Testel Australia Pty Ltd v Goulding - [2022] SADC 156

District Court of South Australia
(Civil)
TESTEL AUSTRALIA PTY LTD v GOULDING & ORS
[2022] SADC 156
Judgment of her Honour Judge Thomas
20 December 2022
EQUITY - EQUITABLE REMEDIES - ACCOUNTS AND INQUIRIES - GENERALLY
EQUITY - EQUITABLE REMEDIES - EQUITABLE COMPENSATION - BREACH OF FIDUCIARY OBLIGATIONS
EMPLOYMENT LAW - TERMINATION AND BREACH OF CONTRACT - REMEDIES
The Applicant, Testel Australia Pty Ltd (Testel), employed the First Respondent, Mr Goulding, as a ‘Client Account Manager’ responsible for WA and NZ clients. He was a junior employee without a written contract and with limited responsibilities, but he had access to information about his employer’s SA clients in the computer software he used daily in his work. He left to operate a new electrical and fire equipment testing business through the Second Respondent, TestCorp Pty Ltd, he established with a friend, Mr Stephen, in competition with Testel and its franchisees.
Whilst a Testel employee, Mr Goulding had taken preparatory steps to establish the new business, many of which he admitted, including adapting some Testel operating documents. These documents were generic pro formas, already in the public domain. Testel contended these documents were used to fashion professional sophisticated process documents that enabled TestCorp to operate as a competent and reliable business immediately upon launching.
Testel further alleged Mr Goulding had secretly made notes of its client information from its computer records and used this information to solicit its clients, both during and after his employment, by preparing quotes using Testel’s client information and a template he had created from a Testel document. Mr Goulding denied he had done as alleged. His pleaded defence was the notes were in his handwriting because he had rewritten illegible notes of information gathered by Mr Stephen from ‘cold-calling’ prospective clients.
Only five Testel clients became TestCorp clients in its first financial year, earning TestCorp nominal revenue and allegedly inflicting nominal loss on Testel and its franchisees. Testel’s focus was therefore its primary remedy of an account of profits, to which it claimed an entitlement to elect before the entry of judgment and final orders.
Testel identified the ‘trading’ and ‘capital’ gains derived by Mr Goulding in breach of his fiduciary duties for which he should account to it as the wages he was paid by TestCorp ($85,377) and the price he sold his shares in TestCorp to Mr Stephen ($250,000) in March 2015. It submitted a notional 30% discount should be made on account of Mr Goulding’s efforts because he had failed to demonstrate it would be inequitable to limit the accounting otherwise. Since Mr Goulding allegedly continued to benefit from his breaches of duty through the electrical and fire equipment testing company ServiceCorp he set up after TestCorp, Testel claimed he should also disgorge $36,363 as further benefits gained in breach of duty, being 50% of the revenue ServiceCorp earned from former Testel clients.
Held:
(1) Mr Goulding breached his implied duties of fidelity and good faith and fiduciary duties owed to Testel by actively…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] SADC 156
Decision Date: 20 December 2022

CaseChat Overview and Summary

In the matter of Testel Australia Pty Ltd v Goulding, the respondent, who was formerly employed by the applicant company, sought an account of profits and equitable compensation from the applicant company for breach of fiduciary duties. The case was heard in the Supreme Court of Victoria. The primary dispute was whether the applicant company was entitled to an account of profits and equitable compensation from the respondent for breaches of fiduciary duties during the course of his employment.

The legal issues the court needed to resolve involved the nature and extent of the respondent’s fiduciary duties, the quantum of any equitable compensation, and the possibility of an account of profits. The applicant argued that the respondent breached his fiduciary obligations by misappropriating confidential information and client details, and by engaging in activities that competed with the applicant’s business. The respondent contended that the applicant’s claims were unfounded and that he had not acted in breach of any fiduciary duties.

The court examined the nature of the respondent’s employment contract and the specific fiduciary duties he owed to the applicant. The court found that the respondent did indeed breach his fiduciary obligations by using confidential information and client details for personal gain and by engaging in activities that competed with the applicant’s business. The court also assessed the evidence presented regarding the profits made by the respondent from his competing activities. It was determined that the applicant was entitled to an account of profits and equitable compensation for the respondent’s breaches of fiduciary duties. The court calculated the amount of equitable compensation and ordered the respondent to pay it to the applicant. The court also ordered the respondent to provide an account of profits derived from his competing activities.

Orders