Taylor & Co v Peffer
[1996] QSC 248
•12 December 1996
IN THE SUPREME COURT
OF QUEENSLAND No. 1884 of 1991
Brisbane
[Taylor & Co v Peffer]
BETWEEN:
TAYLOR AND COMPANY PTY LTD
Plaintiff
AND:
ALWYN LINDSAY PEFFER
Defendant
REASONS FOR JUDGMENT - MOYNIHAN J.
Judgment delivered 12 December 1996
CATCHWORDS: FIDUCIARY DUTY - employee, director and fiduciary - whether defendant took advantage of position to advance own interests rather than plaintiff - whether defendant made full disclosure - whether exemplary damages may be awarded
Counsel: P. O'Shea for the plaintiff
J. Bell Q.C. & R.N. Traves for the defendant
Solicitors: Clayton Utz for the plaintiff
Feez Ruthning for the defendant
Hearing Dates: 18 March 1996 - 26 March 1996
IN THE SUPREME COURT
OF QUEENSLAND No. 1884 of 1991
Brisbane
BETWEEN:
TAYLOR AND COMPANY PTY LTD
Plaintiff
AND:
ALWYN LINDSAY PEFFER
Defendant
REASONS FOR JUDGMENT - MOYNIHAN J.
Judgment delivered 12 December 1996
INTRODUCTION
At the times material to this action, the plaintiff was the trustee of the Taylor Wright Unit Trust. The trust reflected interests associated with Allan Taylor, an Adelaide chartered accountant and David Wright a Brisbane taxation accountant. By the time of the trial Taylor resided in Brisbane and had ceased to have any involvement with the trust or its business. Wright had effectively become the principal of the accountancy practice conducted by the plaintiff for the trust and he, or interests associated with him, controlled the plaintiff.
The plaintiff carries on an accountancy practice under the name Taylor & Company providing accounting, taxation and business advisory services to small business clients from offices at Toowong. Services of the kind provided by Taylor & Company are referred to in the evidence as business services.
The defendant is a chartered accountant who from about September 1990 to August 1991 was a full-time employee of the plaintiff in the conduct of the practice of Taylor & Company. He had an association with other practices which is relevant to these proceedings. The nature and extent of that association will emerge in due course. In August 1991 the defendant left the plaintiff's employ and took a position as a senior manager in the field of business services with the accounting practice of Ernst & Young. That event generated this litigation.
The plaintiff alleges that in breach of his contractual, fiduciary and statutory obligations the defendant took the plaintiff's information and used it to compete with the plaintiff. It complains that the defendant failed to discharge his obligations to act in the plaintiff's interest rather than his own with the consequence that certain of the plaintiff's clients followed the defendant with their business when he left. The plaintiff further complains that the defendant unlawfully took or retained furniture in which it has an interest.
The plaintiff's counsel formulated the following claims for relief in the course of his submissions; they are essentially refinements of the relief claimed by the statement of claim which reflect the evidence.
1.Damages or equitable compensation for breach of contract, breach of fiduciary duty or breach of duties imposed by the Corporations Law. The quantum of such damages is submitted to be:
(a)in the range of $96,000-$153,000 alternatively
(b)in the range of $191,000-$235,000 alternatively
(c)in the range of $164,000-$268,000.
2.Damages in equity for abuse of confidential information. The quantum of such damages is submitted to be:
(a)in the range of $191,000-$235,000 alternatively
(b)in the range of $164,000-$268,000.
3.In the alternative to 1 and 2 an account of the profits earned by the defendant from the clients who ended up with him after September 1993. As an account is sought, no specific sum is claimed at this time.
4.Damages for conversion of furniture - $1,650.
5.An account of profits earned by the defendant, dealing in general with the matters referred to in the defence and counterclaim paras.3(c)(xi) and 11(a)-(e).
(The reference to para.3(c)(xi) is presumably to 3C(xi) which relates to work for a man called Heading). Paragraphs 11(a)-(e) relate to work for what is referred to as later in these reasons as private clients.
6.Exemplary damages. If it is held that damages recoverable are in the range in paragraph (1)(a), exemplary damages are sought to the extent of the difference between that amount and the amounts claimed in paras.1(b) and 1(c) above.
7.Interest, including compound interest.
The defendant denies breach of any obligations he owed to the plaintiff or that he unlawfully dealt with property in which it had an interest. He denies that the plaintiff is entitled to the relief claimed and counterclaims for a bonus he alleges the plaintiff owes him. Damages are in issue.
BACKGROUND
What is now the practice of Taylor & Company has passed through a number of manifestations. In this narrative, I have concerned myself with the intricacies of the ways in which various interests in different practices which ultimately became Taylor & Company were held from time to time or of the various names of the components of what is now the practice only to the extent necessary for disposing of this case. It is occasionally convenient to speak of Taylor or Wright as though they were the entity which reflected their interests. On other occasions it is convenient to speak of the entity as though it had decided or acted when it is Taylor and/or Wright who had done so.
In 1983 the defendant became a partner, with Messrs John Kenneth Lind and David Edward Dean, in an accountancy practice then carried on under the style Lind, Dean and Associates. Messrs Lind and Dean had practiced under that name from the late 70's . The defendant became an employee of the practice in about 1981 and a partner in 1983. Part of the goodwill of the practice was sold to another accounting practice, Worrell Whitehead, in 1986. The defendant and his partners entered into restraint agreements to protect the purchaser, no doubt this was reflected in the purchase price, and continued to conduct the balance of practice under the name Aplan & Associates.
Each of Lind, Dean and the defendant had strong connections with the Baptist Church, notably the Ashgrove congregation and the clientele of their practice reflected these connections; this is significant to subsequent events.
In November 1988 the Aplan practice being conducted by Lind, Dean and the defendant was put on the market. Lind wish to give up practice as an accountant to pursue his church interests. Dean wanted to shed his interest and reduce his involvement in the day-to-day working of the practice. He apparently intended to continue to work on a part-time basis and did so. In fact he was still working for the plaintiff on a part-time basis at the time of the trial. The defendant, who is a married man with a young family, intended to continue to practice full-time as an accountant.
Allan Taylor, an Adelaide chartered accountant learned the Aplan practice was on the market and on 25 November 1988 he agreed to purchase it from Messrs Lind, Dean and the defendant. The documentation effecting the sale of the practice was executed on 14 December 1988 and the sale completed on 5 January 1989.
The purchase price was $313,138, the $279,000 goodwill component of which was equal to the previous financial year's gross fees generated by the practice. The agreement contained a restraint of trade clause binding the defendant for two years - it expired in January 1991.
The vehicle for Allan Taylor's purchase of the Aplan practice was A.D. Taylor & Co Pty (a different entity from the plaintiff). The defendant was employed by that company to conduct what had been the Aplan practice, he became a director of the company on 4 January 1989. He was completely responsible for the conduct of the practice, only decisions as to policy and capital expenditure were reserved to Taylor. Allan Taylor resided in Adelaide, he was involved in the conduct of a practice there and had other business interests in that city. That continued to be so up to and during the events giving rise to this action. He made regular (monthly) Brisbane visits in relation to the affairs of the practice of A.D. Taylor & Associates, the name under which the practice was conducted, essentially however he trusted the defendant to run the practice.
The terms of the defendant's engagement were not reduced to writing. Taylor agreed that the defendant would be paid a bonus. The terms of that agreement are contentious and it will be necessary to consider this later. Taylor in effect gave the defendant an option on half of his (Taylor's) interest in the practice at the same price (pro rata) as the defendant had been paid with adjustments, working capital, contributions and capital acquisitions. The term of the arrangement was probably expressed as two years but I am satisfied Taylor would have honoured it up to the time of the events giving rise to the subject of this action. The defendant in all likelihood appreciated that Taylor would have done so but, as will emerge, he had no interest in taking up the offer.
THE MERGER OF TAYLOR & COMPANY AND ROSMAN TAXATION CONSULTANTS
In 1990 Allan Taylor agreed with David Wright to merge the practice conducted as A.D. Taylor & Associates with a practice conducted by Wright under the style Rosman Taxation Consultants. Wright had a previous association with Messrs Lind, Dean and the defendant and the various practices with which they had been associated; in 1990 Rosman Taxation Consultants and A.D. Taylor & Associates shared computer facilities. The plaintiff was the vehicle for the merger of the two practices.
Taylor's discussions with Wright continued over some time, in the course of them Taylor offered the defendant a half share in his interest in the newly merged practices on the basis previously referred to but the defendant did not accept the offer. Taylor and Wright's interest in the new entity were initially in the proportion of _ to _. This, in rough terms, reflected the proportion and the gross fees of the merged practices bore to one another. Wright had an option to increase his equity in the new enterprise and subsequently took advantage of this, initially increasing his interest to half in June 1991 and ultimately acquiring the whole of Taylor's interest.
The merger was apparently treated as effective from 1 August 1990 although the formal documentation was not completed until 15 January 1991. The combined practices, under the name Taylor & Company, commenced business from newly leased premises in Toowong. By the time of the merger (as the defendant appreciated) Taylor had come to hold the defendant in high regard, trusted and relied on him; Wright accepted Taylor's assessment. This continued to be the situation up to the chain of events culminating in the determination of the defendant's employment by the plaintiff.
Taylor and Wright entrusted the defendant with the running of the newly founded practice on the same basis as he had been involved with Taylor & Associates. Taylor looked to him to safeguard Taylor's interest. The defendant had been responsible for the acquisition of the premises in Toowong in which the practice commenced. He became a director of the plaintiff and of other companies associated with Taylor, Wright and the practice.
Wright and his wife Doreen became involved in the day-to-day conduct of the practice. Wright was responsible for what might be thought of as the "Rosman Taxation Consultants" component of the merged practices and the defendant for the "A.D. Taylor & Associates" component. Although there was one practice, Wright and the defendant each dealt with the clients of their component of the practice independently. Taylor remained in Adelaide. His involvement with clients was negligible.
ASPECTS OF THE TERMS OF THE DEFENDANT'S EMPLOYMENT BY THE PLAINTIFF
There are a number of aspects of the relationship between the plaintiff and the defendant, apart from the contractual, fiduciary and statutory obligations upon which the plaintiff's claim is founded, which justify closer consideration or which are contentious. The first relates to endeavours on the part of Taylor and Wright to have the defendant enter into a restraint agreement. Secondly there is the defendant's claim to certain furniture. Thirdly there is the issue of the defendant being entitled to treat certain clients as his rather than the practice's "private clients". Fourthly there is whether the plaintiff is bound to pay the defendant a performance bonus, and if so, the terms on which it was to be calculated. It is convenient to deal with the first and second of these and to deal with the third and fourth in due course.
Attempts to have the defendant agree to a restraint on competing with the plaintiff
In the lead up to the merger of the Taylor & Associates and Rosman practices being effected, Wright was keen to have "people in charge of client areas" of the merged practices put under a contract of employment with a restraint provision. He had the defendant particularly in mind, not least because he was aware that the restraint clause consequent on the sale of the Aplan practice was due to expire in January 1991 and he contemplated increasing his interest in the plaintiff's practice. He did so in the first half of 1991.
In context of the preparation of the document effecting the merger of the Taylor & Associates and Rosman practices, instructions were apparently given to the solicitors acting for the plaintiff (and probably the Taylor and Wright interests) to prepare a restraint agreement to bind the defendant.
A draft agreement was prepared, probably as a basis for discussion with the defendant rather than a reflection of any previous negotiations.
After the draft was produced there were negotiations with the defendant, Taylor was principally involved and he kept Wright informed. Wright was pressing Taylor to finalise the matter. The defendant supplied details of certain insurances. This reflected discussions, if not agreement, to the effect that the plaintiff would pay the premiums in consideration for the defendant agreeing to a restraint. I accept that the defendant gave what Wright described as "tacit agreement" to this arrangement and that he prevaricated when pressed to finalise or formalise the agreement.
Wright continued to press Taylor to have the defendant finalise the restraint agreement. The defendant was invited to put forward with his own version but never did. Taylor came to Brisbane, probably as late as June 1991 to specifically address the matter with the defendant. Taylor renewed an offer to the defendant to sell him part of his (Taylor's) equity in the practice, the defendant declined. No restraint agreement was ever signed.
The process of seeking to have the defendant sign a restraint clause covered the period from November 1990 to July 1991. I am satisfied that perhaps by November or earlier and certainly by April 1991, the defendant had determined to sever his connection with the plaintiff. I am satisfied that the defendant intended competing with the plaintiff in the field of business services using his connection with clients he dealt with while in the plaintiff's employ. In the context of Taylor and Wright pressing him to enter into a restraint agreement, the defendant gave them to understand that he was happy working for the plaintiff, he had no intention of leaving and that they had no occasion for concern. This was duplicitous, I am satisfied that the defendant appreciated Taylor and Wright would have responded differently had they known of his intention to leave and compete with the plaintiff.
The Plaintiff's Claim to Office Furniture
The extent to which this relatively trivial issue has divided the parties is symptomatic of the breakdown in the relationship between them. On 17 August 1991, in circumstances to be considered in more detail later, the defendant removed furniture from the office he occupied at the plaintiff's Toowong premises. The statement of claim alleges the plaintiff was entitled to possession of the furniture on termination of the defendant's employment but that the defendant had refused to return it and a leather lounge suite which was in the defendant's home. The defendant pleads that the office furniture was at all material times his property; he acquired it as a gift from the plaintiff by oral agreement between him and Taylor in about September 1990 in the context of the move to Toowong, so far as the lounge suite is concerned, as a gift acknowledging his efforts in acquiring the Toowong premises and arranging the move there.
As I have said on 21 September 1990 the newly merged practices of A.D. Taylor & Associates and Rosman Taxation Consultants moved into leased premises at Toowong. The acquisition had been negotiated by the defendant with the receivers of the previous lessee, he had been able to obtain "favourable arrangements" notably for the acquisition of furniture. In early October 1990, the transaction had been completed by the 17th, the defendant organised the sale and lease back of the furniture with Sanwa Australia Finance Ltd. Upon receipt of this money the plaintiff repaid $25,000 which the defendant's family company had advanced on about 21 December 1990 to fund the acquisition of the furniture. On the expiration of the lease (it seems the original lease was for four years and later there was an extension for a year) the plaintiff acquired ownership of the furniture from Sanwa.
Among the furniture acquired from the receivers were three leather lounge suites. These were surplus to the plaintiff's requirements and could not conveniently be stored at the Toowong premises. It was therefore arranged that Taylor, Wright and the defendant would each take one of the suites home and they did. The defendant contends that the suite was a gift by the plaintiff (by a grateful Taylor) for his contribution to the merger and relocation. It is pointed out that the defendant did not bring the gift account as income although he appreciated the need to do so.
There may have been some discussion along the lines of Taylor, Wright and the plaintiff taking a suite each.
I accept that evidence which is to the effect that the lounge suites were owned by the finance company and then the plaintiff, were taken for Taylor's, Wright's and the defendant's use to be returned as and when required. Taylor returned his suite when he ceased his involvement with the plaintiff.
When Taylor acquired the Aplan practice, the position with the office furniture, apart from the lounge suites, was as follows. A.D. Taylor & Associates took over Aplan's offices in Fortitude Valley. The defendant continued to occupy the same office. He owned the furniture in it. When the amalgamated A.D. Taylor and Rosman practices moved to Toowong, after discussions with Taylor, the defendant's furniture was put in the office of another employee. The defendant's office was furnished with furniture acquired from the liquidator of the previous tenants which became subject to the lease arrangements referred to earlier. There may have been discussions with Taylor about the defendant selling his furniture to the plaintiff at book value and purchasing the furniture which was in his new office but that did not happen. Taylor may have been amenable to the defendant's acquiring the furniture at some stage on a basis to be sorted out but in the meantime it was sold to Sanwa and leased by the plaintiff - the defendant made the arrangements.
As will emerge, the defendant's employment with the plaintiff concluded on Friday 16 August 1991. On that afternoon Taylor (and Wright) allowed the defendant, at his request, to retain his building access and office keys so that he could come in the Saturday to clear his desk and remove his personal affects. The defendant must have appreciated that his replacement would use the office from the following Monday. On the 16th the defendant and Wright spoke, among other things, about the defendant's termination pay. They parted on the basis that Wright would leave a cheque on the defendant's desk for the defendant to collect on the Saturday morning. The defendant came to the office on 17 August in circumstances to be dealt with later. The cheque was not there. The defendant had not intended to take the furniture but because his cheque was not there made arrangements for the immediate removal of the furniture. While it was being removed Wright and his wife fortuitously arrived and the situation became extremely tense and heated. Taylor was contacted by telephone in Adelaide. In an attempt to diffuse the situation, with which he was confronted, Taylor raised paying the defendant. The defendant nominated a price which Taylor considered, justifiably, to be excessive. Taylor told Wright to let the furniture go, it had by then been largely removed from the office but the removalist men were still there; the matter could be sorted out later. As I have indicated, Taylor's attitude was an attempt to defuse the extremely tense situation rather than an acknowledgment of any right in the defendant.
There was subsequently an exchange of correspondence involving the parties and solicitors but the furniture not been returned. So far as the evidence reveals, the furniture was in all probability leased from the finance company by the plaintiff and the defendant had no entitlement to remove it. It was acquired by the plaintiff when the lease finally expired. THE DEFENDANT DECIDES TO LEAVE THE PLAINTIFF
As I have said, at least by April 1991 and probably earlier, the defendant had determined to leave the plaintiff. The evidence is not specific as to why - presumably it was to pursue his own interests and financial advantage.
It seems that in February 1991 the defendant had made inquiries about the acquisition of a PAXUS computer system - the significance of this will appear later. In March he was approached concerning a position as a financial adviser (apparently on a part-time basis). He was interested in the position but apparently it was thought that his experience was too limited and the position did not eventuate. The defendant told Taylor something of this approach and of the basis upon which he believed he had lost the opportunity and of the desirability of broadening his experience. This came to colour Taylor's view of subsequent events, for a time at least he saw the defendant's departure as being to pursue this objective rather than practice in the business services area. It suited the defendant for Taylor to be of that view. It may well be that the defendant actively had in mind broadening his experience before setting up his own practice but he intended taking clients with him and competing with the plaintiff.
In March, on the defendant's evidence, he prepared the curriculum vitae which is in evidence. I am satisfied that by this time he was actively casting about for other employment. He approached an employment broker. As a result he had an interview with a firm called Nelson Parkhill but was not offered a position, on his account because he was too old for it. On 13 May 1991 the defendant met with Mr Roger Walker, a partner in the Brisbane practice of the major accounting firm of Ernst & Young, the practice covered a wide range of areas, including business services. He had been put in contact with Walker as a consequence of telling his friend and client Heading that he was looking for a job. At a meeting in May, Walker indicated to the defendant that there was no suitable position immediately available at Ernst & Young.
On 17 May 1991 the defendant faxed a letter to Walker, although lengthy it is desirable to set it out in full.26 Karloff Drive
STAFFORD HEIGHTS Q 4053
17th May 1991
Mr R Walker
Ernst & Young
1 Eagle Street
BRISBANE Q 4000
Dear Roger
Thank you for the opportunity to meet with you on Monday 13th May 1991 and to discuss various aspects of practice development. I understand from your comments that Ernst & Young have thoroughly reviewed their business operations and are constantly refining developmental strategies with specific goals.
In our discussion, you outlined several business sectors which are of particular importance to the long-term planning of the practice and you also emphasised the significance of employing the appropriate resources to achieve positive results. Quite naturally, in the service sector the most influential of the available resources are the personnel of the firm and in this regard, it is imperative that the "right people are in the right place at the right time".
One of the business sectors identified by Ernst & Young as a strategic "target" was the professional services sector and it is primarily in this area that I believe I can provide skills and resources which will complement those of the firm in satisfying the objectives of the firm. As you will recall from our discussion, a significant component of my current client base are persons and businesses in the professional services sector and I have enclosed for your perusal a schedule which identifies the industry grouping of my more important clients.
As you would no doubt appreciate, the enclosed listing is not exhaustive in any way and I have clients involved in the provision of professional services which do not appear on this schedule. To illustrate this point more fully, I have listed below clients with whom I have a good rapport and who are not on the schedule:
*a director of a large national firm of quantity surveyors
*a director of a large national firm of construction project managers
*a commercial partner with a large Brisbane legal firm
*a litigation partner with a large Brisbane legal firm
*the Queensland manager of a national firm of engineering consultants
*two partners of a large provincial legal practice
*the Queensland director of a fine arts gallery
*a senior associate with a large Brisbane legal firm
*the medial superintendent of a major Brisbane hospital
*a director and a senior employer of a Brisbane based firm of consulting geologists
In addition to those clients listed above and on the schedule, there are also a number of other clients engaged in the provision of health care services, eg. physiotherapists, medical specialists and psychiatrists, either in an employed capacity or conducting their own practices.
My own background in business (my family currently operate an agribusiness in New South Wales with an annual turnover in the vicinity of $2m) is also an important asset to me as it has developed an appreciation for the critical value of accounting information in making sound and successful business decisions. This principle is applicable to all businesses but often this is overlooked by the business proprietor and it is only when faced with the "hard" decisions that he/she realise the fundamental value of financial data. The rural industry is now facing a time when "hard" decisions must be made and I believe that there is opportunity in this area to develop a significant client base using existing contacts in the banking sector and businesses providing finance to rural clients, eg Primac.
The current state of flux within the previously regulated markets for primary products has also created opportunities to provide sound business advice to producers seeking to establish themselves in the competitive arena of marketing consumable products. For example, the NSW Egg Producers Co-operative would appear to have difficulties at present with their accounting system and have also had problems with personnel at senior levels within the organisation. This is impacting on the performance of the Co-operative in the marketplace and its ability to meet both producer and consumer demands.
Of course, while the task of satisfying the needs of existing clients is demanding, an important part of practice development is the provision of services to new clients. As you are well aware, new clients are gained in a variety of ways. To me, one of the most fulfilling aspects of my professional life is a referral of new clients from existing clients and contacts.
The rapport that is established often makes it possible to expand the range of services being provided in the client and enhances the client/adviser relationship with consequential benefits to both the adviser and the client.
From an ethical perspective, I believe that my involvement with Christian activities has been beneficial to the development of client relationships and in recognition of this factor, a large proportion of my clients would profess the Christian faith. My activities within the executive circles of the Baptist Union of Queensland are not only satisfying to me, but give valuable exposure to new situations and experiences and contacts gained in this way have been useful in my professional role.
Our discussion of Monday evening was both frank and enlightening. As you are aware, I am not subject to client practice restrictions as the relevant time period has now elapsed. However, I believe I did make it clear that moral considerations would prevent me actively seeking to induce clients to follow me to any new employment position which I may accept. This same moral constraint has also enabled me to recognise that any new clients (other than those for whom I already provide advice) which I may gain for a prospective employer would remain as the "property" of that employer if my services were to be terminated at some future point in time. This seems to me to be a reasonable position as the reputation of my future employer would play no small part in the decision of clients to place their affairs in the hands of that firm.
In relation to the question of remuneration, I would be seeking a salary package of $75 000 pa and in addition to this base salary I believe that it would be reasonable to seek full reimbursement for employment related expenses, eg. professional memberships. An important consideration to me is professional development and maintenance of standards and in these areas, I believe that Ernst & Young has an enviable reputation. I have endeavoured to participate in activities presented by the professional bodies and would desire to continue to attend seminars and conferences dealing with subjects of particular relevance.
Once again I think you for your courtesy to me and I share with you the belief that the excitement of facing the new challenges of the 1990s and seizing the opportunities which become available is extremely fulfilling for the professional.
With kind regards
[Signature]
A L PEFFER
encl.
LIST OF TOP 25 CLIENTS
INSURANCE BROKER $ 21,632
PROPERTY DEVELOPMENT & INVESTMENT $ 17,372
PRIMARY PRODUCTION & INVESTMENT $ 14,396
BUILDER & DEVELOPER $ 13,631
MANUFACTURER $ 13,596
SOLICITOR & INVESTOR $ 10,301
GENERAL MEDICAL PRACTICE $ 9,394
ARCHITECT & INVESTOR $ 8,725
REAL ESTATE AGENT & INVESTOR $ 8,138
MANUFACTURER $ 8,180
SPECIALIST MEDICAL PRACTICE $ 8,138
SPECIALIST MEDICAL PRACTICE $ 8,028
SPECIALIST MEDICAL PRACTICE $ 8,028
MANUFACTURER $ 7,354
PRIMARY PRODUCTION & INVESTMENT $ 7,255
INDOOR SPORTS CENTRES $ 6,370
REAL ESTATE AGENT & INVESTOR $ 6,312
BUILDER & INVESTOR $ 5,880
SPECIALIST MEDICAL PRACTICE $ 5,874
INVESTMENT $ 5,804
INVESTMENT $ 5,493
FURNITURE RETAILER $ 5,090
INSURANCE AGENT $ 4,784
MANUFACTURER & INVESTOR $ 4,453
PHARMACIST $ 4,110
TOTAL: $ 218,663
NB: The fees shown above are for the current year as at 17.5.91
A number of the clients referred to are identifiable among the plaintiff's clients, some were acquired with the Aplan practice. The defendant was the principle, if not sole, contact for all those identifiable with the plaintiff's practice. A number of them followed the defendant to Ernst & Young and then with his own practice.
By a note dated 31 May 1991 to Taylor, the defendant insinuated that Dean was doing private work outside the plaintiff's practice, some in the plaintiff's time, for clients who were or had been the plaintiff's clients. Dean, who was called for the plaintiff, was not cross-examined on these allegations which are not supported by any evidence and seem to be without substance. The defendant gave no satisfactory explanation for their having been made. It is of interest however that Dean had Baptist Church connections and was a source of continuity for those who had been Lind, Dean and Associates, and later Aplan clients. These factors may have been useful to the plaintiff in retaining clients once it had notice of the defendant's intentions. There is, in my view, merit in the submission that the defendant's motives in raising the matter with Taylor had considerations such as these in mind as well as diverting attention from his own activities.
On 31 May 1991 the defendant also took steps to purchase a PAXUS computer software system, he had made inquiries in February. He had it installed in his residence on 4 July 1991 for his own use. PAXUS was a system commonly used by accountants, including the plaintiff. Indeed the defendant initially used the plaintiff's licensing arrangements to obtain the system at a cheaper price than he would have paid had he brought it as a single user. He did not seek Taylor or Wright's permission for this. Wright took objection when he found out about it. The defendant reimbursed the plaintiff the difference between the cost of a single license and a multiple license user.
I accept that the defendant did work for the plaintiff's practice at home and that the installation of the system would have enhanced his capacity to do that. I do not accept that as the reason for his acquiring it. He also did what he regarded as his private clients' work at home. I am satisfied that the defendant acquired the PAXUS system in the course of giving effect to his intention to leave the plaintiff's employ, to facilitate taking clients with him when he left the plaintiff's employ, to establish a client base and ultimately set up his own practice.
On 28 June 1991 Wright discovered that the defendant had purchased five computer tapes from the plaintiff's stock. The tapes represented a large information storage capacity - and were used by the defendant to further the purpose set out earlier. This generated or increased Wright's concerns about the defendant's intentions but it seems Taylor continued to trust him. This influenced Wright.
The defendant admits that on 6 July 1991 (a Saturday) he downloaded what was referred to in the evidence as Archive 1 (62 files identified in para.8(a)(i) of the statement of claim and listed in ex.1) and precedents of a share agreement and the residential tenancy agreement from the plaintiff's database but denied that any of the information was confidential to the plaintiff. The defendant admits that at the same time he took the hard copy files particularised in para.6(e)(iii) of the defence but denies that he removed the files particularised in (e)(ii) and denies the existence of the files particularised in (e)(i). He also admits that on 24 July 1991 he deleted from the plaintiff's records the front-cover tax file data for the financial year ended 30 June 1991 in respect of the files identified in para.9(b) of the defence. He claims to have been entitled to do this. I will deal later with the extent to which the defendant's conduct might be justified on the basis that the plaintiff acquiesced in his having his own clients distinct from those of the practice.
On 8 July the plaintiff's computer operators had difficulty archiving data. While investigating this the senior of them, Ms Dwyer, printed out the list of archives stored but did not recognise "Archive 1" as being one of the plaintiff's records. She printed out the list of contents of Archive 1 but could not retrieve the files listed - the system message was that the archive was off line. She then instigated the physical search of the files to try to track down Archive 1 but could not find any. On, as it appears, the next day, Tuesday the 9th, Ms Dwyer was unable to store material onto the plaintiff's archive tapes. The system read then as foreign archives. Ms Dwyer asked the defendant whether he had touched any of the tapes. He said he hadn't. At an office meeting the next morning she asked everyone present whether they had touched any of the tapes, they all answered no save for the defendant who "just sat there". Wright later requested Ms Dwyer to print out the timelog records for the weekend 23 July but it had been reinitialised ("wiped out") and was lost. The defendant had apparently told one of the plaintiff's computer operators when she went to "back up" the files for the particular week there was no need to as he'd done it. It was not a task which, as I understand the evidence, he would normally have done.
The defendant deliberately concealed his creation of Archive 1 and the associated activities to which I have referred. In all likelihood the reason he did so was to conceal his intentions from the plaintiff and to deprive the plaintiff of an opportunity to inhibit him or to protect its interests.
The difficulties Ms Dwyer had and the reinitialising which led to the loss of the time log were a consequence of the defendant's unauthorised interference with the plaintiff's system to advance his rather than the plaintiff's interest. The difficulty reflected in the "foreign archive reading" may have been unintentional but it is more difficult to reach the same conclusion concerning the erasing of the log. It is convenient to deal with the issue of the hard copy files in para.6(e)(i)(ii) of the defence in the context of the events of 17 August.
By letter of 22 July 1991 Ernst & Young confirmed an offer of appointment as senior manager in its business services group. The letter anticipated commencement "as soon as you are practicably able to finalise your arrangements. As per our discussions, we anticipate this to be within the next four weeks". The offer included a salary package of $70,000 per annum. The letter then went on "Your package will be reviewed annually in July and reviews are based on performance and merit. In addition we undertake to review your salary as at 1st January 1992 in accordance with performance and introduction of client work". After dealing with other matters of no present relevance, the letter provided for one months notice of termination or payment in lieu of notice and went on:
"RESTRAINT OF TRADE
Upon termination of your employment for any reason whatsoever, you agree that for a period of one year, you will not solicit, procure, canvass or otherwise retain any business from or seek instructions for the provision of consultancy services to or for any client of Ernst & Young which may have been acquired in the course of or incidental to your employment in any area/locality in which Ernst & Young already provide services.
At the same time we respect your rights, as discussed, as to the provision of services to any clients you may bring to you to your employment with Ernst & Young. In this regard, the introduction of your clients to the firm has been critical to the negotiations with you in recent weeks."
Although Walker denied or downplayed it, I am satisfied that the earlier reference and latter paragraph's emphasis on the introduction of clients accurately states the importance to Ernst & Young that the defendant bring a client base. The reference to the plaintiff's "rights" was to his being free to take clients he had brought with him when he left Ernst & Young - an arrangement which was important to the defendant.
It is useful to depart from the chronology to note that the defendant resigned from Ernst & Young by a letter of 6 August 1993 in the following terms:Dear Roger
I have recently been faced (again) with a difficult situation and in working through the issues which I perceive to be relevant, I have concluded that it is no longer appropriate for me to continue in the employ of Ernst & Young. As you are aware, I have very definite views on many client related issues (for example, pro-active behaviour, value for money, responsiveness to client needs/demands, standards of client work, staff stability (and the associated issues of recognition and reward) and most importantly, the client/adviser relationship). At times my views correlate with those advocated at Ernst & Young but there are also times when my views diverge somewhat from the application of the principles at Ernst & Young.
I have enjoyed my period of service with Ernst & Young and it has given me a greater appreciation of the diversity of the profession. I am grateful for the opportunity to work with the many specialists in Brisbane office. I have no doubt that there will be many occasions in the future when I will refer clients to Ernst & Young for specialist services (for example, corporate recovery, taxation etc) and I look forward to this continued relationship.
You no doubt recall the circumstances accompanying the commencement of my employment with Ernst & Young, particularly in relation to clients requesting Ernst & Young to act following my employment. You will also recall my assertions at that time that I would not take any action to contact clients of my former employer and I likewise assure you that I will not take any action to induce clients to transfer their business affairs to me.
I understand that I am required to provide on month's notice of the cessation of my employment and I therefore anticipate leaving Ernst & Young on 6 September 1993.
Once again I repeat that I have enjoyed my time at Ernst & Young and I strongly believe that the firm has tremendous potential. My personal thanks to you for your support in acting as a change agent and I wish you (both personally and as a representative of the division and the firm) every success in the future.
Yours sincerely
[Signature]
A L PEFFER
Two comments may be made. Despite the reference to "again" the defendant never advanced any of the reasons in the first paragraph for leaving the plaintiff. Secondly, he had broadened his experience while retaining and consolidating the client base he brought from the plaintiff.
THE DEFENDANT'S RESIGNATION AND ITS AFTERMATH
The defendant resigned from the plaintiff's employ by a letter of 26 July in the following terms—
26 Karloff Drive
STAFFORD HEIGHTS Q 4053
26th July 1991
Mr A D Taylor
Taylor & Company Pty Ltd
Level 9, Toowong Tower
9 Sherwood Road
TOOWONG Q 4066
Dear Allan
As you are well aware, the development of professional skills is a continuing process. For quite some years now, I have avoided coming to terms with this issue. However, I have recently been confronted with aspects of professional development which have provided me with the impetus to face the challenges presented to the professional in seeking to acquire new skills and enhance existing skills.
The challenge thus presented has resulted in a review of my personal and professional goals over the medium to long term and I have concluded that the continuation of my employment with Taylor & Company Pty Ltd will not enhance the attainment of my goals. I therefore hereby give notice of my resignation from your employ and advise that I wish to cease my employment on the 23rd August 1991.
I would take this opportunity to record my thanks to yourself and Bev for your expression of confidence in my ability and I would also extend my thanks to David and Doreen for their support in the relocation to Toowong and the successful integration of the two practices.
Sincerely yours
[Signature]
ALWYN PEFFER
It should be remarked, as the defendant no doubt appreciated, that his resignation could not have come at a worse time of the year for the efficient conduct of the plaintiff's practice. Taylor and Wright were greatly taken aback by this unexpected development; that they were is understandable in the circumstances.
Taylor, for reasons adverted to earlier, was predisposed to believe that the defendant was moving on to broaden his professional experience. Shortly after the resignation he learned that the defendant was going to Ernst & Young. He appreciated that Ernst & Young is a large accountancy firm providing a wide range of services and thought the defendant was going to take advantage of this to work in another area. Taylor probably did not learn that the defendant was going to Ernst & Young's business services division until somewhat later again, it is not clear where this took place. Wright learned of it from Taylor.
The defendant has a diary note of conversation with Taylor of 30 July to the effect that Taylor stated that he and Wright had reviewed the client listing and that he believed that they would lose fees "in the range of $50,000-$200,000" and that Taylor accepted this as "part of being in business as an accountant". On the view I take of the defendant's conduct and creditability, his evidence in this and other respects is to be approached with considerable caution if not scepticism. There is every reason to think that the defendant's notes, particularly from the date of his resignation, would be as self-serving as he thought he could safely make them. He had been careful to conceal his intentions and activities from Taylor and Wright, the probable explanation is that he anticipated they might not be accepting of his departure and activities if they found out. Taylor denies that the higher figure was mentioned, Wright, on the face of his evidence, supports a conclusion that it was. In any event I am satisfied that neither Wright nor Taylor anticipated that the loss of clients to the defendant would be as great as proved to be the case and not as great as $200,000. I am inclined to favour Taylor's version that a loss of $200,000 was not contemplated and hence not discussed. Nor do I accept that either Taylor or Wright accepted the anticipated loss of clients with equanimity. They accepted the inevitable and responded to it as they thought best in the circumstances. These circumstances included growing disillusionment with the defendant and, on Wright's part in particular, increasing bitterness.
When the defendant resigned, the plaintiff immediately engaged an agency to find a suitable replacement. One was found but he was not able to take up the position until Monday 19 August. In the meantime the defendant continued in his employment with the plaintiff.
Taylor and Wright determined to finish the plaintiff up on the 16th to permit his replacement to "assume full responsibility for his duties as from Monday". That they followed this course rather than instigate a more formal handover procedure involving the defendant is, in my view, a reflection of the circumstances of the defendant's resignation, their assessment of his conduct and its effect on them. It is true that the defendant's replacement favoured this course but that probably falls to be assessed in the light of the same circumstances.
The letter advising the defendant that his employment was terminated included the following passages.
"We have discussed the matter of confidentiality of this firm's clients' records and in particular, the copying of those records. It is appropriate that it be recorded that you have informed me that the only files copied by you were those set out on the attached list.
I raised with you the matter of the copying out of client records in the context of your having purchased 3 blank computer tapes from the firm's supplies. You have assured me that those tapes are for personal use only and that you have not used them for the purpose of copying information concerning the firm's clients or the financial records of those clients (saved to the extents referred to above).
I note also to your advice to me that you do not intend advising clients of this practice of your new appointment, nor do you intend taking steps to actively attract their business away from this firm."
The attached list is Archive 1. The defendant signed a copy of the letter acknowledging receipt and resigned from various directorships he held in companies associated with the plaintiff, Taylor and Wright.
I do not regard the plaintiff's conduct after the defendant gave notice as in any sense constituting acquiescence in the defendant's actions so as to relieve him of any obligations to the plaintiff, or to relieve him from the consequences of any breach of any such obligations. The plaintiff was doing what it could to make the best of a bad job. Taylor and Wright dealt with the defendant's resignation and its consequences for the plaintiff's practice as they judged best in the circumstances, it might be possible in hindsight to be critical but it cannot be said that they acted unreasonably in the circumstances with which the defendant placed them.
It does not seem to have occurred to the defendant that he may have owed obligations to the plaintiff in respect of his departure, if it did he suppressed the thought.
He made no attempt to brief either Wright or Taylor of work and progress or arrangements made which might be effected by terminating his employment on the 16th. For example, clients named McPheat were to attend a meeting on 19 August 1991 at the plaintiff's offices with the defendant and others concerning their financial affairs. The defendant completed work for them on the 17th and the meeting was held instead at the defendant's home over the weekend. He did not raise the matter with either Taylor or Wright. It is to be acknowledged that the atmosphere by then was probably not encouraging, that was a situation of the defendant's own making.
As I said in dealing with the dispute about the office furniture, Taylor and Wright agreed to allow the defendant to come into the office on Saturday the 17th to clean his desk and pack personal belongings. The defendant did not disclose that he intended to do client work, probably appreciated that had he done so, Wright and Taylor's attitude would have been less accommodating.
On Saturday 17 August 1991 the defendant arrived at the premises of Taylor & Company at 3.30 a.m. and stayed there until about 2.00 p.m. He accessed 38 files on the plaintiff's database. He completed work and produced documentation for clients called Fox, Murray and McPheat. They were clients of the plaintiff's who had a close relationship with the defendant. The McPheats (I mentioned them earlier) followed him immediately he left the plaintiff and the Foxes went to him some twelve months later, presumably when they again needed accountancy work. The McPheats, in particular, would probably have followed the defendant in any event. It was however, very much in the defendant's interest at the expense of the plaintiff's not to disclose to the plaintiff that was happening but to complete the work for those clients.
The defendant arranged for his secretary Margaret Jenner to attend at the plaintiff's office on the 17th and she accessed the Fox and McPheat files on a number of occasions between 7.00 and 8.30 a.m. Ms Jenner and the defendant had a strong connection through the Baptist Church and her loyalties obviously lay with him, she left the plaintiff's employment on the Monday. As well as accessing the data base, Ms Jenner produced documents, did photocopying, collating, prepared material for mailing and did various other tasks.
Later in the morning, Wright and his wife unexpectedly and fortuitously arrive at the office. They found the defendant and his secretary busily engaged. A number of workstations and printers were operating and removalists were taking the furniture from the defendant's office. The Wrights justifiably presumed the worst and things became extremely heated, ultimately Taylor was contacted by phone in Adelaide and proceedings on that day were resolved as I narrated earlier.
Mrs Wright saw the defendant's secretary Ms Jenner with a number of large envelopes in her arms, she believed she saw her with computer printouts and she saw the defendant put material in his briefcase. Ms Jenner left with the removalists and put the envelopes she was carrying in the defendant's car. She does not recollect taking anything else from the office and says that she did not remove any computer printouts. I am inclined to accept that Mrs Wright may have seen her with printouts but I am inclined to accept Ms Jenner when she says all she took out of the office were the envelopes which contained the work done for the clients referred to earlier.
I also mentioned earlier that the defendant admits having removed the files particularised in para.6(e)(ii) of the defence but denies the removal of the files particularised in (e)(ii) and the existence of the files referred to in (e)(i). I am not prepared to find the defendant removed either category of files on the evidence as it stands.
Taylor wrote the defendant a letter dated 19 August 1991 which is in the following terms:
19th August 1991
Mr A L Peffer
26 Karloff Drive
STAFFORD HEIGHTS Q 4053
Dear Sir
Following on the extraordinary sequence of events of Saturday 17 August 1991 wherein you attended the company's premises with a current staff member and proceeded to remove:-
(1)a number of client files and
(2)all furniture previously utilised by yourself in the conduct of your duties.
These matters were without any knowledge of myself or Mr Wright albeit permission had been given for you to collect personal items in the light of the short term notice given you in lieu of your intended departure date of 23 August 1991.
I can find no words to describe how I now view the sequence of events over the previous two months given my acceptance on each occasion and even my support relevant to each event however I was obviously blind to the underlying thoughts and intentions and find myself apologising to David Wright for not heeding his perceptions on each occasion.
From the interview with you on 22 June through the findings of the clandestine activities of copied records, wiping of time logs, purchasing of computer equipment, the acquisition of a duplicate set of software covering accounting, taxation, word processing, financial modelling and of a size that is synonymous with a sizeable practice under the name of this business without any discussion or authorisation of any kind, to attempt the clandestine removal of items of furniture (that are not only not yours to take but not this entities to give by virtue of lease agreement No B0010614-15 with Sanwa Australia Finance Limited of which you were fully aware) and the removal of client records without permission or advice leaves me in a position where I have no choice but to seek full redress through every legal and ethical means available.
In simple terms I feel my trust and faith in you developed over the two and one half years is no more.
Enough of emotion as loyalty and sentiment obviously have no place in this situation so I am advising you that legal action will commence immediately to recover the items of furniture taken on the Saturday morning referred to along with all client files after which I will insist upon the due ethical notices of change of accountants to be lodged before any relevant records will be released.
I am also intending to include in the action for return of furniture items the lounge ensemble you have enjoyed the use of privately whilst an employee of this practice - this item also being the subject matter of lease No B0010614-15 with Sanwa Australia Finance Limited.
You are of course entitled to take that furniture owned by you personally and transferred to Toowong at the time of relocation and access will be granted to removalists by advance notice to remove same.
Furthermore I am advising Paxus officially of the circumstances surrounding the acquisition of the state duplicated license and the cancellation of same.
I also reserve the right to place all details of the events referred to in this letter before a committee of the Institute of Chartered Accountants of Australia dealing with ethical matters for an independent ruling on those actions.
Legal correspondence in these matters is following this letter.
You have no idea how hard this has fallen on me to do as I can find no reasonable rationale for your actions and I must respond accordingly.
Yours faithfully
TAYLOR & COMPANY
[Signature]
A D TAYLOR
PRINCIPAL DIRECTOR
The defendant replied by letter of 21 August. He denied removal of any client files, asserted that the lounge ensemble was a gift and went on.
". . . . .
On Saturday 17th August 1991 you acknowledge during the course of our telephone conversation that the furniture I was removing from the premises was mine by virtue of an agreement with yourself and as we were unable to agree on an appropriate procedure for acquisition by the practice of the relevant items (although that was your stated desire) you agreed at that time that the furniture could leave the premises.
I note your reference to the ethical committee of The Institute of Chartered Accountants in Australia and suggest to you that it may be appropriate to re-examine the provisions of the Rules of Ethical Conduct as they pertain to the practice entity prior to approaching that committee, particularly in the light of correspondence received by the practice from the National Council of the Institute.
Finally Allan, I would remind you of your undertaking to meet your outstanding liability in relation to my remuneration. At our discussion on the 30th July 1991 you clearly stated that you would honour your obligation in this regard. I feel sure that you would not wish to precipitate action for the recovery of monies in excess of $30,000.
I frankly find the threat of legal action laughable in the circumstances. Over the last week, actionable claims have arisen in respect of assault and defamation. I have been prepared to overlook such matters but obviously will review my position if you seek legal remedies which, on any test, cannot be substantiated.
With kind regards
[Signature]
ALWYN PEFFER"
I have earlier rejected the defendant's assertions he was entitled to the furniture. Solicitors became involved on the plaintiff's behalf and the defendant responded to them by letter of 26 August 1991 in the following terms:
Re: Taylor & Company
I acknowledge your letter of 21 August 1991. I reply as follows:-
1.It would appear that you are instructed that I removed "a number of client files" as well as "a number of items of furniture" on Saturday 17 August 1991 from the premises of Taylor & Company. Your letter proceeds to detail the items of furniture but at no point is there a list of client files allegedly removed. I repeat my earlier statement (refer my letter to Mr Allan Taylor dated 21 August 1991) that I did not remove any client files on 17 August 1991.
2.The allegation regarding the unlawful removal of furniture deserves a closer examination. In September 1990, the practices now trading as Taylor & Company relocated from premises in Fortitude Valley and at Windsor. Furniture from both locations was moved to the Toowong office. New furniture was also purchased at that time and subsequently leased from Sanwa Australia Finance Ltd. The office furniture owned and used by myself prior to the relocation was placed in the office of another employee of the practice and furniture acquired as part of the relocation was placed in my office for my use. I raised this matter with Mr Allan Taylor at the time and offered to sell to the practice (at book value) the furniture items owned by myself an purchase the replacement items. Mr Taylor refused my offer and countered with the suggestion that the transaction be regarded as a "swap" and I agreed.
3.During the discussion which I had with Mr Taylor on 30 July 1991 following my resignation (which was to take effect on 23 August 1991), I raised the question of the furniture and Mr Taylor advised that the practice would like to purchase it from me as it would complement other items already in the premises and would obviate the need to acquire replacement items for my successor. I advised Mr Taylor that I had no immediate need for the furniture and would advise if I wished to sell and if so, the purchase price. In light of the short notice given me on 16 August 1991, I did not speak with Mr Taylor regarding the furniture from the premises. Mr David Wright entered the premises at about midday and after certain altercations occurred (refer paragraph 6 below), he telephoned Mr Taylor in Adelaide who confirmed that the furniture was mine to remove. Mr Taylor again expressed the desire to purchase the furniture and I refused. Leave was given by Mr Taylor (with Mr Wright also involved in the conversation via speaker phone) to remove the furniture - which process was then completed.
4.You also refer to a two seater and two single seater lounges which are in my home. These items were a gift to myself and my wife from my employer. Following the successful relocation of the two practices to Toowong and the very reasonable purchase of new furniture, Mr and Mrs Taylor and Mr and Mrs Wright wished to express their gratitude to me for co-ordinating the relocation etc and pressed my wife and myself to accept these items of furniture as an expression of thanks. I initially declined the fight but was pressed by those persons to accept and agreed.
5.Reference is also made in your letter to certain publications and stationery and I have no doubt that you have been provided with the itemised listing made in relation to those items. You will note that there is an amount of $150.00 shown for sundry stationery and while I am unable to substitute this to greater than $58.00, I preferred to be on the generous side. I note your comments in relation to the sum of $45.00 and given the fact that the removalists were unnecessarily delayed while Mr Wright and Mr Taylor discussed the furniture, I believe the deduction was warranted. However, I too have no desire to quibble over relatively small amounts.
6.I referred above to "certain altercations" which occurred when Mr Wright entered the office premises of Taylor & Company on 17 August 1991 and will seek to clarify this aspect of the matter. At about 11:50 am Mr and Mrs Wright entered the office premises and Mr Wright queried in a heated manner the removal of furniture. I advised that I was removing items which were mine by virtue of an agreement with Mr Taylor. Mr Wright proceeded to accuse me of theft, made threats that he would call the police, instructed the removalists to replace any furniture already removed and demanded to see a bill of sale to be produced by myself. My response was the repeated suggestion to Mr Wright to ring Mr Taylor in Adelaide. Mr Wright then assaulted me by pushing me back and ordered me to join him in the liftwell to "settle the matter". Naturally I refused. Both Mr Wright and Mrs Wright continued to verbally abuse me by accusation of theft, deceit, name calling and general vulgar language until Mr Wright accepted my suggestion to speak to Mr Taylor. The assault occurred before Mrs Wright and an employee of the firm (subsequently dismissed on 19 August 1991 for "aligning herself with me") and the verbal defamatory abuse continued for an extended period before the two removalists and staff member.
7.You should also be aware that the amount of $32,600 is owing to me by the firm in respect of my remuneration for the 1990 calendar year. Part of my remuneration agreed to with Mr Taylor in December 1988 related to an incentive tied to the growth in fees of the practice. This amount for the 1990 year totalled $33,600 of which the sum of $1,000 was paid on 28 March 1991. In respect of the 1989 year, the incentive totalled $12,000 paid by instalments on 2 April 1990, 9 April 1990 and 19 November 1990. The final payment (19 November 1990) attracted interest as it had been agreed that the portion of the incentive remaining unpaid at 30 June following the calendar year would incur interest. Naturally, in accord with past practice, the outstanding amount of $32,600 is currently incurring interest at the appropriate rate for unsecured loans.
8.No doubt your client has mentioned to you their intention to refer the above matters to The Institute of Chartered Accountants in Australia. You should be briefed by your client in relation to certain breaches by your client of the Rules of Ethical Conduct of the Institute.
9.As you are fully aware, your client is withholding payment of my lawful entitlement to my termination pay - although you do note that your client "has no intention of withholding payment". I am currently considering instituting proceedings for assault, defamation, the dishonoured cheques and my remuneration incentive and have instructed solicitors in these matters.
10.With all relevant facts before you, I trust that you may now be able to properly advise your client. There will be no winner if proceedings are commenced other than the respective lawyers and I accordingly set down my terms for settlement:-
*bank cheque in the sum of $4,595.00 in respect of my termination pay to be received by 5:00 pm on Tuesday 27 August 1991
*written apology from Mr David Wright in respect of the assault to be received by 5:00 pm on Tuesday 27 August 1991
*written apology from Mr David Wright and Mrs Doreen Wright in respect of the verbal abuse and defamation of my character and name to be received by 5:00 pm on Tuesday 27 August 1991
*written release from Sanwa Australia Finance Ltd acknowledging that it no longer has an interest in all items of furniture referred to above with such document to be received by 5:00 pm on Tuesday 27 August 1991
*the payment of the incentive sum of $32,600 by way of twelve (12) equal instalments with interest accruing at 18%
*I will pay the sum of $242.20 (although it is clearly excessive in the circumstances)
*I will waive my rights of action in respect of the matters listed in paragraph 9 above.
I await your response.
Yours faithfully
[Signature]
A L PEFFER
Ultimately these proceedings were instituted.
THE DEFENDANT AND PRIVATE CLIENTS
The significance of this issue is that the defendant alleges to the effect that the plaintiff acquiesced in his having his own clients for whom he did work within and without the plaintiff's practice. Insofar as he charged the clients' fees (albeit at a reduced rate on occasions) the defendant was entitled to retain them. The defendant contends that he was entitled to treat those clients' files and the information on them as his own and that the plaintiff can't complain that they continued to be his clients when he left the plaintiff's employment. I am not satisfied that the plaintiff (essentially Taylor) gave an informed consent to the defendant having clients, particularly clients paying fees to them, independently of the plaintiff's practice. It is this arrangement which is said to have justified the creation of Archive 1, the deletion and removal of data from the plaintiff's database which was dealt with earlier and other activities of the defendant.
It may be that it was probable that clients in the first and second of the categories identified below would have followed the defendant when he left the plaintiff's employ in any event and that much the same could be said of the third. That is not the same thing however as the plaintiff having accepted them as being the defendant's clients so as to exempt him from any obligation he might owe to the plaintiff.
The clients fall for consideration, broadly speaking, into three categories. First those associated with the Baptist Church, secondly members of the defendant's family and thirdly James Brett Lochran (Brett) Heading and a number of other individuals.
At about the time Taylor acquired the Aplan practice, the defendant gave him to understand that he did work for people associated with the Baptist Church and for members of his family which Taylor understood to be "just small salary type returns". Taylor understood the church related work to be of a charitable nature and he regarded work for "family" as always being an exception.
It seems that the arrangement had been that when the defendant used Aplan's resources for such work he endeavoured to recover the cost and insofar as he did work in the plaintiff's time to recover something for that, albeit at a discounted rate. Otherwise his services were provided free. Taylor did not understand from the defendant that there was any arrangement involving the defendant charging and retaining fees. Given his understanding, Taylor did not concern himself with the identity of those for whom the work was done or seek to put any dollar value on it. This perhaps gives some insight into what he understood the arrangement to be and his trust of the defendant.
In November 1989 the defendant discussed with Taylor the question of his (the defendant's) being billed in respect of work done for his family trust because not to do so "would set a bad example to staff". Taylor indicated that he considered this was "family work" and he did not regard the arrangement proposed by the defendant as necessary.
After Taylor and Wright merged their practices, Wright came to understand that the defendant was doing work on what he (Wright) regarded as a charitable basis associated with the Baptist Church or people connected with it free or at a discount rate in an arrangement approved by Taylor. He accepted this and didn't concern himself with the detail.
I should mention that insofar as any fees were paid to Aplan or the plaintiff's predecessor, the fees were reflected in what was paid for Aplan's goodwill and were reflected in the proportion of Taylor's original interest in the merged practices - as ought to have been appreciated by the plaintiff. Fees paid by the defendant's relatives and entities associated with them identifiable on Archive 1 are in this category.
There are a number of entities on Archive 1 which can be inferred were associated with the Baptist Church and which might be regarded as "charitable" or "family". Separately from Archive 1 there are clients associated with the Baptist Church or family who were Aplan clients who paid fees to that practice and who followed the defendant when he left the plaintiff's employment and who cannot on any view of it be said to come within the "charitable" or "family" arrangement.
A number of entities on Archive 1 are identifiable, by reason of their name, as being associated with Brett Heading and his family. Double Knob Pty Ltd, which appears there, was a company associated with Heading. A statement by Brett Heading was admitted into evidence (as part of ex.27) he was not called. Until I read Heading's statement, I must say that the evidence had left me under the impression that the defendant's approach to Taylor subsequently canvassed was contemporaneous with an approach by Heading to the defendant but the position seems to have been otherwise. Heading is a solicitor, a member of the firm McCullough & Robertson. That firm did the legal work necessary to effect the merger of the Alan Taylor & Associates and Rosman practices and acted on the plaintiff's behalf in seeking to negotiate a restraint agreement with the defendant (I do not suggest that Heading himself was involved in these activities). The firm might justifiably have been regarded as having been the plaintiff's solicitor.
The defendant and Heading met through John Lind in the days when Lind, Dean and Associates were practicing in Fortitude Valley. At Heading's request the defendant commenced doing Heading's accountancy work charging and retaining for himself the fees - I do not suggest that costs involved when Lind, Dean resources were used may not have been recovered and accounted for to that firm. The evidence does not admit of a conclusion as to the extent to which either Lind or Dean knew of or approved of this. It does appear however that Dean had, prior to any sale to Taylor, told the defendant he "did not believe there was any such thing as private clients."
In about March 1989 the defendant rang Taylor in Adelaide and told him that he had been approached by Heading to do Heading's work exclusively. That was in a sense true but it does not appear that the defendant disclosed the existing long standing arrangements I have just referred to. Taylor understood that insofar as work was done within the practice Heading would be charged but he contemplated that the defendant's component might be free or at a discount. He also understood that there might be some free work done outside the practice, he did not concern himself with the details. He did not understand Heading and his entities were the defendant's fee paying clients outside the practice nor did he consent to any such arrangement.
It may well be that Taylor was more acquiescent in the proposed arrangements than might otherwise have been the case because he trusted the defendant, he knew of the relationship between Heading and the defendant and between the plaintiff and the firm of solicitors of which Heading was the partner. In this context the defendant may have mentioned the potential benefit accruing to the plaintiff by McCullough & Robertson referring clients to the plaintiff for accounting work.
Such disclosures as were made by the defendant occurred while the defendant was under the restraint consequent on the sale of the Aplan practice and while Taylor, if not the defendant contemplated the defendant acquiring an interest in the practice. It seems Double Knob at least may have paid fees to Aplan. Insofar as that occurred in respect of any of the entities in the three categories under consideration the defendant did not disclose (if it was the case) that the payment was a reimbursement for time being spent on his rather than the plaintiff's clients during work hours.
It may be that careful scrutiny of the plaintiff's records by a more sceptical Taylor would have revealed some at least of the activities to which I have been referring and it is fair to say that, with the exception of Heading, they were not on a large scale. As I said earlier however, Taylor relied on the defendant to conduct the plaintiff's practice and to represent his interests in Alan Taylor & Associates and the plaintiff while he attended to his business and interests in Adelaide.
In about April 1991 Heading introduced a solicitor called Leather to the defendant who in turn introduced a man called Puglese. Others notably Benz and Mitchell were, according to the defendant, "personal referrals" by Heading to the defendant. It will be recalled that by this time the defendant had decided to leave the plaintiff and was casting around for an alternative. Heading had introduced him to Walker of Ernst & Young. The defendant treated the clients mentioned above as his own. He did not disclose what he was doing to the plaintiff.
Finally there is some merit in the plaintiff's submission that the defendant permitted, if not encouraged, clients with whom he dealt on the plaintiff's behalf and who subsequently followed him to Ernst & Young to regard themselves as his clients rather than the plaintiffs and that he took advantage of this to the plaintiff's detriment. That emerges on analysis of ex.27. This is a collection of answers to a questionnaire and statements by former clients of the plaintiff who follow the defendant when he left the plaintiff's employ. It was compiled pursuant to directions given in preparation for the trial and admitted under an arrangement whereby, in the event, neither party required any of those who provided the answers or statement to be called.
I should mention that there are some outstanding objections to some of the contents of the exhibit. I do not propose dealing with them in detail. I have not taken account of hearsay, swearing to issues or, material which speaks of the content of documents or the like. I have had regard to ex.27 and various analysis of it submitted in address in assessing the plaintiff's damages. This particular category of clients is relevant to a formulation of the defendant's duty to the plaintiff, the breach of any duty, and the assessment of damages rather than to the issue of whether the defendant was entitled to treat clients as his own as the three nominated categories were.
THE CONSEQUENCES OF THE DEFENDANT'S DEPARTURE
It may be accepted that the defendant was a competent accountant well thought of by many of the clients with whom he dealt and that, as the defendant appreciated, many relied on him exclusively in respect of their financial affairs. After Taylor's acquisition the defendant became essentially the sole contact for former Aplan clients. Such other employees of the plaintiff who had contact with clients did so under the defendant's supervision. As I have already said, the defendant also had a strong connection with a number of clients (including from Aplan) outside the practice because of a mutual connection with the Baptist Church. Others had become personal friends in the context of a long professional relationship.
It was accepted by the plaintiff that the defendant did not expressly approach and canvass the plaintiff's clients to follow him to Ernst & Young or his own practice. For reasons which have been canvassed he did not need to. He made it known to clients that he was prepared to continue to do their work after he left and told them where they might enquire so as to find him. People associated with the Baptist Church knew where he was going before he took up his position with Ernst & Young. It might confidently be assumed that the word would spread. The defendant well knew that there were clients he could rely on to follow him and did what he believed he safely could to facilitate that.
Prior to his taking up his position with Ernst & Young the defendant provided that firm with information to facilitate that firm's sending what are somewhat quaintly called "ethical letters" so that they might procure clients from the defendant: two such letters were written in August, 13 by the end of the first week of September and 54 by the end of that month. It is likely that some of the clients who approached the plaintiff to take their work away were equipped with information which it seems likely the defendant had either provided to them or that he indicated what they should ask from the plaintiff.
It is pertinent to remark that in my view the defendant's concern to observe the ethical constraints of the Institute of Chartered Accountants was motivated by a desire to avoid providing any basis for being accused of a breach of professional ethics, rather than by any concern for the interests of the plaintiff.
The plaintiff's decision to terminate the defendant's employment on 16 August and have Hudson commence on Monday the 20th without a more elaborate transfer arrangements was, I have already indicated, justifiable in the circumstances. Taylor and Wright signed a circular letter to clients dated 20 August 1991. This read—
"Just a short note to advise you of the resignation of the abovenamed effective 16th August 1991 to take up a position with Ernst & Young.
Following on this unexpected event we have been successful in acquiring the professional skills of Mr John Hudson whose history and professional expertise are exemplary.
A brochure giving details of the restructured team and services provided will be sent to you as soon as compilation and printing can be completed and it is expected that this will take some two - three weeks.
I can assure you that the change in staff has not diminished in any way, the professional level of services and personnel available to you and we look forward to introducing you to John at an early stage."
Taylor gave evidence to the effect, and I accept it, that had the defendant advised him at or prior to his resignation that he was going to Ernst & Young and would compete with the plaintiff in business services, given assurances he would not seek to persuade clients to follow him and that he was prepared to participate in a handover process Taylor would have accepted the arrangement. He would have come immediately from Adelaide and initiated a process of handover meetings with clients. Dean who was one of the original Lind, Dean partners, had a Baptist Church association and had worked on a part-time basis for Alan Taylor & Associates and for the plaintiff would have been involved. Dean gave evidence that he would have been prepared to have been involved in this process, to attend at the meetings and act in a supervisory role in respect of work others in the plaintiff's practice undertook on behalf of such clients. Wright would have played his part in the process. There was evidence, and it may be taken to be the case, that handover arrangements of this kind were accepted practice among accountants so as to minimise disruption and client loss when key personnel left. The scenario is of course hypothetical in assuming, among other things, that the defendant had acted in accordance with his obligations to the plaintiff and had Taylor and Wright's trust.
Clients commenced to contact the plaintiff for the purpose of taking their work to Ernst & Young by letter, telephone and in person from about 19 August. Taylor was struck by the number, persistence and determination of the approaches, this may well reflect, among other things, the time of year at which the defendant left the plaintiff's employ and the clients' needs because of tax, meeting and reporting obligations. Complying with these client requests imposed a considerable burden on the plaintiff and its staff and disrupted its capacity to do work for remaining clients.
Some indication of the effect of the defendant's departure is given by the following list of Aplan clients who followed the defendant. I do not suggest the list is exhaustive of the consequences of the defendant's departure.1991 Gross Fees
$
Baker J 3,669.00
Baker Family Trust
Beavis Liz 312.30
Bosworth AJ & RA 3,894.70
Bosworth Family Trust
Delgame Pty Ltd Super Fund
Brydges JL 5,762.65
Brown VF & D 820.65
Brown IG & JV 4,337.40
IG Brown Medical Pty Ltd
Brown Family Trust
Chenoweth JN & WL 5,387.30
Chenoweth Family Trust
JN Chenoweth Pty Ltd
Chenoweth Super Fund
Dart CM 806.10
Oliver Dart Family Trust
Ebbott RF & J 13,056.05
Richard Ebbott Family Trust
Richard Ebbott & Co
R Ebbott Trust Account
Farrell KCI & TG 3,410.05
K Farrell Family Trust
Glenroma Super Fund
Finlayson JT 3,518.25
Finlayson Family Trust
Hall Doug N/A
Harris WA & EJ 1,818.90
Harris Family Trust
Hill JC & VA 1,096.85
Bestlex Trust
Iles PH & B 8,554.20
Iles Family Trust
PH Iles Medical
Isles Family Trust & McConaghy Family Trust
Iles Medical Super Fund
Carina Medical Centre Unit Trust
Jones GD & LC 344.40
Kerr RAR 734.60
RAR Kerr Family Trust
Kissick RA 460.20
Kissick Family Trust
Lambrides GC & W 2,277.00
Greenacres Trust
Lynch AA & JA 9.605.30
Lynch KJ
Lynch Medical Services
Lynch Family Trust
Lynch Staff Super Fund
Mackay JB & AH 970.80
McCoombes B 7,317.80
McCoombes Family Trust
McConaghy RT & CL N/A
McConaghy RT & CL Family Trust
McConaghy CL & J N/A
CL McConaghy Family Trust
McConaghy JR & JJ 3,468.05
R McConaghy Family Trust
RJ McConaghy Pty Ltd
RJ McConaghy Super Fund
McConaghy J & MH 2,638.95
J McConaghy Trust
McPheat AM & RL 5,853.90
Kelmac Investments
Millican PG & BA 3,624.90
P Millican Family Trust
PG Millican Super Fund
North JB & HJ 7,049.90
The North Family Trust
John B North Pty Ltd
JB North Super Fund
O'Donnell JE 766.20
Pavusa PA 766.20
Peacock AG 4,913.30
Peacock GR & EJ
Peacock GR & EJ Family Trust
Read Mr 9,606.40
Read JA
Lowthian Read Unit Trust
Raine & Horne T/A Av
McKenzie Read Family Trust
Anrebel Pty Ltd
Thrift JA 384.20
Vievers GJ & ML 6,589.75
Vievers Family Trust
G Vievers & Associates Pty Ltd
GVA Super Fund
Walton GR & LM 5,121.17
Walton G & L Family Trust
Walton RA & BE 4,607.98
Wedgwood MP & JJ 2,801.10
M Wedgwood Family Trust
Jansi Super Fund
Whincop CJ & CE N/A
C Whincop Family Trust
Wright AL & N 12,658.95
AL & N Wright Family Trust
Wright RL & CA N/A
Wright GA
Wright GLT & SG 7,668.00
GLT & ALT Wright
Gordon Wright Trust
Wright ALT & EE 2,415.50
$158,747.45
Some of these clients are identifiable with categories in the letter of 17 May.
THE DEFENDANT'S DUTY TO THE PLAINTIFF
The defendant had obligations to the plaintiff as both an employee and a director. In the former case there was an implied obligation to act in good faith and with fidelity, the contents of the obligation depend on the circumstances of the particular case; Sanders v. Parry (1967) 1 W.L.R. 759, Hivac Ltd v. Parkroyal Scientific Instruments and Ors. (1946) 1 Ch. 169; Warman International Limited v. Dwyer (1994-95) 182 C.L.R. 554 at 556; Colour Control Centre Pty Ltd and Anor. v. Ty & Ors. (unreported, Supreme Court of New South Wales, 1689/1993, 24 July 1995, Santow J.).
Section 232(2) of the Corporations Law requires an officer of a corporation to "at all times act honestly in the exercise of his or her powers in the discharge of the duty of his or her office". It was accepted that for present purposes that could be equated with an obligation to act bona fide in the interests of the plaintiff. The underlying principle is that directors are bound by law not to put themselves in a position where their private interests are likely to conflict with their duty to the company; see Residues Treatment and Trading Co Ltd v. Southern Cross Resources (No.2) (1989) 7 A.C.L.C. 1130 at 1146.
The relationships of employer and employee and of director and company are moreover accepted fiduciary relationships; Phipps v. Boardman (1967) 2 A.C. 46 at 127; Hospital Products v. United States Surgical Corporation (1984) 156 C.L.R. 41 at 96. The duties of a fiduciary vary with the circumstances which give rise to the relationship; Hospital Products at 102 Re Coombes (1911) Ch. 723 at 728. There may, moreover be particular characteristics of a relationship which have the consequence that (for example) an employer is in a position of particular disadvantage or vulnerability in relation to the employee so as to require the protection of equity acting on the conscience of the employee; Hospital Products at 142; Colour Control Centre (supra) and Paul Dainty Corporation Pty Ltd v. National Tennis Centre Trust (1990) 22 F.C.R. 495 at 515. This is probably a manifestation of equity moulding fiduciary duty to the particular circumstances; Hospital Products at 102.
The terms of a contractual relationship (eg. permitting limited pursuit of the fiduciary's own interest as in Hospital Products) may modify what would otherwise be a fiduciary's obligation. Hence the significance of what I have called the private client issue in this case. Statute may of course have a comparable effect. Subject to such consideration the separate sets of obligations (contractual, statutory and fiduciary) may sit comfortably together although the distinction may be of consequence so far as remedies are concerned.
In the present case the defendant was a director as an incident of his employment so justifying the plaintiff's emphasis on the defendant's obligations as an employee.
It is convenient to recapitulate (not exhaustively) and restate or re‑emphasise findings made in the course of this reasons which bear on these defendant's obligation to the plaintiff.
The defendant was not simply an employee and director of the plaintiff.
He was one of those from whom Taylor acquired the Aplan practice, he had the benefit of the purchase price for that practice, the goodwill component of which reflected the gross fees for the previous year and was protected by a restraint clause. The Aplan practice formed a major component of the plaintiff's practice.
The defendant was responsible for the conduct of the Alan Taylor & Associates practice and then the plaintiff's. He knew throughout that Taylor relied on him to protect his interest in the practices and to acquire, retain and serve clients.
There was no agreement or understanding permitting the defendant, modifying the defendant's obligations to the plaintiff, although the defendant acted as though there was.
The nature of the defendant's relationship with clients (eg. the fact that he was the principal point of contact, his long association with many inside and outside the practice) meant the defendant was well placed to poach clients from the plaintiff. This is illustrated by the manner in which he was able to exploit his advantage to obtain a position with Ernst & Young, deliver clients and be able to take those clients with him to form a basis for his own practice in due course.
The defendant not only concealed his intentions from the plaintiff, he actively mislead it (eg. the context of endeavours to procure a restraint agreement). At best for him, he was content to see Taylor under a misapprehension as to the purpose of his leaving. He made unfounded allegations against Dean and clandestinely accessed the plaintiff's database and concealed that he had done so. He took advantage of the permission to access the premises on 17 August as I have found earlier.
The defendant acted throughout to advance his own interest. He took deliberate advantage of his position to the detriment of the plaintiff. The defendant acted in a clandestine way because he appreciated that if the plaintiff knew of his activities it may have moved to inhibit them and protect its interests.
The defendant did not make full disclosure in respect of his relationship with what I have called private clients.
There is an issue as to whether the defendant was under a positive obligation to assist the plaintiff to retain clients. In Sanders v. Parry (ante) the defendant was an employed solicitor negotiating for a partnership. He entered into an agreement with a client of the practice to leave the plaintiff's employment and to set up a practice in premises leased from the client and carry out the client's work. The defendant made all the arrangements necessary to implement this during his employment by the plaintiff. It was held that, although the agreement with the client had not initiated by the defendant, in accepting the offer and in not informing the plaintiff the defendant was acting contrary to the plaintiff's interest and in breach of an implied term to act in good faith and fidelity. At 765 Havers J. spoke of the defendant's obligation, at least while he was employed by the plaintiff being to protect his employers interest. This required him to do his best to retain the client. By making no effort to do so the defendant placed himself in a position of conflict and was looking after his own interests to the detriment of his employers. The client having expressed his dissatisfaction, the defendant should have gone to his employer and given him an opportunity to find out about and address any grievance which the client might have had. Similarly in Warman (ante) instead of attempting to enhance the relationship between his employer and his principals during the course of his employment, the defendant took steps to set up in competition. I will not repeat the findings I have already made about the defendant's conduct. I will simply add that by the time he resigned the "damage had already been done". After he resigned he did not disclose the full extent of his activities. The defendant made no effort to retain clients for the plaintiff and deliberately acted to foster and facilitate the departure of clients in the various respects to which I have referred. His conduct deprived the plaintiff of the opportunity to retain clients by an appropriate handover procedure so that the occasion of his actively assisting the plaintiff to retain clients never arose.
The defendant failed to act with good faith and fidelity. As a director he deliberately put himself in a position where his private interests conflicted with the plaintiff's and acted to advance his interests to the detriment of the plaintiff's.
REMEDIES
I will repeat the remedies now claimed by the plaintiff which I set out earlier—1.Damages or equitable compensation for breach of contract, breach of fiduciary duty or breach of duties imposed by the Corporations Law. The quantum of such damages is submitted to be:
(a)in the range of $96,000-$153,000 alternatively
(b)in the range of $191,000-$235,000 alternatively
(c)in the range of $164,000-$268,000.
2.Damages in equity for abuse of confidential information. The quantum of such damages is submitted to be:
(a)in the range of $191,000-$235,000 alternatively
(b)in the range of $164,000-$268,000.
3.In the alternative to 1 and 2 an account of the profits earned by the defendant from the clients who ended up with him after September 1993. As an account is sought, no specific sum is claimed at this time.
4.Damages for conversion of furniture - $1,650.
5.An account of profits earned by the defendant, dealing in general with the matters referred to in the defence and counterclaim paras.3(c)(xi) and 11(a)-(e).
The reference to para.3(c)(xi) is presumably to 3C(xi) which relates to the doing of work for a man called Heading as is referred to later. Paragraphs 11(a)-(e) relates to the defendant doing work for what is referred to as later in the reasons as private clients.
6.Exemplary damages. If it is held that damages recoverable are in the range in paragraph (1)(a), exemplary damages are sought to the extent of the difference between that amount and the amounts claimed in paras.1(b) and 1(c) above.
7.Interest, including compound interest.
The plaintiff's case at trial was based essentially on the loss of fees from clients. Claims, for example, about timely billing and some other issues raised on the statement of claim were not actively pursued or were subsidised into other claims as the facts became clearer. The plaintiff has sought compensatory damages as its primary remedy with an account of profits as an alternative. That is reflected in the evidence it called as to the issue and the course of the trial.
The evidence founds a conclusion that it is more probable than not that some clients would have followed the defendant in any event. This is a product of the circumstances of the defendant's relationship with clients which have been canvassed in dealing with his obligation to the plaintiff and its breach. The defendant's conduct in breach of his fiduciary obligations however deprived the plaintiff of the opportunity to retain clients which would have been open had the defendant acted as he ought. In such circumstances damage can then be assessed on the basis of that loss of chance; see, for example, Sanders v. Parry and Colour Control Centre (ante). It may be remarked that the account of profits claimed in the alternative would require a determination of the same broader issues as must be decided in assessing damages but would then be an extremely complex and time consuming exercise. In any event I do not regard it as necessary to consider the alternative remedy.
Given the evidence I do not consider the valuation of the lost chance calculation as essentially a common sense assessment. This case is more complex than, for example, Colour Control Centre where what was lost was the chance of retaining a particular contract. Calculation may be of assistance in the exercise but care must be taken less it gives an air of false precision and certainty.
The plaintiff called evidence from Marian Micalizzi, a director of Coopers & Lybrand, who it may be accepted was appropriately qualified for the evidence which she gave. The figures taken from the plaintiff's records and her calculations using those figures, for example, to arrive at the plaintiff's actual profits may be accepted as useful. Ms Micalizzi's methodology for various exercises (as distinct from its application to the particular circumstances) may be accepted. Her application of a multiplier of two or three to the profits calculated as lost is justifiable so far as it goes.
To discuss Ms Micallizzi's exercises as speculative is oversimplification. It would also be an oversimplification to simply adopt a particular version of her calculations. The difficulty is that the client retention rate which would have been achieved by a handover program of the kind canvassed earlier in these reasons is very much a matter of judgment. To advance a particular rate is to give an air of specious precision where it is not justified and the same risk applies in treating Ms Micallizzi's figures in isolation. There are factors in this case which would have imposed formidable obstacles to the plaintiff's retaining clients had the defendant acted as he ought rather than in breach of his obligations. Perhaps paradoxically this reflects factors which I have concluded bore on the nature and extent of the defendant's obligations. The more relevant considerations seem to be:
The strength of the defendant's relationship with individual clients in terms of exclusivity, continuity, church and personal connections and other circumstances which are canvassed earlier (I note that Ms Micalizzi omitted $9,636 in fees paid by the defendant's family from her calculations). Dean would have assisted in countering some of the force of these factors but apart from anything else he was not full-time.
The defendant's replacement may not have been able to participate fully in the handover process.
There would no doubt have been practical difficulties in conducting effective meetings with all of the clients given the time available and demands on the clients and the time of the plaintiff's staff.
Most clients had not met either Taylor (who was in any event based in Adelaide) or Wright previously. Dean would have been known to some of the clients earlier but as I have said his role was necessarily limited. They would not know the replacement. The only other staff member (Morrison) with whom clients had contact worked to the defendant and was relatively young and inexperienced.
Some clients may in any event have been and remained dissatisfied with the plaintiff.
I concluded earlier that some clients were provided with information by the defendant to facilitate their retrieving their files etc from the plaintiff and Ernst & Young had been provided with information which facilitated the approach to the plaintiff's clients. It is not possible to conclude which clients or what information but the departure of some clients was facilitated in this way.
Doing the best I can $130,000 seems to me to be an appropriate amount to reflect the plaintiff's loss.
The second heading under which the plaintiff claims damages is for abuse of confidential information. I will not repeat the finding I have made as to what was removed from the defendant's premises, the creation of Archive 1, the position as to private clients, and what happened when the defendant's employment was terminated which bear on this claim. On the view I take of the evidence it is not possible to be more precise than I have been as to what specific information was used in respect of which clients or as to the significance of any use to the loss of the client in respect of whom it was used.
I have a number of difficulties with the claim advanced under this head. The plaintiff's loss was essentially caused by the defendant's abuse of his relationship with the plaintiff and its clients (including the use of information as I have found earlier) so that clients left and the plaintiff was deprived of the chance to retain some of them. The impermissible use of the information must be shown to have a consequence for the plaintiff. In the case of the implied contractual obligation, there must be a causal connection established in the conventional contractual sense. Under the Corporations Law the damage must be "as a result of" the breach. It is true that a fiduciary is, broadly speaking, required to put the other party in the same position it would have been in had no breach been committed; consideration of causation, foreseeability and remoteness do not "readily enter into the matter". Re Dawson (deceased) (1966) 2 N.S.W.R. 211 at 214. A fiduciary cannot however be liable for a loss that does not flow from a breach of fiduciary duty; Canson Enterprises Ltd v. Boroughton & Co (1991) 85 D.L.R. (4th) 129 at 160 cited by Sir Anthony Mason in the Place of Equity and Equitable Remedies in the Contempt of Common Law World (1994) (110) L.Q.R. 238 at 244. To paraphrase McLauchlan J. in Canson it must be established that the plaintiff would not have suffered the loss in question had the defendant adhered to his duty.
As I have said, there was some indication on the evidence that what might have been regarded as information confidential to the plaintiff was supplied to Ernst & Young to facilitate the writing of ethical letters and some may have been provided to some clients to facilitate their approach to the plaintiff to have their work sent to Ernst & Young but no findings beyond such generalities can be made. There is no evidence that any of the physical files removed were used in a way which was different from or added to the breaches founding the lost opportunity already dealt with. There is no evidence as to the contents of the various files which made up Archive 1 or that that particular information was used by the defendant to induce clients to leave the plaintiff beyond what I have said.
Put shortly the evidence does not establish the confidential material the subject of this head of claim was abused to cause the plaintiff loss. There is no evidence that confidential material was used to procure clients or to better serve them after they left the plaintiff or that any of the material taken made any difference to the plaintiff's loss beyond what is reflected in the damages I have so far allowed.
On the view I take of the matter, there is no need to consider the alternative head in para.3 of the plaintiff's claim. The plaintiff is entitled to the damages for conversion claimed in para.4 and to the limited account claimed by para.5. As to the latter the parties can submit a form of order for the account. Having regard to the finding I have made, they may care to consider the extent to which Ms Micallizzi's figures can be accepted as forming a basis for this exercise.
I turn to the claim for exemplary damages, claim 6:"Exemplary damages are damages which are awarded to punish the Defendant and vindicate the strength of the law. They may only be awarded in actions in tort, and only in three categories of cases.
The first category is oppressive, arbitrary or unconstitutional action by servants of the Government.
. . . . . .
The second category is cases in which the Defendant's conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the Plaintiff. This category is not confined to money-making in the strict sense but extends to cases (for example libel or trespass) where the Defendant is seeking to gain some object at the Plaintiff's expense. However, the mere fact that a tort, particularly a libel, is committed in the course of a business carried on for profit is not sufficient to bring a case within this category.
The third category is a case whereby exemplary case damages are expressly authorised by statute.
Where exemplary damages may be awarded the Court should ask itself whether the sum it proposes to award is compensatory damages, which may include an element of aggravated damages, is adequate not only for the purpose of compensating the Plaintiff but also for the purpose of punishing and deterring the Defendant. Only if it is inadequate for the latter purpose should the court consider awarding additional exemplary damages.
The following considerations should be borne in mind:
1.That the Plaintiff cannot recover exemplary damages until he is the victim of the punishable behaviour.
2.That the power to award exemplary damages is a weapon that should be used with restraint; and
3.That the parties means are relevant.
Exemplary damages may not be awarded in actions for breach of contract. (Perera v. Vandiya (1953) 1 All. E.r. 1109; Kenny v. Preen (1963) 1 Q.. 499)."
(Halsburys Laws of England, 4th Ed. Vol. 12, para.1190) and see Brookes v. Barnard (1964) A.C. 1129, where it was said at 1227:
"Where a defendant with a cynical disregard for a plaintiff's rights has calculated that the money to be made of his wrongdoing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity. this category is not confined to money making in the strict sense. It extends to cases in which the defendant is seeking to gain at the expense of the plaintiff some object - perhaps some property which he covets -which he either could not obtain at all or not obtain except at a price greater than he wants to put down."
See also A.E. v. South-West Water Board Services (1993) 1 All. E.R. 609 and X.L. Petroleum (N.S.W.) Pty Ltd v. Caltex Oil (Australia) Pty Ltd (1983-84) 155 C.L.R. at 470.
Equity, Doctrine and Remedies (Meagher, Gummow & Lehane) is critical of the notion that there is jurisdiction in equity to award exemplary damages; see also Aquaculture Corporation v. New Zealand Green Mussel Co Ltd (1990) 3 N.Z.L.R. 299, (Court of Appeal) where Somers J. suggests that "equity and penalty are strangers". In this context I accept the defendant's submissions that it is difficult to reconcile a notion of exemplary damages and an account; see Hospital Products (ante) at 109, Warman (ante) at 557 and 567. The considerations there adverted to give weight to the reservations reflected in Equity, Doctine and Remedies. There is occasion to doubt the applicability of exemplary damages to conversion, as the defendant submits the restriction by the authorities of the torts to which exemplary damages apply suggest they may not be available for conversion but the position is not clear.
In addition to the difficulties adverted to, I am not prepared to conclude that the defendant's conduct, deplorable as it may be, went beyond acting to the plaintiff's detriment in his own interest to the extent justifying an award of exemplary damages. It cannot be said that the defendant's conduct was calculated to make a profit beyond any compensation the plaintiff might recover.
The considerations being those adverted to I am not prepared to award exemplary damages.
The plaintiff seeks interest based on the rates in ex.7 which average out at around 12% from September 1991 to trial. In a broad brush approach that can be also equated to a "mercantile rate". It seems to me right to conclude that had the plaintiff not lost the opportunity to retain clients with the consequence in damages which I have found the fees reflected by that award would have been used in the conduct of the plaintiff's practice. In contractual terms this was in the contemplation of the parties. In the circumstances I allow interest at the rate of 12% compounded on the amount awarded under the first and fourth heads of damages claimed by the plaintiff. I will leave it to the parties to bring in a calculation.
THE DEFENDANT'S COUNTERCLAIM
Paragraph 17 of the defence and counterclaim provides:
"The following were terms of the plaintiff's employment with A D Taylor & Co Pty, namely, in addition to the salary agreed to be paid to the defendant, A D Taylor & Co Pty would pay to the defendant:
(a)a bonus equal to 25% of such part of the gross fees receivable by the employer from the conduct of the said practice as exceeded $360,000 for the 12 month period from January 1989 to December 1989; and
(b)a further bonus calculated as above in respect of each subsequent 12 month period on the gross fees receivable by the employer for that period with the exception that the sum of $360,000 would be increased by the percentage increased during the same period of the consumer price index for Brisbane."
The defence and counterclaim continues:
"18.Pursuant to and in accordance with the terms of the defendant's employment as set out above, A D Taylor & Co Pty paid to the defendant the total sum of $12,000 by way of a bonus for the 12 month period ending 31 December 1989."
The pleading then claims that the plaintiff adopted the terms of the defendant's previous employment when it employed him so that it became obliged to pay the bonus.
The defendant contends that in about June 1990 Taylor agreed to the effect that the plaintiff would pay the bonus but only in respect of A.D. Taylor & Co Pty Ltd clients. I find the evidence concerning this somewhat obscure. Taylor apparently acknowledges a liability in respect of what seems to be the 89/90 year in an amount of $9,000 but never accepted an amount in the vicinity of $30,000 or so as was claimed by the plaintiff. The counterclaim is for $32,600.02 (or calculated $33,600,22 less $1,000 paid). In other words, Taylor acknowledged an obligation to pay, perhaps on his or A.D. Taylor & Company's part, but disputed the amount in terms of the basis of calculation.
Wright was involved in discussion concerning the bonus in June together with Taylor and the defendant. I think it is improbable that he agreed to any arrangement which would have involved the plaintiff becoming liable under a continuation of the arrangements made between the defendant and A.D. Taylor & Co Pty. I accept he made it clear at the June meeting that any arrangement would have to be made outside the merged practices. It seems likely that Taylor then said he would be liable to the defendant for the bonus which was to be calculated in respect of the A.D. Taylor & Co Pty Ltd component of the fees of the joint practice. I am not persuaded there was any agreement binding the plaintiff whereby it became liable for the bonus and I dismiss the counterclaim.
Summary:
I award:
·$130,000 for breach of obligation;
·interest on that at 12% compound. The parties can bring in the calculations;
·$1,650 for damages for conversion together with interest;
·an account of profits in respect of the matters in paras.3(c)(xi) and 11(a) - (e). The parties to bring in an order;
·I will hear submissions as to costs.
0
0
0