado for the amount of rent outstanding.

In opening submissions, the Plaintiffs denied that Colorado was liable for outstanding rent, contending that their claim greatly exceeds CH Design's rental claim and that Clare cannot take advantage of her own wrong. In their closing submissions, the Plaintiffs again submitted (PWS [433]-[434]) that it would be "unconscionable" for Clare (or, more precisely, CH Design) to recover any outstanding rent and that Clare should not be able to "take advantage of [her] own wrong". As the Defendants point out, CH Design was contractually entitled to be paid rent and Colorado was contractually obliged to pay it. This was obviously known to the parties, and it does not seem to me that to give effect to the terms of the lease would not lead to a breach of duty on the part of Clare. No relevant wrong has been established on the part of CH Design or Clare in requiring payment of rent or taking possession in circumstances where the rent had not been paid.

Helen and Kenneth plead that the lease was induced by misleading or deceptive conduct (Defence to Cross-Claim [17]-[26]). The claim has not been established for the reasons noted in paragraphs 216-237 above. Helen and Kenneth also plead that Clare breached fiduciary and statutory duties in inducing Colorado to enter into the lease (Defence to Cross-Claim [27]-[32]). That claim has also not been established for the reasons noted in paragraphs 373-376, 410 and 427 above.

Helen and Kenneth plead that CH Design is estopped from claiming rent for November 2010, rates, taxes and outgoings (Defence to Cross-Claim [40]-[52]). The suggested estoppel is based on the alleged practice by Colorado of the rent to CH Design being paid from three weeks to one month in arrears since August 2009 (T741) and Helen's evidence of a conversation with Clare on or about 2 December 2010 in which she claims that Clare agreed that the factory and other customers could be paid before the rent. Helen and Kenneth contend that, based on Clare's conduct, Colorado assumed the rent for November could be deferred and, in all the circumstances, it would be unconscionable for CH Design to be able to recover any outstanding rent. I have referred to the conflicting evidence in respect of that conversation in paragraphs 225-237 above. I do not accept that an estoppel was established on the former basis. The repeated demands by CH Design for payment of rent made clear that CH Design did not accept the continuing delays by Colorado in payment of rent and Colorado could have no reasonable basis for any contrary understanding. As I noted above, I also do not accept Helen's evidence of the conversation on 2 December 2010, which was inconsistent with the position previously and subsequently taken by CH Design and an estoppel is also not established on that basis.

Helen and Kenneth also submit that for CH Design to recover the alleged outstanding rent would be contrary to a principle that a person should not take advantage of their own wrong. This submission appears to be based on the contention that, but for Clare's breaches of duty, Colorado would have been able to pay its rent. That proposition has the difficulty that, as the Defendants point out, Colorado had sufficient funds to pay the rent at the relevant time although it did not do so. As the Defendants point out, CH Design's solicitors had, on 13 December 2010, demanded payment of $33,574. As at 4 January 2011, following a payment from Crane Distribution on that day, Colorado's bank account held $42,053 (Ex P1 7/3159). This could have been used to meet the demand for rent before Colorado was locked out. Over the next month, prior to CH Design taking possession, Colorado paid amounts totalling $22,375 to a company associated with Kenneth, Kenway Investments (Aust) Pty Ltd (Ex P1 10/4573-4574, 4579-4580). Beyond that, there is no wrong involved in a lessor being paid rent for occupancy of its property. This defence to the Cross-Claim has therefore not been established.

Helen and Kenneth also contend that CH Design is prevented from pursuing its action by virtue of s 471B of the Corporations Act and leave should not be granted. It seems to me that leave should be granted under that section where the issues raised by the Cross-Claim overlap with the claims raised in the claims brought by Colorado and assigned to HY International. I grant such leave, to the extent that it may be required, nunc pro tunc.

Helen and Kenneth plead that the lease was wrongfully terminated and claim relief against forfeiture (Defence to Cross-Claim [33]-[39]). No substantive submissions were made in respect of this claim and Colorado has not, so far as the evidence goes, made any offer to pay the rental due. The findings that I have reached above do not establish any element of unconscionability in CH Design requiring the payment of rent or exercising its rights consequential upon rent not being paid so as to support such relief.

For these reasons, there should be judgment for CH Design in respect of the amount of rent due. Helen and Kenneth guaranteed Colorado's payment of rent under the lease, by cl 24(4) of the lease (Ex P1 3/928Y). No basis to prevent CH Design relying on that guarantee has been established. My finding that CH Design is entitled to judgment in respect of the rent means that it should also have judgment on the Cross-Claim against Helen and Kenneth.

Orders and costs

The Plaintiffs should now be required to make their election between equitable compensation and an account of profits in respect of the diversion of business. I will then hear the parties as to any such accounting and as to the form of orders, including in respect of the Cross-Claim and costs.

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Amendments

29 October 2014 - Line 1 of paragraph 97 amended to replace the words "Clare recorded that meeting" with the words "Helen recorded that meeting".Line 1 of paragraph 187 amended to replace the words "other than that they admit that Helen did not provide" with the words "other than that they admit that Clare did not provide".

Amended paragraphs: Line 1 of paragraph 97; Line 1 of paragraph 187

Decision last updated: 29 October 2014

Medium Neutral Citation:	In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789
Hearing dates:	19 - 22, 26 - 29 November 2013; 29 - 31 January 2014, 6 February 2014, 19 - 21 February 2014, 5, 7, 10 March 2014
Decision date:	16 June 2014
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Plaintiffs required to make an election between equitable compensation and account of profits in respect of diversion of business. Parties to be heard as form of orders and costs.
Catchwords:	TRADE PRACTICES - misleading or deceptive conduct - whether alleged representations were made by relevant defendant - representations as to future matters - whether relevant representations were misleading or deceptive or likely to mislead or deceive - whether defendant had reasonable grounds in making alleged representations - whether plaintiffs had relied on alleged representations - whether it can be established that loss and damage suffered by plaintiffs was caused by alleged representations - application of Corporations Act ss 1041, 1041E and 1041H, Fair Trading Act 1987 (NSW) ss 41, 42, 68 and Trade Practices Act 1974 (Cth). CONTRACTS - construction - where parties relevantly entered into share sale deed and shareholders agreement - where claims have been made in respect of, inter alia, misappropriation of monies, diversion of business and misuse of confidential information - whether relevant defendant had breached provisions under relevant agreements - post-contractual conduct - whether post-contractual conduct admissible to prove existence of relevant setoff agreement. CONTRACTS - restraint of trade - where relevant clauses contained in share sale deed and shareholders agreement prohibited parties from being involved in business which is the same or similar type of business conducted by relevant company - whether relevant clause is void for uncertainty - requirement to offer participation to company before taking up opportunity - whether relevant clause can be characterised as a restraint of trade clause - whether relevant clauses were reasonable as between parties - whether relevant clauses protected a legitimate interest - whether relevant clauses are contrary to public policy under Restraint of Trades Act 1976 (NSW) - whether relevant defendant had breached restraint of trade provisions. CORPORATIONS - assignment of choses in actions - where provisional liquidator had assigned equitable and statutory causes of action of company to relevant plaintiffs under Corporations Act s 477(2)(c) - whether assignment by provisional liquidator was effective - whether causes of action constituted 'property' so as to be capable of assignment by liquidator. CORPORATIONS - management and administration - duties and liabilities of officers of corporation - directors' duties - claim for breach of fiduciary duties and breach of directors' duties at general law - where relevant defendant was non-executive director of relevant company and director of other competing companies - conflict of interest - whether informed consent can be established - whether existing management structure narrowed scope of relevant defendant's fiduciary duties - where claims have been made in respect of, inter alia, misappropriation of monies, diversion of business and misuse of confidential information - whether relevant defendant's conduct amounted to breach of fiduciary duties. CORPORATIONS - management and administration - duties and liabilities of officers of corporation - claim for breach of Corporations Act 2001 (Cth) ss 180, 181, 182, 183 and 191 - duty of care and diligence - duty to act in good faith in the company's best interests - duty to not improperly use position to gain advantage or cause detriment to company - duty of disclosure - where claims have been made in respect of, inter alia, misappropriation of monies, diversion of business and misuse of confidential information - whether conduct of relevant defendants amounted to breach of statutory duties - accessorial liability - whether it can be established that relevant parties were knowingly concerned and involved in alleged contraventions of statutory duties under Corporations Act s 79. LANDLORD AND TENANT - agreement for lease - rent - claim for outstanding rent - whether claim for rent can be established - whether entry into lease was induced by misleading or deceptive conduct or breach of fiduciary or statutory duties - whether landlord is estopped from claiming rent - public policy considerations - whether lease was wrongfully terminated. REMEDIES - where relevant plaintiffs have been assigned causes of action in respect of breach of statutory duties by provisional liquidator of relevant company - whether relevant plaintiffs have standing to obtain compensatory relief under Corporations Act 2001 (Cth) s 1317H - whether plaintiffs are entitled to damages in respect of contravention of civil liability provisions under Corporations Act s 1324(10) - whether jurisdiction for granting injunction sufficiently enlivened for award of damages under s 1324(10). REMEDIES - equitable compensation - account of profits - whether plaintiffs entitled to await judgment before proceeding with election of remedies - whether plaintiffs or relevant company suffered loss and damage as result of any established breach - loss of business and opportunity - whether there was a diminution in value of company's business in respect of diversion of sales.
Legislation Cited:	- Australian Consumer Law s 18 - Companies (SA) Code s 229(4), 574(8) - Competition and Consumer Act 2010 (Cth) Sch 2 - Corporations Act 2001 (Cth) ss 57A, 79, 79(a), 79(c), 180, 180(1), 181, 181(1), 182, 182(1), 183, 183(1), 191, 232, 440D, 471B, 477, 477(2)(c), 477(2B), 601AB, 769C, 1041E, 1041F, 1041H, 1041I(1), 1317H, 1317H(1), 1317J, 1317J(2), 1317J(4), 1332, 1324, 1324(10) - Corporations Law ss 232(2), 232(4), 232(5), 232(6) - Evidence Act 1990 (NSW) ss 128, 140 - Fair Trading Act 1987 (NSW) ss 41, 42, 68 - Restraint of Trades Act 1976 (NSW) ss 4, 4(1), 4(2)
Cases Cited:	- Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 - Al Raied v Minister for Immigration & Multicultural Affairs [2000] FCA 1357 - Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507 - Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 - Artistic Builders Pty Ltd v Elliot and Tuthill (Mortgages) Pty Ltd [2002] NSWSC 16 - Australian Competition and Consumer Commission v Jewellery Group Pty Ltd [2012] FCA 848; (2012) 293 ALR 335 - Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 1904; (2007) 244 ALR 470 - Australian Growth Resources Corp Pty Ltd v Van Reesema (1988) 13 ACLR 261; (1988) 6 ACLC 529 - Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43 - Australian Securities & Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 - Australian Securities and Investments Commission v Cycclone Magnetic Engines Inc [2009] QSC 58; (2009) 224 FLR 50 - Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 - Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 - Australian Securities & Investments Commission v Vines [2005] NSWSC 738; (2005) 55 ACSR 617 - Austress-Freyssinet Pty Ltd v Kowalski [2007] NSWSC 399 - Ballard v Multiplex Ltd [2008] NSWSC 1019; (2008) 68 ACSR 208 - Bank of Melbourne Ltd v HPM Pty Ltd (in liq) (1997) 26 ACSR 110 - Barescape Pty Ltd as Trustee for the V's Family Trust v Bacchus Holdings Pty Ltd as Trustee for the Bacchus Holdings Trust (No 9) [2012] NSWSC 984 - Barnes v Addy (1874) LR 9 Ch App 244 - Birtchnell v Equity Trustees, Executors & Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 - Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 - Boardman v Phipps [1967] 2 AC 46; [1966] 3 All ER 721 - Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 - Bray v Ford [1896] AC 44 - Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 - Buckley v Tutty [1971] HCA 71; (1971) 125 CLR 353 - Bull v Lee (No 2) [2009] NSWCA 362 - Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 - Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9 - Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 - Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 - Carey v Freehills [2013] FCA 954; (2013) 303 ALR 445 - Carr v Finance Corp of Australia Ltd (No 1) [1981] HCA 20; (1981) 147 CLR 246 - Celermajer Holdings Pty Ltd v Kopas [2011] NSWSC 40 - Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 - Chen v Karandonis [2002] NSWCA 412 - Chew v R (1991) 4 WAR 21; 5 ACSR 473 - Chew v R [1992] HCA 18; (1992) 173 CLR 626 - Colour Control Centre Pty Ltd v Ty [1995] NSWSC 96 - Commissioner for Corporate Affairs v Green [1978] VR 505 - Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 - Cook's Constructions Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 - County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 - Craig v Silverbrook [2013] NSWSC 1687 - Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd [2011] VSC 288; (2011) 84 ACSR 616 - Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300; (2011) 284 ALR 601 - Dilosa v Latec Finance Pty Ltd (1966) 84 WN (Pt 1) (NSW) 557 - Doyle v Australian Securities and Investments Commission [2005] HCA 78; (2005) 227 CLR 18 - EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183 - Executor Trustee Australia Ltd v Deloitte Haskins & Sells (1996) 135 FLR 314; (1996) 22 ACSR 270 - Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 - Fawcett Properties Ltd v Buckingham County Council [1961] AC 636; [1960] 3 All ER 503 - Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574 - Forkserve Pty Ltd v Jack [2000] NSWSC 1064; (2000) 19 ACLC 299 - Forty Two International Pty Ltd v Barnes [2014] FCA 85; (2014) 97 ACSR 450 - Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583 - GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 180 FLR 250 - GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 - Georgiadis v Australian and Overseas Telecommunications Corporation [1994] HCA 6; (1994) 179 CLR 297 - Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 - Hanave Pty Ltd v LFOT Pty Ltd [1999] FCA 357, (1999) 43 IPR 545 - Grove v Flavel (1986) 43 SASR 410; (1986) 11 ACLR 161 - Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 - Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd [2011] FCA 1154; (2011) 86 ACSR 393 - Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 - Howard v Commissioner of Taxation [2014] HCA 21 - Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 - Hydrocool Pty Ltd v Hepburn (No 4) [2011] FCA 495; (2011) 279 ALR 646 - Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Market Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653 - In the matter of Colorado Products Pty Ltd (in prov liq) [2013] NSWSC 1613 - In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 64 - Jackson v Conway [2000] FCA 1530 - Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 - Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 - JT International SA v Commonwealth [2012] HCA 43; (2012) 86 ALJR 1297 - Kosciuszko Thredbo Pty Ltd v ThredboNet Marketing Pty Ltd [2013] FCA 563 - Krishell Pty Ltd v Nilant [2006] WASCA 223; (2006) 32 WAR 540 - Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 - Macquarie Developments Pty Ltd v Forrester [2005] NSWSC 674 - Malec v JC Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 - McCracken v Phoenix Constructions (Qld) Pty Ltd [2012] QCA 129; [2013] 2 Qd R 27 - McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477 - McHugh v Australian Jockey Club Ltd [2014] FCAFC 45 - McNamara v Flavel (1988) 13 ACLR 619; (1988) 6 ACLC 802 - Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd [2011] VSCA 392; (2011) 86 ACSR 277 - MG Corrosion Consultants Pty Ltd v Gilmour [2012] FCA 383; (2012) 202 FCR 354 - Mijac Investments Pty Ltd v Graham (No 2) [2009] FCA 773; (2009) 72 ACSR 684 - Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 81 ACSR 285 - MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 4 - Nifsan Developments Pty Ltd v Buskey [2011] QSC 314 - Nocton v Lord Ashburton [1914] AC 932 - Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 - Notaras v Waverley Council [2007] NSWCA 333 - O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262; 29 ACSR 148 - Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd [2011] FCAFC 166; (2011) 285 ALR 63 - On the Street Pty Ltd v Cott (1990) 101 FLR 234; (1990) 3 ACSR 54 - Osgaig Pty Ltd v Ajisen (Melbourne) Pty Ltd [2004] FCA 1394; (2004) 213 ALR 153 - Owners of Strata Plan 5290 v CGS & Co Pty Ltd [2011] NSWCA 168; (2011) 81 NSWLR 285 - Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 - Parker v Tucker [2010] FCA 263; (2010) 77 ACSR 525 - Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109 - Personal Representatives of Tang Man Sit v Capacious Investments Ltd [1996] AC 514; 1 All ER 193 - Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 - Petrofina (Great Britain) Ltd v Martin [1966] Ch 146 - Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 - Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 - R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 - R v Towey (1996) 132 FLR 434; 21 ACSR 46 - Re Cant (in his capacity as liquidator of Novaline Pty Ltd (ACN 006 622 933) (in liq)) [2011] FCA 898; (2011) 282 ALR 49 - Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211; (1966) 84 WN (Pt 1) (NSW) 399 - Re HIH Insurance Ltd and HIH Casualty and General Insurance Ltd; Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 - Re Movitor Pty Ltd (in liq) (1996) 64 FCR 380; 19 ACSR 440 - Re New Tel (in liq); Evans v Wainter Pty Ltd [2005] FCAFC 114; (2005) 145 FCR 176 - Re Park Gate Waggon Works Company (1881) 17 Ch D 234 - Re Rossfield Group Operations Pty Ltd and Morton Holdings (ACT) Pty Ltd [1981] Qd R 372; (1980) 5 ACLR 237 - Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722; (2012) 90 ACSR 593 - Reed Business Information Pty Ltd v Seymour [2010] NSWSC 790 - Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; [1942] 1 All ER 378 - Rosebanner Pty Ltd v Energy Australia [2009] NSWSC 43; (2009) 223 FLR 460 - Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779; 12 ACLC 269 - Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53 - Seamez v McLaughlin [1999] NSWSC 9 - Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 - Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386 - Shears v Chisholm [1994] 2 VR 535; (1994) 9 ACSR 691 - Societe d'Avances Commerciales (Societe Anonyme Egyptienne) v Merchants' Marine Insurance Co (The "Palitana") [1924] 20 Ll L Rep 140 - State of New South Wales v Hunt [2014] NSWCA 47 - Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 278 ALR 291 - Sutherland v Pascoe (No 2) [2012] FCA 1361; (2012) 297 ALR 328 - Trendtex Trading Corp v Credit Suisse [1982] AC 679; [1981] 3 All ER 520 - United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 - UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 - UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd [1997] 1 VR 667; (1996) 132 FLR 363 - Varma v Varma [2010] NSWSC 786 Vines v Australian Securities & Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451 - Visnic v Sywak [2009] NSWCA 173; (2009) 257 ALR 517 - Vrisakis v Australian Securities Commission (1993) 9 WAR 395; 11 ACSR 162 - VPlus Holdings Pty Ltd v Bank of Western Australia Ltd [2012] NSWSC 1327; (2012) 91 ACSR 545 - Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 - Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 - Waterhouse v Waterhouse (1999) 148 FLR 312; 46 NSWLR 449 - Watson v Foxman (1995) 49 NSWLR 315 - Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1 - Woolworths Ltd v Kelly (1991) 22 NSWLR 189; 4 ACSR 431 - Zomojo Pty Ltd v Hurd (No 2) [2012] FCA 1458; (2012) 299 ALR 621
Texts Cited:	- J D Heydon, The Restraint of Trade Doctrine (3rd ed 2008, LexisNexis Butterworths) - Meagher, Gummow & Lehane, Equity: Doctrines and Remedies (4th ed 2002, Butterworths) - R P Austin, 'Fiduciary Accountability for Business Opportunities' in P D Finn, Equity and Commercial Relationships (1987, Lawbook Co) - Sir Frederick Jordan, Chapters in Equity in New South Wales (6th ed 1947)
Category:	Principal judgment
Parties:	HY International (Aust) Pty Ltd (First Plaintiff) Phoenix Explorer Pty Ltd (Second Plaintiff) Clare Shu Rong Huang (First Defendant) CH Design Solutions Pty Ltd (Second Defendant) Gold Label Products Pty Ltd (Third Defendant) ACN 141 843 370 Pty Ltd (Fourth Defendant) Colorado Products Pty Ltd (in prov liq) (Fifth Defendant)
Representation:	Counsel: R Harper SC/F Assaf (Plaintiffs) P S Braham SC/D Neggo (First, Second and Third Defendants) Solicitors: Jackson Lalic (Plaintiffs) Macpherson & Kelley (First, Second and Third Defendants)
File Number(s):	2011/214522