Singtel Optus v Almad - [2013] NSWSC 1427

Supreme Court

New South Wales

Medium Neutral Citation: Singtel Optus v Almad [2013] NSWSC 1427
Hearing dates: 29/07/2013, 30/07/2013, 31/07/2013, 05/08/2013, 06/08/2013, 07/08/2013, 08/08/2013, 09/08/2013, 12/08/2013, 13/08/2013, 14/08/2013, 15/08/2013, 19/08/2013, 20/08/2013, 21/08/2013
Decision date: 30 September 2013
Jurisdiction: Equity Division - Commercial List
Before: McDougall J
Decision:
See at [362]. Plaintiffs to serve and submit draft orders.

Catchwords:
EQUITY - fiduciary duties - breach of fiduciary duties - employer and employee - where employee acts as a shadow director of supplier - where employee fails to disclose several conflicts of interest - where advantage accrues to third party that is the alter ego of the fiduciary employee

EQUITY - fiduciary duties - breach of fiduciary duties - knowing involvement - knowledge - what constitutes knowledge - where a person is aware of the circumstances that would indicate, to an honest and reasonable person, a breach of fiduciary duty

REMEDIES - equitable remedies - equitable compensation - breach of fiduciary obligations - employer and employee - conflict of interest - failure to disclose - causation - test for causation - whether loss would have occurred in the absence of the breach - obligation to make restitution not limited to common law principles governing damage, foreseeability and causation

TORT - trespass to goods - conversion
PRACTICE & PROCEDURE - pleadings - where evidence raises issues not pleaded - where party fails to object to the admission of evidence - cases determined by the evidence, not the pleadings
Legislation Cited: Corporations Act 2001 (Cth)
Cases Cited: Australian Securities and Investments Commissions v Hellicar (2012) 86 ALJR 522
Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279
Demagogue Pty Limited v Ramensky (1992) 39 FCR 31
Farah Constructions Pty Limited v Say-Dee Pty Ltd (2007) 230 CLR 89
Gencorp Limited v Dalby (2002) 2 BCLC 734
Grimaldi v Chameleon Mining NL (No.2) (2012) 200 FCR 296
Hardy v Your Tabs Pty Limited [2000] NSWCA 150
Hill v Rose [1990] VR 129
Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653
Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193
Michael Wilson and Partners Limited v Nicholls (2011) 86 ALJR 14
Re Dawson (deceased) [1966] 2 NSWR 211
Warman International v Dwyer (1995) 182 CLR 544
Category: Principal judgment
Parties: Singtel Optus Pty Ltd (First Plaintiff)
Optus Networks Pty Ltd (Second Plaintiff)
Optus Administration Pty Ltd (Third Plaintiff)
Almad Pty Ltd (First Defendant)
Sumo Distribution and Storage Pty Ltd (Second Defendant)
Leon Mark Curtis (Third Defendant)
Craig Hasler (Fourth Defendant)
PJC333 Pty Limited (Fifth Defendant)
Representation: Counsel:
J Stoljar SC / DJA Mackay (Plaintiffs)
BW Rayment QC / J T Johnson / IJ King (First, Third, Fourth and Fifth Defendants)
Second Defendant (Unrepresented)
Solicitors:
Minter Ellison (Plaintiffs)
MCW Lawyers (First, Third, Fourth and Fifth Defendants)
Second Defendant (Unrepresented)

File Number(s): 2011/139541

Judgment

HIS HONOUR: Optus (as I shall call the plaintiffs collectively) has provided telecommunications services in Australia for a number of years. The supply of those services requires "logistics" support: the transport and warehousing of goods. The second plaintiff (Optus Administration) employed the third defendant (Mr Curtis) from September 1998 to December 2008, initially as "Logistics Manager" and, from July 2001, as "General Manager - Logistics". In the latter position, Mr Curtis was responsible for, among other things, procuring and managing the supply of transport and warehousing services for Optus' networks business.

Optus used brokers to source some logistics services. Initially, so far as the evidence goes, it used a company known as Transcoast Express (Transcoast). Later, it used a company known as MTM Transport and Logistics (MTM). Later still, it used the first defendant (Almad). Mr Philip Davey was the common link: he was (either in his own right or through Almad) a commission sales agent for Transcoast and later MTM, and the principal of Almad. It was Mr Davey who had a connection with Optus which enabled him to procure the brokerage of some of its logistic work for, successively, those companies.

From about March 2004, Mr Curtis caused the second defendant (Sumo), a company whose creation he had brought about, and whose business he effectively controlled (although not formally a director) to provide some warehousing services to Optus. This he did through Almad as broker. Mr Curtis did not reveal to his superiors at Optus, let alone seek their approval for, this activity. It is clear that, in acting as he did, Mr Curtis breached various contractual, fiduciary and statutory duties that he owed to one or other or more of the plaintiffs.

The third defendant (Mr Hasler) was employed by Optus Administration as Outbound Operations Manager (reporting to Mr Curtis), from May 2001 to March 2005. Mr Hasler assisted, or worked with, Mr Curtis in the creation of Sumo and the establishment of its warehouse business. After Mr Hasler left the employ of Optus, he worked full time for Sumo, effectively managing its day to day operations.

The fifth defendant (the parties referred to it by its business name, "Electrosales", and I shall do likewise) is a corporate entity controlled entirely by Mr Curtis. He used Electrosales to sell obsolete or surplus stock of Optus to companies in America. The business records created by Mr Curtis in relation to that sale make it clear that the stock that was sold was stock owned by Optus. Mr Curtis says, however, that the stock had been owned by another company known as Megatron, which was in liquidation and which effectively had given the stock to Electrosales to dispose of on its own account and as it saw fit.

As might be expected, the matters that I have briefly summarised have given rise to claims by Optus against the various defendants. It should be noted, in addition to what I have said, that:

(1) Optus says that in all the circumstances, Almad was required to disclose to it, but did not disclose, that Mr Curtis, through Sumo, was on the other end of supply transactions brokered by Almad for Optus, and that Almad's failure to make that disclosure amounts to misleading or deceptive conduct;

(2) Sumo has failed to account for, and thus should be taken to have converted, some millions of dollars' worth of Optus stock that it had stored; and

(3) there is another claim in conversion against Electrosales, which claim is admitted, in the sum of $15,000.00.

The real issues in dispute

The parties agreed on the real issues in dispute that arose from the "pleadings". I set those issues out, with some amendments to delete claims that were dropped, progressively, in the course of the hearing:

1. Whether the third defendant (Mr Curtis) was in breach of:

a. his fiduciary duty to the plaintiffs (Optus);

b. his statutory duty under either sections 182 or 193 or both of the Corporations Act (2001) (Cth); or

c. his employment contract with the third plaintiff (Optus Administration),

including by placing himself in a position in which his personal interest were in conflict with the interests of Optus.

2. If so, whether one or more of the second defendant (Sumo), the fourth defendant (Mr Hasler) and the fifth defendant (Electrosales) was knowingly involved or concerned in the said breach of fiduciary or statutory duty by Mr Curtis.

3. Whether Almad was in breach of its contract with the first plaintiff (SingTel Optus) by overcharging in respect of the rates charged per pallet.

4, Whether Almad was liable for misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) (TPA) for failing to disclose to Optus the conduct of Mr Curtis, Mr Hasler or Sumo when it would have been reasonable for it do so.

5. If so, whether any one or more of Sumo, Mr Curtis or Mr Hasler is liable pursuant to section 75B of the TPA in relation to the said contravention of the TPA.

6. In relation to the claims for conversion and bailment, whether:

a. Sumo is liable in respect of the missing stock referred to at FACLS [37];

b. either Sumo or Electrosales or both are liable in respect of the sale of Optus stock to Telecycling LLC.

7. Whether Optus is entitled to relief and, if so, the appropriate form of relief.

Sumo is in liquidation. Optus was given leave to proceed against Sumo. Sumo chose not to defend the claims made against it.

For convenience, when I refer hereafter to the represented defendants (Almad, Mr Curtis, Mr Hasler and Electrosales) together, I shall call them simply "the defendants"; but it should be remembered that this appellation does not include Sumo.

For reasons that remain unexplained, the defendants' written closing submissions did not address in terms the issues that had been agreed. Nor was that deficiency rectified, except intermittently and, I think, by chance, in oral closing submissions. That is unfortunate. It may well be that, given the way those submissions were structured, I have not appreciated the relationship between a particular submission and a particular issue.

It is not acceptable for parties to ignore the agreed issues. Agreed issues serve a number of purposes. First, they distil the pleadings, reducing them to the real issues for decision. Secondly, they assist the parties and the court in the conduct of the trial (for example, in relation to questions of admissibility of evidence). Thirdly, they provide a guide, or road map, to resolution of the parties' disputes. To conduct a case without referring in terms to the agreed issues is no more sensible then driving in unknown country without referring to a map. It does not seem to me to be consistent with the obligations that parties and their legal representatives owe to the court under s 56 of the Civil Procedure Act 2005 (NSW) for litigation to be conducted in this way.

The claims for relief

In the course of final submissions, Optus prepared a schedule summarising the claims for relief made by the various plaintiffs against the various defendants. I set those out, with some minor changes to reflect obvious and uncontentious errors:

Agreed
Issue

Plaintiff

Claim

Defendant

Relief

1a

SingTel Optus

Breach of fiduciary duty

Mr Curtis

Equitable compensation in the amount of $3,147,210 (made up of Almad mark up of $1,879,333 and price increase of $1,267,877)

1b

SingTel Optus, Optus Networks and Optus Administration

Compensation under s1317H of the Corporations Act (breach of section 182, 183)

Mr Curtis

Compensation in the amount of $3,147,210 (including any profits not covered by issue 1(a)).

1c

Optus Administration as trustee for SingTel Optus and Optus Networks

Employment contract

Mr Curtis

Damages in the amount of $3,147,210

2a

SingTel Optus, Optus Networks and Optus Administration

Knowingly involved in breach of fiduciary duty

Sumo

Account of profits in the amount of $4,261,750 (being total profit of $4,173,761 less loss for 1 July 2010 - 31 December 2010 of $110,723 plus $198,712 paid to Harmanis and Zotz family interests) and a declaration that the said sum is held on trust for plaintiffs

2b

SingTel Optus, Optus Networks and Optus Administration

Compensation under s1317H of the Corporations Act (knowing involvement in breach of sections 182, 183)

Sumo

Account of profits if not covered by previous order (ie no double recovery)

2c

SingTel Optus

Knowingly involved in breach of fiduciary duty

Mr Hasler

Equitable compensation in the amount of $3,147,210

2d

SingTel Optus, Optus Networks and Optus Administration

Compensation under s1317H of the Corporations Act (knowing involvement in breach of sections 182, 183)

Mr Hasler

Compensation in the amount of $3,147,210 including profits less any amount covered by previous order

2e

SingTel Optus

Knowingly involved in breach of fiduciary duty

Electrosales

Equitable compensation in the amount of $3,147,210

2f

SingTel Optus, Optus Networks and Optus Administration

Compensation under s1317H of the Corporations Act (knowing involvement in breach of section 182, 183)

Electrosales

Compensation in the amount of $3,147,210 including profits less any amount covered by previous order

3

SingTel Optus

Breach of contract

Almad

$1,267,877

4

SingTel Optus

s. 52 of TPA

Almad

Damages in the amount of $3,147,210

5

SingTel Optus

s. 75B of TPA

Sumo

Damages in the amount of $3,147,210

5

SingTel Optus

s. 75B of TPA

Mr Hasler

Damages in the amount of $3,147,210

5

SingTel Optus

s. 75B of TPA

Electrosales

Damages in the amount of $3,147,210

6a

Optus Networks

Bailment/conversion

Sumo

$5.4 million less 10% which equals $4.86 million

6b

SingTel Optus, Optus Networks

Conversion/bailment for stock sold to Telecycling

Electrosales and Sumo

$104,492.87

6c

Optus Networks

Conversion (admitted)

Mr Curtis and Electrosales

$15,000

Assessment of credibility

Although much of the evidence is documentary, there is, nonetheless, a substantial body of testimonial evidence that requires consideration. Some of that evidence is contentious. It is thus necessary to make an assessment of the credibility of the witnesses whose evidence is contentious, and whose credibility has been called into question.

I start by observing that, with one exception, there was no attack on the credibility of the witnesses called by Optus; indeed, some of them were not required for cross-examination (and the affidavit of another, which Optus did not read, was tendered without objection, and thus admitted into evidence, by the defendants). It follows that, so far as it goes, and acknowledging the obvious limitations that attend any attempt to recall events that occurred some years ago, I accept the evidence of those "unimpeached" witnesses.

The evidence of Mrs Grech

The exception - the witness of fact called by Optus whose credibility was called into question - is Mrs Brooke Grech.

Mrs Grech was a director of MTM from January 2002 (when it came into existence) until September 2009 (when it went into liquidation; it has since been deregistered). She was called principally to give evidence of conversations that, she said, she had had with Mr Davey. One of those conversations (set out in para 7 of her affidavit) could only have been relevant to credibility, and (being objected to) was rejected.

In para 8 of her affidavit, Mrs Grech gave evidence of what, according to her, had been said at one of MTM's "regular monthly management meetings", held in about January 2004. Mrs Grech said that her husband Mr Darren Grech, Mr Andrew Moyle (another principal of MTM), and Mr Moyle's wife, Mrs Sharon Moyle and sister-in-law, Ms Melinda Woollen, attended the meeting. Mr and Mrs Grech and Mr Moyle, were directors of MTM. None of those people was called.

Mrs Grech gave what purported to be a verbatim account, in direct speech, of a conversation between her and Mr Davey at the meeting. I return to this evidence at [81] and following below. At present, it is sufficient to note that Mrs Grech's evidence was given more than nine years after the conversation is said to have occurred.

There is no suggestion that Mrs Grech had made, let alone refreshed her memory from, a contemporaneous note of the meeting. So far as the evidence goes, she was relying on unaided recollection.

Human experience makes it difficult to accept that anyone could give an accurate account of a conversation that had occurred over nine years ago: at least, without relying on some contemporaneous materials to support the recollection. The evidence did not come to light until after the commencement of the hearing. Presumably, it occurred to someone among Optus' legal advisers to contact Mrs Grech and obtain an affidavit from her. There is no reason to think that she had been asked, more recently than late July 2013, to cast her mind back more than nine years to the events recounted in the relevant paragraph of her affidavit.

Further, as the cross-examination of Mrs Grech demonstrated, MTM and Mr Davey had parted company on acrimonious terms (Mr Davey's services were provided to MTM through Almad, but nothing turns on this). And, just as Mr Davey had brought the business of Optus and others to MTM when he left Transcoast, so, when he left MTM, he took that business with him. As events showed, the volume of that business was of the order of $18 million over the ensuing 6 years. MTM operated as a broker, charging a 20% markup on services that it procured for Optus. Thus, the broker's share of that lost business was one-sixth, or $3 million.

I have little doubt that it was the loss of the business that departed with Mr Davey that led ultimately to the liquidation of MTM. Further, although Mr and Mrs Grech thereafter set up a "Phoenix" business, seeking to capitalise on the connections that they had formed while working in MTM's business, that business too failed.

In those circumstances, I think that, although Mrs Grech denied it, she harbours considerable ill will towards Mr Davey, and that this was reflected both in her willingness to give evidence effectively against him and, also, in her asserted ability to recall the detail of the conversation.

Mr Stoljar of Senior Counsel, who appeared with Mr Mackay of Counsel for Optus, submitted that there was significant corroboration for her evidence in an email that Mr Hasler sent to Mr Curtis on 5 July 2004. Since the significance to be attached to that email was itself contentious, I shall return to this aspect of Mrs Grech's evidence when dealing with that email. (see at [92] and following below).

For present purposes, it is sufficient to note that I think that there is substance in the challenge directed to Mrs Grech's credibility. I am not prepared to accept, without reservation and at face value, this aspect of her evidence. In reaching this conclusion, I take into account not just the matters already discussed but also what I say at [86] to [90] below.

The defendants' evidence

Not all of the defendants' evidence was contentious. The affidavits of two witnesses, Mr Mark Barber and Mr Kevin Farrington, were read without the deponents being required to attend for cross-examination. It follows that I accept their evidence, so far as it goes.

To a greater or lesser extent, the evidence of the remaining witnesses was called into question. Those witnesses were Mr Curtis, Mr Hasler, the latter's son Mr Trent Hasler, Mr Michael Tull and Mr Davey. I shall deal with each of those in sequence.

Mr Curtis

Mr Curtis swore a number of affidavits, one of which was of prodigious length. He was cross-examined in detail over a number of days.

I am not prepared to accept Mr Curtis as, in general, a witness on whose evidence I can place any reliance. I say that for a number of reasons.

First, in acting as he did to set up Sumo and direct some of Optus' business to it, Mr Curtis acted in a way that, he must have recognised, was in breach of duties to Optus. Further, no doubt in an attempt to rationalise this, Mr Curtis gave an excuse for his actions which I find to be false. He said, in effect, that his superior Mr Ray Badnall had given him a very poor performance and development rating (PDR) - PDR 5 - the lowest possible on the Optus scale. Mr Curtis said, by reference to the fate of another employee who had been similarly rated, that he feared that he would be "managed out" (as I understand it, a euphemism for termination of employment). Mr Curtis said that he set up the Sumo business to provide a source of livelihood in the event that he was "managed out".

However, Mr Badnall said that he thought that Mr Curtis was "a very capable manager" and could not "recall ever giving him a bad review or a poor PDR rating". Mr Badnall was not cross-examined.

Optus tendered what it said were, and appeared to be, printouts of screen dumps of the PDRs performed from year to year on Mr Curtis. In none of those was Mr Curtis assigned a PDR 5 rating. On the contrary, his ratings were generally PDR 2 or PDR 3. Mr Curtis, confronted by these records, sought to suggest that there were other records which contained other, poorer, ratings. Quite why Optus would keep two sets of PDR rating records, one apparently favourable to the employee and one unfavourable, was something that Mr Curtis did not seek to explain. Nor was any attempt made to identify, or require the production of, those other records that, according to Mr Curtis, would have shown the true situation.

As I have said, I think that the explanation that he gave, to justify his actions, was false. So too, in my view, was his attempt to explain away the satisfactory PDRs that were proved.

In relation to the Electrosales transaction, Mr Curtis created business records, including an invoice from Optus to the purchaser, an American company known as Telecycling, which stated clearly that the stock the subject of the sale was the property of Optus. Mr Curtis admitted to dishonest activity in connection with this sale. That of itself does him no credit, although it may be said that his admission, no doubt when the game was seen to be up, might help to redeem him. But, in relation to the business records showing a sale by Optus of its own stock, Mr Curtis gave an explanation which I find to be false.

According to Mr Curtis, it was necessary that Telecycling be assured that the stock was the stock of Optus, since otherwise it might not proceed with the purchase. Yet it was clear, from his and other evidence, that representatives of Telecycling had been shown the stock (which was located in the warehouse then operated by Sumo at Smithfield), and had become aware that, as the pallets of stock were plainly branded, it was apparently stock of Megatron.

I find the admitted and proved conduct of Mr Curtis, in relation to the Telecycling sale, to be inconsistent with any reasonable standard of honesty; and I regard his purported rationalisation of that dishonesty as, itself, false and dishonest.

In general, I am not prepared to accept the evidence of Mr Curtis on any contentious point unless it is corroborated by other, acceptable, evidence; or unless it accords with the probabilities as, objectively, I see them.

Mr Hasler

For convenience, I shall refer to Mr Hasler Senior as "Mr Hasler" and to his son as "Mr Trent Hasler".

Mr Rayment of Queens Counsel, who appeared with Mr Johnson and Ms King of Counsel for the defendants, submitted that I should find that Mr Hasler was a credible witness. I am not prepared to do so.

It appeared to me, in the course of Mr Hasler's cross-examination, that he had very little actual recollection of relevant events. That, in my view, may be seen in his repeated professions of non-recollection.

There is a further and specific problem with Mr Hasler's evidence. I have referred at [24] to an email that he sent to Mr Curtis on 5 July 2004. That email recorded, among other things, a conversation which Mr Hasler said he had had that very day with Mr Davey. When the substance of the conversation was put to Mr Hasler, he denied it. At first, it was apparent that the denial reflected the fact that he could not recall what was put to him. But it became apparent very shortly that the denial went further. Of course, when the email was then shown to Mr Hasler, he was forced to admit that the conversation had indeed taken place.

To my mind, that passage of Mr Hasler's cross-examination provides a striking example of what I perceived to be a propensity on his part to answer in a way that he thought might be suitable to his interests, without paying sufficient attention to the veracity of what he said.

Nonetheless, I do not reject Mr Hasler's evidence entirely. On the contrary, as will become apparent in discussing the issues, there were passages of his evidence that I do regard as essentially truthful.

Mr Trent Hasler

Mr Trent Hasler impressed me as a witness who had a reasonable recollection of events and who sought to give honest and accurate evidence. Acknowledging the fallibility of human memory, nonetheless I regard Mr Trent Hasler as a reliable and truthful witness.

Mr Tull

Mr Tull is another witness who was asked, after the commencement of the proceedings, to cast his mind back some number of years and give evidence of what had happened. He said (and I return to his evidence at [192] and following below) that he had been engaged from about July to December 2005 in moving goods from Sumo's Campbelltown warehouse to its new warehouse premises at Lidcombe.

Mr Tull acknowledged, candidly and appropriately, the limitations on his memory, and the possibility of error. Nonetheless, particularly bearing in mind some corroborative material to which he referred (and again, I shall return to this), he struck me as a witness who was seeking to give honest and reliable evidence to the best of his ability.

I accept Mr Tull as a witness of truth, and as someone on whose evidence I can place reliance.

Mr Davey

Mr Davey gave evidence in a straightforward way. In general, he impressed me as a careful and capable businessman, with a good recollection of what he perceived to be the relevant events.

As I say below, in dealing with the claim against Almad for misleading or deceptive conduct (issue 4), I do not think that Mr Davey was inclined to give close scrutiny to matters of ethical or moral significance in the business practices of those with whom he dealt. But it does not follow that Mr Davey is an unreliable witness, let alone that he is dishonest.

Mr Davey was cross-examined about the conversation recounted in the email of 5 July 2004. He said that he could not recollect it. That is not surprising; there is no particular reason why he should have recollected it. Thus, I do not find his non-recollection to be suspicious, even when contrasted with what appeared to be his generally good powers of recollection. I think that Mr Davey focused his attention on his business, that his recollection of what, in his view, was relevant to the business is good, and that his recollection of what to him were likely to have been peripheral matters has faded.

On balance, and bearing in mind that Mr Davey has had an obvious and very significant financial interest in the outcome of the proceedings, I conclude that he is a witness who sought to give truthful evidence, and on whose evidence, in general, I can rely.

History: the early days

Before turning to the issues, I shall set out the relevant history. Most of this is non-contentious, although of course the parties were not always of one mind as to the emphasis to be given to, or significance of, particular events. Where there is dispute, I shall deal with it.

What follows is based substantially on a chronology and summary of facts provided by Mr Stoljar in his final submissions. I have taken that course because, to a large extent, there was no challenge to either the sufficiency or the accuracy of Mr Stoljar's narration of the relevant primary facts.

Mr Curtis started working for Optus in about September 1998, initially in the position of Logistics Manager. He signed written undertakings on 9 November 1998, and (on 30 November 1998) a written offer of employment. Those documents made it clear that, among other things, although Mr Curtis was employed by Optus Administration, his duties as an employee were owed not only to that company but also to its related bodies corporate.

The contract of employment stipulated that Mr Curtis would not act in conflict with the best interest of Optus Administration, nor compete with it or its related bodies corporate; and that he would comply with all its policies as in force from time to time. I set out the relevant parts:

You [Mr Curtis] must serve the Company faithfully and diligently; act in the best interests of the Company and its Related Bodies Corporate (as defined in the Corporations Law); not act in conflict with the Company's best interests or compete with the Company or its Related Bodies Corporate; and comply with all Company policies and applicable laws in force from time to time.

Optus proved a "Procurement Ethics Policy" dated 6 June 2000. There is no doubt that this was a "Company policy" of the kind that Mr Curtis undertook to obey. Section 2 of that Procurement Ethics Policy dealt with conflict of interest. It reads as follows:

2. Conflict of Interest

It is essential that Optus employees and non payroll staff do nothing that conflicts with the interests of Optus, or anything that could be construed as being in conflict.

Contracts and agreements must always be checked to ensure that conflict of interest is not present, and cannot be implied.

2.1 Business Dealings

Business dealings which are in conflict with the interests of Optus must be avoided. Business dealings which may result in a conflict of interest include significant ownership of shares in, holding a position or having any interest in or dealings with any of our competitors, suppliers or customers which might, or might appear to, create a conflict of interest, or impair the judgments of an Optus employee.

2.2 Personal Dealings

Any personal dealings with third parties outside of the Optus work environment that may possibly affect judgement with regard to work matters, must be reported to the individuals manager. On no account should Optus' business be discussed outside of the work environment.

To jump ahead for a moment: when Mr Curtis was involved in the evaluation of a request for tender (RFT) OCT-881, he signed "Core Evaluation Team Undertakings". By those undertakings, he agreed among other things that he had read and understood the Procurement Ethics Policy. He also agreed as follows:

2. I have specifically disclosed to Optus (in writing) any conflict of interest I have in the subject matter of the RFT other than as an Optus employee or contractor and any information or circumstances which may affect my ability to evaluate the RFT. If at any time during the evaluation, I come to have any interest of that kind, I undertake to immediately disclose that interest to Optus, in writing.

Before Mr Curtis started to work for Optus, he had worked for Nestlé Australia and, before that, for Woolworths. It was in the course of his employment by Woolworths that Mr Curtis met Mr Hasler.

About 8 months before Mr Curtis started to work for Optus, he became a director of Electrosales. Electrosales (more precisely, the company PJC 333 Pty Ltd) was a company that had been set up by Mr Curtis' father-in-law, Mr Peter Curtis, to manage the latter's accountancy practice. When Mr Peter Curtis retired and the company ceased to perform any useful function for him, Mr (Leon) Curtis took it over.

In late 1999, Mr Curtis became involved in a project known as N559-Insourcing. That project investigated bringing back into the direct control of Optus its warehousing activities (or a substantial part of them). It was contemplated that substantial savings could be effected if this were done. However, in April 2000, Optus decided that the project would not proceed.

Mr Curtis said that, as a result of this, he was given a bad PDR rating by his manager Mr Badnall. That, according to Mr Curtis, was what led to the decision to establish Sumo. I have referred to this at [30] to [33] above, in dealing with the question of credibility.

Mr Curtis effectively recruited Mr Hasler to work at Optus. In April 2001, Optus Administration made an offer of employment to Mr Hasler, to be its Outbound Operations Manager. Mr Hasler accepted that offer and commenced work, reporting to Mr Curtis, in May 2001.

Mr Curtis became General Manager - Logistics on 16 July 2001. He said that this was more a change of title than a change of responsibility.

Optus submitted that, in this position, Mr Curtis was a "senior employee". Mr Curtis did not accept that characterisation of his importance. Regardless of terminology, it is clear that, as General Manager - Logistics, Mr Curtis had very substantial duties and responsibilities. A "position description" prepared by Mr Curtis in January 2004 said that:

The GM Logistics is responsible for the functional control and operation of all materials purchase, planning, storage and movements for SingTel OPTUS network builds and assurance.

In that position Mr Curtis had five people reporting to him directly and, on average, about 30 people under his direct or indirect control (the number fluctuated, mainly by diminution, over time).

In September 2001, Transcoast became "the preferred carrier" for Optus. This appears to have been achieved because Mr Davey had moved from Mayne Nickless to Transcoast, and had taken his connections (including for Optus business) with him.

In November 2001, a company known as Optus Stockco Pty Ltd signed an agreement with Megatron Electronic Industries Pty Ltd under which Megatron agreed to take from Optus Stockco and sell, for their mutual benefit, "obsolete, redundant or surplus electronic products".

The Megatron agreement (as it is convenient to call it) provided that title would pass to Megatron on collection of the goods and on payment of a notional amount of $1 per item (later, I think, changed to $1 per pallet load). It provided, further, that Optus could buy back all or any part of the equipment at its discretion, paying the like fee.

In March 2002, Mr Hasler undertook a review of Optus' freight and distribution services. It recommended that MTM be used, in place of Transcoast; and this was done. Again, I think, this happened because Mr Davey moved from Transcoast to MTM, and took his business connections with him.

In late November 2002, after a tender process, a company known as Computer Logistics Pty Limited started to provide the bulk of Optus' warehousing and freight requirements. Computer logistics was bought out by United Parcel Service (UPS).

MTM becomes a supplier

Although UPS appears to have been the preferred provider of Optus' warehousing and freight needs, MTM submitted quotations to Optus for such work, and provided services to Optus. Those services included the provision of warehouse space by a company known as Cargo and Logistics Management, generally referred to by the acronym CALM.

Optus became dissatisfied with the services provided by CALM, in particular because some Optus products stored at CALM's warehouse became coated by a "black chalky substance". That substance was carbon black, which CALM apparently stored in bulk and bagged as needed for distribution. Perhaps not surprisingly, some of the carbon black carbon escaped during this process and settled on other goods stored in the warehouse.

Optus says that Mr Curtis, if he did not go so far as to manufacture the complaint about CALM's services, nonetheless used it as an excuse to terminate the arrangements with CALM and to insert Sumo as a supplier of warehousing services. The underlying facts are not in dispute.

Sumo comes into existence

According to Mr Hasler, he had been thinking from early 2004 about setting up a warehousing business. Mr Hasler said that he had had discussions with Mr Davey about this. Mr Hasler said that he then discussed the proposal with Mr Curtis, on the basis that any services to be supplied by the new venture would have to be better, and no more expensive, than the services provided by CALM.

By 12 January 2004, Mr Curtis or Mr Hasler had had meetings with a real estate agent who represented the owner of warehouse premises at Campbelltown. Ultimately and for a time, Sumo conducted its business from those premises.

On 16 January 2004, Mr Curtis and Mr Hasler registered Sumo as a business name. Mr Hasler "would assume" that by that time, he and Mr Curtis had decided to proceed with their project.

On 28 January 2004, Mr Curtis asked Mr Hasler to attend at Campbelltown Council in connection with the development consent for the warehouse. It is not clear if Mr Hasler did so.

On 15 March 2004, the Campbelltown warehouse premises were leased to the wives of Mr Curtis and Mr Hasler, for the benefit of Sumo (at that stage, still operating as a partnership between Mr Curtis and Mr Hasler).

Sumo (the company) was incorporated on 23 March 2004. Mr Curtis said that, by then, the Sumo warehousing business had been operated in partnership between him and Mr Hasler for some five weeks.

Sumo becomes a supplier to Optus

Returning to CALM: there were meetings in December 2003 and January 2004 between representatives of Optus and representatives of MTM (Mr Alex Harmanis and Mr Farrington for Optus, and Mr Davey and Mr Moyle for MTM). Concerns were expressed at the "black chalky substance".

On 28 January 2004, Mr Curtis wrote to MTM, identifying Optus' complaints and requiring that they be addressed. That position was reinforced in a further meeting which took place two days later, on 30 January 2004. The minutes of that meeting show that Mr Davey had until 28 February 2004 to address the problems with CALM. However, as the preceding chronology of events might suggest, by then Mr Curtis had made up his mind to terminate the services of CALM.

It was at about this time (January 2004) that, according to Mrs Grech, the conversation took place in which she raised, with Mr Davey among others, concerns at the idea that Mr Curtis and Mr Hasler were involved, through their interest in Sumo, with the supply of services to their employer, Optus. Mrs Grech did not suggest that Mr Hasler was present at that meeting.

In his affidavit sworn on 13 March 2013, Mr Hasler said at para 44 that he and Mr Curtis met "personnel from MTM" at a meeting "in early 2004". According to Mr Hasler, the only issue raised by Mrs Grech was that services provided in replacement for those offered by CALM would have to be at a lower rate than charged by CALM. Further, according to Mr Hasler, either he or Mr Curtis asked whether anyone saw a problem and that the (I interpolate, only) reply, "no", came from Mr Davey.

Mrs Grech gives an account of a very different conversation: one that did not involve Messrs Curtis and Hasler. In para 8 of her affidavit sworn 1 August 2013, Mrs Grech said that there was a conversation at one of MTM's "regular monthly management meetings", in which Mr Davey said that the supplier of warehouse services to Optus was to change. According to Mrs Grech, the conversation was to the following effect:

8. In approximately January 2004, MTM held one of its regular monthly management meeting. I recall that Mr Davey, my husband, Mr Moyle, his wife Mrs Sharon Moyle and Ms Melinda Woollen, Mr Moyle's sister in law all attended the meeting. It was our usual practice at these regular monthly management meetings to discuss how business was going, existing clients' needs, supplier issues, customer service and any account issues. At this particular meeting, I recall that Mr Davey brought up changing warehouse providers for Optus. I recall we had a conversation in words to he following effect:

Davey: At the request of Optus we are going to relocate all the Optus stock from CALM to another warehouse.

Me: Why would we do that?

Davey: Optus has instructed us to.

Me: Who is the new supplier?

Davey: Sumo Distribution and Storage.

Me: Where is it and who operate it?

Davey: Craig Hasler and Leon Curtis will be running it.

Me: How can Craig and Leon run a warehouse storing Optus stock while they are still working for Optus? Surely that's a conflict of interest?

Davey: That's got nothing to do with us.

Me: I am not comfortable with this at all. I don't see how it can be legal and I don't want to get involved. I can't imagine Optus consenting to this arrangement.

Davey: This is nothing to do with us. They will invoice us and we will invoice Optus and Optus will pay us the same as before.

Me: I don't care. I don't like it and I want to understand more.

Davey: Leon Curtis and Craig Hasler have set it up as a partnership and got a warehouse. Our invoices will be paid and approved as normal.

Me: There is no way we can do business with them. It's not an acceptable business arrangement and I am worried about the effect this may have on MTM and its reputation.

Mr Davey: They will sort it out and make sure that there are no problems.

Mrs Grech's affidavit did not deal with the conversation said by Mr Hasler to have occurred at about the same time. It might have been expected (because Mrs Grech's affidavit was sworn more than four months after Mr Hasler's affidavit was sworn) that Mrs Grech would have been asked to deal with this aspect of Mr Hasler's evidence.

However, Mrs Grech was cross-examined on the conversation to which Mr Hasler had deposed. Her cross-examination on this evidence is somewhat lengthy. However, it should be set out in full (T235.41-238.9):

Q. Do you recall seeing at the MTM premises in the first half of 2004 Leon Curtis and Craig Hasler?

A. I do remember seeing them, yes.

Q. I suggest to you what was happening at that meeting was there was an enquiry made by Curtis and Hasler as to whether they set up a new business of warehousing and did it at the same price as CALM had been doing it. First of all, you would put that work to them, do you agree with that?

A. No.

Q. I suggest to you further that at the meeting you were asked whether not only would you put that work to them but could put other warehousing work to them. Do you agree with that?

A. I don't remember that part of the conversation, no.

Q. I suggest that you said that if you were to deal with them they would have to do it at $2.30, being less than the CALM price per pallet?

A. I would say no because I did not negotiate rates, it was not my role.

Q. You had nothing to do with that?

A. I did not get involved normally with that.

Q. You are certain?

A. The only time I would be asked was if it was a cost analysis but I don't remember being the negotiator of the rates.

Q. Apart from that general recollection would you deny that you said at that meeting that you would have to do it at $2.30 and you said, "We set the price, not you"?

A. I don't remember.

Q. You are not sure one way or the other?

A. No, I don't remember.

Q. I suggest to you that at the meeting the prospect was held out to Curtis and Hasler that your company might provide other warehousing business to them if they set up?

A. We weren't doing any warehousing at that stage with anybody else. We weren't involved in warehousing. I don't know what other work we would have given them, if that was the suggestion.

Q. Was it said to them that you had some customers who might have warehousing needs and your company would look at providing that business to them if they started up?

A. I don't believe I said that in any way.

Q. Was it said in your presence?

A. I don't remember that being said any way.

Q. What I suggest to you is that neither you nor anyone else present at the meeting which we have just been discussing asked any questions about any problems that this might pose for Optus or otherwise?

A. Can you repeat that?

Q. You did not say at this meeting that you had with Curtis and Hasler that there was any problem that you saw about dealing between MTM and Sumo?

A. Yes I did.

Q. Did you say that to them?

A. I had very clear conversations with our people within our business.

Q. No, whether you said it to them? You did not say to Curtis or Hasler, "We have some problem about dealing with you because you are still at Optus"?

A. I believe I did, actually.

Q. You did?

A. I believe that conversation was had in a meeting with them, yes.

Q. With them?

A. Yes.

Q. That is one you have not referred to in your affidavit, that conversation you have not mentioned in your affidavit?

A. There was more than one meeting and more than one person at any one meeting.

Q. I put it to you that no problem was raised with Curtis or Hasler about dealings between MTM and Sumo?

A. That's incorrect.

HIS HONOUR

Q. Am I to understand that you do remember having a conversation with Mr Curtis and Mr Craig Hasler about the topic of their doing warehousing work for Optus at some time in early 2004? Is that correct?

A. Yes, definitely.

RAYMENT

Q. Do you say that you said to them, "We wouldn't deal with you"?

A. I don't remember the exact wording.

Q. I am asking you did you say to them, "We wouldn't deal with you"?

A. I don't remember the exact wording, I am sorry.

Q. Did you say to them, "We will deal with another warehouse but not with you," anything like that?

A. No, I said I don't remember the exact wording but I did express concern.

Q. About dealing with them?

A. Yes.

Q. Did you say that you had concerns about dealing with them?

A. Yes.

Q. And that you wouldn't deal with them?

A. I said I had concerns about dealing with them.

Q. But you didn't say, "We won't deal with you"?

A. I don't remember those words exactly but I did say I have concerns.

Q. Did you give them to understand that you would not deal with them?

A. I am sorry?

Q. Did you say anything to indicate to them that you would not deal with them? You didn't, did you?

A. I don't remember the exact wording of the conversation but I did very clearly state that I expressed concerns about dealing with them.

Q. That wasn't sufficient to stop you?

A. I am not the only decision maker of the business.

The very strong impression that I get from this passage of Mrs Grech's evidence is that her memory of conversations involving Mr Curtis and Mr Hasler, or involving their business Sumo, is not nearly as clear as the asserted recollection of the particular conversation given in para 8 of her affidavit, on which Optus placed much reliance. The conversation set out in para 8 of the affidavit is not one said to have involved as parties Mr Curtis or Mr Hasler. By contrast, in her cross-examination (in particular from T236.39-237.13), Mrs Grech does assert that there was a conversation with Messrs Curtis and Hasler present, in which she expressed concerned at their being involved, as it were, on both sides of the warehousing transaction. No such conversation had found expression in her affidavit.

Considering the evidence of Mrs Grech as a whole, and taking into account, to the extent that it is a help, her demeanour and the way she gave her evidence, I have the very strong impression, that she has, unconsciously and without any subjective intent to deceive, conflated various conversations (more accurately, her present recollection of scraps of them) with her thoughts both at the time and since concerning the relevant events, and that she has reconstructed, in what purports to be a record of a single conversation, an amalgam comprising aspects of those scraps and thoughts. I have little doubt that this process of reconstruction has been influenced, whether intentionally or otherwise, by the matters referred to at [21] and [22] above and by the ill will to which I referred at [23] above.

Whilst I have no doubt that, subjectively, Mrs Grech was seeking to be honest in saying that she remembered the particular conversation set out in para 8 of her affidavit, I am not satisfied that her evidence of that conversation should be accepted. Nor am I satisfied that her evidence, tentative and general as it was, of other conversations (not referred to in her affidavit) in which she claimed to have expressed doubts to Messrs Curtis and Hasler as to the propriety of what they were doing, should be accepted.

If Mrs Grech had held the view expressed in the conversation to which she deposed at para 8 of her affidavit, one would expect her to have had considerable hesitation in dealing with Sumo. However, as Mr Rayment pointed out, MTM continued to deal with Sumo notwithstanding her alleged reservations (see at [98] to [108] below). It cannot be suggested that this was due purely to Mr Davey's intervention or influence, because some dealings continued well after he left MTM in about February 2005. MTM's apparent willingness to continue to deal with Sumo does not seem to me to be consistent with the reservations that, Mrs Grech said, she both harboured and expressed.

As I have noted, Mr Stoljar submitted that Mrs Grech's evidence obtained significant support from the email of 5 July 2004 sent by Mr Hasler to Mr Curtis, reporting on a conversation that Mr Hasler had had with Mr Davey. I deal with that email at [92] to [116] below. It is sufficient to say at this point that I do not regard the email as providing any corroboration sufficient to dispose me, contrary to what I have just said, to accept the aspects of Mrs Grech's evidence to which I have just referred.

The email of 5 July 2004

On 5 July 2004, at about 9:09 pm, Mr Hasler sent an email to Mr Curtis. Omitting formal parts, that email reads as follows (I use, without further comment, Mr Hasler's distinctive mode of expression; and for convenience, I have added the paragraph numbers that appear below):

Leon,

(1) Here is the new pallet count with the container pallets in it.

(2) I was talking to Phil on the way home tonight, he was confirming the trucks for tomorrow.

(3) He asked me if we were taking up the option on the back part of the warehouse for all these pallets coming from UPS, I said no we are taking the two rooms next door. He then said how are you going to charge for that space, I said by the pallet of course, why? He said as long as we do not increase the bulk area, and just charge by the pallet know one will bat an eye lid, but if we start to double dip people (Brook) will start to ask questions.

(4) So I said to him and how is Brook these days, he said she has been good and not worrying about us any more as the bills come in on time and nothing looks out of place, I said to him that's the way we want it.

(5) So maybe we should not ingress the bulk hard stand, I got the feeling they may just wanting for us to want too much we will get more money for pallets anyway.

(6) My be just a pallet up rate will be the better way to go. $2.50 per pallet!

(7) What do you think!!

Craig..................

In July 2004, Mr Hasler was still working full time for Optus, but was spending his evenings (or some of them) at Sumo's Campbelltown warehouse.

Adopting the paragraph numbering I have inserted, the third and fourth paragraphs seen to recount the conversation to which Mr Hasler referred in the second paragraph. The fifth and sixth paragraphs, I think, reflect Mr Hasler's views following that conversation. The seventh paragraph, clearly enough, seeks Mr Curtis' opinion on the matters that Mr Hasler raised for consideration in the fifth and sixth paragraphs.

According to Mrs Grech, the meeting at which, she says, she raised with Mr Davey the propriety of what Mr Curtis was doing is said to have occurred in January 2004. Thus, about six months would have elapsed between that supposed conversation (if, contrary to my view, it had occurred) and the email. Over that time, the volume of business done by MTM with Sumo had increased.

Perhaps not surprisingly, Mr Stoljar submitted that the email showed some consciousness on the part of Mr Hasler that:

(1) there was something wrong in Sumo's doing business with Optus, through MTM as an intermediary or broker; and

(2) that Mrs Grech had pointed this out back in January 2004 or thereafter.

Mr Rayment submitted that there was nothing sinister in the email, nor in the conversation to which it referred.

A series of emails tendered by the defendants shows that Mrs Grech had been dealing with a number of questions in relation to Sumo. Those questions included insurance and rates. Those emails passed between Mrs Grech for MTM and either Mr Curtis or his wife, Mrs Monica Curtis, for Sumo. Going back to what is noted at [90] above, Mrs Grech does not appear to manifest any disquiet whatsoever, in those emails, at having to deal with Mr or Mrs Curtis, or Sumo.

Mrs Grech also appears to have dealt with Sumo's invoices. For example, on 14 April 2004, Mrs Curtis sent to Mrs Grech Sumo's March invoice for Optus, in both PDF and excel formats (the latter "to enable your rework for customer billing"). Mrs Grech replied:

Hi Monica,

Thanks for the invoice, I will let you know if we have any questions or further requirements with it.

Regards

Brooke

In another email, Mrs Curtis supplied Sumo's Australian Business Number and Tax File Number to Mrs Grech.

Quite apart from their relevance as noted at [90] above, those emails show, as one would expect, that Mrs Grech was involving herself in ensuring that Sumo, as a new supplier, did what was needed in the way that was needed; and that Sumo sought to accommodate her requirements.

Mr Rayment placed particular reliance on an exchange of emails between Mr Davey and Mrs Grech on 12 May 2004.

The first email came from Mr Davey. Leaving out formal parts, it stated:

Please find attached revised sheets as discussed in relation to the Optus storage charging & costing for March / April 04 in relation to the exit of CALM. There are two sheets for March 04, the first being "normal" monthly sheet & the second being the March Reconciliation sheet.

The first "normal" sheet now reconcils [sic] with what we charged Optus on Inv 3066. ...

The second March Reconciliation sheet takes up all the other storage charges & costs. ...

The last words that I have quoted were followed by some eight dot points. After those dot points, Mr Davey set out what he saw as the "[b]ottom line" as to how the charges should be allocated.

Mrs Grech replied about two hours later. She said:

Just quickly - what about SUMO charges for March you said we had not charged these yet and they were to be added into the additional March invoice that was for storage in advance. (other comments as per your point format)

The "other comments" were comments that Mrs Grech had inserted against the various dot points in Mr Davey's email.

In short, it seems that what Mr Davey was seeking to do was reconcile the charges that had been levied by Sumo in the course of goods being transferred from CALM's warehouse to Sumo's warehouse. Mrs Grech appears to have been substantially satisfied as to the reconciliation; she noted that one of the matters referred to in one dot point "was not costed"; and asked for further explanation in relation to another.

No doubt because of the way in which the evidence developed, Mrs Grech was not cross-examined as to the email exchange of 12 May 2004. Nor was Mr Davey, because the significance of that exchange does not appear to have occurred to the defendants until some time after Mr Davey had completed his evidence.

In short, Mr Rayment submitted that the email exchange of 12 May 2004 showed that Mrs Grech had been concerned to ensure that the charges rendered by MTM to Optus, to the extent that they covered the change over from CALM to Sumo, were properly reconciled. Mr Rayment submitted that it was this concern with Sumo's charges that underlay the conversation between Mr Davey and Mr Hasler recorded in Mr Hasler's email to Mr Curtis of 5 July 2004.

The reference to double-dipping does not seem to me to be sinister. One of the complaints that Optus had, concerning the services provided by CALM, related precisely to double-dipping. CALM set aside (or purported to set aside) space for the storage of Optus' stock, and charged Optus for that space on a "per square metre" basis. However, CALM also allowed other customers to store their goods within the space dedicated to (and paid for by) Optus, and charged those other customers accordingly. It was indeed double-dipping.

From the outset, it was made clear to Sumo that it would have to charge on a "per pallet per week" basis, and not on a "per square metre" basis, for the storage of Optus' stock. (This was varied, in the case of the cable drum storage and cable cutting equipment, but nothing turns on this.) I think it was the concern to avoid any suggestion of double-dipping that led Mr Davey to caution Mr Hasler that, if Sumo did take additional space on lease and did use it to store Optus' stock, Optus should be charged for the stock stored and not for the space taken.

Mr Stoljar submitted that "[t]he conversation recorded in that email... has a surreptitious air, in the sense that the participants... seem implicitly to recognise that their conduct is underhand" (written closing submissions, para 63). Mr Stoljar sought to support this proposition by reference to the manner in which Mr Hasler denied the conversation when it was put to him. At the point where he was asked whether he said "and how is Brooke these days", Mr Hasler responded negatively; indeed derisively, or in a laughing manner. I do not think that too much can be put on this. Mr Hasler did not impress me as a sophisticated man. I think he was expressing derision, or mirth, at the proposition that he would have been inquiring of Mr Davey after Mrs Grech's health.

I have no doubt that Mr Hasler (and Mr Curtis and, for that matter, Mr Davey) would want to keep Mrs Grech in a state where she was "not worrying about us anymore". That is because, if the billing arrangements satisfied Mrs Grech and the charges appeared to be proper, she would effectively approve them by passing them on to Optus with MTM's markup. Where the charges appear to be unjustified, or open to question, then, as the email exchange of 12 May 2004 shows, Mrs Grech would question them. This would mean more work for everyone.

Mr Stoljar submitted that this interpretation, for which Mr Rayment contended, was unlikely because the conversation took place about seven weeks after the email exchange. That overlooks both the subject of the email and its attachment. The former was "[p]allet count" and the second was an excel spreadsheet, "Sumo pallet count June 04.xls".

In short, Mr Hasler sent Mr Curtis the pallet count for June, so that Sumo's invoices to MTM for that month could be prepared. It is not unlikely, in those circumstances, that the discussion some seven weeks ago, involving reconciliation of the March accounts, was fresh to everyone's mind.

Thus, whilst I can understand why the email of 5 July 2004 excited some suspicion in the minds of Optus and its legal advisers, I do not think that it has the sinister significance placed upon it, and I do not regard it as corroborative of Mrs Grech's evidence as to the conversation that, she said, took place in January 2004.

I have no doubt that Mrs Grech would have queried anything and everything in Sumo's accounts for storage of Optus' stock, that looked irregular or out of place. I have no doubt that, in doing so, she would have caused a lot of work for everyone in reconciling and explaining. That is precisely what happened in May 2004. It is apparent from Mr Davey's email and its attachments that he had to do a lot of work to sort out the correct position and explain it to Mrs Grech's satisfaction.

It follows, in my view, that everyone would have wanted that Mrs Grech had no reason to "worry" about Sumo's invoices. And that, it seems to me, is really all the email says.

Project Harley

In late 2003 or early 2004, Optus embarked on a project that became known as "Project Harley" (also known as OCT 881), seeking tenders for the provision of logistics services for the Optus group in Australia. It was apparently thought that, if the whole of the requirements of the Optus group could be put out to tender together (rather than as separate packages for the separate business units), significant savings might be effected.

Mr Curtis was a member of the Project Harley evaluation team, and in this capacity signed the undertakings to which I referred at [57] above.

Project Harley did not proceed. However, Mr Curtis accepted that the scope of the works to be put out for tender expressly excluded "EOL and cable facility", and that it was he who had caused to be done (T550.39-.49). The acronym "EOL" is used within Optus to refer to "end of life" stock - that is to say, obsolete or obsolescent stock. Optus had substantial quantities of EOL stock, and needed to store it somewhere, as cheaply as possible, until it could be disposed of.

The "cable facility" referred to is an internal Optus operation whereby cable required for various projects is stored in bulk on drums, and cut to length as needed for particular projects.

Ultimately, Sumo came to provide warehouse space to Optus both for the storage of EOL stock and for Optus' cable storage and cutting operations.

Almad becomes a broker for Optus

In about February 2005, Mr Davey left MTM. As ever, his business connections left with him. However, Mr Davey did not move to another broker. Instead, he started his own broking business, through Almad.

After Mr Davey left MTM, the Optus business that had been transacted through that company was transacted through Almad. Mr Curtis appears to have ratified this for Optus: on the basis (he said) that "Phil Davey provided the same broking service to Optus, under a different corporate name" (affidavit sworn 5 March 2013, para 223). Mr Curtis said that he "did not think of the business as moving to Almad, but rather staying with Phil Davey" (para 224). Thus, Mr Curtis said, "Almad began doing exactly what MTM had done for Optus" (para 225). Mr Curtis "did not observe any practical different in the services provided" (para 226) and thus "did not... consider that it was necessary to seek any alternative tender or approval to the change" (para 227).

Shortly after Almad became an approved supplier, someone created a "Waiver of Competition" (in Optus parlance, "WOC") form for Almad. Once waiver of competition was approved, it meant that work done by Almad pursuant to the waiver did not need to be put out to competitive tender. The WOC was not general or unlimited, but said to be for the supply of about "four thousand customised pallets at a cost of $8,000.00". It appears to be uncontentious that this was the only WOC, and the only approval other than that referred to at [132] below, ever given to Almad over the ensuing years. It is not contentious that, over time, Almad handled (in round figures) $18 million of business from Optus.

Once Almad became an approved supplier, and once the WOC had been authorised, it issued a price list to Optus. That price list was effectively the price quoted by Sumo to MTM with the customary 20% markup. Mr Curtis (who had prepared the Sumo price list) approved Almad's price list on behalf of Optus (affidavit sworn 5 March 2013, para 236).

Thereafter, Almad began to invoice Optus for storage services provided by Sumo. The prices charged by Sumo (initially to MTM, before Mr Davey left MTM) had been prepared and authorised, on behalf of Sumo, by Mr Curtis. The same prices, quoted by MTM to Optus with MTM's broker markup of 20%, were approved by Mr Curtis on behalf of Optus.

Almad issued invoices to Optus from April 2005 until December 2010. It did so separately for various services: cable storage and cutting, EOL storage, and scrapping. The invoices were generally issued monthly, but sometimes fortnightly. The charges were calculated by taking the amount charged by Sumo to Almad and applying the 20% markup.

As a matter of practice, each time Optus received an invoice from Almad, an employee of Optus would create a purchase order (PO). The PO would quote the WOC number and repeat the amount of the Almad invoice. Another employee would then approve the PO, and in due course Optus would make payment to Almad. The POs were prepared by staff reporting to Mr Curtis, and were approved by other staff reporting to Mr Curtis.

Mr Hasler leaves Optus

Mr Hasler stopped working for Optus on about 9 March 2005. Before he did so, he sent an email to colleagues at Optus, including Mr Harmanis and Mr Vito Abata, giving them his contact details at Sumo. Mr Hasler in fact started to work full time for Sumo in April 2005.

Shortly after Mr Hasler left Optus, Mr Harmanis completed a "New Supplier Request Form", for Almad to become a supplier to Optus in respect of "customised pallets for shipment of satellite antenna's [sic]". Mr Curtis authorised that request. In due course, it was approved.

Corrupt payments

I note at this stage that, relatively late in the day, Optus raised as an issue of fact, to which it attributed great significance, payments which Mr Curtis caused Sumo to make to Mr Harmanis or his family. Initially, those payments took the form of wages. Later, they took the form of payments made to Mr Harmanis' wife Mrs Annette Harmanis. Those payments were made initially at the rate of $1,000.00 per month, increased relatively late in time to $2,800.00 per month.

Mr Curtis also caused Sumo to make payments to Mrs Dawne Zotz, who was the wife of another Optus employee, Mr Tom Zotz.

Further, Mr Curtis caused Electrosales to make some payments to Mr and Mrs Harmanis and to Mrs Zotz, and, it seems, to another member of the Zotz family.

In all, payments made to the Harmanis family exceeded $153,000.00, and payments made to the Zotz family totalled almost $104,000.00.

Perhaps not surprisingly, Optus suggested that these were payments made corruptly, to induce Mr Harmanis and Mr Zotz to ensure that work was directed to Sumo, and that payment of Almad's invoices was approved. Mr Curtis denied this, and said that the payments were made as acts of generosity and benevolence, because the Harmanis and Zotz families faced significant financial problems.

I do not accept that evidence. I think that the payments were made corruptly, for the purposes that Optus identified. I note that none of the recipients was called to substantiate this aspect of Mr Curtis' evidence.

There was a sharp dispute as to whether the evidence as to payments went any further than the question of credit, or whether it was relevant to the issues. I will return to that in dealing with issue 2. I do note, however, that Optus claims to be entitled to recover the amounts of those payments.

The Mascot facility

Optus had a warehouse at St Peters. For some reason, this was invariably referred to as its "Mascot" warehouse, or "facility". I shall adopt that usage. Mr Jonathan Wilkie, who in 2005 was Optus' Director of Corporate Services, and to whom Mr Curtis reported, instructed Mr Curtis to find alternative sites for storage of equipment, apparently because the Mascot warehouse was running out of space.

The G&D "emergency"

Up until April 2005, a company known as Giesecke and Devrient, generally called G&D, provided warehousing and other logistics services to Optus. As a result of a competitive tender, the contract was awarded to Toll Holdings. When this was announced, G&D said that once its contract with Optus expired, it would put all Optus equipment that it held "on the street".

Thus, Optus urgently needed to find space to store the equipment that would otherwise go on the street. Mr Curtis appears to have decided to store that equipment in Optus' Mascot facility, and to make room for it by moving the EOL and cable storage and cutting equipment from Mascot to Sumo's warehouse at Campbelltown.

Once the cable cutting operation was moved to Campbelltown, two Optus employees, Mr Alan Tee and Mr Joe Camilleri, started working there. Mr Tee is Mr Curtis' brother (Mr Curtis changed his family name, to that of his wife, when they married). Mr Camilleri is Mr Curtis' brother in law.

Sumo increases its storage rate

By July 2005, Sumo was storing some Optus stock on the account of MTM and some on the account of Almad. A decision was apparently made to transfer the former from the account of MTM to the account of Almad. Obviously, this would be detrimental to MTM and beneficial to Almad, because MTM would lose, and Almad would gain, the 20% markup.

The transfer, in this accounting sense at least, started from July 2005. As stock was transferred, it was invoiced at a higher rate. At this stage, I should note that much of the stock was stored on pallets. Charges were generally levied on the basis of a charge per pallet per week, or per "pallet equivalent" per week. Sumo charged MTM $2.30 per pallet per week. MTM applied its 20% markup. The charge to Optus was expressed as $2.75 per pallet per week. Initially, the same rates were charged respectively by Sumo to Almad and by Almad to Optus.

However, from July 2005, Sumo began to charge Almad for the storage of Optus stock at the rate of $3.00 per pallet per week. The charge rendered by Almad to Optus was $3.60 per pallet per week.

Optus' stock is moved to Lidcombe

The defendants say that the increase occurred as, and because, the stock was physically transferred from the Campbelltown warehouse to a new warehouse at Lidcombe. The defendants say that it had become clear to them that the lessor of the Campbelltown premises would require possession (according to Mr Curtis, the lease had always been seen as short term). Thus, there was, the defendants say, a perceived need for new accommodation. It was for that reason, the defendants say, that Sumo located alternative warehouse facilities at Lidcombe.

The defendants say that the increased storage charge was agreed between Sumo (Mr Curtis or Mr Hasler) and Almad (Mr Davey) and that it was justified because the rent for the Lidcombe premises was substantially higher, on a "per square metre" basis, than the rent for the Campbelltown premises. As a matter of fact, and leaving aside issues such as rent holiday and the like, this is plainly correct.

The defendants say that stock was moved from Campbelltown to Lidcombe progressively over the period July to December 2005. Optus says that the stock was not moved until about November or December, 2005.

The defendants rely on the evidence of Mr Curtis, Mr Davey, Mr Hasler, Mr Trent Hasler, and Mr Tull. Optus relies on various contemporaneous documents, including the invoices rendered by Almad to Optus. Those invoices noted that the goods in question were stored at the Campbelltown warehouse, even though the amount charged for storage was $3.60 per pallet per week.

The factual dispute is of crucial importance to Optus' case against Almad. The only element of the overcharging case pressed by Optus against Almad relates to the charges levied at the rate of $3.60 per pallet per week between July and December 2005, instead of what Optus contends was the correct price, $2.75 per pallet per week. In essence, there is a conflict between the evidence of the various witnesses on whom the defendants rely, and the evidence of contemporaneous documents and events (and inferences to be drawn from them) on which Optus relies.

Optus' evidence, and submissions in respect of it

I start with the matters on which Optus relied.

First, there are the invoices sent by Sumo to Almad for the months of July to December 2005. So far as the evidence goes, there are two invoices per month for July, August, September and December; but one only for October and November. Where there are two invoices, one appears to deal with the storage of pallets and related services, and the other with other services. However, each invoice describes the "Storage Location" as being the address of the Campbelltown warehouse.

The invoices dealing with the storage of pallets suggest that some 88 pallets came to be stored in the week ending 9 July, 280 the following week, 362 the week after and 568 for the week ending 30 July. A similar pattern (of increasing numbers) is observable in the invoices for pallet storage for succeeding months.

The invoices also show "lift from transport" and "lift to transport". As I understand it, those terms describe, respectively, the unloading of pallets delivered for storage and the loading of pallets to be transported elsewhere. At a level of some generality, the numbers of pallets said to be stored from week to week can be reconciled if attention is paid to the figures given for lifts from and to transport.

I said that the figures increase from week to week. However, it appears that the number of pallets stored stabilised, at a number said to be 5,651, by the beginning of December 2005.

Such of the Almad invoices to Optus as are available for the period July to December 2005 reflect (with the 20% markup) the amounts charged by Sumo to Almad. Almad's invoices to Optus do not indicate the location of storage, but the underlying Sumo invoices do.

Mr Stoljar submitted that the Sumo invoices, being business records created contemporaneously with the happening of the events to which they relate, should be treated as accurate.

Sumo had run into difficulties with the local council (Campbelltown City Council) in relation to the Campbelltown warehouse. The council asserted that use of the warehouse for storage of goods was not authorised under the existing development consent. (It will be recalled that the development consent was a matter that Mr Curtis had asked Mr Hasler to check with the council.)

On 5 October 2005, the council gave Sumo (more accurately, Mrs Curtis and Mrs Hasler, the lessees of the Campbelltown warehouse) notice that the council intended, subject to any representations that might be made, to order Sumo (or again, more accurately, Mrs Curtis and Mrs Hasler as lessees) to stop using the relevant parts of the warehouse premises "for the storage, warehousing, repair and transport of goods".

Sumo made representations to the council, which Mr Curtis accepted he had drafted. Those representations were dated (depending on where one looks) 16 September or 18 October 2005. They show that, before the representations were made, Mr Curtis had had a telephone conversation with an officer of the council.

The written representations noted, among other things, that Sumo was required to vacate the Campbelltown site in any event. It set out what were described as "Sumo Plans". Those plans were described as follows:

SUMO have actively engaged a search for alternative sites and have completed the following steps:-

1. Selected two sites and completed 3 proposals for premises in Chullora and Lidcombe. These are being considered by the Landlords at the moment.

2. Informed all customers of pending changes and obtained permissions to move stock.

3. Engaged a transport company for additional shuttle vehicles to minimise stock transfer time.

The following steps and expected timeframes for the tasks remaining to enable a full move are

1. Agreeing lease terms with the prospective landlords 2-3 weeks

2. Completion of a DA for one of the sites (DA in place for the Chullora Site) 8-12 weeks.

3. Establish minimum security and OH&S requirements on new site 2 weeks in parallel with DA once confident of approval.

4. Move stock;

(a) Secure additional forklifts to cover transition

(b) Hire additional fork lift drivers to expedite movement

(c) Move stock 3-4 weeks

(d) Dismantle racking post move - 1 week

All together with parallel running of activities where possible it will take on average 16 weeks to complete this move, meaning that the most likely best efforts move completion date will be Mid January.

The document set out various undertakings, and made further representations. It is not necessary to deal with them.

Mr Curtis was cross-examined on this document. He accepted that it could be read as saying that no alternative warehouse premises had been located, and that no goods had been moved from Campbelltown to the new premises, at the time the representations were made. However, Mr Curtis maintained that: the Lidcombe premises had been located; Sumo (in the person of Mr Hasler) had been given the key; those premises had been readied; and pallets were being transported to them. He accepted that, in those circumstances, his letter to council was misleading. He appeared to rely on the doctrine of necessity to justify that conduct.

In the ordinary way, I would be slow to conclude that a document prepared by a person for an official purpose was misleading, and intentionally so. However, I regret to say that I think that it entirely in character for Mr Curtis, as I have been able to assess him, to act in a deceptive and dishonest way, in his dealings with the council, if he thought it were to his or to Sumo's advantage to do so. To put it another way: on my assessment of Mr Curtis' standards of honesty, business morality and respect for the truth, I do not find it surprising that he would have drafted an intentionally misleading document for submission to the council, in an attempt to gain time for Sumo to move (or complete moving) pallets stored at Campbelltown.

On 22 October 2005, there was what was described as a meeting of the members of Sumo, held at Mr Curtis' house. Mr and Mrs Curtis were there, as were Mr and Mrs Hasler. Item 4 of the business transacted at that meeting is recorded as follows:

4. It has been agreed to relocate warehouse as soon as possible. We agreed that we can maintain a rental of up to $85 per square metre. We will require temporary labour before and during the move, which is expected to take one month and be complete be [sic] the end of February 2006. Trent had suggested his friend Kieran Hall as a suitable temporary employee and Craig was to offer him $20 per hour gross.

Mr Stoljar submitted, in reliance on what was stated in Australian Securities and Investments Commissions v Hellicar (2012) 86 ALJR 522 at [7], [72], that the minutes were evidence of the truth of the matters recorded in them. He noted that Mrs Curtis, the author of the minutes, had not been called, and submitted that the court could infer that her evidence would not have assisted the defendants. The same submission was put in respect of Mrs Hasler, who was present at the meeting but was not called.

I accept, as the Court said in Hellicar at [7], that the minutes of meetings of a company's board should be regarded as "a formal record... of what had happened at the meeting". Their Honours were of course talking of adopted minutes. It is not clear (although see at [176] below) that the minutes of the meeting held on 22 October 2005 had been adopted. Nonetheless, I think, the inference should be drawn that Mrs Curtis sought to record accurately in the draft minutes (as certainly they may be regarded) the business that had been transacted at the meeting.

Accepting, particularly in the absence of Mrs Curtis and Mrs Hasler, that the minutes should be regarded as substantially accurate, nonetheless, they leave open the question of what is involved in the relocation of the warehouse. The "warehouse" comprised not only the storage space within which stored goods were located, and within which the cable cutting operations were conducted. It comprised also the administrative centre, or office, from which the day to day activities of Sumo's business were run.

Of course, the minute notes also that Sumo would require additional labour "before and during the move, which is expected to take one month". If the Sumo invoices are to be taken as records of the removal of pallets from Campbelltown to Lidcombe (as Mr Rayment submitted they are), then, by 22 October, almost 4200 pallets had been so moved: that is to say, about three-quarters of the total that had come to reside in the Lidcombe warehouse by December 2005. One would expect the need for "temporary labour" to have manifested itself somewhat earlier in the process.

I have not overlooked that what was to be moved included not only the pallets and the office or administrative resources at Campbelltown, but also the cable drums and cable cutting equipment. The cable cutting equipment was apparently of a highly specialised nature, and it was necessary for an expert contractor to take it apart, pack it up, supervise the move to Lidcombe and reassemble it at Lidcombe. That was all done over a weekend, at the end of the move, so as not to disrupt those of Optus' activities that required cable to be cut to length.

I do not think that the need for "temporary labour" arose because of the moving of the cable drums and cable cutting equipment: at least in the case of the latter, that was attended to by outside contractors.

The signed lease for the Lidcombe premises commenced on 1 December 2005. It does not appear when the lease was actually signed. It was however stamped on 12 January 2006. The consent of the National Australia Bank, as mortgagee, to the registration of the lease was given on 24 February 2006.

The lease contained provision for, among other things, a "rent holiday": no rent was payable until 1 January 2006.

I note, in passing, that Mr Rayment submitted that Sumo as lessee was required to pay not only rent but also a proportion of outgoings. That does not appear to be correct. Clause 18.01 of the lease required the lessee to pay "the Lessee's proportion of any Outgoings...". Clause 18.02 stated that the "Lessee's proportion" was as stated in item 7 of the Schedule. Item 7 of the Schedule states "0%".

It was necessary for Sumo to provide a bank guarantee in respect of its obligations under the lease (see Part 16 of the lease). The amount required was 3 months' rent plus GST (see item 6 of the Schedule): about $175,000.00. A minute of a meeting of the members of Sumo held at the Curtis home on 12 November 2005 records a resolution to open a term deposit with Australia and New Zealand Banking Group Limited (ANZ - Sumo's and Electrosale's banker) "for the full amount required as a bank guarantee for the rental bond" for the Lidcombe premises. I note that, if that were the meeting next after the meeting of 22 October 2005, then one of the items of business at the latter meeting was recorded as a resolution to confirm the minutes of the former meeting.

Against that background, Mr Stoljar submitted (written closing submissions, para 257):

257. At the same time, however, Almad knew many of the remarkable circumstances arising in this case, including:

(1) Mr Davey had been told by Ms Grech in no uncertain terms that Mr Curtis and Mr Hasler operating a warehouse storing Optus stock would involve a conflict a conflict of interest. As Mr Grech deposes in her affidavit of 1 August 2013 at [8]:

Me: How can Craig and Leon run a warehouse storing Optus stock while they are still working for Optus? Surely that's a conflict of interest?

Davey: That's got nothing to do with us.

Me: I am not comfortable with this at all. I don't see how it can be legal and I don't want to get involved. I can't imagine Optus consenting to this arrangement.

(2) Mr Davey knew that Mr Curtis was, on the one hand, approving pricelists or setting rates for Sumo and, on the other, approving pricelists or setting rates on behalf of Optus. In other words Davey knew that Mr Curtis was on both sides of the transaction;

(3) there had been no public tender in respect of the services provided by Almad;

(4) the very reason for Almad being or continuing to be involved in the Sumo arrangement, let alone receiving a mark up of 20%, is unclear, other than to disguise the involvement of Sumo. Mr Davey must have realised that if Mr Curtis was working legitimately for Optus there was no reason for him to be retaining Almad, and thereby causing Optus to pay increased fees, locating and arranging services that Curtis was in substance providing himself;

(5) the transfer of stock from MTM to Almad in early 2005 involved an unexplained price increase from $2.30 to $3.00 per pallet per week where they did not seem to have been warranted.

In those circumstances, Mr Stoljar submitted, "Optus could reasonably have expected that Almad would disclose what it knew, and Almad's failure to do so was misleading and deceptive" (para 259).

It is convenient to start with the "remarkable circumstances" to which Mr Stoljar referred. Taking them one by one:

(1) I do not accept the evidence of Mrs Grech that the conversation on which Mr Stoljar relied occurred.

(2) Mr Davey undoubtedly knew "that Mr Curtis was on both sides of the transaction." See his evidence at T282.19-.34:

Q. Then you say "So I offered Optus a storage solution using Sumo as a replacement for CALM?

A. Correct.

Q. Who did you make that offer to?

A. Alex and Leon.

Q. Mr Harmanis and Mr Curtis?

A. Yep.

Q. Mr Curtis made a presentation to you about Sumo?

A. Correct.

Q. And you then offered it back to Mr Curtis?

A. Correct.

(3) this is undoubtedly correct; but the same appears to have been the case in respect of MTM and Transcoast, for the equivalent services that, eventually, Almad provided to Optus.

(4) Mr Davey knew the underlying facts. That is to say, he knew that Mr Curtis, through Sumo, was providing services to Optus through Almad. He knew that Almad was charging a markup on those services. But it does not follow that Mr Davey must have appreciated that this was done "to disguise the involvement of Sumo". So far as Mr Davey knew, Almad was a supplier of services to Optus, just as MTM had been and just as Transcoast had been. What had changed was the identity of the entity by whom those services were provided. But there is no reason to think that Mr Davey knew that Mr Curtis had failed to receive clearance for this in accordance with whatever, to Mr Davey's way of thinking, the relevant procedures of Optus might have required.

(5) I have found that Optus has failed to prove "an unexplained price increase from $2.30 to $3.00 per pallet per week".

In reality, the only significant matter of which Mr Davey was aware was the second: that Mr Curtis was in effect speaking for the parties on each side of the transaction.

The test, in assessing whether there has been misleading or deceptive conduct by reason of non-disclosure, must be objective: would a reasonable person, in all the circumstances, have expected a disclosure to be made? Thus, to the extent that Mr Davey failed to concern himself with the proprieties of the situation (and I have no doubt that, subjectively, he did not so concern himself), that is no defence.

In Hardy v Your Tabs Pty Limited [2000] NSWCA 150, Heydon JA referred to misleading or deceptive conduct by silence, which might occur by reason of failure to disclose when there had been occasions when disclosure would have been appropriate. Of course, his Honour was not intending to define in any comprehensive way the circumstances in which silence might amount to misleading or deceptive conduct. (For that matter, I doubt that any such comprehensive definition is possible.) But it is convenient to take that as a starting point, and to ask: when would it have been appropriate for Mr Davey to make disclosure?

The matters that I have taken from Mr Stoljar's submissions point to two occasions at least on which disclosure might have been appropriate: the suggested conversation with Mrs Grech, and the suggested overcharging. It seems to me that if either of those allegations had been made good (and a fortiori if both had been made good), it would have been appropriate for Mr Davey to reflect a little more, and to take up with Optus (other than through Mr Curtis) the fact that Mr Curtis was, as it was put, on both sides of the transaction. But since I have found that neither the conversation nor the overcharging have been proved, those occasions did not arise.

On my findings, the case for Optus, on this issue, must depend on the position that awareness of one fact only - that Mr Curtis was on both sides of the transaction - was sufficient to engender in Mr Davey an obligation of disclosure, so that silence (or failure to disclose) amounts to misleading or deceptive conduct. But why should that be so? Why was Mr Davey not entitled to think that whatever internal procedures Optus had in place for regulating conflicts of interest were not satisfied in the present case?

Mr Davey said that he thought this "was a win, win, win for everyone... because I could help to solve Optus' problems of what they required... we managed to keep the price down... we got it [the storage rate] so cheap" (T282.39 - 283.1). And implicit in this passage of Mr Davey's evidence is that it was a win for Sumo too, because its warehouse at Campbelltown was empty and Sumo needed to derive income: "[t]hey were taking anything they could" (T283.2).

In my view, the facts that have been proved are not such to engender any reasonable expectation of disclosure. It follows that the conceded non-disclosure cannot amount to misleading or deceptive conduct.

Fifth issue: accessory liability for Almad's misleading or deceptive conduct

In view of the conclusion that I have just reached, this issue does not arise.

Sixth issue: the claims for conversion and bailment

The claim against Sumo

Insofar as this issue relates to Sumo, it concerns EOL stock identified on schedules. The relevant evidence was given by Mr Natale. In substance, he gave evidence of two "audits" of "processed disposals": that is to say, of Optus stock that had been written off, through the appropriate disposal form (DF) and sent to Sumo for storage pending disposal.

The first audit suggested that Optus had disposed of inventory valued at over $10 million, but had located only about $1.2 million worth. That led to the second audit. The second audit was conducted after such Optus stock as Sumo still held was either removed from it or physically counted and verified. The second audit repeated the first audit, but for an earlier period.

Based on those two audits, Mr Natale concluded that Sumo had failed to account for a very substantial amount of EOL stock, which was listed on a spreadsheet that he prepared.

Optus called evidence from an expert, Mr Stuart Bettington, who has experience in the telecommunications market including in the disposal of EOL stock. He valued the missing stock (according to Mr Natale's spreadsheet) at $5.4 million. Mr Stoljar accepted (T707.23) that it would be appropriate to discount this by a factor of 10 to 20%, to allow for errors in the audit and for the possibility that some of the missing stock might have been in fact lawfully scrapped. (As to this latter point: Optus carried out a search of its own records and found only two instances of instructions to scrap stock listed on a DF.)

Sumo accepted the duties of a bailee for reward. At common law, it must therefore show either that it took reasonable care of the goods, or that such failure as there was to take care did not contribute to the loss. Neither of those things has been established.

In the circumstances, I conclude that Optus has made good its case against Sumo. Damages should be assessed at the lower end of the range ascertained by discounting Mr Bettington's figure. In round figures, he assessed the value of the stock at $5.4 million. 80% of that is $4.3 million. That, in my view, is the amount which should be awarded.

The claims against Electrosales

It is common ground that, as I have noted at [34] and [35] above, Electrosales did sell to Telecycling stock that had come from Optus. It has not been suggested that Optus authorised this sale. The issue was whether the stock was the property of Optus, or of Megatron.

I prefer the records created by Mr Curtis at the time to his subsequent, and in my view dishonest, evidence seeking to explain them away. Thus, I find that the stock was, at the time of the sale, the property of Optus.

It follows that Electrosales converted the stock the subject of that sale. It appears to be common ground that the stock should be valued at the sale price, $104,492.87, and that this is the amount of Optus' loss.

As I have noted already, the second alleged conversion - the sale to Braintree - was admitted and the agreed loss is $15,000.00.

Optus is entitled to judgment against Electrosales, for conversion, in the sum of $119,492.87, together with interest.

Seventh issue: relief

Optus has made good its claims to relief, to the extent set out above.

Optus should bring in short minutes of order to reflect what it says are its entitlements as a result of those reasons. If the amount of equitable compensation payable by Electrosales (see at [287] above) cannot be agreed, the short minutes should provide a mechanism for quantifying that entitlement.

Clearly, there will be argument on costs. That will have to take place at a later time.

Almad's cross-claim

The cross-claim has two components. The first relates to invoices rendered but unpaid. The second refers to "uninvoiced claims": that is to say, claims for payment for services rendered that were not the subject of invoices.

The invoiced claims

The only defence to these claims was a defence by way of set-off. Since I have concluded that all Optus' claims against Almad fail, that goes nowhere.

It follows that Almad is entitled to judgment for the total of the outstanding invoices, $458,662.84, together with interest.

I note that, of this amount, five-sixths is due to Sumo for the services provided by it (the subject of its invoices to Almad). One-sixth is due to Almad, as its markup. Although this was not suggested to give rise to any defence, it may be worth noting that Mr Davey said in substance that:

(1) Almad had made some payments to Sumo already on account of its share of the total; and

(2) if Almad recovered judgment, he would ensure that it accounted to Sumo's liquidator for whatever the balance owing might be.

The uninvoiced claims.

Mr Davey's evidence was to the effect that Sumo had also provided storage services after the date of the last of the invoices that had been rendered (the subject of the claim I have just dealt with). Those invoices covered the period 29 October to 17 December 2010.

Mr Davey said that, for the following weeks, from 24 December 2010 to 18 February 2011, there were invoices "drafted... but... not... issued". Those draft, or unissued, invoices total $138,117.21.

Optus submitted that, quite apart from the question of set-off, it had no liability in respect of those invoices. The first reason given was that, as they had never been issued and as the claim was for payment pursuant to a contract (not on some quantum merit basis), there was no proof of any contract for provision of the services in question.

As what might be a variant of this reason, Optus submitted that Almad's pleaded position (appearing from its commercial list response) was that its contractual obligation was only to arrange for the storage of stock and equipment as requested from time to time. On that basis, Optus submitted, Almad's maximum claim would be its markup, or about $23,000.00.

The second principal reason advanced by Optus was that, from 22 December 2010, Sumo had asserted a warehouseman's lien, and had refused to allow Optus to collect its stock. Optus submitted that Sumo should not be entitled to storage charges after the time (22 December 2010) when Optus had demanded the return of its stock, but had been prevented from doing so by the asserted lien. Thus, Optus said, Almad should not have its markup.

The relevant facts fall within a narrow compass. On 17 December 2010, Mr Natale informed Mr Davey that Optus no longer wished to use Almad's services. That was confirmed by email from Ms Kate Reid of Optus to Mr Davey on 20 December 2010. That email stated, further, that Optus proposed "to collect our goods" the following day.

Sumo asserted a lien over all the goods for unpaid storage charges.

On 21 December 2010, Optus' lawyers, Minter Ellison, wrote to Almad. The letter recited the history and threatened legal action should Almad continue to refuse access to Optus or its agents to collect Optus' stock.

The following day, Minter Ellison wrote to Sumo threatening legal action should Sumo not permit Optus to recover its stock.

On 22 December 2010, Sumo's lawyers at the time, Baker Ryrie Rickards Titmarsh, wrote to Minter Ellison. The letter was tendered without objection, despite its being headed "without prejudice except as to costs". It proposed two alternatives to break the deadlock. One was that Sumo and Almad would release all but about $500,000.00 worth of Optus' goods. The other alternative need not be described.

Minter Ellison replied stating among other things:

... our client will accept the proposal set out in your letter to collect and remove our client's goods up to, and leaving in the warehouse goods to the value of $500,000.00, on the following conditions:

...

(b) our client does not continue to pay ongoing storage charges for the goods so retained; and

...

Baker Ryrie Richards Titmarsh replied the following day, stating among other things:

Our client accepts the variations contained in your [letter] to the proposal previously conveyed by us and has commenced loading this morning.

In those circumstances, Mr Stoljar submitted, there was an agreement between the parties, made for good consideration, that Optus would have no liability for storage charges beyond 22 December 2010.

In my view, that submission is correct. There was a position where each party was asserting rights against the other. There was a compromise, in which each party gave up some of its asserted rights. The promise of each party to forgo the full extent of its demands provides consideration for the promise of the other.

Thus, there was an enforceable agreement between Sumo and Optus containing a term, among other things, that Optus would have no liability for storage charges from 22 December 2010. Almad, as broker, can be in no better position. Specifically, if there were no storage services to manage, and no storage invoices to be vetted and passed on, then Almad can have no claim from 22 December 2010.

That leaves the brief period between from 17 to 22 December 2010. The paries' submissions did not address this. However, it is uncontentious that, on 17 December 2010, Optus gave Almad notice of termination of the arrangements that were in place between them. It would seem to follow that there could be no contractual claim after that notice had been given. Since no quantum merit or restitutionary claim was pleaded for this short period, I propose to treat it, as apparently the parties did, by giving it no (further) independent consideration.

The result is that Almad's claim for the uninvoiced charges must fail.

Conclusion on the cross-claim

Almad is entitled to judgment on the first cross-claim in the sum of $458,662.84 together with interest. The parties should agree a calculation of interest, and the resultant judgment sum should be included in the draft orders to be prepared.

As with Optus' claim, I will hear the parties on costs.

Conclusion and orders

I have reached the following conclusions on Optus' claims for relief (by reference to the claims set out at [12] above) and on Almad's cross-claim:

(1) Singtel Optus succeeds on its claim against Mr Curtis for equitable compensation for breaches of fiduciary duty, but in the amount of $1,879,333.00 only, together with interest;

(2) it is not necessary to express a concluded view on the claims by all three plaintiffs for compensation under s 1317H of the Corporations Act, nor the claim by Optus Administration for damages for breach of the employment contract;

(3) the plaintiffs succeed in their claim against Sumo for an account of profits in respect of its knowing involvement in Mr Curtis' breaches of fiduciary duty, with no deduction for Sumo's losses in the 2011 financial year; and those profits should be augmented by adding back the payments made to the Harmanis and Zotz families;

(4) it is not necessary to express a concluded view on the claims by all plaintiffs against Sumo for compensation under s 1317H of the Corporations Act;

(5) Singtel Optus succeeds in its claim against Mr Hasler for equitable compensation for knowing involvement in Mr Curtis' breaches of fiduciary duty, but in the amount of $1,879,333.00 together with interest;

(6) it is not necessary to express a concluded view on the claims by all plaintiffs against Mr Hasler for compensation under s 1317H of the Corporations Act;

(7) in principle, Singtel Optus is entitled to succeed in its claim against Electrosales for equitable compensation in respect of that company's knowing involvement in Mr Curtis' breaches of fiduciary duty, but the amount remains to be quantified;

(8) it is not necessary to express a concluded view on the claims by all plaintiffs to recover compensation from Electrosales under s 1317H of the Corporations Act;

(9) the claims by Singtel Optus against Almad for breach of contract and for misleading or deceptive conduct fail, and thus the claims by Singtel Optus against Sumo, Mr Hasler and Electrosales for knowing involvement in those alleged activities also fail;

(10) Optus Networks succeeds in its claim against Sumo in conversion, but in the amount of $4,320,000.00 together with interest;

(11) Singtel and Optus Networks succeed in their claims against Electrosales (and, to the extent that it overlaps, against Sumo) in conversion, in respect of the Telecycling sale, in the sum of $104,492.87;

(12) Optus Networks succeeds in its (admitted) claim in conversion against Mr Curtis and Electrosales, in respect of the Braintree sale, in the sum of $15,000.00; and

(13) Almad succeeds on its first cross-claim against Singtel Optus, but in respect of the invoiced amounts only, $458,662.84 together with interest.

It is likely (perhaps inevitable) that there will be a dispute as to the orders to be made; certainly so as to costs. The appropriate course is to direct the plaintiffs to bring in draft orders, and then to list the matter for directions so that, if necessary, a date for argument can be fixed, with appropriate directions.

Accordingly, I make the following orders:

(1) direct the plaintiffs to serve on the defendants and to deliver to my Associate, by 14 October 2013, draft orders to give effect to these reasons;

(2) list the matter for directions at 9:30am on 16 October 2013 before me;

(3) reserve costs;

(4) reserve liberty to apply on three days' notice.

*********

Decision last updated: 02 October 2013

Medium Neutral Citation:	Singtel Optus v Almad [2013] NSWSC 1427
Hearing dates:	29/07/2013, 30/07/2013, 31/07/2013, 05/08/2013, 06/08/2013, 07/08/2013, 08/08/2013, 09/08/2013, 12/08/2013, 13/08/2013, 14/08/2013, 15/08/2013, 19/08/2013, 20/08/2013, 21/08/2013
Decision date:	30 September 2013
Jurisdiction:	Equity Division - Commercial List
Before:	McDougall J
Decision:	See at [362]. Plaintiffs to serve and submit draft orders.
Catchwords:	EQUITY - fiduciary duties - breach of fiduciary duties - employer and employee - where employee acts as a shadow director of supplier - where employee fails to disclose several conflicts of interest - where advantage accrues to third party that is the alter ego of the fiduciary employee EQUITY - fiduciary duties - breach of fiduciary duties - knowing involvement - knowledge - what constitutes knowledge - where a person is aware of the circumstances that would indicate, to an honest and reasonable person, a breach of fiduciary duty REMEDIES - equitable remedies - equitable compensation - breach of fiduciary obligations - employer and employee - conflict of interest - failure to disclose - causation - test for causation - whether loss would have occurred in the absence of the breach - obligation to make restitution not limited to common law principles governing damage, foreseeability and causation TORT - trespass to goods - conversion PRACTICE & PROCEDURE - pleadings - where evidence raises issues not pleaded - where party fails to object to the admission of evidence - cases determined by the evidence, not the pleadings
Legislation Cited:	Corporations Act 2001 (Cth)
Cases Cited:	Australian Securities and Investments Commissions v Hellicar (2012) 86 ALJR 522 Banque Commerciale SA (In Liq) v Akhil Holdings Ltd (1990) 169 CLR 279 Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 Farah Constructions Pty Limited v Say-Dee Pty Ltd (2007) 230 CLR 89 Gencorp Limited v Dalby (2002) 2 BCLC 734 Grimaldi v Chameleon Mining NL (No.2) (2012) 200 FCR 296 Hardy v Your Tabs Pty Limited [2000] NSWCA 150 Hill v Rose [1990] VR 129 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653 Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 Michael Wilson and Partners Limited v Nicholls (2011) 86 ALJR 14 Re Dawson (deceased) [1966] 2 NSWR 211 Warman International v Dwyer (1995) 182 CLR 544
Category:	Principal judgment
Parties:	Singtel Optus Pty Ltd (First Plaintiff) Optus Networks Pty Ltd (Second Plaintiff) Optus Administration Pty Ltd (Third Plaintiff) Almad Pty Ltd (First Defendant) Sumo Distribution and Storage Pty Ltd (Second Defendant) Leon Mark Curtis (Third Defendant) Craig Hasler (Fourth Defendant) PJC333 Pty Limited (Fifth Defendant)
Representation:	Counsel: J Stoljar SC / DJA Mackay (Plaintiffs) BW Rayment QC / J T Johnson / IJ King (First, Third, Fourth and Fifth Defendants) Second Defendant (Unrepresented) Solicitors: Minter Ellison (Plaintiffs) MCW Lawyers (First, Third, Fourth and Fifth Defendants) Second Defendant (Unrepresented)
File Number(s):	2011/139541

Agreed Issue	Plaintiff	Claim	Defendant	Relief
1a	SingTel Optus	Breach of fiduciary duty	Mr Curtis	Equitable compensation in the amount of $3,147,210 (made up of Almad mark up of $1,879,333 and price increase of $1,267,877)
1b	SingTel Optus, Optus Networks and Optus Administration	Compensation under s1317H of the Corporations Act (breach of section 182, 183)	Mr Curtis	Compensation in the amount of $3,147,210 (including any profits not covered by issue 1(a)).
1c	Optus Administration as trustee for SingTel Optus and Optus Networks	Employment contract	Mr Curtis	Damages in the amount of $3,147,210
2a	SingTel Optus, Optus Networks and Optus Administration	Knowingly involved in breach of fiduciary duty	Sumo	Account of profits in the amount of $4,261,750 (being total profit of $4,173,761 less loss for 1 July 2010 - 31 December 2010 of $110,723 plus $198,712 paid to Harmanis and Zotz family interests) and a declaration that the said sum is held on trust for plaintiffs
2b	SingTel Optus, Optus Networks and Optus Administration	Compensation under s1317H of the Corporations Act (knowing involvement in breach of sections 182, 183)	Sumo	Account of profits if not covered by previous order (ie no double recovery)
2c	SingTel Optus	Knowingly involved in breach of fiduciary duty	Mr Hasler	Equitable compensation in the amount of $3,147,210
2d	SingTel Optus, Optus Networks and Optus Administration	Compensation under s1317H of the Corporations Act (knowing involvement in breach of sections 182, 183)	Mr Hasler	Compensation in the amount of $3,147,210 including profits less any amount covered by previous order
2e	SingTel Optus	Knowingly involved in breach of fiduciary duty	Electrosales	Equitable compensation in the amount of $3,147,210
2f	SingTel Optus, Optus Networks and Optus Administration	Compensation under s1317H of the Corporations Act (knowing involvement in breach of section 182, 183)	Electrosales	Compensation in the amount of $3,147,210 including profits less any amount covered by previous order
3	SingTel Optus	Breach of contract	Almad	$1,267,877
4	SingTel Optus	s. 52 of TPA	Almad	Damages in the amount of $3,147,210
5	SingTel Optus	s. 75B of TPA	Sumo	Damages in the amount of $3,147,210
5	SingTel Optus	s. 75B of TPA	Mr Hasler	Damages in the amount of $3,147,210
5	SingTel Optus	s. 75B of TPA	Electrosales	Damages in the amount of $3,147,210
6a	Optus Networks	Bailment/conversion	Sumo	$5.4 million less 10% which equals $4.86 million
6b	SingTel Optus, Optus Networks	Conversion/bailment for stock sold to Telecycling	Electrosales and Sumo	$104,492.87
6c	Optus Networks	Conversion (admitted)	Mr Curtis and Electrosales	$15,000