Re: Porter & Anor v Mulcahy & Co Accounting Services Pty Ltd & Ors

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMON LAW DIVISION

S ECI 2019 02810

TIMOTHY NORMAN PORTER & ANOR (according to the Schedule)	Plaintiffs
v
MULCAHY & CO ACCOUNTING SERVICES PTY LTD (ACN 105 360 325) & ORS (according to the Schedule)	Defendants

---

JUDGE:	DELANY J
WHERE HELD:	Melbourne
DATE OF HEARING:	26 April – 11 May 2021
DATE OF JUDGMENT:	13 September 2021
CASE MAY BE CITED AS:	Porter & Anor v Mulcahy & Co Accounting Services Pty Ltd & Ors
MEDIUM NEUTRAL CITATION:	[2021] VSC 572

---

CONTRACT — Implied contract of retainer — Novation — Whether retainer of accountant by the plaintiffs or either of them — Implied terms — Good faith — Duty not to disclose or use confidential information — Duty not to make improper use of position to gain advantage or to cause detriment — APES 110 Code of Ethics for Professional Accountants — Retainer by second plaintiff — Breach — Opportunity usurped by accountant for own benefit and third party incorporated for that purpose— Apple and Pear Australia Ltd v Pink Lady America LLC (2008) Aust Torts Reports 81-942, Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, Masters Home Improvement Pty Ltd v North East Solution Pty Ltd (2017) 372 ALR 440, Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) 383 ALR 577, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 3) (2019) 368 ALR 441, Coco v A N Clark (Engineers) [1969] RPC 41 applied— Hendriks v McGeogh (2008) Aust Torts Reports 81-942, Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473, Renard Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL (recs and mgrs apptd) (admn apptd) [2005] VSCA 228, Burger King Corporation v Hungry Jacks Pty Ltd (2001) 69 NSWLR 558 cited.

EQUITY — Fiduciary relationship — Client and accountant not established category — Relationship of trust and confidence — One plaintiff vulnerable — Confidential information disclosed — Accountant in position to affect interests of the client in a practical sense — Scope of duty — Breach — Hospital Products v United States Surgical Corporation (1984) 156 CLR 41; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; Townsend v Roussety & Co (WA) Pty Ltd (2007) 33 WAR 321 applied — Breen v Williams (1996) 186 CLR 71, ABN Amro Bank N V v Bathurst Regional Council (2014) 224 FCR 1, Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165, ASIC v Citicorp (No 4) (2007) 160 FCR 35 cited — Pavan v Ratnam (1996) 23 ACSR 214 distinguished.

EQUITY — Accessorial liability — Knowing assistance — Requisite degree of knowledge — Fiduciary the directing mind of third party corporation — Third party the alter ego of fiduciary — Corporation knowingly assisted breach of fiduciary duty — Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, Chickabo Pty Ltd v Zphere Pty Ltd (2019) 57 VR 406, Harstedt Pty Ltd v Tomanek (2018) 55 VR 158 applied — Barnes v Addy (1874) LR 9 Ch App 244, Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 cited.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	P Cawthorn QC with P Caillard	Nevetts Lawyers
For the First and Second Defendants	K Anderson	Clyde & Co
For the Third Defendant	S Hay QC with L Molesworth	Holding Redlich

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

The Parties and the Factual Contest............................................................................................... 1

The Pleaded Claims........................................................................................................................... 9

The Questions for Trial................................................................................................................... 16

The Chronology................................................................................................................................ 18

Events prior to 29 June 2017...................................................................................................... 19
The contested 29 June 2017 conversation................................................................................ 21
July 2017....................................................................................................................................... 28
August to October 2017: events and contested conversations............................................. 29
10 October 2017 contested conversation.................................................................................. 33
16 October 2017: funding proposals......................................................................................... 36
2 November 2017 breakfast meeting at the Lake View Hotel.............................................. 37
8 November 2017 contested conversation............................................................................... 39
15 November 2017: Mr Porter withdraws.............................................................................. 41
16 November 2017 Yacht Club Café contested lunch............................................................ 41
Vendor Finance: November 2017............................................................................................. 47
30 November 2017....................................................................................................................... 51
4 December 2017: contested meeting....................................................................................... 52
14-18 December 2017.................................................................................................................. 55
18 December 2017 Lake View Hotel meeting......................................................................... 58
The 19 December 2017 $21m email........................................................................................... 60
20 and 21 December 2017........................................................................................................... 64
The events of early January 2018.............................................................................................. 65
Formal offer to purchase the Business: 25 January 2018...................................................... 66
30 January 2018............................................................................................................................ 67
February/March 2018................................................................................................................. 69
March-June 2018: Purchase by BFMM.................................................................................... 71

The Witnesses: Some observations............................................................................................. 73

Was there a retainer?........................................................................................................................ 79

Retainer principles...................................................................................................................... 81
Was there the Porter Retainer as alleged?............................................................................... 85
Was there the Conheady Retainer as alleged?........................................................................ 95

What were the terms of the Retainers?...................................................................................... 104

The Code..................................................................................................................................... 105
Duty of good faith and best interests..................................................................................... 107
The other implied terms alleged............................................................................................. 114

Was there the Joint Retainer as alleged?................................................................................... 116

Confidential Information............................................................................................................. 118

Fiduciary Duty................................................................................................................................ 127

Matters relied on by the plaintiffs.......................................................................................... 127
Fiduciary Duty: The Principles............................................................................................... 132
Application to the facts: Did the Mulcahy parties owe a fiduciary duty?........................ 141

Was there a breach?....................................................................................................................... 147

Was there a breach of retainer?............................................................................................... 147
Was there a breach of fiduciary duty?................................................................................... 152

Claims against BFMM................................................................................................................... 159

The competing contentions...................................................................................................... 159
Third party liability: the Principles........................................................................................ 163
Application of the Principles................................................................................................... 170

Causation......................................................................................................................................... 174

Responses to questions................................................................................................................. 176

Disposition...................................................................................................................................... 178

HIS HONOUR:

Introduction

This proceeding concerns the plaintiff’s opportunity to purchase and the actual purchase by the third defendant of a controlling interest in the shares in Chris Debono Pty Ltd, trading as Chris’ Body Builders (‘CBB’, or ‘Business’), a business that manufactures tipping bodies and tipping trailers.

The plaintiffs, Mr Porter and Mr Conheady, contend that in breach of retainer and in breach of fiduciary duty, their opportunity to purchase was realised and their confidential information was used by Mulcahy & Co Accounting Services Pty Ltd (‘Mulcahy & Co’) and by Mr Mulcahy (together ‘the Mulcahy parties’) to acquire a controlling interest in the shares in CBB in the name of the third defendant, BFMM Investments Pty Ltd (‘BFMM’). BFMM, a company of which Mr Mulcahy, Mr Matthews, Mr Broadbent and Mr Ford are the directors, is alleged to have knowingly assisted the Mulcahy parties in breach of fiduciary duty and to have knowingly received confidential information.

The Mulcahy parties deny the existence of any retainer, or of the fiduciary duties alleged. They deny the information relied upon by the plaintiffs was confidential information. They deny breach. They contend the opportunity to purchase was no longer open to the plaintiffs at the time it was exploited by them. They contend the acquisition of 70% of the shares in CBB by BFMM was independent of any breach of fiduciary duty. BFMM denies the allegations of knowing receipt of confidential information and of knowing assistance in breach of fiduciary duty.

The trial was limited to liability and to causation issues relevant to liability. Evidence was given by witness statement, with evidence of key contested conversations and events given orally.

The Parties and the Factual Contest

The parties and the witnesses are based in or around Ballarat, Victoria.

Mr Porter is the founder and, until its recent sale to a Japanese company for $74m,[1] was the Managing Director of Porter Excavations Pty Ltd, a plant hire and civil construction business, together with other corporate entities controlled by Mr Porter, known as Porter Group (‘Porter Group’). Porter Group has been a customer of CBB for approximately fifteen years.[2] During that time, CBB was wholly owned by Crist Debono (known as Chris) and his brother, Anthony.
[1]Transcript of the trial in proceeding S ECI 2019 00118 (‘Transcript’), 3 May 2021, 474 (Porter, cross-examination).
[2]Plaintiffs, Amended Statement of Timothy Porter dated 7 April 2021 (‘Porter Statement’), [3].

Mr Conheady is an accountant.[3] He commenced work for Porter Group in mid-August 2016 and from 16 January 2017 until the sale of the business he was the Chief Financial Officer of Porter Group.[4]
[3]Transcript, 26 April 2021, 101.
[4]Plaintiffs, Amended Statement of Chris Conheady dated 7 April 2021 (‘Conheady Statement’), [17]; Porter Statement [16]; Agreed Chronology prepared pursuant to Orders dated 12 January 2021 (‘Agreed Chronology’), 3.

Mulcahy & Co, founded by Mr Mulcahy in 1998, is a provider of accounting and business advisory services. Since the Business was established, Mr Mulcahy has expanded the range of services offered through various entities to include accounting, financial planning, legal mortgage broking, lending, information technology, data processing and marketing services.[5]
[5]First and Second Defendants, Witness Statement of James Mulcahy dated 19 December 2019 (‘Mulcahy Statement’), [4].

Mr Mulcahy is a director and shareholder of Mulcahy & Co. He is a certified practising accountant and a financial planner. Through his family trust Mr Mulcahy holds a 30% interest in Mulcahy & Co Legal Pty Ltd (‘Mulcahy Legal’). The accounting and legal practice businesses (together ‘the Mulcahy Group’) are conducted from the same business premises in Ballarat with some sharing of staff and resources.

Mr Matthews is the founder, sole director, the largest shareholder and the principal solicitor of Mulcahy Legal. Chris Debono’s daughter, Renee, is an employee of Mulcahy Legal. She began her employment in May 2015.[6] Since that time, Mulcahy Legal has provided legal assistance to CBB on a wide variety of matters.
[6]Third Defendant, Witness Statement of Bradley Matthews dated 19 December 2019, (‘Matthews Statement’), [15].

Mr Conheady began using the services of Mulcahy & Co in 2005. Between 2005 and 2018, Mulcahy & Co acted as tax agent and provided services to Mr Conheady in his personal capacity and in his capacity as trustee of the Conheady Family Trust and to Conheady related entities.[7] During that period, Mulcahy & Co provided Mr Conheady with information about investment opportunities, some of which Mr Conheady took up.[8] Mr Conheady continued as a client of Mulcahy & Co until 2019.[9]
[7]Plaintiffs, Amended Statement of Claim dated 24 June 2019 (‘ASC’), [5]; First and Second Defendants, Defence dated 23 August 2019 (‘Mulcahy Parties’ Defence’), [5(a)].
[8]Mulcahy Statement’), [10], [12]; Court book provided at the commencement of Trial (‘CB’; unless otherwise specified, the version of the Court book referred to in this judgment), 124-136.
[9]Conheady Statement, [4]; Mulcahy Statement, [9].

Historically Porter Group had used Fordham Business Advisors Pty Ltd (‘Fordhams’) for the provision of accounting services. Fordhams were the tax agents and ASIC agents for Porter Group. From early 2016, Porter Group had also begun using the services of the Mulcahy parties. Porter Group also engaged Mulcahy Legal to provide legal services.

Between April and August 2016, Mulcahy & Co carried out a review of back office systems and accounting for Porter Plant (‘the Review’).[10] In about August 2016, Mr Mulcahy introduced Mr Conheady to Mr Porter as a potential candidate for a new role as Chief Financial Officer of Porter Group, as recommended in the Review.[11] From late September 2016 Ms Tuck, an accountant employed by Mulcahy & Co, was seconded to Porter Plant.[12] Her secondment continued until June 2017 when she became a direct employee of Porter Group. From early November 2016 through to August 2018, Mr Conheady sought advice from Mr Mulcahy on behalf of Porter Plant, in relation to the potential ASX listing or sale of that business.[13]
[10]Porter Statement, [5]-[13]; Mulcahy Statement, [13]-[14].
[11]Porter Statement, [15].
[12]Mulcahy Statement, [19(a)]; Porter Statement, [10]; CB, 440-460.
[13]Conheady Statement, [25]; Mulcahy Statement, [19(b)].

Mr Broadbent is the managing director of an agricultural supply chain business with an annual turnover of around $450m. He is a close friend of Mr Mulcahy. His offices are located in the same building as the Mulcahy Group. Mr Mulcahy is a director of Broadbent CHS Pty Ltd, the ‘overarching’ company of the Broadbent businesses. From around 2003[14] Mr Broadbent invested in business opportunities with Mr Mulcahy.
[14]Transcript, 6 May 2021, 864.

Mr Ford is the chief executive officer of a finance, insurance and mortgage business.[15] Prior to 2017/2018 Mr Ford had invested in business opportunities with Mr Mulcahy.
[15]CB, 1436.

In September 2016 Chris Debono[16] who, together with his brother Anthony, was ready to retire from CBB, retained Mulcahy & Co to value the Business and to prepare a profile of the Business with a view to its sale to an overseas purchaser.[17] That work was undertaken by Mr Mulcahy in conjunction with Mr Noether, an accountant at Mulcahy & Co. The accounts for the Business were prepared by a different accountant, Mr Hughes of John L Gregory, Accountants, later called Hotchkin Hughes.[18]
[16]Chris Debono conducted all relevant meetings and negotiations. References to Mr Debono are references to Chris Debono and not to his brother, Anthony.
[17]CB, 185-197, 195.
[18]CB, 231-232.

The CBB business profile (‘the Profile’) prepared by Mulcahy & Co in October 2016 reported an adjusted annual average profit for the Business of $5,000,000 and an estimated value range of $12.6m to $14.7m.[19] The proposed sale was described as one where the vendor would retain the company but would provide appropriate warranties.[20] $14m was referred to as a ‘guide’ to purchase price. $17m was identified as the total amount required to purchase the Business based on the carrying value of stock and work in progress (‘WIP’).[21] No sale eventuated in 2016.
[19]CB, 185-197,196-197. Mr Mulcahy referred to $12.6m - $14.7m as ‘a guide’. See Transcript, 3 May 2021, 552-553.
[20]CB, 195.
[21]CB, 197.

On 23 March 2017, Mr Conheady sought advice on behalf of Porter Plant, from Mr Mulcahy and Mr Matthews about a potential claim against Fordhams. The claim related to a structure and taxation review previously carried out by Fordhams.[22]
[22]Conheady WS, [21], CB, 175.

On 30 May 2017, following permission from Mr Debono to do so, Mr Mulcahy contacted Mr Porter about the possibility of him acquiring the Business.[23] On 13 June 2017 Mr Porter told Mr Mulcahy of his interest in doing so. He said Mr Conheady would be the contact for the receipt of information.[24]
[23]Mulcahy Statement, [34]. The date in Mr Mulcahy’s witness statement was corrected during evidence in chief to 30 May 2017.
[24]Porter Statement, [24]-[25]. Mr Debono did not recall the date of this meeting. Transcript, 4 May 2021, 708 (Debono, cross-examination).

On 13 June 2017 Mr Mulcahy sent a copy of the Profile to Mr Conheady and Mr Porter.

On 16 June 2017 Mr Porter and Mr Debono met to discuss the possibility of Mr Porter buying the Business.[25]
[25]Agreed Chronology, 5; Porter Statement, [24]; Matthews Statement, [35].

On 20 June 2017 Mulcahy Legal prepared a confidentiality agreement on behalf of Mr Debono that he sent to Mr Conheady which Mr Porter later signed.[26]
[26]Matthews Statement, [36]; CB, 643.

Mr Conheady gave evidence that on 29 June 2017 Mr Mulcahy told him he could provide advice to Mr Porter about the proposed acquisition by Mr Porter of a controlling interest in the Business. He said Mr Mulcahy provided advice as to the best mode of purchasing the Business; the preparation of contractual warranties; and other matters.[27] Mr Mulcahy denied he either agreed to advise or that he provided advice.
[27]Transcript, 26 April 2021, 102-103.

From mid-2017 Mr Porter pursued the opportunity to acquire a controlling interest in the Business. Between June 2017 and March 2018, Mr Porter and also Mr Conheady, at times on behalf of Mr Porter, at other times on his own behalf, and still at other times in conjunction with Mr Porter, engaged in negotiations with Mr Debono with a view to acquiring a controlling interest in the Business.

In June 2017 Mr Porter and Mr Debono agreed the value of the Business as a whole was $12m.

On 28 August 2017 Mr Porter made a conditional offer to purchase 70% of the shares in the Business with the option to purchase the remaining 30% for $3.6m between two and five years after settlement.[28] The offer included terms that the Debono brothers continue to be employed for two years after settlement, Chris for up to 20 hours per week and Anthony up to four days per week.[29] The purchase of a 70% interest was to be completed by a date no earlier than 15 November 2017.[30]
[28]CB, 286-308, 290.
[29]Ibid, 291.
[30]Ibid, 288.

The first conditional offer by Mr Porter was followed by a second conditional offer on 14 September 2017.[31] The completion date was moved to 2 January 2018.[32] The terms otherwise remained substantially the same. Mr Porter’s preference was to rely on debt to finance the proposed transaction.[33] Both offers were subject to him obtaining bank finance for the whole of the purchase price.[34]
[31]Porter Statement, [35]; Conheady Statement, [55]; First and Second Defendants, Statement of Crist Debono dated 19 December 2019 (‘Debono Statement’), [18]; CB, 309-316.
[32]CB, 311; Transcript, 26 April 2021, 21.
[33]Porter Statement, [39].
[34]CB, 291, 315.

On 2 November 2017 there was a meeting at the Lake View Hotel attended by Mr Debono, Mr Matthews and Mr Conheady. They discussed the contract for the proposed purchase by Mr Porter. There is a dispute about what was said at that meeting.[35]
[35]Agreed Chronology, 10; Debono Statement, [26].

Mr Porter did not secure 100% external debt funding. On 15 November 2017 he abandoned his pursuit of the proposed acquisition.[36]
[36]Porter Statement, [42]-[44]; Transcript, 29 April 2021, 408.

With Mr Porter’s consent, Mr Conheady thereafter sought to pursue the Business opportunity for himself.[37]
[37]Agreed Chronology, 11; Porter Statement, [44]-[45]; Conheady Statement, [73]-[75].

On 16 November 2017 Mr Conheady and Mr Mulcahy met for lunch at the Ballarat Yacht Club. The number of people present for the lunch and what was discussed is disputed. The plaintiffs say only Mr Conheady and Mr Mulcahy attended the lunch. The defendants say Mr Porter and Mr Matthews were also in attendance. Mr Conheady said that during the lunch he retained the Mulcahy parties to act on his behalf concerning his proposal to acquire a controlling interest in the Business. The Mulcahy parties deny any such conversation or agreement.

On 16 and on 20 November 2017, Mr Conheady put proposals to Mr Debono to purchase a 70% and then an 80% interest in the Business on terms. The proposals involved a combination of vendor finance and bank debt (Mr Conheady proposed to involve three to five investors in addition to himself). Initially vendor finance was to be repaid over three years at 5.2% interest.[38] Mr Conheady said that after discussion with Mr Debono on 21 November 2017, he increased the interest rate on the vendor finance component to 9%, to be repaid over seven years, and provided for $3.6m to be paid at settlement.[39] He said Mr Debono told him they had an agreement in principle on those terms.[40]
[38]CB, 392.
[39]CB, 392; Transcript, 29 April 2021, 404.
[40]Transcript, 29 April 2021, 404-405.

Mr Debono agreed he had a conversation with Mr Conheady on 21 November 2017. In cross-examination he said he ‘could have’ discussed the proposal described by Mr Conheady. He could not recall whether he told Mr Conheady he agreed with that proposal.[41]
[41]Transcript, 4-5 May 2021, 737-738 and c/f Transcript 703-704, 735 (Debono).

Mr Debono gave evidence of a conversation with Mr Porter in late November/early December 2017. Mr Porter did not recall such a conversation. Cross-examined, Mr Porter gave evidence to the effect that if there was a conversation, there was no discussion of the things Mr Debono said were discussed.[42]
[42]Ibid, 29 April 2021, 460-464 (Porter), 4 May 2021, 705-706 (Debono, cross-examination).

On 23 November 2017, the plaintiffs agreed between themselves to pursue an 80% interest in the Business, 40% each.[43] Mr Conheady said he called Mr Debono and asked to bring Mr Porter ‘back’ into the acquisition.[44]
[43]Conheady Statement, [93].
[44]Conheady Statement, [94].

On 4 December 2017, Mr Conheady met with Mr Mulcahy. Mr Conheady said they discussed the structure for the purchase of an 80% interest in the Business. While Mr Mulcahy agreed a meeting took place, he disputed Mr Conheady’s account of what was discussed.

On 20 December 2017, Mulcahy & Co provided a letter to ANZ at Mr Conheady’s request in support of a line of credit to fund adjustments on settlement of the proposed acquisition. In the meantime, unbeknown to Mr Conheady and Mr Porter, Mr Mulcahy had begun dealing directly with Mr Debono, leading to what later became the acquisition of a 70% interest in the Business by BFMM.

On 25 January 2018, Mr Mulcahy made a written offer on Mulcahy & Co letterhead to purchase a 70% interest in the Business.[45]
[45]CB, 406-407.

On 30 January 2018, a discussion took place between Mr Conheady and Mr Mulcahy. The content of the conversation is disputed. Mr Conheady said they discussed the proposed acquisition by Mr Porter and him of an 80% interest in the Business.[46] Mr Mulcahy denies that topic was discussed. It is common ground Mr Mulcahy did not tell Mr Conheady on 30 January 2018, or thereafter of his 25 January 2018offer.[47]
[46]Ibid; Transcript, 27 April 2021, 138.
[47]Transcript, 4 May 2021, 630 (Mulcahy, cross-examination).

There are other disputes as to conversations alleged to have taken place between Mr Conheady and Mr Mulcahy. They concern the contents of telephone discussions on 10 October 2017 and 30 January 2018. In addition, Mr Conheady gave evidence of approximately 12 conversations with Mr Mulcahy between August and November 2017, corresponding to the time he was pursuing due diligence enquiries relating to the Business. He said he ‘updated’ Mr Mulcahy during those conversations.[48] Mr Mulcahy denies any such conversations took place.
[48]Conheady Statement, [61], [64]; Transcript, 26-27 April 2021, 111-112, 216 (Conheady).

Mr Mulcahy gave evidence he regarded the plaintiffs’ opportunity to purchase a controlling interest in the Business as open to them to realise until 2 January 2018, but not after that date.[49]
[49]Transcript, 4 May 2021, 626, 655 (Mulcahy, cross-examination).

The defendants contended that when, on 25 January 2018, Mr Mulcahy made an offer to Mr Debono to purchase a 70% interest in the Business for $8.4m based on a total value for the Business of $12m business, plus stock and WIP, that it was open to Mr Mulcahy to do so. Like the offers made by the plaintiffs, the 25 January 2018 offer included an offer to acquire the remaining 30% of shares in the company for $3.6m and a condition that both Chris and Anthony Debono would continue to work part time in the Business for a limited time.[50]
[50]CB, 1265-1266; Transcript, 4 May 2021, 629-630 (Mulcahy, cross-examination).

On 6 March 2018 Mr Debono told Mr Conheady he had withdrawn the Business from the market.[51] That statement was not true.[52]
[51]CB, 411.
[52]Transcript, 5 May 2021, 748 (Debono, cross-examination).

BFMM was incorporated on 27 March 2018.[53] The shareholders in BFMM are interests associated with Mr Mulcahy, Mr Matthews, Mr Broadbent and Mr Ford.[54]
[53]Matthews Statement, [101].
[54]CB, 1436.

On 9 April 2018 BFMM paid a deposit of $400,000 for a 66.67% share in the Business.[55] On 30 June 2018 BFMM signed a share sale agreement with effect from 1 July 2018, for 66.67% of the shares in the Business.[56] The balance of the purchase price, $7.6m, was transferred into the nominated bank accounts of the vendors shortly after 1 July 2018.
[55]Matthews Statement, [105]; CB, 1477-1481.
[56]Agreed Chronology, BFMM acquired 80 shares in CBB, comprising two thirds of the issued shares. See Matthews Statement, [114]-[115]; CB, 1991-2032, 2035-2038, 2145, showing BFMM’s shareholding in CBB as at 1 July 2018.

The Pleaded Claims

The Amended Statement of Claim (‘ASC’)[57] alleges three separate retainers of the Mulcahy parties to provide accounting, taxation and financial advice in relation to the proposed acquisition of the Business:

(a)in early July 2017 a retainer by Mr Porter in relation to an acquisition by him or one of his entities (‘Porter Retainer’);[58]
(b)on 16 November 2017 a fresh retainer by Mr Conheady, alternatively, a novated retainer to advise on Mr Conheady’s planned acquisition (‘Conheady Retainer’);[59] and
(c)on 4 December 2017 a joint retainer by Mr Conheady and Mr Porter or a joint novated retainer by the two of them (‘Joint Retainer’).[60]

[57]Dated 24 June 2019.

[58]ASC, [12].

[59]Ibid, [24].

[60]Ibid, [36], [37].

There is no written agreement between the plaintiffs or either of them and Mulcahy & Co or Mr Mulcahy. Each retainer is alleged to be oral and to be implied. The fact and the contents of disputed conversations relied on by the plaintiffs are critical to the existence or otherwise of the retainers alleged.

The plaintiffs rely, by implication, on the past provision of accounting, taxation and financial advice to them by the Mulcahy parties, upon the relationship of accountant, taxation and financial adviser and client, and upon the conduct of the Mulcahy parties in providing advice to them in relation to their pursuit of the CBB opportunity.[61]
[61]Particulars to ASC, [12].

The plaintiffs allege terms of the Porter Retainer that:

(a)the Mulcahy parties would give accounting, taxation and financial advice to Mr Porter in relation to the acquisition of the Business as requested from time to time;
(b)the Mulcahy parties would act in good faith and in the best interests of Mr Porter;
(c)the Mulcahy parties would not improperly make use of their position as a trusted advisor to gain an advantage for themselves or to cause detriment to Mr Porter;
(d)the Mulcahy parties would not improperly use information obtained in connection with the Porter Retainer;[62] and
(e)the Mulcahy parties would keep confidential and not disclose or make use of any information or knowledge imparted to them in the course of the Porter Retainer.[63]

[62]ASC, [12].

[63]Ibid, [13].

Corresponding terms are alleged to apply from 16 November 2017 to the Conheady Retainer[64] and from 4 December 2017 to the Joint Retainer.[65] The terms alleged are said to be implied, including by common industry practice and from the ‘Compiled APES 110 Code of Ethics for Professional Accountants’ as at November 2013 and on the successor Code applicable from 1 January 2018 (‘the Code’) applicable to Certified Practising Accountants.[66]
[64]Ibid, [26].
[65]Ibid, [38].
[66]See Further and Better Particulars to the Statement of Claim dated 15 April 2020, [1] and [2].

Earlier dealings by the plaintiffs with the Mulcahy parties are said to have led the Mulcahy parties to hold personal financial information relating to each of Mr Porter and Mr Conheady.[67]
[67]See ASC, [6]-[8] regarding Porter, [27] regarding Conheady.

The plaintiffs allege that between July and November 2017, confidential information concerning the proposed purchase of the Business was shared with the Mulcahy parties by Mr Conheady.[68] They allege that on 16, 20 and 21 November 2017[69] confidential information, including as to the price for the opportunity (based on a value of the Business as a whole of $12m) and information about an independent valuation of the Business as a whole at $21m as assessed by Munday Wilkinson accountants was provided by Mr Conheady to Mr Mulcahy.[70] They allege confidential information was provided to Mr Mulcahy as a trusted adviser in circumstances where, but for the existence of trust, that information would not have been provided.[71]
[68]Ibid, [17].
[69]Ibid, [21].
[70]Ibid, [34].
[71]Ibid, [18], [28], [35].

Separately, the plaintiffs allege that as accountants and trusted advisers, the Mulcahy parties owed them fiduciary duties.[72] Those duties are said to arise by reason of:

(a)the provision by the Mulcahy parties of accounting, taxation and business advisory services to each of them;
(b)the fact that in the course of the Mulcahy parties acting for and advising each of them, the Mulcahy parties became aware of the financial circumstances of the plaintiffs and their related entities, and the risk appetite of each of them; and
(c)the retainers; and
(d)the provision of confidential information relating to the opportunity to purchase an interest in the Business.[73]

[72]Ibid, [45].

[73]Ibid, [5]-[8], [12]-[43].

The fiduciary duties alleged to be owed by the Mulcahy parties are duties:

(a)not to allow their personal interests to conflict with their duties to the plaintiffs;
(b)not to use any information, knowledge or resources of the plaintiffs which they ascertained or acquired as a result of their engagement with or for the plaintiffs against the plaintiffs; and
(c)not to take advantage of any business opportunity that might come their way as a result of their engagement with or for the plaintiffs.[74]

[74]Ibid, [45].

The plaintiffs allege the existence of the fiduciary duties and the terms of the retainers meant the Mulcahy parties were precluded from making use of confidential information, and from taking up, or inducing or persuading a corporate vehicle to take up the opportunity to acquire the Business.[75]
[75]Ibid, [46].

The plaintiffs allege that in breach of retainer the Mulcahy parties usurped their opportunity to acquire an interest in the Business for their own benefit or for the benefit of BFMM, an associate of those parties.[76] They allege those parties:

(a)failed to act in good faith and in the best interests of the plaintiffs;
(b)made improper use of their position as advisor to the plaintiffs to gain an advantage for themselves and to cause detriment to the plaintiffs; and
(c)improperly used confidential information obtained by them to gain an advantage for themselves and/or for the benefit of an associate and to otherwise cause detriment to the plaintiffs.

[76]Ibid, [50].

The plaintiffs further allege that in breach of fiduciary duty, the Mulcahy parties:

(a)usurped the opportunity to acquire the Business and/or assisted an associated entity, BFMM, to usurp that opportunity;
(b)used information, knowledge or resources of the plaintiffs which they ascertained or acquired as a result of their engagement with or for the plaintiffs;
(c)took advantage of a business opportunity that came their way as a result of their engagement with or for the plaintiffs; and
(d)allowed their personal interests and/or the interests of an associate to conflict with their fiduciary duties.[77]

[77]Ibid, [51].

The plaintiffs plead that BFMM knew:

(a)the plaintiffs were interested in acquiring the Business;
(b)the plaintiffs had had the opportunity to acquire the Business;
(c)the plaintiffs had retained the Mulcahy parties to give advice in relation to the acquisition of the Business;
(d)the Mulcahy parties owed fiduciary duties to the plaintiffs;
(e)the Mulcahy parties had breached, or if BFMM acquired the Business would breach, the fiduciary duties owed by them to the plaintiffs; and
(f)the Mulcahy parties had made use of confidential information, the personal information and the price information in usurping the opportunity or in inducing or persuading BFMM to usurp the opportunity to acquire the Business.[78]

[78]Ibid, [52].

It is alleged that, as a result, BFMM knowingly assisted the Mulcahy parties in breaches of fiduciary duty.[79] Alternatively, BFMM knowingly received confidential information, and took advantage of such information in usurping the opportunity to acquire the Business.[80]
[79]Ibid, [53].
[80]Ibid, [54] and [55].

The knowledge of BFMM is said to be imputed to BFMM, including because Mr Mulcahy and Mr Matthews are directors of BFMM.[81] In the case of Mr Matthews, in circumstances where he:
[81]Ibid, [52], particulars (i) and (iii).

(a)knew or ought to have known that Mr Mulcahy and Mulcahy & Co owed fiduciary duties to the plaintiffs given that Mr Matthews:
(i)knew the Mulcahy parties had previously acted for the plaintiffs and sought to obtain further work (i.e. they were existing and/or prospective clients);
(ii)knew the plaintiffs were actively pursuing the opportunity to acquire the Business as Mr Matthews was acting for the vendor in relation to the proposed sale to the plaintiffs;
(iii)from at least as early as 30 November 2017, knew the Mulcahy parties were materially assisting the plaintiffs in their proposed acquisition of the Business in circumstances that Mr Matthews knew or ought to have known gave rise to or were likely to give rise to a fiduciary relationship;
(iv)worked for ‘Mulcahy Legal’ of which Mr Mulcahy is a shareholder and which is located in the same building as Mulcahy & Co;

(b)knew or ought to have known that:
(i)the fiduciary duties owed to the plaintiffs were being or were likely to be breached by the Mulcahy parties (or otherwise wilfully shut his eyes to that likelihood); and
(ii)BFMM was incorporated for the specific purpose of facilitating and/or benefitting from those breaches of fiduciary duty;

(c)otherwise wilfully shut his eyes to the obvious;
(d)was a director, shareholder, investor and adviser to the consortium/BFMM formed to take the business opportunity, particularly when aggregated with the knowledge of Mr Mulcahy, being a fellow member of the consortium and director of BFMM.[82]

[82]Further Particulars to the ASC dated 9 April 2021.

The defendants deny the existence of the retainers alleged. They deny that if there were the retainers or any of them, that the terms of the retainers included an obligation to act in good faith and in the best interests of the plaintiffs. They deny owing fiduciary duties. In their defence, the Mulcahy parties, who both on the pleadings, and at trial, did not differentiate between the personal position of Mr Mulcahy and that of Mulcahy & Co, deny they were ‘trusted advisers’ in relation to the acquisition of the Business.[83] They allege Mr Porter retained Fordhams to undertake due diligence in relation to his proposed purchase of the Business.[84]
[83]Mulcahy Statement, [127]; Transcript, 3 May 2021, 525; Mulcahy Parties’ Defence, [12]-[13], [24]-[26], [33], [36]-[38].
[84]Mulcahy Parties’ Defence, [16(a)].

The defendants deny breach, whether of retainer or of fiduciary duty. They deny they usurped an opportunity that was open to the plaintiffs to realise.[85] They allege that on 18 December 2017, Mr Debono made known to Mr Mulcahy that he was unwilling to sell an interest in the Business to the plaintiffs or any entities associated with them.[86]
[85]Mulcahy Parties’ Defence, [42]; see too Third Defendant, Defence dated 5 August 2019 (‘BFMM Defence’).
[86]Mulcahy Parties’ Defence, [39].

BFMM denies the allegations of knowing assistance in breach of fiduciary duty and of knowing receipt of confidential information. At trial, BFMM contended that knowledge of Mr Mulcahy was not sufficient to establish knowledge on the part of BFMM. They denied the other directors of BFMM, Mr Matthews, Mr Broadbent and Mr Ford, had the requisite degree of knowledge so as to make BFMM liable if the plaintiffs’ claims for breach of fiduciary duty were otherwise made out.

The Questions for Trial

The parties identified the following questions for trial:

(1)Did either or both of the plaintiffs retain the Mulcahy parties, or either of them, to act on their behalf in connection with the proposed purchase of the Business?
(2)If a retainer was entered into, when was it entered into and what were its terms?
(3)Between about July 2017 and 6 March 2018, did the plaintiffs share any and if so what information or confidential information with the Mulcahy parties?
(4)Did the Mulcahy parties, or either of them, owe the first and/or second plaintiffs fiduciary duties, whether pursuant to a retainer or otherwise?
(5)If so, what was the scope of those fiduciary duties and did those fiduciary duties extend to the Mulcahy parties, or either of them, so as:
(a)not to allow their personal interests to conflict or potentially conflict with their duties to the plaintiffs;
(b)to prevent them from using information or confidential information provided to them by the plaintiffs;
(c)to require it/him not to profit from their position as a fiduciary, or use its/his position to obtain a profit for a related party, without the fully informed consent of the plaintiffs;
(d)prevent improper use of their position as an advisor/fiduciary to gain an advantage for themselves or cause detriment to the plaintiffs;
(e)to require them to act in good faith and/or in the best interests of the plaintiffs.

(6)Did the Mulcahy parties breach the retainer referred to in questions 1 and 2 or the fiduciary duties owed to the plaintiffs referred to in question 4 by acquiring through BFMM an interest in the Business?
(7)Was BFMM formed or incorporated to take advantage of the opportunity or the confidential information referred to in question 3 to acquire the business of the Business?
(8)To what extent is any knowledge of the Mulcahy parties, where it is acquired while acting for or assisting the plaintiffs, to be imputed to BFMM?
(9)Did BFMM knowingly assist a breach of a fiduciary duty or duties owed to the plaintiffs as referred to in question 4 or knowingly receive information or confidential information acquired in breach of fiduciary duty or duties as referred to in question 4?
(10)At a certain point in time (and, if so, what time) was the opportunity for the plaintiffs to acquire the Business no longer open or possibly no longer open to the plaintiffs?
(11)Did BFMM come to acquire the Business to any extent and, if so, to what extent, independently of any breach of fiduciary duty? If so, how does that affect the plaintiffs’ claims?[87]

[87]Joint Statement of Issues, 7 April 2021.

Questions 1, 2 and 6 concern the existence or otherwise of retainers and as to the terms of any retainer. Question 3 concerns confidential information. Questions 4-6 concern fiduciary obligations; were fiduciary duties owed, if so, what was their scope and were they breached? Questions 3, 7, 8 and 9 concern BFMM and the allegations of knowing assistance in breach of fiduciary duty and knowing receipt of confidential information. Questions 10 and 11 concern causation, whether BFMM came to acquire its interest in CBB independently of any breach of fiduciary duty and, if it did, how that affects the plaintiffs’ claims.

It is convenient to begin by dealing with the facts in chronological order, and in the course of so doing, to make factual findings as needed concerning contested conversations and events. Some observations are also required regarding the witnesses and their evidence. Next, to turn to the broad topics of the retainers, confidential information, the fiduciary claims, breach, the claims against BFMM, and causation. Finally, to return briefly to the 11 questions for trial and to set out the answers to each of those questions.

The Chronology

Much of the chronology of events and matters involving the parties and Mr Debono are agreed.

What is agreed provides context and assists in determining whose account of disputed events and conversations is to be preferred. Many of the agreed matters are relevant to the resolution of contested issues, including the existence or otherwise of the retainers and fiduciary duties alleged.

Events prior to 29 June 2017

In April 2015 Mr Debono retained Mulcahy Legal in relation to the potential sale of the Business.[88] Between April 2015 and March 2017 Mr Matthews assisted Mr Debono during his negotiations with the then prospective purchaser, a Thai company.[89]
[88]Agreed Chronology, 2; Matthews Statement, [20]-[22].
[89]Matthews Statement, [24].

In early 2016 Mr Debono engaged Mr Mulcahy to prepare an Information Memorandum for the prospective purchaser.[90] In September 2016 Mr Debono retained Mr Mulcahy to value the Business and to prepare the Profile for the sale of the Business as a whole. No sale eventuated.[91]
[90]Ibid, [23].
[91]Agreed Chronology, 3; Mulcahy Statement, [24]; Debono Statement, [7]-[8], [10]; CB, 185-197.

Between April and August 2016 Mulcahy & Co carried out the Review. On 30 June 2016 an email from Mulcahy & Co thanked Mr Porter for the opportunity to complete the Review:

we see plenty of exciting opportunities ahead for Porter Plant and look forward to assisting you along the way with certain projects. We feel like we have really got to know your business and hope that we can get the chance to assist you in all areas of your accounting and financial needs in the future.[92]

[92]CB, 458.

In November 2016 Mr Conheady sought advice on behalf of Porter Group from Mr Mulcahy about the potential ASX listing or sale of Porter Group (‘Project Tonka’). Mr Mulcahy provided advice concerning Project Tonka through to August 2018.[93]
[93]Conheady Statement, [25]; Mulcahy Statement, [19(b)]; CB, 179, 421, 430, 614.

On 23 March 2017 Mr Conheady sent an email to Mr Mulcahy providing background to a potential claim against Fordhams. A file of correspondence was enclosed. The email concluded with a request to ‘ascertain what avenues of recourse are open to Tim [Porter] and Porter Excavations based upon the above’.[94] Subsequently, both Mr Mulcahy and Mr Matthews provided advice in relation to that potential claim.
[94]Conheady Statement, [21]; Mulcahy Statement, [19(c)]; CB, 175 – 177.

In June 2017 Mr Mulcahy suggested to Mr Debono that Mr Porter may be interested in acquiring CBB. Mr Debono authorised Mr Mulcahy to speak to Mr Porter about the opportunity for him to do so.[95]
[95]Mulcahy Statement, [29]; Debono Statement, [11]-[12].

Following discussions between Mr Mulcahy and Mr Porter on 30 May 2017, on 13 June 2017 Mr Mulcahy sent a copy of the Profile to Mr Conheady and Mr Porter.[96] The covering email said the financial analysis is ‘quite brief’ and the ‘valuation methodology is a guide’. It advised that Mr Debono would prefer any discussion is ‘treated with strictest confidence’.
[96]Porter Statement, [21]-[22]; Conheady Statement, [31]-[32]; Mulcahy Statement, [34]-[35]; CB, 184; Transcript, 3 May 2021, 552.

On 16 June 2017 Mr Debono and Mr Porter met to discuss Mr Porter buying the Business.[97]
[97]Porter Statement, [24].

On 19 June 2017 Mr Conheady wrote to Mr Mulcahy seeking further information about the Business, to move to the next stage of due diligence. Amongst other things, he requested information concerning staff and a list of what was being sold as the vendors had said they wished to retain the corporate entity.[98]
[98]CB, 198; Transcript, 3 May 2021, 552-555 (Mulcahy).

On 20 June 2017 Mr Debono instructed Mulcahy Legal to prepare a confidentiality agreement and send it to Mr Porter.[99] On 20 June 2017 Mr Matthews sent an email to Mr Conheady:

We act for CBB in this transaction, but professional standards require that on the basis we have or continue to act for you in other matters we make it clear that we are here acting on their behalf but will excuse ourselves from participation in the matter should you feel our involvement provides a conflict of interest.[100]

[99]Matthews Statement, [35]-[36].

[100]Conheady Statement, [35], Matthews Statement, [36], CB, 200.

The email was sent under the signature block of Mr Mulcahy, ‘director and principal solicitor’ followed by the name and contact details for ‘Mulcahy & Co accounting, financial planning, lending, legal, information technology’.

On 22 June 2017 Chris Debono took Mr Porter on a tour of the factory. He introduced Mr Porter to his brother Anthony. Mr Porter said he asked if Mr Debono would accept an overall price of $12m for the Business, and that Mr Debono said he would.[101]
[101]Porter Statement, [26]-[27].

Mr Debono agreed the price of $12m for the business as a whole, together with stock and WIP was agreed. Also, that it was agreed Mr Porter would acquire 70% of the Business, that Anthony Debono would stay on in the business but drop back to four days per week,[102] and that Mr Debono and his brother would each retain a 15% share.[103]
[102]Porter Statement, [27]–[29]; Transcript, 4 May 2021, 711-712 (Debono, cross-examination).
[103]Transcript, 4 May 2021, 711-712 (Debono).

On 23 June 2017 Mr Porter signed a Confidentiality Agreement binding Porter Excavations Pty Ltd and related bodies corporate to confidentiality in relation to the acquisition. Mr Conheady then began a due diligence process.[104]
[104]Conheady Statement, [36]; Matthews Statement, [39], CB, 201.

Following a request for information directed to Mr Mulcahy, on 27 June 2017 Mr Hughes provided financial and other information about the Business, including management accounts for FY17, an outline of staff by role[105] and a copy of the most recent fixed asset register to Mr Conheady.
[105]CB, 231-250.

The contested 29 June 2017 conversation

Mr Conheady gave oral evidence of an initial telephone conversation with Mr Mulcahy in which he sought and obtained advice about the proposed acquisition by Mr Porter or an entity associated with him.

There was a dispute about the date of the conversation and about what was discussed. There was significant cross-examination of Mr Conheady about the date, also as to the person by whom the telephone call was initiated. When Mr Mulcahy gave evidence-in-chief, both the date of the conversation and the question of who initiated the conversation ceased to be an issue.[106] The dispute about the date remained relevant to credit issues only. The dispute about the contents of the conversation remained.
[106]Transcript, 3 May 2021, 492-493.

As to the date; when the proceeding was issued, Mr Conheady gave instructions and the statement of claim alleged the initial conversation took place in ‘early July 2017’.[107] When he made his 2019 witness statement, he said the conversation occurred ‘on about 10 July 2017’.[108] In his witness statement Mr Mulcahy responded saying he was on holidays at Noosa between 8-14 July 2017.[109] He denied there was a conversation as described by Mr Conheady.
[107]ASC, 12; Transcript, 27 April 2021, 160 (Conheady).
[108]Plaintiffs, Statement of Chris Conheady dated 1 November 2019, [41].
[109]Mulcahy Statement, [40].

In his 7 April 2021 updated witness statement, and in oral evidence-in-chief, Mr Conheady said the initial conversation took place on 29 June 2017.[110] He said he had previously placed the conversation as one that took place after he received a copy of the Profile and after he received financial information from Mr Hughes on 27 June 2017,[111] and before 14 July 2017, when his workbook recorded a meeting with Mr Debono.[112] Mr Conheady said he now placed the date of the conversation as 29 June 2017, based on mobile telephone records discovered by Mr Mulcahy. Those records show a 21 minute call by Mr Mulcahy to Mr Conheady on 29 June 2017.[113]
[110]Conheady Statement, [42]-[48] (excluded paragraphs about which the witness was cross-examined); Transcript, 26 April 2021, 102, 106-108 (Conheady, evidence in chief), 27 April 2021, 165-202 (Conheady, cross-examination).
[111]Transcript, 26 April 2021, 102-103 (Conheady).
[112]Ibid, 111 (Conheady).
[113]Ibid, 26 April 2021,, 110-111 (Conheady); CB, 2598.

In cross-examination, Mr Conheady said ‘Jamie returned my call’.[114] Pressed, he accepted he had no recollection of an earlier call. He said the 29 June 2017 telephone record as the date of the initial conversation ‘makes sense’.[115] He said the July dates were based on his assessment, but he had no telephone record of a conversation around 10 July 2017.[116] Cross-examined, he accepted his workbook was not reliable in specifically ascertaining the date of the initial conversation.[117]
[114]Ibid, 27 April 2021, 165 (Conheady).
[115]Ibid, 163 (Conheady).
[116]Ibid, 26 April 2021, 111(Conheady).
[117]Ibid, 27 April 2021, 162 (Conheady).

When Mr Mulcahy gave evidence he said he received a message from his office on 29 June 2017 to call Mr Conheady, and he did so.[118] He said he made the call from his car.
[118]Ibid, 494 (Mulcahy).

Mr Conheady made notes of the conversation over three pages in his workbook.[119]
[119]Not in sequence in the Court Book, see CB, 253, 2565 and 254.

On the first page, Mr Conheady made a note:

Jamie [being a reference to Mr Mulcahy] not acting for vendor. Only Brad M [being a reference to Mr Matthews].[120]

[120]CB, 253; Transcript, 26 April 2021, 107-110; Plaintiffs, Opening Submissions dated 9 April 2021 (‘Plaintiffs’ Opening Submissions’), [14].

On 20 June 2017 Mr Matthews had advised he was acting for CBB. He offered not to do so if Mr Porter felt that created a conflict of interest. That email had been copied to Mr Mulcahy.[121] It provides the context for the initial conversation and for Mr Conheady’s note.
[121]CB, 200.

Mr Conheady said he told Mr Mulcahy he knew Mr Matthews had excused himself from acting (due to a conflict of interest). He asked Mr Mulcahy ‘What is your role in this transaction?’ to which Mr Mulcahy replied, he was not acting for the vendor and Mr Conheady could talk to him about any part of the deal. Mr Mulcahy said he could act for Tim (Mr Porter).[122]
[122]Transcript, 26 April 2021, 105 (Conheady).

Mr Mulcahy denied that on 29 June 2017 Mr Conheady asked him ‘are you acting for CBB’.[123] I do not accept that evidence. I accept the evidence of Mr Conheady that he asked the question and he received the assurance that Mr Mulcahy could act. His evidence is consistent with and supported by the contemporaneous note in his workbook.
[123]Ibid, 3 May 2021, 561 (Mulcahy).

I also accept Mr Conheady’s evidence that if Mr Mulcahy had said he was acting for the vendor, Mr Conheady would not have continued with the conversation. The note ’Jamie not acting for the vendor’ is at the very beginning of the entries made. It records the results of Mr Conheady checking that Mr Mulcahy could act for Mr Porter and was not conflicted from doing so. This discussion was followed by a discussion of the structure of the proposed purchase, whether a purchase of share capital or of assets as also recorded in the workbook.[124]
[124]CB, 253.

In cross-examination Mr Conheady said that once Mr Mulcahy said he could ‘act for Tim’, he then said he needed to talk to him about an asset purchase of a share purchase.[125] Mr Conheady said that while he did not use the word ‘advice’, in fact what he did was to seek advice from Mr Mulcahy.[126] I accept that to be so, in particular concerning the question of a sale of the assets of the Business or of shares, and in relation to warranties appropriate to a share sale. I accept Mr Conheady’s evidence that he recalled speaking to Mr Mulcahy about these topics.
[125]Transcript, 27 April 2021, 199-200 (Conheady).
[126]Ibid, 27 April 2021, 134 (Conheady).

Mr Conheady said he told Mr Mulcahy of his concern about loss of goodwill accompanying an asset sale. They discussed a ‘scrip’ sale compared to a sale of assets. He said Mr Mulcahy said a scrip sale would minimise transitional risk but would mean the purchaser was inheriting risks on events before settlement date, but that these could be the subject of vendor’s warranties.[127]
[127]Ibid, 26 April 2021, 103-106 (Conheady).

Mr Mulcahy gave evidence that on 29 June 2017 the two men discussed the Profile.[128] The Profile referred to an asset sale compared to a share sale. Mr Mulcahy agreed that a share sale was discussed.[129]
[128]Ibid, 3 May 2021, 494 (Mulcahy).
[129]Ibid, 495-496 (Mulcahy).

In final submissions, the defendants referred to inconsistencies between language used by Mr Conheady to describe the conversation in his oral evidence and in his earlier witness statement, and also to inconsistencies with language used by Mr Mulcahy.[130] Mr Conheady referred in his oral evidence to ‘scrip’, rather than share capital. Scrip is Mr Conheady’s language, it is not the language recorded in his workbook,[131] or his witness statement where ‘shares’, not scrip, is referred to. I accept Mr Mulcahy’s evidence that ‘scrip’ is not language he would ordinarily use.[132] However, the asserted discrepancy in language does not assist the defendants. ‘Share capital’ as recorded in the workbook is language Mr Mulcahy does use. What is recorded is consistent with Mr Mulcahy using that language during the conversation.
[130]First and Second Defendants, Outline of closing submissions dated 10 May 2021 (‘Mulcahy Parties’ Closing Submissions’), 45-55.
[131]See CB, 253; cf Transcript, 26 April, 104-105 (Conheady).
[132]Transcript, 3 May 2021, 500 (Mulcahy).

Mr Conheady said vendor warranties was a matter of substance to him and was discussed. He said four different warranties were identified by Mr Mulcahy, which related to product risk, customer risk, government risk (including tax risk), and financial risk. Mr Conheady made a note in his workbook at the time.[133] The note lists the warranties, ‘per Jamie’, a reference to Mr Mulcahy.[134] Mr Mulcahy said he did not recall any discussion about warranties.[135]
[133]Ibid, 26 April 2021, 106-107 (Conheady); CB, 253-255.
[134]CB, 254.
[135]Transcript, 3 May 2021, 499-500 (Mulcahy).

I accept that warranties were discussed. The Profile said the vendor would ‘provide appropriate warranties’, but did not identify those warranties. Mr Conheady asked what warranties were needed to protect Mr Porter’s interests and Mr Mulcahy advised him, identifying the four warranties noted in the workbook.

I accept Mr Conheady’s evidence that while a number of entries in his workbook were checklists or notes made prior to meetings, that on some occasions, either during or soon after those meetings earlier notes were supplemented or modified. The entries concerning the four warranties were made either during or shortly after the telephone call on 29 June 2017. They recorded advice given by Mr Mulcahy.

Mr Conheady said that during the 29 June 2017 conversation he also told Mr Mulcahy a number of things. Those things included that he would retain key people, Chris Debono for two years at up to 20 hours per week, and, Anthony Debono, for two years at up to four days per week, with Mr Mitchell to step into a general management role. He said Mr Mulcahy suggested another person he knew, Mr Miller, would be suitable for the general manager role if Mr Mitchell was not.[136] There was a discussion about customer mix, those with long-term, reliable, 30 day accounts, and others who were COD.[137] He told Mr Mulcahy that Ms Gregory was responsible for cash control and credit, but was looking to retire. He told Mr Mulcahy of his plan that she would stay on at the business for at least six months.[138] Gross margins were discussed. There was a discussion of weaknesses concerning occupational health and safety and environmental issues. Mr Conheady said they discussed inventory replenishment as a weakness and that he told Mr Mulcahy he could not understand why the inventory was so high.[139] It was Mr Conheady’s evidence that plant and equipment was recorded at around $1m and with an asking price of $14m, goodwill comprised approximately $13m of the purchase price. He raised his concerns about $3m in inventory in the sheds and problems this could cause at settlement with Mr Mulcahy.[140] Mr Conheady said he talked to Mr Mulcahy about increasing throughput because customers had to wait up to six months for truck and trailer bodies and as a result were going elsewhere rather than wait.[141] He said he also discussed changing staff patterns and working double shifts with Mr Mulcahy.[142]
[136]Transcript, 26 April 2021, 112.
[137]Ibid, 112 (Conheady).
[138]Ibid, 113 (Conheady).
[139]Ibid, 114 (Conheady).
[140]Ibid, 26 April 2021, 103, 116 (Conheady).
[141]Ibid (Conheady).
[142]Ibid, 114-115 (Conheady).

Mr Conheady said opportunities to expand/improve the performance of the Business were discussed: the use of the spray booth, increased utilisation, the creation of an insurance division and optimising spare parts.[143] He said he told Mr Mulcahy that the Business was a ‘gold mine’, a great opportunity with 70% to 80% margins.[144] He told Mr Mulcahy that Mr Porter had negotiated the price down to $12m.[145] He told Mr Mulcahy of the discussion with Mr Debono about WIP that would be valued at cost.[146]
[143]Ibid, 26 April 2021, 115 (Conheady).
[144]Ibid, 116 (Conheady).
[145]Ibid, 116 (Conheady).
[146]Ibid.

Mr Conheady was cross-examined in a manner that compared the notes in his workbook with the contents of the Profile provided to him on 13 June 2017.[147] That is, with a view to demonstrating a number of the matters Mr Conheady said were discussed were matters dealt with in the Profile. That is so, but it does not mean those matters were not discussed.
[147]CB, 184.

I find that topics of quality control, staff and the information concerning particular staff, and the opportunity for growth were items that were both discussed and were mentioned in the Profile. The ability to grow the Business, including by hiring further staff, and to expand existing parts of the Business including spare parts were also matters both noted in the Profile and discussed.[148]
[148]CB, 192-194; Transcript, 27 April 2021, 192-199 (Conheady).

It was Mr Conheady’s evidence that Mr Mulcahy responded to a number of these matters by saying that it was ‘good’ and that it sounds like everything was progressing well.[149]
[149]Transcript, 26 April 2021, 114 (Conheady).

When cross-examined, it was put to Mr Mulcahy that the customer base, customer segregation, cash control, credit risk, the importance of retaining Ms Gregory, that key suppliers were all domestic and opportunities presented by the spray booth were all discussed.[150] Mr Mulcahy could not recall these matters, which are not matters referred to in the Profile being discussed, but I accept Mr Conheady’s evidence that they were.[151]
[150]Ibid, 3 May 2021, 569-572 (Mulcahy).
[151]Ibid.

In his witness statement and in oral evidence, Mr Mulcahy denied that he ever gave advice to Mr Porter and Mr Conheady in relation to the acquisition.[152] I do not accept that evidence is accurate.
[152]Mulcahy Statement, [41]; Transcript, 3 May 2021, 559 (Mulcahy).

I found Mr Conheady’s account of the 29 June 2017 conversation, an account aided by the three pages of detailed notes in his workbook, made at the time, to be credible. The subject matter was of critical importance to him and to Mr Porter. I accept that he did not embark on a discussion concerning the opportunity to acquire a controlling interest in the Business until he first satisfied himself that Mr Mulcahy could act for Mr Porter. Once that was established advice was both sought from and given by Mr Mulcahy. The advice concerned the form of any purchase by Mr Porter; assets or shares; and the warranties that would be required on a share sale.

In final submissions, the Mulcahy parties submitted Mr Conheady’s account of the 29 June 2017 conversation could not be acted upon. I do not agree. I do not consider Mr Conheady’s earlier flawed placement of the date of the conversation adversely impacts on his credit. The same is the case concerning the ‘scrip’/’share’ cross-examination.

July 2017

On 3 and 4 July 2017 Mr Conheady and Mr Matthews exchanged emails concerning a draft contract of sale.[153] No draft contract was yet in existence.
[153]CB, 699; Matthews Statement, [40]–[41].

On 4 July 2017 Mr Matthews sent an email to Mr Mulcahy reporting on his discussion with Mr Debono the previous week, ’Porters are keen but not sure they will be able to fund 100% of the acquisition. They are going to see how much the bank will lend to them and I told him if they wanted any other investors to let us know. … See what happens’.[154]
[154]CB, 2563.

Following instructions from Mr Debono, on 11 July 2017 Mulcahy Legal began preparation of a draft contract.[155]
[155]Matthews Statement, [42]-[43]; CB, 701.

On 14 July 2017 Mr Conheady and Mr Debono had a discussion in which Mr Debono agreed to a sale of shares in the Business to Porter Group, rather than a sale of the assets. He also agreed to provide warranties. Mr Conheady made a note of this discussion in his workbook.[156]
[156]Conheady Statement, [49]-[50], CB, 255; Transcript, 4 May 2021, 716-718 (Debono, cross-examination).

August to October 2017: events and contested conversations

On 3 August 2017 the plaintiffs obtained a valuation of the Business from Munday Wilkinson. Relying on financial information previously provided by Mr Hughes and using a capitalisation of future maintainable earnings approach,[157] adopting maintainable earnings before interest and tax (EBIT) of $5,240,000,[158] and a multiple of 3.5 - 4, Munday Wilkinson valued the Business at between $18.34m to $20.96m, a maximum of approximately $21m, with a mid-point of $19.65m.[159]
[157]CB, 275.
[158]Ibid, 276-277.
[159]Ibid, 256-285, 278.

It will be recalled that in the Profile a value of between $12.6m and 14.7m had been adopted, with $14m given as a ‘guide’ for the purchase price.[160] When cross-examined, Mr Conheady said although he did not recall discussing with Mr Mulcahy how the value of $14m had been arrived at,[161] he would have expected similarly detailed work as had been undertaken by Munday Wilkinson would have been undertaken by Mr Mulcahy.[162]
[160]Ibid, 197.
[161]Transcript, 27 April 2021, 196-197 (Conheady).
[162]Ibid, 198 (Conheady).

To state the obvious, the level at which Munday Wilkinson valued the Business made the purchase of a controlling interest, based on an overall value of $12m plus stock and WIP, a very attractive proposition. Given the disparity between the value upon which Mr Debono was willing to base a sale of a controlling interest in the Business and the independent valuation of the Business, the existence and content of the Munday Wilkinson valuation were matters that those who commissioned it would wish to remain confidential.

On 8 August 2017 Mr Conheady sent an email to Fordhams in relation to the Business.[163] On 10 August 2017 he met with Mr Palone and Mr Eynaud of Fordhams to discuss the potential acquisition of the Business by Mr Porter.[164] The structure of where Mr Porter would hold the proposed investment in Porter Group was discussed.[165]
[163]CB, 2624.
[164]CB, 2624-2629; Transcript, 28 April 2021, 321-328.
[165]Transcript, 27 April 2021, 204.

The minutes of the 10 August 2017 meeting prepared by Fordhams record that Mr Porter was yet to make an offer for the Business, that the asking price was circa $12m, that buying the shares was better for Mr Porter than buying the Business, but the downside was that Mr Porter would be buying the company’s history. The value placed on the business by Munday Wilkinson is recorded in the minutes. They also record that Mr Conheady had met with the banks on 7 August 2017, that there was currently $1.5m in cash available to ‘tip into’ the Business and that Mr Conheady believed funding of closer to 70% rather than 80%, as had been sought, would be obtained from the banks.[166] The minutes record ‘will need to prepare an analysis of options in respect to entity funding and tax consequences, also will need to research service trust/head office rules for Porter Management Trust …’.[167]
[166]CB, 2627.
[167]CB, 2627; Transcript, 28 April 2021, 327 (Conheady).

On 16 August 2017 Mr Conheady sent an email to Mr Debono copied to Mr Matthews, making a number of requests for information.[168] At this time, and continuing through until at least November 2017, Mr Conheady was dealing and communicating directly with Mr Matthews in relation to the proposed purchase.[169]
[168]CB, 703-704.
[169]See, eg, CB, 881-882. See also CB, 975. On 7 November 2017 Mr Conheady emailed a copy of the draft asset valuation prepared by Nicholas Munn direct to Mr Matthews.

On 28 August 2017 Mr Porter made a formal conditional confidential offer, in writing, to purchase 70% of the Business for $8.4m. The offer was open for acceptance until 15 September 2017. It was conditional upon finance.[170] It provided that a deposit would be payable within 30 days after full execution of a share sale agreement.[171] It was subject to entry into a formal share sale agreement by 15 November 2017. It included a term that the vendor must deal exclusively with Mr Porter regarding the sale of shares in or the assets of the Business, and must not enter into discussions with any other party, prior to 15 November 2017.[172]
[170]CB, 287-293, 291.
[171]Porter Statement, [31]; Conheady Statement, [53]; CB, 286-293.
[172]CB, 293.

On 8 September 2017 Mr Conheady, Mr Porter, Mr Debono and Mr Debono’s accountant Mr Hughes, met to discuss Mr Porter’s 28 August 2017 offer.[173] At that meeting, the parties reached an in-principle agreement on the terms of sale, including agreeing to extend the completion date to 2 January 2018. The meeting concluded with a few beers at the Western Hotel.[174]
[173]CB, 286-308.
[174]Porter Statement, [32]-[33]; Conheady Statement, [57]; Debono Statement, [17]-[18]; Transcript, 4 May 2021, 720 (Debono, cross-examination).

Fordhams were formally retained to advise Mr Porter about the proposed acquisition in September 2017. Mr Porter said he and Mr Conheady spoke to them about it.[175] On 15 September 2017 Fordhams provided some notes they had prepared on ‘the CBB opportunity’ to Mr Conheady and Mr Porter.[176]
[175]Transcript, 27 April 2021, 204 (Conheady, cross examination), 29 April 2021, 446 (Porter, cross-examination).
[176]CB, 2630-2635; Transcript, 28 April 2021, 328-330 (Conheady, cross-examination).

There is no evidence that during August or September 2017 a copy of the Munday Wilkinson valuation was provided to Fordhams or to the Mulcahy parties.

On 14 September 2017 a revised formal offer in both mark-up and clean was sent to Mr Debono.[177] The revised offer reflected the terms discussed and agreed at the meeting on 8 September 2017.[178] The offer was open for acceptance until 28 September 2017. It provided that the vendors and purchasers must keep confidential information relating to the Business, the terms of the offer and the share sale agreement. It provided complete and unrestricted access to CBB’s company records, premises and key staff to enable the purchaser, Mr Porter and/or nominee, to complete due diligence. It included the same conditions of entry into a formal share sale agreement and the period for exclusive dealing as the first offer, in both cases, extended to 25 November 2017. It provided for settlement on 2 January 2018. Once again it provided that a deposit would be payable within 30 days after full execution of a share sale agreement.[179]
[177]CB, 310-316.
[178]CB, 309.
[179]Porter Statement, [35]; Conheady Statement, [58]; Debono Statement, [18]; CB, 309-316.

On 2 October 2017 Mr Debono emailed Mr Conheady a draft share sale agreement naming Porter Plant and Mr Porter as the purchasers.[180] On 6 October 2017 Mr Debono sent Mr Conheady a shareholders’ agreement prepared by Mr Matthews, which included a purchase price of $8.4m for 70% of the shares in the company, a settlement date of 2 January 2018 and required payment of a deposit of $420,000, being 5% of the purchase price, within 30 days of the date of the agreement.[181] On 4 October 2017 Mr Conheady asked Mr Matthews for word versions of the draft agreements so they could be passed on to Nevett Ford solicitors.[182] By that time, Nevett Ford were acting for Mr Porter in relation to the proposed purchase.
[180]CB, 497-526.
[181]Debono Statement, [22], CB, 497-526. Deposit payment clause 3.2(a), CB, 505.
[182]Matthews statement, [50]; CB, 857.

It was Mr Conheady’s evidence that in conversations with Mr Mulcahy between August and October 2017, of which he said there were approximately twelve, Mr Mulcahy gave him advice to focus on product warranties and to look at the employee contracts.[183] He said during these conversations he ‘updated’ Mr Mulcahy about what was happening with the due diligence process,[184] what he described as ‘rolling’ updates.[185] In accordance with the terms of the 14 September 2017 offer, Mr Conheady and Mr Porter were obliged to keep matters relating to due diligence confidential.
[183]Transcript, 27 April 2021, 127 (Conheady).
[184]Ibid, 26 April 2021, 115 (Conheady).
[185]Ibid, 27 April 2021, 214-215 (Conheady).

Mr Conheady said that in these conversations with Mr Mulcahy he discussed the two categories of customers of the Business, those with 30 day accounts and those on COD.[186] He said he also discussed cash control in the business and Ms Gregory’s role in credit control, warranty expenses embedded in the profit and loss statements, key suppliers to the business, inventory levels and the 4-6 month order book. He was unable to specify the dates of these ‘update’ conversations.[187]
[186]Ibid, 26 April 2021, 112 (Conheady).
[187]Ibid, 26 April 2021, 113-116 (Conheady).

Mr Conheady said there were discussions concerning employees. He said Mr Mulcahy suggested Craig Miller as a suitable person to act as general manager if needed.[188] Mr Mulcahy denies there was any discussion of Mr Miller or any reference to him.[189]
[188]Ibid, 26 April 2021, 112 (Conheady).
[189]Ibid, 3 May 2021, 500 (Mulcahy).

Mr Mulcahy denied that any of the 12 conversations of which Mr Conheady gave evidence took place. He said there were ‘no discussions about CBB’ during the period August to October 2017.[190] I do not accept the truth of that evidence.
[190]Ibid, 3 May 2021, 501 (Mulcahy).

I accept Mr Conheady’s evidence that there were a large number of conversations concerning CBB between August and October 2017 between himself and Mr Mulcahy. I accept the subject matter of those conversations included topics such as the identification of key people in the Business,[191] a discussion concerning Mr Miller and an update in relation to conditional offers made to purchase the Business.[192]
[191]Ibid, 26 April 2021, 110-112 (Conheady).
[192]Ibid, 26-27 April 2021, 117, 218 (Conheady).

Mr Conheady said these conversations were ‘updating’ Mr Mulcahy on conversations that he was having with the vendor.[193] To provide ‘updates’ about such matters to a professional such as Mr Mulcahy in the context of a confidential due diligence process is consistent with that person being viewed by Mr Conheady as a trusted adviser. However, accepting Mr Conheady’s evidence, there was very little said in response by Mr Mulcahy to these updates and no evidence of specific advice from Mr Mulcahy during these conversations.
[193]Ibid, 26 April 2021, 111-112 (Conheady).

10 October 2017 contested conversation

On 10 October 2017 Mr Mulcahy and Mr Conheady had a telephone conversation.[194] The conversation lasted nine minutes. The contents of the conversation is disputed.
[194]Ibid, 27 April 2021, 125 (Conheady); CB, 332.

Mr Conheady said they discussed the proposed acquisition and that Mr Mulcahy provided advice on draft warranties and due diligence.[195] Mr Mulcahy disagreed with this evidence. He said the subject matter of the conversation was about financing of the Porter Group’s proposed acquisition of land in Ballan for a quarry, not the proposed acquisition of the Business.[196]
[195]Conheady Statement, [59]; CB, 332-333.
[196]Mulcahy Statement, [43].

Mr Conheady’s workbook includes an entry with a list of topics for discussion with Mr Mulcahy which Mr Conheady said relate to the 10 October 2017 conversation.[197] One topic on the list was Ballan, a property which the Porter Group had agreed to purchase with a view to conducting extractive industry. The purchase price was $2.08m. Porter Group was looking to fund 100% of the purchase price.
[197]CB, 333, the entry in the workbook relied upon is not dated.

The funding for Ballan and who might value it for finance purposes was the subject of emails between Mr Conheady and Mr Mulcahy on 9 and 11 October 2017.[198]
[198]CB, 620.

Mr Conheady said that Mr Hives, the valuer who had previously been engaged to value the Ballan land had on 5 October 2017 said he was unable to value the land due to professional indemnity insurance complications.[199] He said during the 10 October 2017 conversation he asked Mr Mulcahy about other valuers. He said he also asked whether Mr Mulcahy’s clients who were high net worth individuals would be a source of funding for the purchase of Ballan.[200] He said Mr Mulcahy asked him to prepare a detailed overview of the fund raising proposal for Ballan for his review prior to sending to his clients.[201]
[199]CB, 621; Transcript, 27 April 2021, 229 (Conheady).
[200]Transcript, 27 April 2021, 126-129, 221-223 (Conheady).
[201]Ibid, 27 April 2021, 126 (Conheady).

Mr Conheady gave evidence that one of the items on his list for discussion on 10 October 2017 in his workbook, a PPSR audit, even though intended to be discussed, was not discussed that day.[202] The proposed purchase of CBB was noted in his workbook. Mr Conheady says it was discussed, and Mr Mulcahy says it was not.[203] The Mulcahy parties submitted the fact the PPSR audit was listed for discussion but was agreed not to have been discussed, casts doubt on whether CBB, also on the list, was discussed.
[202]Ibid, 27 April 2021, 228 (Conheady).
[203]Ibid, 27 April 2021, 128-129 (Conheady), 3 May 2021, 506 (Mulcahy).

…
541I note, as did the Court in Halstedt (see at [87]), that the High Court in Farah endorsed Peter Gibson J’s distillation of principles in Baden Delvaux and indicated that knowledge falling within any of the first four of these categories (but not within the fifth category) represents the law in Australia (see at [177]-[178]).
542.It remains only to observe, as to Royal Brunei, that the High Court in Farah noted that Lord Nicholls’ formulation of principle represents a general principle of equitable accessorial liability (see at [162]); and, again, the High Court chose not to adopt his Lordship’s more generalised formulation and, in so doing, there maintained the distinction between third party liability for procuring or inducing the breach of fiduciary duty and liability for assisting or participating in that breach (see at [163]). The significance of this for present purposes is that the High Court made clear that, in relation to claims for knowing assistance, the dishonest and fraudulent design must be on the part of the fiduciary, not the assistant (see at [160]; [179]), it is not necessary to demonstrate that the third party itself acted dishonestly (see at [163]) and that “knowledge”, in the sense of the first to fourth categories identified above, is necessary.
543.As the Court in Halstedt commented (at [96]), the approach adopted in Royal Brunei impermissibly, “shifts focus from the third party’s knowledge of the dishonest and fraudulent design on the part of the fiduciary to the dishonesty of the third party itself” (emphasis omitted) and that this, “signifies a departure from the conventional understanding of liability under the second limb of Barnes v Addy by imposing liability with respect to any breach of fiduciary duty so long as the third party itself was objectively dishonest” and it dispenses with the “knowledge” requirement explained above, which, at least since the decision in Farah, is the law in Australia (cf Beach Petroleum at [405]; and see also, for example, Comgroup Supplies Pty Ltd v Products for Industry Pty Ltd[2016] QCA 088 at [54] per Margaret McMurdo P, Atkinson and Mullins JJ).
544.In Hasler, Leeming JA considered with approval (at [131]) the reasons of the primary judge (see at [290]-[298] per McDougall J) to the effect that, whether or not, subjectively, the accessory appreciated that what was going on was dishonest or fraudulent was immaterial: the relevant issue being that the facts which were there known to the accessory, regarded objectively, demonstrated a breach of fiduciary duty by the fiduciary (and the activities of the accessory assisted in, or facilitated or furthered that breach).[828]

[828][2021] NSWSC 5, [538], [541]–[544] (citations omitted).

In Grimaldi,[829] the Court referred to four different manifestations of participation by a company in breach of fiduciary duty by an individual. The first two categories are relevant in this case:

(a)the company was the corporate creature, vehicle or alter ego of the wrongdoing fiduciary, in which case it (the company) has a transmitted fiduciary duty:
(b)the knowledge of an agent is imputed to the company.[830]

[829][2012] FCAFC 6; (2012) 200 FCR 296, [243]–[247].

[830]Ibid, [243]–[244].

In Harstedt[831] the Court said:[832]

69….where a company ‘is the corporate creature, vehicle, or alter ego of wrongdoing fiduciaries who use it to secure the profits of, or to inflict the losses by, their breach of fiduciary duty’. In such cases, the company ‘is fully liable for the profits made from, and the losses inflicted by, the fiduciary’s wrong’. …[833]

[831][2018] VSCA 84; (2018) 55 VR 158

[832][2018] VSCA 84; (2018) 55 VR 158.

[833]Ibid, [69] (citations omitted).

In their written submissions BFMM referred to the observations by Edelman J in Commonwealth Bank of Australia v Kojic,[834] where his Honour said:

…as a rule of attribution it was never intended to be a universal rule’.[835] To discover what a corporation knows it is necessary to ascertain what certain individuals within the corporation know: ASIC v Big Star Energy (No 3) (2020) 148 ACSR 334 at [45]-[47]; Hamilton v Whitehead (1988) 166 CLR 121 at 127. As described by Owen J in Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1 at [907]: ‘To speak of a corporation having a state of mind is almost orphic in its conception. A corporation is a legal entity separate and apart from its directors and shareholders.

[834][2016] FCAFC 186; (2016) 249 FCR 421, [96].

[835]See also discussion in Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421 at [62]-[66] (Allsop CJ), [73]-[83] (Besanko J), [95]-[100] and [106]-[118] (Edelman J).

BFMM submitted the conventional approach of identifying the person who is the ‘directing mind and will’ is not always apt. Its application will depend on matters such as the variable function of those holding office and the context in which knowledge of a company is to be considered.[836]
[836]Referring to ASIC v Westpac Banking Corporation (No 2) (2018) 266 FCR 147 at [1658]-[1662] (Beach J); Hurd v Zomojo Pty Ltd [2015] FCAFC 148 at [168] (Besanko, Gilmour and Beach JJ); Commonwealth Bank of Australia v Kojic (2016) 249 FCR 421, [100] (Edelman J), citing Bilta (UK) Ltd (in liq) v Nazir (No 2) [2016] 1 AC 1, 66 [191] (Lords Toulson and Hodge JJSC).

AHRKalimpa Pty Ltd v Schmidt[837] involved a breach of fiduciary duties in the context of a joint venture dispute and breach of directors duties. One of the joint venturers (Schmidt) formed a company (Otway Livestock Exports Pty Ltd) to take advantage of a business opportunity not disclosed to his joint venture partner. It was held that the company was the ‘corporate creature, vehicle of alter ego’ used in an attempt to secure profits from that opportunity. As such accessorial liability arose in circumstances where the company received a benefit from Schmidt’s wrongful conduct with full knowledge (i.e. Schmidt’s knowledge) and without paying any consideration. At trial, Elliott J held that it mattered not that there were other directors.[838] That conclusion was not disturbed on appeal.[839]
[837][2017] VSC 701; on appeal Schmidt v AHRKalimpa Pty Ltd [2020] VSCA 193 (Kyrou, Hargrave and Emerton JJA).
[838][2017] VSC 701, [270]-[274].
[839][2020] VSCA 193. See also Chickabo Pty Ltd v Zphere [2019] VSC 73; (2019) 57 VR 406, [198]-[199] where Sifris J concluded corporations of which one director was the directing mind and which had breached fiduciary duties was liable.

Application of the Principles

BFMM was formed for the sole purpose of taking advantage of the opportunity to acquire a controlling interest in the Business. That is the opportunity Mr Mulcahy usurped from Mr Conheady.

I accept the plaintiffs’ submission that it was Mr Mulcahy who was the controlling mind of BFMM. He was the driving force, the moving party, the person who orchestrated the formation of the consortium of shareholders in BFMM. He sent the email on 14 December 2017 ’how to progress the next step’. Between sending that email and meeting on 18 December 2017 at the Lake View Hotel with Mr Debono, Mr Mulcahy was present with Mr Matthews when his close friend, Mr Broadbent, telephoned Mr Ford and invited him to be part of a consortium to pursue the opportunity he had identified, his clients’ opportunity to acquire a controlling interest in the Business. He met on 18 December 2017 with Mr Debono and put his proposal to Mr Debono, in essence the same proposal as the 14 September 2017 Porter offer. It was Mr Mulcahy who reported on the outcome of that meeting on 19 December 2017 to those who became the directors of BFMM. He passed on confidential information about the $21m valuation. He drafted the formal letter of offer on 24 January 2018, and sent the offer to Mr Debono on 25 January 2018. Each of Mr Matthews, Mr Ford and Mr Broadbent who became the co-investors in BFMM with Mr Mulcahy authorised Mr Mulcahy to send the letter on 25 January 2018.[840] He was authorised to make and sign binding offers on their behalf, and he did so on 25 January 2018.
[840]Transcript, 5 May 2021, 836 (Matthews), 851-852 (Ford), 6 May 2021, 893-896 (Broadbent); see too CB, 1213, 1217, 1251, 1263-1267.

It was Mr Mulcahy who reported back to his fellow investors on 25 January 2018 confirming Mr Debono was happy with the proposal. When the consortium met on 30 January 2018, they met at his offices. It was to him that Mr Debono forwarded the 8 February 2018 email from Mr Conheady with the covering ’what a joke’ comment. That was because Mr Mulcahy was the prime mover on behalf of the consortium that became BFMM. He brought the opportunity to BFMM and orchestrated the realisation of that opportunity by it.

In this case, as discussed in Harstedt,[841] BFMM is the corporate creature, vehicle, or alter ego of Mr Mulcahy, the wrongdoing fiduciary, who used BFMM to secure the profits of and to inflict the losses occasioned by his breach of fiduciary duty. Mr Mulcahy was also the agent of BFMM and it is bound by his actions.[842]
[841](2018) 55 VR 158; [2018] VSCA 84.
[842]Grimaldiv Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296, [244]; CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704; [2001] EWHC Ch 415, [104] (‘CMS Dolphin’).

BFMM said Mr Mulcahy was not the ‘controlling mind’ or able to alone control BFMM and that there is no evidence he possessed or shared confidential knowledge with his fellow directors. I do not agree. I have found that on 19 December 2017 Mr Mulcahy shared confidential information about the independent valuation of the Business with his fellow directors. I do not accept the evidence of Mr Matthews and Mr Broadbent that such information was not relevant to and a motivating factor behind their decisions to invest. I accept as truthful evidence of Mr Ford that after he received information about the valuation he considered this investment was an opportunity ‘worth looking into’.[843]
[843]Transcript, 5 May 2021, 850 (Ford, cross-examination).

BFMM submitted that the company cannot be the alter ego of Mr Mulcahy because he did not have the authority to direct the company, decisions required a majority of director votes. That submission takes too simplistic a view of who relevantly had authority in BFMM. Who relevantly had authority is not to be determined by looking at voting rights only. Context is critical in determining whether Mr Mulcahy was at the relevant time the directing mind and will of the company.

While Mr Mulcahy was one of four directors, and alone not able to control the votes at board level or of shareholders in a meeting, it was he who conceived of the opportunity, he brought together the investors, he brought the opportunity to them and to BFMM, and he orchestrated the delivery of that opportunity to the company. BFMM was formed to take advantage of that opportunity and that is the context in which it is properly found BFMM was his alter ego.

Applying the authorities discussed by Sifris J in Chickabo,[844] Mr Mulcahy engaged in a ’dishonest and fraudulent design’. His actions went well beyond trivial breaches of fiduciary duty. As I have found, they were not motivated by altruism for the Business or for Mr Debono, they were not well-intentioned. The conscious awareness on the part of Mr Mulcahy that what he was doing was wrong is evident from his concealment of his actions from his client and from the ’awkwardness’ he felt when he received the email from Mr Debono on 9 February 2018. There was by Mr Mulcahy, what Leeming JA described in Hasler v Singtel Optus Pty Ltd as a ’plain transgression of ordinary standards of honest behaviour. No honest [accountant] would do such a thing without having first obtained the consent of his or her [client]’.[845] Such conduct is clearly sufficient to answer the description of a dishonest and fraudulent design.
[844][2019] VSC 73; (2019) 57 VR 406
[845][2014] NSWCA 266; (2014) 87 NSWLR 609, [127].

BFMM as the corporate vehicle in which Mr Mulcahy held a substantial shareholding asserted Mr Mulcahy in breach of fiduciary duty by being the purchaser of the 70% interest in the Business.

While the role and involvement of Mr Mulcahy in BFMM which company was his alter ego is sufficient of itself to establish liability on the part of BFMM, it is also the case that Mr Matthews either wilfully shut his eyes to the obvious, or recklessly failed to make such inquiries as an honest and reasonable man would make. He had knowledge of circumstances which would indicate the facts to an honest and reasonable man that Mr Mulcahy was engaged in breach of fiduciary duty when he contacted him on 14 December 2017 and from at least that date joined with him, Mr Broadbent and Mr Ford, to secure the opportunity for themselves.

Mr Matthews knew about conflicts of interest and recognised them as far back as 20 June 2017. When Mr Matthews said in evidence he did not know Mr Conheady was coming in to the office on 4 December 2017 and to discuss how he would hold his shares and was ‘very clear’ about that, that evidence was not true.[846] Mr Matthews knew Mr Mulcahy was going to meet with Mr Conheady on 4 December 2017 to talk about how he would hold his shares. The 30 November 2017 email told him that. Ten days later Mr Mulcahy was inviting him to join in pursuit of a controlling interest in the very same business that, from the 30 November 2017 email, Mr Matthews knew Mr Mulcahy’s client, Mr Conheady was both pursuing and thought he had secured. With that knowledge Mr Matthews was present for the conversation between Mr Broadbent and Mr Ford. He then went with Mr Mulcahy to the hotel to meet with Mr Debono to secure the opportunity. As one of the four directors of BFMM, Mr Matthews knew there was an accountant/client relationship, he knew the client was being advised by the accountant about the very transaction and opportunity that he and Mr Mulcahy moved to exploit for themselves. Mr Matthews’ knowledge certainly falls within the fourth category in Baden,[847] constructive knowledge. However, his knowledge goes further.
[846]Transcript, 5 May 2021, 815 (Matthews).
[847][1993] 1 WLR 509, [250].

On the balance of probabilities I find that at the very least Mr Matthews wilfully shut his eyes to the obvious and wilfully and recklessly failed to make such inquiries as an honest and reasonable man would make. He knew Mr Mulcahy had acted for Mr Porter and was acting for Mr Conheady. He knew or deliberately ignored the fact the $21m valuation was confidential information imparted to Mr Mulcahy in circumstances of confidence. It suited him and his commercial interests to ignore those matters and to proceed in the face of them to join with Mr Mulcahy to secure a controlling interest in the Business. His earlier concerns about conflicts of interest were put to one side and he joined with Mr Mulcahy, who was conflicted and not permitted to pursue the opportunity, to secure the opportunity in the name of BFMM.

I find that Mr Mulcahy, who owed a fiduciary duty to Mr Conheady, engaged in a dishonest and fraudulent design and that BFMM knowingly assisted in that design. BFMM having knowingly assisted Mr Mulcahy to usurp the opportunity to acquire a controlling interest in the Business is liable accordingly.

It is unnecessary to decide whether the knowing receipt of confidential information by BFMM provides a separate basis upon which to impose liability on BFMM. There is no doubt the information concerning the Munday Wilkinson valuation was confidential information. The more difficult question, not specifically addressed in submissions, is whether the information or, for that matter, the opportunity to acquire the Business has the necessary proprietary character to come within the first limb of Barnes v Addy.[848]
[848](1874) LR 9 Ch App 244.

Causation

In their defences the defendants asserted they were not liable because the opportunity was ‘not available’ to the Plaintiffs because the vendor would not sell to them.[849] The Mulcahy parties alleged Mr Debono told Mr Mulcahy on 18 December 2017 that he would no longer sell to the plaintiffs.[850]
[849]Mulcahy Parties’ Defence, [39].
[850]Mulcahy Parties’ Defence, [39], [42], [52]; BFMM Defence, [42].

The problem with that allegation is that it does not accord with the evidence. Mr Mulcahy did not give evidence that Mr Debono said those things to him when they met at the Lake View Hotel on 18 December 2017. In his witness statement, Mr Mulcahy said Mr Debono expressed ‘how very angry’ he was with Mr Porter and Mr Conheady,[851] but his witness statement did not include reference to a statement by Mr Debono that he would not sell to the plaintiffs. In his oral evidence, including in re-examination, there was no mention by Mr Mulcahy of such a statement having been made by Mr Debono.
[851]Mulcahy Statement, [54]-[55].

Mr Matthews was also present at the Lake View Hotel on 18 December 2017. His witness statement does not refer to Mr Debono saying during the meeting that he would not sell to the plaintiffs.[852] No such statement by Mr Debono was referred to in oral evidence given by Mr Matthews.[853]
[852]Ibid, [65]-[67].
[853]Ibid, [65]-[67].

When cross-examined, Mr Debono agreed that Mr Porter and Mr Conheady were ‘good people’[854] and if they had come up with the money and been able to fund it, he would have sold to them in 2017 and in 2018.[855] The defendants submitted that when Mr Debono gave that evidence he was ’confused in his answer, was clearly adversely responding to the pressure of forceful cross examination and suffering hearing difficulties, such that his answer was not representative of his true belief’. I do not accept the validity of that submission. Mr Debono knew Mr Porter to be a good man.[856] Porter Group was an important customer of the Business and Mr Conheady was the Chief Financial Officer of Porter Group. Mr Debono was not confused or under pressure when he said that he would have sold to the plaintiffs if they had come up with the money in 2018. I find that he would have done so.
[854]Transcript, 5 May 2021, 753 (Debono, cross-examination).
[855]Ibid, 740 (Debono, cross-examination).
[856]Ibid, 5 May 2021, 753 (Debono, cross-examination).

I agree with the plaintiffs’ submissions that the idea Mr Debono would not have sold to them on 18 December 2017 or thereafter is wrong and misconceived. The only reason Mr Debono did not sell to them is because a new purchaser, Mr Mulcahy, came along, undermined the ‘deal’ Mr Conheady had already made with Mr Debono and secured the opportunity for himself and for BFMM. If Mr Mulcahy, together with Mr Matthews, had not orchestrated the meeting at the hotel on 18 December 2017 and had not ’white anted’ Mr Mulcahy, Mr Debono would have sold an 80% interest in the Business to Mr Mulcahy and to Mr Porter on terms previously agreed. Mr Debono was ‘ready to retire’.[857] Absent intervention on the part of Mr Mulcahy, there was only one potential purchaser, the plaintiffs, who were going to buy a controlling interest in the Business and to facilitate Mr Debono’s retirement.
[857]CB, 195.

BFMM also submitted in relation to causation that it came upon the opportunity to acquire the Business independently of any information from Mr Mulcahy. Given the factual findings that I have made, that submission is not sustainable.

Responses to questions

It is convenient to reproduce the agreed questions for trial and provide short answers to each of those questions in light of the findings that I have made:

(1)Did either or both of the plaintiffs retain the Mulcahy parties, or either of them, to act on their behalf in connection with the proposed purchase of the Business?

Answer: Yes.
(2)If a retainer was entered into, when was it entered into and what were its terms?
Answer: The Conheady Retainer as alleged in the ASC as found at paragraphs [379] and [380] and the 29 June 2017 Retainer as found at paragraph [360] above. The terms of each of those retainers are relevantly included terms as to good faith as found at paragraphs [418]-[420] regarding the Conheady Retainer, paragraph [421] regarding the 29 June 2017 Retainer and the terms alleged at paragraph 49(b)-(d) as found at paragraph [434].
(3)Between about July 2017 and 6 March 2018, did the plaintiffs share any and if so what information or confidential information with the Mulcahy parties?
Answer: Yes. The four categories of confidential information referred to at paragraph [442] with the exception concerning the third category that Mr Conheady did not tell Mr Mulcahy the precise terms of the offer that had been agreed to by Mr Debono as found at paragraphs [455] to [456].
(4)Did the Mulcahy parties, or either of them, owe the first and/or second plaintiffs fiduciary duties, whether pursuant to a retainer or otherwise?
Answer: Yes. The Mulcahy parties owed fiduciary duties to Mr Conheady as found at paragraphs [503] to [514].

(5)If so, what was the scope of those fiduciary duties and did those fiduciary duties extend to the Mulcahy parties, or either of them, so as:
(a)not to allow their personal interests to conflict or potentially conflict with their duties to the plaintiffs;
(b)to prevent them from using information or confidential information provided to them by the plaintiffs;
(c)to require it/him not to profit from their position as a fiduciary, or use its/his position to obtain a profit for a related party, without the fully informed consent of the plaintiffs;
(d)prevent improper use of their position as an advisor/fiduciary to gain an advantage for themselves or cause detriment to the plaintiffs;
(e)to require them to act in good faith and/or in the best interests of the plaintiffs.

Answer: The fiduciary duties owed to Mr Conheady are those identified at paragraph [521].
(6)Did the Mulcahy parties breach the retainer referred to in questions 1 and 2 or the fiduciary duties owed to the plaintiffs referred to in question 4 by acquiring through BFMM an interest in CBB?
Answer: The Mulcahy parties breached the terms of the Conheady Retainer as found at paragraph [543]. The Mulcahy parties breached the ongoing confidentiality obligations owed to Mr Porter pursuant to the 29 June 2019 Retainer as found at paragraph [544].
Answer: The Mulcahy parties breached the fiduciary duties owed to Mr Conheady as found at paragraphs [566] to [567].

(7)Was BFMM formed or incorporated to take advantage of the opportunity or the confidential information referred to in question 3 to acquire the Business?
Answer: Yes, as found at paragraphs [567], [591] to [592].

(8)To what extent is any knowledge of the Mulcahy parties, where it is acquired while acting for or assisting the plaintiffs, to be imputed to BFMM?
Answer: Such knowledge is to be imputed to BFMM as found at paragraphs [591] to [599].

(9)Did BFMM knowingly assist a breach of a fiduciary duty or duties owed to the Plaintiffs as referred to in question 4 or knowingly receive information or confidential information acquired in breach of fiduciary duty or duties as referred to in question 4?
Answer: Yes to knowing assistance as found at paragraph [603]. As to knowing receipt, it is unnecessary to decide.

(10)At a certain point in time (and, if so, what time) was the opportunity for the plaintiffs to acquire the business of CBB no longer open or possibly no longer open to the plaintiffs?
Answer: At no relevant point in time was that the case.

(11)Did BFMM come to acquire CBB to any extent and, if so, to what extent, independently of any breach of fiduciary duty? If so, how does that affect the plaintiffs’ claims?[858]
Answer: BFMM did not come to acquire a controlling interest in the Business independently of breach of fiduciary duty by Mr Mulcahy.
[858]Joint Statement of Issues, 7 April 2021.

Disposition

I have found there existed the Conheady Retainer as alleged and there existed the 29 July 2017 Retainer in favour of Mr Porter. There were breaches of the Conheady Retainer by the Mulcahy parties. In breach of that retainer the Mulcahy parties usurped Mr Conheady’s opportunity to acquire a controlling interest in the Business for their own benefit and for the benefit of BFMM of which Mr Mulcahy was the directing mind and will. There were breaches of the confidentiality obligations in the 29 July 2017 Retainer. In breach of that retainer the Mulcahy parties used confidential information to usurp Mr Conheady’s opportunity to acquire a controlling interest in the Business.

I have found the Mulcahy parties owed fiduciary duties to Mr Conheady, and that they breached those duties. I have found that BFMM knowingly assisted Mr Mulcahy and the Mulcahy parties in breach of fiduciary duty.

Subject to hearing from the parties I consider it appropriate that the findings that I have made following this first stage trial are embodied in declarations. If that course is adopted it enables clear delineation between the first stage trial and the second stage trial, should such a trial be necessary, dealing with relief.

It goes without saying that the entitlement or otherwise of the plaintiffs or either of them to such relief falls to be determined in accordance with the findings that I have made.

I direct that by 21 days from the date of this judgment the parties file submissions not exceeding 10 pages in relation to the following matters:

(a)whether it is appropriate that declarations be made and if so, as to the terms of any such declarations and;
(b)as the proposed future conduct of the proceeding.

SCHEDULE OF PARTIES

TIMOTHY NORMAN PORTER

First Plaintiff

CHRISTOPHER GERARD CONHEADY

Second Plaintiff

MULCAHY & CO ACCOUNTING SERVICES PTY LTD (ACN 105 360 325)

First Defendant

JAMES EDWARD MULCAHY

Second Defendant

BFMM INVESTMENTS PTY LTD (ACN 625 266 891)

Third Defendant

[2021] VSC 572

13 September 2021