Vanguard Financial Planners Pty Ltd v Ale

[2018] NSWSC 314

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Vanguard Financial Planners Pty Ltd & Anor v Ale & Ors [2018] NSWSC 314

Hearing dates:

6 – 8 December 2017; 12 – 13 December, 15 December 2017; 2 February, 16 February 2018

Decision date:

14 March 2018

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

The Plaintiffs fail in their claims against the Defendants. The Defendants fail in their cross-claims against the Plaintiffs and Third Cross-Defendant. Plaintiffs and Defendants ordered to bear their own costs. Defendants ordered to pay the costs of the cross-claim against the Third Cross-Defendant as agreed or as assessed.

Catchwords:

CONTRACT – construction – whether the Court can have regard to prior negotiations which indicate parties’ subjective intention in construing contract – implied terms – whether term is necessary for business efficacy or so obvious that it goes without saying – whether term is to be implied into the contract.

 

CONTRACT – repudiation – whether party has indicated a refusal to perform the contract – whether acceptance of repudiation was communicated to the promisor.

 

CORPORATIONS – management and administration – duties and liabilities of officers of corporation – claim for breach of statutory duties under Corporations Act 2001 (Cth) ss 180, 181, 182 and 183 – duty of care and diligence – duty to act in good faith in the company's best interests – duty to not improperly use position to gain advantage or cause detriment to company – duty to avoid improper use of information – where several expenses not apportioned between group companies in inter-company loan account – whether expenses paid by company in breach of duty – whether conduct of Defendants amounted to breach of statutory duties.

EQUITY – general principles – fiduciary obligations – where business venture has been consensually terminated – whether parties to venture owe fiduciary duties to one another – where several expenses not apportioned between group companies in inter-company loan account – whether expenses paid by company in breach of duty – whether director of company breached no conflict and no profit duties – whether director of company breached best interests and proper purposes duties – whether director of company breached equitable duty of confidentiality.

 

TRADE PRACTICES – application of Restraints of Trade Act 1976 (NSW) s 4 – where contractual restraint of trade in broad terms – whether restraint of trade is void for breach of public policy.

TRADE PRACTICES – misleading or deceptive conduct claim under s 18 of the Australian Consumer Law – whether representations made are misleading or deceptive – whether representations among directors of a company are made in trade or commerce.

Legislation Cited:

- Australian Consumer Law ss 18, 236
- Corporations Act 2001 (Cth) ss 9, 180, 181, 182, 183, 187, 292, 293, 296, 297, 911A, 1317S, 1317H, 916B
- Evidence Act 1995 (NSW) s 136
- Fair Trading Act 1987 (NSW) s 42
- Income Tax Assessment Act 1997 (Cth)
- Restraints of Trade Act 1976 s 4
- Trade Practices Act 1974 (Cth) s 52

Cases Cited:

- ABN Amro Bank NV & Ors v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1
- Adler v Australian Securities & Investment Commission [2003] NSWCA 131; (2003) 46 ACSR 504
- Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1; 98 ACSR 615
- Armagas Ltd v Mundogas SA [1985] 1 Ll R 1
Attorney-General v Blake [1998] Ch 439; [1998] 1 All ER 833
- Australian Securities & Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35; 62 ACSR 427
- Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75; 118 ACSR 189
- Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373
- Barnes v Addy (1874) LR 9 Ch App 244
- Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1; 70 ACSR 1
- Birtchnell v The Equity Trustees, Executors and Agency Company Limited (1929) 42 CLR 384
- Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24; (2011) 191 FCR 1
- BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
- Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558
- Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9
- Cadgroup Australia Pty Ltd v Snowball [2016] NSWSC 22
- Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39
- Carlton & United Breweries Ltd v Tooth & Co Ltd (1986) 7 IPR 581
- Chan v Zacharia (1984) 154 CLR 178
- Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101
- Cleary v Australian Co-operative Foods (No 2) [1999] NSWSC 991; (1999) 32 ACSR 701
- Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
- Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594
- Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37; (2016) 333 ALR 524
- Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434
- Craig v Silverbrook [2013] NSWSC 1687
- Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25
- Equiticorp Financial Services Ltd v Equiticorp Financial Services (NZ) Ltd (1992) 29 NSWLR 260; (1992) 9 ACSR 199; (1992) 11 ACLC 84
- Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50; 11 ACSR 642, 11 ACLC 952
- Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
- Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566
- Galambos v Perez [2009] SCC 48; (2009) 3 SCR 247
- Gibson Motorsport Merchandise Pty Ltd v Forbes [2006] FCAFC 44; (2006) 149 FCR 569
- Glandon Pty Ltd v Tilmunda Pastoral Co Pty Ltd [2008] NSWSC 218
- Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296
- Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298
- Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307; (2016) 339 ALR 659; 117 ACSR 408
- Hoath v Connect Internet Services [2006] NSWSC 158
- Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41
- Hurd v Zomojo Pty Ltd [2015] FCAFC 147
- Hydrocool Pty Ltd v Hepburn (No 4) [2011] FCA 495; (2011) 279 ALR 646; 83 ACSR 652
- Jennings v Jennings [1898] 1 Ch 378
- John Alexander’s Clubs Pty Limited v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1
- John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995
- Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61
- Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449
- Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623
- Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd [2001] NSWSC 448; (2001) 38 ACSR 404
- McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477
- Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205
- Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188
- Netglory Pty Ltd v Caratti [2013] WASC 364
- New Cap Reinsurance Corp Ltd v Daya [2008] NSWSC 64; (2008) 216 FLR 126; (2008) 66 ACSR 95; (2008) 26 ACLC 301
- Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383
- Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1
- O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262
- Oliver Hume South East Queensland Pty Ltd v Investa Residential Group Pty Ltd [2017] FCAFC 141; (2017) 348 ALR 385; (2017) 122 ACSR 183
- P & V Industries Pty Ltd v Porto [2006] VSC 131; (2006) 14 VR 1
- Page v McKensey [2004] NSWCA 437
- Prenn v Simmonds [1971] 1 WLR 1381
- Prestia v Aknar (1996) 40 NSWLR 165
- Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222
- Re Central Management (NSW) Pty Ltd [2017] NSWSC 1258
- Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233
- Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724
- Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779 at 783; 12 ACLC 269
- Ross T Smyth & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60
- Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386; (2011) 206 IR 450
- Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 286 ALR 612; 88 ACSR 126
- Societe d’Avances Commerciales (Societe Anonyme Egyptienne) v Merchants’ Marine Insurance Co (The “Palitana”) (1924) 20 LI L Rep 140
- Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261
- Spotless Group Ltd v Blanco Catering Pty Ltd [2011] FCA 979; (2011) 93 IPR 235
- State of New South Wales v Hunt [2014] NSWCA 47; (2014) 86 NSWLR 226
- Stocznia Gdynia SA v Gearbulk Holdings Pty Ltd [2009] EWCA Civ 75; [2010] QB 27
- Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2; (2013) 92 ACSR 417
- Swindle v Harrison [1997] 4 All ER 705
- Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
- Trego v Hunt [1896] AC 7
- Tullett Prebon (Aust) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414
- United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1
- Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; 62 ACSR 1
- Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544
- Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1
- Whittaker v Unisys Australia Pty Ltd [2010] VSC 9; (2010) VR 668
- Woolworths Ltd v Olson [2004] NSWCA 372
- Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484
- Zomojo v Hurd (No 2) [2012] FCA 1458

Texts Cited:

- JW Carter, Carter’s Breach of Contract, LexisNexis Butterworths (2011)

Category:

Principal judgment

Parties:

Vanguard Financial Planners Pty Ltd (First Plaintiff/First Cross-Defendant)
Mark Andrew Pauling (Second Plaintiff/Second Cross-Defendant)
Jason Phillip Ale (First Defendant/Second Cross-Claimant)
Vanguard Accountants Pty Ltd (Second Defendant/First Cross-Claimant)
Vanguard Group Pty Ltd (Third Defendant/Second Cross-Claimant)
Jason Pauling (Third Cross-Defendant)

Representation:

Counsel:
C D Wood/N Sedaghati (Plaintiffs/First and Second Cross-Defendants)
M Rennie/J Mee (Defendants/First and Second Cross-Claimants)
J Dooley (Third Cross-Defendant)

  Solicitors:
Hall & Wilcox (Plaintiffs/First and Second Cross-Defendants)
Roderick Storrie (Defendants/First and Second Cross-Claimants)
Peter Evans & Associates (Third Cross-Defendants)

File Number(s):

2016/106309

Judgment

The pleadings and affidavit evidence

1. These proceedings concern a dispute arising from the separation of a financial planning business associated with the Plaintiffs, The Investment Shop (Aust) Pty Ltd (formerly Vanguard Financial Planners Pty Ltd (“VFP”)) and Mr Mark Pauling, and an accounting business associated with the Defendants, Vanguard Accountants Pty Ltd (“VA”) and Mr Jason Ale. That dispute has generated a multitude of claims and cross-claims, a hearing conducted over six hearing days and two days of submissions, and lengthy submissions as to matters partly within the scope of the parties’ pleaded cases.

2. By their Amended Statement of Claim filed on 20 October 2016, and a Further Amended Statement of Claim filed on the last day of the hearing, VFP and Mr Pauling bring claims against Mr Ale alleging, inter alia, that the arrangement between the relevant parties was in the nature of a joint venture and that Mr Ale owed fiduciary and other duties to Mr Pauling or VFP; and that Mr Ale breached those fiduciary duties in respect of a large number of individual payments, some of small amounts, made from specified accounts and by authorising the payment of salaries of specified individuals, including his wife, from VFP and other payments. The Plaintiffs sought to expand one aspect of their pleaded case by particulars to the Amended and Further Amended Statements of Claim, to introduce a substantially wider case as to the accounting treatment of expenses addressed in an expert’s report on which they relied, and particularised, in broad categories, by a letter dated 19 October 2016. I will address that matter further below. The Plaintiffs also attack other conduct of Mr Ale, in dealing with clients and in purchasing (or leasing) a company car and contend that Mr Ale breached the terms of the separation arrangements between the parties by not making a larger payment to VFP; engaged in misleading and deceptive conduct in respect of financial reports prepared by the Vanguard Group; and breached a contractual restraint of trade and duties of confidentiality in dealings with certain clients of VA or VFP. Mr Ale and VA filed a detailed Amended Defence on 31 March 2017.

3. Mr Ale and VA in turn brought an Amended Cross-Claim, filed on 5 December 2016, against VFP, Mr Mark Pauling and his son Mr Jason Pauling, which claimed compensation arising from the circumstances in which VA was shut out of premises leased by VFP at Charlestown in New South Wales; advanced claims for breach of fiduciary duty against Mr Mark Pauling, which were of a broadly similar character to those advanced by VFP and Mr Mark Pauling against Mr Ale; advanced claims in respect of a restraint of trade, for breach of confidentiality and for misleading and deceptive conduct; and advanced a range of claims against Mr Jason Pauling. Parts of that Cross-Claim had something of a “tit for tat” quality about them, and VA and Mr Ale now do not press several of the claims advanced in it, if the claims against them do not succeed. Mr Mark Pauling, VFP and Mr Jason Pauling in turn file an Amended Defence to that Cross-Claim on 15 December 2016.

4. I will first set out the parties’ affidavit and expert evidence, before turning to a brief chronology of events. I should first note that a significant amount of inadmissible lay and expert evidence was led in the proceedings, some of which was admitted without objection. It will not be necessary to determine all of the issues addressed in the evidence to determine the proceedings. I should also note that, in assessing the evidence, I have had regard to Atkin LJ’s observation in Societe d’Avances Commerciales (Societe Anonyme Egyptienne) v Merchants’ Marine Insurance Co (The “Palitana”) (1924) 20 LI L Rep 140 at 152 that “an ounce of intrinsic merit or demerit in the evidence, that is to say, the value of the comparison of evidence with known facts, is worth pounds of demeanour”; substantially the same view was taken by Keane JA in Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34], by Leeming JA (with whom Barrett JA and Tobias AJA agreed) in State of New South Wales v Hunt [2014] NSWCA 47; (2014) 86 NSWLR 226 at [56]: see also Craig v Silverbrook [2013] NSWSC 1687 at [141]; Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724 at [6].

5. The Plaintiffs read an affidavit of Mr Mark Pauling dated 12 April 2016. Significant parts of that affidavit were inadmissible and were not read or admitted as submission only or with limiting orders under s 136 of the Evidence Act 1995 (NSW); other parts of the affidavit, although also not in admissible form, were not objected to and were therefore admitted. Mr Mark Pauling’s second affidavit dated 9 September 2016 expanded his account of the circumstances in which the Vanguard Group was formed, responded to Mr Ale’s affidavit evidence and expanded on his account of the circumstances relating to the division of the Vanguard Group. Mr Pauling also referred to what he characterised as Mr Ale’s attempt to “break in” to the Charlestown office, after VA and Mr Ale had been excluded from that office, although the relevant events did not merit that description. Mr Pauling also referred to the process in which individual files were made available, on request, to VA, at least on some occasions, after it had been excluded from the Charlestown office. Mr Pauling also led evidence of “poor service delivery” by Mr Ale and VA which was intended to respond to VA’s claim in respect of lost accounting clients. Mr Mark Pauling’s further affidavit dated 20 February 2017 referred to steps which Mr Pauling would have taken to seek to retain clients within his financial services business, and a further affidavit dated 16 June 2017 responded to the affidavits of Mr Ale, Ms Hammersley and Mr Aldcroft dated 2 June 2017, and sought to justify the Plaintiffs’ approach to allowing limited access to documents to VA after VA was excluded from the Charlestown office. Mr Mark Pauling’s affidavit dated 11 December 2017 sought to provide the factual basis for several assumptions made in an accounting expert’s report dated 25 August 2016, on which the Plaintiffs relied. Mr Mark Pauling’s further affidavit dated 13 December 2017 and the affidavit of the Plaintiffs’ solicitor, Mr Baker, also dated 13 December 2017 related to negotiations between the parties for the settlement of the dispute on 14 January 2016.

6. Mr Mark Pauling was cross-examined at some length and I will refer to aspects of his evidence in cross-examination in dealing with specific issues below. Mr Wood, who appears with Mr Sedaghati for the Plaintiffs, submits that Mr Mark Pauling was candid and attempted to give accurate and considered evidence. I accept that Mr Mark Pauling sought to give honest evidence of events as he perceived them, although it is plain that he feels strongly about those events and seems to me that his evidence has been substantially influenced by his belief in the rightness of his cause.

7. The Plaintiffs also relied on Mr Jason Pauling’s affidavit dated 3 June 2016, which describes his role as operations manager of Vanguard Group Pty Ltd (“VGPL”), the holding company of the Vanguard Group, and identified several complaints as to Mr Ale’s conduct within the Vanguard Group’s business and steps that were taken to implement the separation of the business after it had been agreed between Mr Ale and Mr Mark Pauling. Mr Jason Pauling also referred to what he described as the discovery of “further financial problems” with VFP after arrangements for separation of the business were underway. The Plaintiffs also relied on a second affidavit of Mr Jason Pauling dated 1 June 2017 which provided “examples” of emails indicating the kind of work which he undertook as operations manager and responded to Mr Ale’s affidavits dated 12 August and 23 September 2016. Mr Jason Pauling’s affidavit dated 16 June 2017 responded to the affidavits of Ms Kristen Hammersley dated 2 June 2017, Mr Joshua Aldcroft dated 2 June 2017 and Mr Jason Ale dated 2 June 2017. Mr Jason Pauling’s further affidavit dated 7 December 2017 sought to identify the extent to which individual employees were engaged in the accounting and financial planning business. Mr Wood submits that Mr Jason Pauling’s evidence in cross-examination was broadly responsive to the questions put and that he gave appropriate concessions. Although Mr Jason Pauling was, on occasion, argumentative in his response to questions (see, for example, the exchange at T185-6), I do not reach any finding adverse to his credit.

8. The Plaintiffs also relied on Ms Barber’s affidavit dated 3 June 2016 which refers to several complaints as to Mr Ale’s conduct within The Vanguard Group’s business, including Mr Ale’s updating a company car without Mr Mark Pauling’s consent, to steps taken in respect of the division of the business, and to the suggested discovery of “financial problems” with VFP after separation of the businesses. The Plaintiffs also relied on an affidavit of a single client, Mr Forbes, dated 9 September 2016, which indicated Mr Forbes’ dissatisfaction with communication by Mr Ale and the circumstances in which Mr Forbes moved to another accountant.

1. The Plaintiffs also relied on expert reports prepared by an accountant, Ms Jones, which seek to establish the existence of failures to apply generally accepted accounting principles in the accounts of the Vanguard Group. Ms Jones’ reports travelled beyond the matters that were properly within her expertise and addressed various matters of fact, including several matters that were not in issue. Part of Ms Jones’ evidence as to those matters was not tendered, and substantial parts of her report were only tendered, or only admitted, with a limiting order under s 136 of the Evidence Act (NSW) as assumptions. In closing submissions, Mr Rennie, who appears with Ms Mee for the Defendants, accepts that Ms Jones presented as a professional and diligent expert and that she attempted to fulfil her obligations to the Court in a proper manner. I proceed on that basis, but with the qualifications noted above as to the difficulties that arise where an accounting expert leads evidence in a form that is not supportable by his or her accounting expertise or travels beyond the matters in issue in the proceedings.

2. The Defendants rely on Mr Ale’s affidavit dated 13 April 2016, which described, briefly, Mr Ale’s reasons for wishing to discontinue the arrangement with Mr Pauling and the circumstances in which VA was no longer permitted access to the Charlestown premises. Mr Ale’s further affidavit dated 12 August 2016 dealt with the history of the Vanguard Group, the circumstances of the purchase (or lease) of a new car and the division of the Vanguard Group and responded to Mr Mark Pauling’s evidence in that respect, and also responded more generally to Mr Mark Pauling’s affidavit sworn 12 April 2016. Mr Ale also gave evidence, parts of which may have been inadmissible but were not objected to, as to the nature of the various payments to which Mr Pauling had taken objection. Mr Ale accepted that several payments, in relatively small amounts, were made in error from VFP and should have been charged to other entities within the Vanguard Group, including Vanguard Real Estate and VA.

3. Mr Ale’s affidavit dated 23 September 2016 responded to aspects of Ms Jones’ report, including parts of that report which addressed factual matters which were outside Ms Jones’ professional expertise and were ultimately not tendered. Mr Ale also indicated his disagreement with the proposition that all aspects of generally accepted accounting principles were universally applicable, including to small business entities, or that there was any requirement to apply all principles included in generally accepted accounting principles in maintaining the records of the Vanguard Group (Ale 23.9.16 [11]). Mr Ale also addressed issues as to reallocation of profit and loss items between VA and VFPL, including indicating the extent of staff working in the accounting business, the financial planning business, financial services, real estate and in administrative roles. Mr Ale also challenged the correctness of assumptions made by Ms Jones in relation to services provided by receptionists and administrative staff within the Group; assumptions, opinions and conclusions expressed by Ms Jones in respect of advertising costs and entertainment expenses; and also briefly, and partly inadmissibly, addressed Ms Jones’ evidence as to the loss attributable to lost clients.

4. Mr Ale’s affidavit dated 2 June 2017 sought to establish the contents of the constitution of VGPL and also referred to issues as to access to information held at the Charlestown office after VA was excluded from that office. Mr Ale’s further affidavit dated 15 June 2017 referred to the agreement of 18 November 2015 (“Separation Agreement”) (Ex P2, 2905, 2912) which dealt with the separation of VA’s and VFP’s businesses, the steps which were taken to execute that separation and Mr Ale’s assessment of the value of several entities within the Vanguard Group. Mr Ale also led evidence of a request by Mr Mark Pauling on 3 December 2015 for Mr Ale to sign a “new agreement with some changes”, which was provided to Mr Ale immediately before he and his family left for a holiday in Queensland on 4 December 2015, and before VA was denied access to the Charlestown premises, and addressed aspects of a settlement meeting held on 14 January 2016. Mr Ale’s further affidavit dated 12 December 2017 responded to Mr Jason Pauling’s affidavit dated 7 December 2017 and took issue with Mr Jason Pauling’s estimate of the time spent by several staff in relation to the respective businesses.

5. Mr Ale was cross-examined at some length, including as to a collateral matter to seek to impugn his credit, and the Plaintiffs otherwise attack his credit by reference to the conduct which they attack in these proceedings. I do not find it necessary to reach findings as to Mr Ale’s credit in order to determine the proceedings. I will address several issues that arose in that cross-examination below.

6. The Defendants also relied on several other affidavits. Ms Cramp’s affidavit dated 12 August 2016 largely related to the circumstances in which VA was locked out of the Charlestown premises. Ms Kirsten Hammersley’s affidavit dated 2 June 2017 related to the circumstances in which she, and two other persons associated with VA, had sought to collect property from the Charlestown offices from which VA had been locked out on 5 February 2016. Mr Joshua Aldcroft’s affidavit dated 2 June 2017 related to his attendance to collect files from the Charlestown offices on 22 January 2016 and to Mr Jason Pauling’s refusal to permit access to the hard drive of the server on that occasion.

7. The Defendants also rely on a report of an accountant, Mr Mark Crisp, dated 26 September 2016. There were difficulties as to Mr Crisp’s independence, arising from earlier involvements with the Plaintiffs and Mr Ale, and he had also been involved in discussions with Mr Ale as to the wider conduct of the proceedings. Mr Wood also submits, and I accept, that Mr Crisp was in an adverse interest to Mr Mark Pauling in at least some respects, so far as he was involved in the drafting of a complaint to the Australian Securities and Investments Commission in respect of Mr Mark Pauling’s conduct. The Plaintiffs also criticise Mr Crisp’s unwillingness to sign a joint expert report with Ms Jones. I give less weight to that matter, since it seems to me that any expert responding to Ms Jones’ report would have been placed in a difficult position by the extent to which she had engaged in fact finding outside her expertise and strayed beyond the matters in issue and the matters as to which she could properly give evidence.

8. Mr Wood submits that Mr Crisp’s evidence should be given no weight. It seems to me that several of the difficulties that Mr Crisp’s report identified in Ms Jones’ approach did not depend on his credit, including the important recognition that VFP represented a larger proportion of the value of the Vanguard Group and (at least arguably) the demands on its resources, so it was not self-evident that an apportionment of expenses between the entities that disregarded that matter was appropriate. It is otherwise not necessary for me to reach any concluded view as to the extent to which Mr Crisp’s report should be accepted, given the findings that I reach below, including that the Plaintiffs cannot establish causation or loss arising from the matters of financial reporting that are in issue.

Background and chronology of events

17. I now turn to the background to the proceedings and also set out a brief chronology of events. Before Mr Pauling and Mr Ale entered into the arrangements in issue in these proceedings, Mr Pauling operated a financial planning business in a corporate entity, The Investment Shop (Australia) Pty Ltd (“TIS”), and Mr Ale operated an accountancy practice in another corporate entity, Vanguard Accountants Pty Ltd (“VA”). VA initially occupied office space at the premises occupied by TIS under an arrangement that contemplated that it would refer accounting clients to TIS and Mr Ale also came to provide accountancy services to TIS. Although cooperative arrangements between Mr Pauling and Mr Ale commenced as early as 2009, it appears that regular referrals of accounting clients of Mr Ale to Mr Pauling’s financial planning business did not commence until about 2012 (T38).

18. In 2010, Vanguard Group (Aust) Pty Ltd, which later changed its name to Vanguard Financial Planners Pty Ltd, was incorporated as a holding company for VA and TIS and Messrs Ale and Pauling were appointed directors of that entity. The shares in that entity were initially owned 50% by TIS and 50% by VA (Pauling 12.4.16 [8]). In October 2011, that business moved to office premises at Charlestown, New South Wales. Vanguard Group Pty Ltd (“VGPL”) was incorporated in September 2012, to act as a holding company for VFP, VA and several other entities that were intended to provide real estate and other services in the Hunter Region. The shareholdings within the Vanguard Group were then restructured so that VGPL became the holding company of TIS, VFP and VA, although the evidence as to how that occurred is not clear. At relevant times, Mr Ale and Mr Mark Pauling were each the only two directors of VGPL and VFP and Mr Ale was the only director of VA. Mr Mark Pauling’s evidence in cross-examination was that, at the time the Vanguard Group was established, he did not understand the relevant structure and had only a “broad concept” of the applicable provisions under the Corporations Act 2001 (Cth) although he was familiar with the obligation to keep financial records (T36–37). He did not think that he had sighted VGPL’s constitution (T42). He had originally believed that he was a director of VA as well as of VFP, although he later found that he had not been appointed as a director of VA (T45).

19. Mr Pauling, Mr Ale and Mr Allenspach, another financial planner employed by TIS, entered a Shareholder Agreement dated 1 October 2012 (tendered in incomplete form at Ex P2, 1287ff and in complete form as Ex P11) (“Shareholder Agreement”). The Shareholder Agreement identified Mr Ale as a shareholder in VGPL (Sch 2) although a company associated with Mr Ale, O Le Aiga Atoa Pty Ltd (“OLAA”) and not Mr Ale was the shareholder in VGPL. The Shareholder Agreement relevantly provided that no shareholder may have any interest in or be associated with a business which competes directly with the business of VGPL (cl 2); VGPL must at all reasonable times provide and make available to each shareholder monthly profit and loss accounts of VGPL (cl 6); VGPL must cause bank accounts to be opened in its name and all monies received from the ownership and trading of the business must be banked into and paid out of that account only, and VGPL must trade and operate the business at all times in a proper and businesslike fashion (cl 8(g)). The Shareholder Agreement also provided (cl 8(k)) that each shareholder acknowledged and agreed with VGPL and each other that:

“At any time whilst they are a shareholder, or after they cease to be a shareholder, or otherwise associated with [VGPL] or the business conducted by [VGPL], then such shareholder covenants and warrants to [VGPL] and the other shareholders that they must not directly or indirectly and whether solely or jointly with or as a director, manager, agent, servant, adviser, consultant, investor, trustee, partner, joint venturer (or any of them) carry on or be engaged or interested in any business of a like nature to the business conducted by [VGPL] or any significant component thereof, or permit their names to be used in connection therewith.”

That restraint of trade applied to the people and area stated in Sch 3, namely 5 years to all existing clients of VGPL (cl 8(k)(ii)). The Shareholder Agreement also provided that each shareholder acknowledged and agreed with VGPL and each other that all confidential information acquired as a result of being a shareholder, officer or employee of VGPL must not be divulged to any third party and that the parties indemnified VGPL and the other shareholders against any loss or damage they may suffer as a result of the breach of confidentiality (cl 8(l)).

20. Mr Pauling and OLAA bought out Mr Allenspach’s shareholding in VGPL in early 2015. It appears that a dispute between Mr Pauling and Mr Ale arose from at least July 2015, when Mr Ale acquired a newer car used by Mrs Ale-Lim on lease, although Mr Pauling had indicated his opposition to that course (Pauling 12.4.16 [22]–[24]). That matter plainly disturbed Mr Pauling, who emailed Mr Ale on 21 July 2015 (Ex P2, 2778–2779) stating that:

“I am disappointed to hear that you have made this decision without my knowledge. I have already told you that I felt that you duped me we formed our first arrangement [sic], you renewed both of your cars then and brought that extra debt to the company without my knowledge then. You have done exactly the same then. You have kept this from me.

I asked you some weeks ago about the cars as I was concerned that we could need cash now that John [Allenspach] has exited the company and we have excess fixed costs with the rent of the property in town. You advised me that the car leases run for five years and you would have the cars for another two years at least. I am pissed!! [sic]. You have devalued my share without consultation, added debt and diminished our opportunity to borrow if needed.

Your actions have undermined my faith in you and I am thinking why I would be in business with someone that I cannot trust.”

21. By email sent on 22 July 2015 (Ex P2, 2788ff), Mr Pauling indicated that he “require[d]” Mr Ale to provide an itemised account of payments to Mr Ale and Mr Pauling since the joining of the two companies and required Mr Ale:

“To take into account all payments as income, all payments in relation to our cars, credit cards, company’s [sic], gyms, travel, associations, and all other payments made by the company that could be considered a benefit (payments for personal items, or personal credit cards, home phones, home internet. Etc.”

Mr Pauling also indicated that he “require[d]” a complete transaction account of payments down of debt to the TIS account and Mr Ale’s personal credit card, which he noted was business related when he and Mr Ale had joined together. Mr Pauling’s evidence in cross-examination was that he had requested from Mr Ale, but was not provided with, details of payments made to the different “family directors” and groups (T91). I do not doubt that Mr Pauling had a legitimate interest in obtaining this information, although no contractual or other basis on which he was entitled to give a direction of that character to Mr Ale was established.

22. Mr Ale then instructed VGPL’s office manager, Ms Hammersley, to prepare financial reports from the Xero accounting software used by the Vanguard Group and profit and loss, balance sheet and cashflow statements were subsequently provided on a monthly basis to Mr Mark Pauling, Mr Jason Pauling and Mr Ale (Ex D1). Mr Wood submits that this was not the information which Mr Pauling had required. It was, however, consistent with the information that the Shareholder Agreement contemplated would be provided to shareholders and, in covering emails, Ms Hammersley also indicated that she could be contacted if further information was required.

23. A meeting subsequently took place on 30 October 2015 between Mr Pauling and Mr Ale, and Mr Pauling made a handwritten note of the meeting (Ex P2, 2841). At least on Mr Ale’s account, Mr Ale raised concerns about staff leaving because of difficulties between them and Mr Jason Pauling at that meeting (Ale 12.8.16 [42]). By a text message sent on 1 November 2015 (Ex P2, 2846), Mr Ale then advised Mr Pauling that he wished to separate VFP and VA, observing that:

“I have decided to break up the Group. I would [like] the changes finalised as soon as possible; but no later than by the end of November.

I propose that you and Angela [Barber] take the whole of the financial planning company.

I will take over the Newcastle Office, unless you would prefer that to the Charlestown office.

We can do the same arrangement that we have with other accountants. 15% ongoing commission with referred accounting clients; and 40% of the clients I do the actual work. This work will still be done through Vanguard Financial Planning.”

That text message also referred to “health checks” undertaken for clients and referrals and to Mr Ale’s plan to take specified staff with him.

24. Mr Ale denied in cross-examination that one of the reasons that he wanted to split the business was that Mr Mark Pauling was pressing him for more detailed financial information which he did not wish to provide, and referred to conduct on the part of Mr Jason Pauling that he claimed contributed to the loss of staff members as the reason, or a reason, for splitting the business (T254). Mr Wood submits that, and there is force in the proposition that, Mr Ale’s decision to separate the parties’ interests may have reflected, at least in part, the demands which Mr Pauling was then making for more detailed financial information concerning the relevant companies.

25. On 2 November 2015, Mr Ale sent an email to Mr Mark Pauling, Mr Jason Pauling and Ms Barber (Ex P2, 2858) referring to the previous meeting and a discussion about the fact that he was “considering pulling part of the business away” and advised that:

“Last night I decided that I will pull parts of the business away, which was corresponded to Mark.

I look forward to continuing a working relationship with Vanguard Financial Planners.”

26. Mr Ale subsequently sent a letter to Mr Pauling referring to matters which he contended had prompted the separation, which included the dispute about the lease of the company car and allegations of “unacceptable behaviour” by Mr Jason Pauling in dealing with staff members. It is not necessary to reach any finding as to whether that was an accurate or complete account of Mr Ale’s thinking. That letter also outlined Mr Ale’s proposal for the operation of the business after the separation.

27. On 9 November 2015, Mr Ale registered a business name “Vanguard Financial Group”, at a time that he was still a director of VFP. Mr Ale denied under cross-examination that he was intending to use the business name “Vanguard Financial Group” as a brand under which he could provide financial planning services, and he referred to the then intention to provide such services under VFP, and his evidence was that real estate, finance and accounting services would have been provided under the “Vanguard Financial Group” brand and financial planning services under VFP until 1 December 2017 (T279).

28. Mr Pauling provided a counter-proposal to Mr Ale on 13 November 2015 (Ex P2, 2873) which included that Mr Ale and relevant companies would take over the lease, bank guarantee, contracts and costs associated with the Charlestown office; that, at the time of the split, VFP’s bank account would hold one month’s wages for Mr Mark Pauling, Mr Jason Pauling and Ms Angela Barber, all superannuation payments for the quarter and GST and tax amounts and one month’s rent for the Newcastle office; proposed arrangements as to trading restrictions; for Mr Ale to be an authorised representative of VFP; and for profit sharing in respect of financial planning clients and the treatment of costs in relation to contracts that were relevant to both businesses. Mr Ale in turn put a further proposal to Mr Pauling in a letter dated 16 November 2015, which indicated, inter alia, that Mr Ale did not agree to the proposal as to VFP’s bank account but “will help to make sure that there is enough to pay the bills” (Ex P2, 2882–2885).

29. Mr Ale and Mr Pauling then met to discuss their respective proposals on 16 November 2015. Mr Ale’s affidavit evidence is that he said to Mr Pauling, in the meeting on 16 November 2015, that:

“With the monthly income generated by [VFP] being at least $35,000 to $45,000 each month, with the reduced staff and expenses there will be more than enough funds to get you past December.”

In cross-examination, Mr Pauling indicated that he did not recall that conversation, but accepted that he would have expected that VFP would have about $30,000 in revenue in that month and that Mr Ale had told him that “there would be less than the full amounts to pay every outstanding debt” (T111). Mr Pauling took notes of that meeting on his copy of Mr Ale’s letter of 16 November 2015 (Pauling 12.4.16 [36]) and provided Mr Ale a scanned copy of his handwritten notations on that letter on 17 November 2015 (Ex P2, 2882). Those notes recorded, beside the reference to VFP’s bank account, that Mr Ale’s proposal was “OK – [tick] reasonable”. That notation is significant to an issue as to the extent to which Mr Ale or VA was required to fund VFP on separation of the businesses, which I will address below.

30. Mr Pauling then made notations on a draft Separation Agreement dated 18 November 2015 (Ex P2, 2905) and a copy of that document was also in Mr Ale’s possession with some additional markings (Ex P2, 2912). VGPL and Mr Ale, rather than VA, were named as the parties to the draft Separation Agreement, although that agreement also refers, apparently in error, to the Australian company number of VA. Mr Pauling’s evidence in cross-examination was that when he and Mr Ale met on 18 November, they made “adjustments” to the documents that comprised the Separation Agreement and then “shook hands” (T98) and his evidence was also that the parties had “agreed on the terms” on 18 November (T99). Mr Pauling’s evidence on cross-examination was also that the notes he made on the Separation Agreement, beyond the typed text, was “what we agreed” on 18 November (T101). There were also additional notes on Mr Pauling’s version of the agreement, beyond those contained on Mr Ale’s version, and Mr Pauling accepted in cross-examination that he may have put those on the document afterwards (T105), although nothing turns on them for present purposes.

31. The parties proceed on the basis that the discussion between Mr Mark Pauling and Mr Ale on 18 November 2015 brought about a concluded contract, on the terms of the draft Separation Agreement and handwritten notes to it, or at least those found in both Mr Pauling’s and Mr Ale’s copies of that document. I will proceed on that basis, since it is common ground between the parties, although I would not necessarily have reached a conclusion that a binding agreement had been formed had it not been common ground between the parties. Somewhat inconsistently with that apparent common ground, Mr Rennie submitted in opening submissions that there was an issue at the trial as to the extent to which Mr Pauling’s handwritten notations formed part of that agreement. Any such issue was not addressed in any substantive way at the hearing.

32. The Plaintiffs plead (FASOC [68]–[72]) the terms of the agreement formed in this manner (“Separation Agreement”) are that Mr Mark Pauling would transfer his shares in VGPL to Mr Ale; Mr Ale would resign as a director of VFP; Mr Mark Pauling would resign as a director of VGPL; and Mr Ale, VA and VGPL would grant to VFP and/or Mr Mark Pauling the Financial Planning Business (as defined). The Separation Agreement also contains a handwritten notation in both Mr Pauling’s and Mr Ale’s copies, beside cl 2 which deals with ownership of the Vanguard Group of companies, that reads “loans intercompany forgiven”. That provision is of substantial importance in the determination of these proceedings. Mr Mark Pauling appears to have made no significant inquiries as to the financial position of either VFP or VA before entering into the Separation Agreement.

33. Mr Mark Pauling’s evidence is that there was an oral agreement at the meeting on 18 November 2015 that Mr Ale would ensure that there was no outstanding PAYG, GST or company tax liability for VFP (implicitly, on separation of the businesses) and that there was $20,000 in the VFP account to give effect to that requirement (Pauling 12.4.16 [47]). I do not doubt that Mr Pauling genuinely believes that matter, where there is now substantial disagreement between the parties. I accept that it is possible that Mr Ale may have made such an offer, although it would have been significantly more favourable to Mr Pauling than the views that Mr Ale had previously expressed by correspondence. However, I do not have sufficient confidence in Mr Pauling’s recollection of events, affected as it is by the matters in dispute, to find that such an offer was made on the balance of probabilities, and the surrounding documents do not provide any significant corroboration for Mr Pauling’s account of that offer. Mr Pauling therefore fails to establish the existence of an arrangement in those terms, beyond what is recorded in the Separation Agreement.

34. Various steps to implement the separation were taken after the parties’ entry into the Separation Agreement, including transfers of phone numbers and internet services, the energy account and removal of furniture. Mr Ale’s evidence is that he transferred $10,000 to Mr Mark Pauling’s personal account on 20 November 2015, on the basis that that amount, together with VFP’s trading revenue of between $35,000 and $45,000 for December 2015, would be sufficient to pay VFP’s expenses for December 2015, and he advised Mr Pauling of that matter (Ale 12.8.16 [54]).

35. By email dated 26 November 2015, Mr Jason Pauling sent Mr Ale a draft memorandum to staff in relation to the separation of the businesses (Ex P2, 2933). That draft memorandum noted that:

“Staff will be aware that there has been discussion regarding changes to ownership and financial arrangements for various Vanguard subsidiaries.

Essentially the changes are as follows:

-   [VFP] & The Investment Shop Pty Ltd will move to a separate entity;

-   [VGPL] will retain control of:

.   [VA]

.   Vanguard Financial Services.

.   Vanguard Real Estate etc.

.   The key message is that this is an internal financial/structural change as much as anything else (and little more) with the respective businesses henceforth being responsible for their own viability/profit and loss as individual entities without cross subsidisation.

The Group concept remains intact and the interactions between [VFP] and [VA] will remain relatively unchanged in that:

-   [JA] will continue to be an Authorised Representative of [VFP]

-   [VA] will continue to refer business and Health checks to [VFP]

-   [VFP] will continue to work jointly with [VA] re mutual clients

-   [VFP] will continue to use Charlestown offices on occasion.

Essentially the situation is NOT MUCH DIFFERENT from what it was prior to tax time when we moved Financial Planning back to Charlestown to help with answering phones etc. …”

36. Substantially the same text was adopted in a memorandum from Mr Jason Pauling to Ms Hammersley and others on 26 November 2015 (Ex P2, 2936) and in a memorandum from Mr Ale to all staff later on that date (Ex P2, 2940).

37. Mr Ale resigned as a director of VFP and Mr Mark Pauling resigned as a director of VGPL on 29 November 2015 (Ale 12.8.16 [50], Pauling 12.4.16 [56]) and transfers of shares took place to implement the separation on the next day (Ale 12.8.16 [51], Pauling 12.4.16 [57]). There is a difference in the parties’ evidence as to whether Mr Pauling had checked the balance of VFP’s bank account on that day although it is not necessary to determine that question in order to resolve these proceedings. By 1 December 2015, the businesses were operating in separate locations, VA from the Charlestown office that was leased by VFP, and VFP from premises in Newcastle. A dispute then arose as to Mr Ale’s suggested delay in taking steps to transfer the lease and bond for the Charlestown office from VFP to VA and his unwillingness to pay additional amounts claimed by VFP, including outstanding superannuation for the July to September quarter in 2015. A further meeting took place between Mr Pauling and Mr Ale, at which Mr Ale there indicated that he would not pay the amounts that Mr Pauling contended were due under the Separation Agreement and that VFP’s cashflow should be used to pay the debts, beyond the amount that Mr Ale had already contributed (Pauling 12.4.16 [93]). Mr Mark Pauling prepared a note of the meeting which appears to have been written after the event (Ex P2, 2986).

38. A further meeting took place on 3 December 2015. Mr Ale contends that Mr Pauling there required that Mr Ale sign a “new agreement with some changes” and Mr Pauling characterises that meeting as amounting to a refusal by Mr Ale to take prompt steps to take over responsibility for the lease or rental payable at the Charlestown office. Mr Pauling prepared a note of a meeting (Ex P2, 2985) and also prepared a further note of that meeting on 3 December 2015, plainly as the dispute was developing (Ex P2, 2989–2990).

39. By email dated 7 December 2015 (Ex P2, 3007, Ale 12.8.16 [61]), Mr Pauling advised Mr Ale that:

“It is now a week since we signed the share transfer documents and we are no closer to agreement.

It concerns me that you have made no effort to finalise our agreement.

Please give this matter your urgent attention.”

40. By a further letter also dated 7 December 2015 (Ex P2, 3009), Mr Pauling wrote to Mr Ale requiring that Mr Ale pay a further amount of $68,842.96 and also referred to wages totalling $196,019.46 that he suggested had been paid from VFP. That letter characterised the discussion on 18 November 2015 as amounting to an agreement “in principle” for an amicable split of our business, inconsistent with the common position now advanced by the parties that the Separation Agreement formed on that date had binding effect; referred to issues as to the amount of tax payable and as to unpaid superannuation liabilities; and indicated that Mr Pauling “require[d]” Mr Ale to make a cash payment to VFP from VA for specified amounts, and that:

“On these conditions I will be happy to meet with you and complete our agreement that you first initiated at our meeting 1st November 2015, as I believed this was the basis of us transferring our shares to each other.”

The letter also added that:

“I look forward to meeting you soon so that we can finalise these matters and our proposed agreement.”

41. It is apparent that Mr Pauling’s position in that letter was that earlier discussions amounted to no more than an agreement “in principle” and that his willingness to proceed with that agreement, which the parties now accept was binding upon them, depended upon Mr Ale’s acceptance of these additional requirements. The amounts that Mr Pauling sought to have paid to VFP, by his letter dated 7 December 2015, were those which he had originally proposed in his counter-offer of 13 November 2015, which had been rejected by Mr Ale, as Mr Pauling substantially accepted in cross-examination (T150).

42. On 7 December 2015, Mr Pauling instructed a locksmith to change the locks to the Charlestown office that was leased by VFP but then occupied by VA under the Separation Agreement, and excluded VA from the Charlestown office, at a time that Mr Ale was on holiday in Queensland. VA and its staff was then also deprived of access to client information held on the computer server situated in that office. Mr Pauling’s oral evidence was that he took that course by reason of his distress as to the then financial position of VFP rather than as part of a concerted strategy. It is not necessary to reach any finding as to whether that evidence is complete or correct in order to determine the proceedings. Also on 7 December 2015, Mr Mark Pauling instructed Mr Jason Pauling to disable the internet services used by VA (T97) and Mr Jason Pauling did so. Mr Mark Pauling subsequently maintained an approach of making clients files available to VA only on specific request, which limited Mr Ale’s and VA’s access to information held on the computer server on which VA had stored its client information over an extended period.

43. By letter dated 21 December 2015 from Mr Mark Pauling to VFP’s clients (Ex P2, 3040), he referred to the fact that he, Ms Barber and Mr Jason Pauling “have extracted the Planning business from the wider Group”; that they were presently using the Newcastle office; and that “[i]t is our intention to move back to Charlestown as soon as practicable”. That proposition was plainly inconsistent with the Charlestown office being occupied by VA as provided by the Separation Agreement.

44. A without prejudice settlement meeting took place on 14 January 2016 and the dispute was not resolved, although the Defendants contend that Mr Ale there communicated his election to accept a repudiation of the Separation Agreement arising from VA’s exclusion from the Charlestown premises and terminate that agreement. Mr Ale’s affidavit evidence was that his final words following that meeting were that:

“There will not be any more negotiating. The whole deal is off”. (Ale 15.6.17 [34]).

Mr Ale’s evidence in cross-examination (T261), initially on voir dire and then tendered by the Plaintiffs (Ex P4), was that Mr Mark Pauling had nodded to a proposal that Mr Ale had put, that Mr Pauling’s solicitor had then specified a higher price and Mr Ale had then said that “the deal was off”. That account was denied by both Mr Mark Pauling and his solicitor, Mr Baker, who attended that meeting. Mr Ale did not accept in cross-examination that he had said, in the meeting of 14 January 2016, that further negotiations as to the offer of 15 January 2016 would terminate rather than that the Separation Agreement was terminated (T265–266). Mr Ale was also cross-examined as to the arrangements to take over the costs of the Charlestown office lease after the separation, and issues as to the implementation of those arrangements (T267ff), and accepted that Mr Pauling had raised the fact that he wanted the bond provided by TIS returned (T268). In oral submissions, Mr Wood submitted (T419), and I accept, that I would be slow not to accept the evidence of Mr Baker, a solicitor, as to what occurred at the settlement meeting, and therefore slow to find, contrary to Mr Baker’s evidence, that Mr Ale made that statement which he claims to have made at that meeting. I am not persuaded that Mr Ale made that statement at the end of that meeting.

45. By letter dated 15 January 2016, headed “without prejudice save as to costs” but tendered without objection (Ex P5), Mr Pauling’s solicitor wrote to Mr Ale’s solicitor indicating that the parties had reached “agreement in principle” at the “informal settlement conference” on 14 January as to several matters and set out the payment that VFP maintained it would accept, in addition to an immediate payment in satisfaction of VFP’s superannuation liability and noted that:

“The above terms are not binding until such time as the parties enter a formal deed of settlement and release, following which your client can take possession of the Newcastle offices forthwith.”

In cross-examination, Mr Pauling accepted that he knew, by 15 January 2016, that Mr Ale was not “doing his part” of the Separation Agreement, although he did not accept that he knew that Agreement was “dead and buried” (T159).

46. On 15 January 2016, Mr Ale sent a letter to 71 clients (Pauling 12.4.16 [111]–[118], Ex P2, 3051–3052) who he contends were current and former clients of VA and VGPL, which advised of the end of the association between Mr Ale and Messrs Mark and Jason Pauling; noted that “we have not been able to access our office in Charlestown since early December” and apologised for any inconvenience caused; and indicated that Mr Ale would “love to continue working with you as your financial planner” and requested clients to confirm the correctness of details on an included form and to return signed documents, which would implement a change of advisers. The attached client authority authorised the provision of information from relevant investment product issuers in respect of the client’s investments and authorised the appointment of Mr Ale as the client’s financial adviser.

47. By letter dated 29 January 2016, Mr Pauling’s solicitors referred to disputes that had previously arisen in respect of access to the Charlestown premises, after Mr Ale and VA had been excluded from those premises and indicated that (Ex P2, 3111):

“[Mr Pauling] is now not prepared to jeopardise his property in the Charlestown office, or his personnel, by providing access to individual files. Instead, your client should provide a list of the items required, and arrange a final collection in the afternoon on Tuesday, 2 February 2016. Messrs Ale and Aldcroft are not to be in attendance or within 50m of the building. If electronic files are needed from the server, your client should provide a suitable copying device.”

48. By a further email dated 2 February 2016, Mr Pauling’s solicitors declined to accede to Mr Ale’s request for “any other accounting and tax related files and data missed” in a listing of documents as to which access was sought and advised that (Ex P2, 3114):

“Today’s access visit, if it proceeds, will be limited to items stipulated beforehand in writing. If your client later requests access to further items, a subsequent request can be made by you in writing.”

49. Mr Pauling thereafter only permitted VA to copy information, including accounting and tax information from the server, so that the Plaintiffs retained client information of VA that was recorded on the original disk of the server. That material was not returned, it appears, until produced by the Plaintiffs to the Defendants in the course of this hearing.

50. On 15 February 2016, VA entered into a new lease for business premises which it currently occupies in Newcastle West (Ale 12.8.16 [78]).

Plaintiffs’ claim for breach of fiduciary duty owed to Mr Pauling arising from a joint venture

51. I turn now to the Plaintiffs’ pleaded claims in the Further Amended Statement of Claim. First, the Plaintiffs plead that the arrangement recorded in the Shareholder Agreement was in the nature of a joint venture and Mr Ale owed fiduciary duties to Mr Mark Pauling (FASOC [10]-[11]). The latter allegation is particularised with effect that:

“The Plaintiffs rely on the nature of the arrangement, the need for trust and confidence, and the vulnerable position that the second plaintiff found himself in by reason of the arrangement. The fiduciary duties are alleged to arise independently of, and separately to, any fiduciary duty that arose by reason of their directorships in the various companies that formed part of the group.”

52. It is, of course, uncontroversial that a fact-based (or “ad hoc”) fiduciary duty can arise within the circumstances of a particular relationship, including a commercial relationship. In Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 (“Hospital Products”), Mason J observed (at 96–97) that “the critical feature” of the traditional fiduciary relationship was the undertaking or agreement by the fiduciary to “act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense” and that:

“The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position … It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed …”

53. Dawson J similarly observed (at 141–142) that, although no single test would identify a fiduciary relationship:

“There is, however, the notion underlying all the cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other ...”

54. In United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, in considering whether fiduciary duties arose from the dealings between the parties to a proposed joint venture, the majority (Mason, Brennan and Deane JJ) observed (at 10) that the reference to a “joint venture” was not determinative and that:

“The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken.”

55. In Australian Securities & Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35; 62 ACSR 427, Jacobson J referred, inter alia, to Hospital Products and observed (at [272]) that:

“Apart from the established categories, perhaps the most that can be said is that a fiduciary relationship exists where a person has undertaken to act in the interests of another and not in his or her own interests but all of the facts and circumstances must be carefully examined to see whether the relationship is, in substance, fiduciary ...”

56. In John Alexander’s Clubs Pty Limited v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1 at [87], a unanimous High Court identified the ‘critical feature’ of fiduciary relationships as being that:

“’the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interest of that other person in a legal or practical sense.’ From this power or discretion comes the duty to exercise it in the interests of the person to whom it is owed.”

57. In Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296, the Full Court of the Federal Court observed (at [177]) (referring, inter alia, to Hospital Products) that a fiduciary duty may exist:

“when and insofar as that person has undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that other’s interest to the exclusion of his or her own or a third party’s interest.”

Their Honours also noted (at [174]) that the relevant fiduciary duties were:

“concerned with the setting of standards of conduct for persons in fiduciary positions. Its burden, put shortly, is with exacting disinterested and undivided loyalty from a fiduciary – hence, for example, its focus on conflicts between duty and undisclosed personal interest, conflicts between duty and duty and misuse of a fiduciary position for personal gain or benefit.”

58. In Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2; (2013) 92 ACSR 417, Barrett JA (with whom Meagher and Ward JJA agreed) referred (at [121]) to the observation of the Supreme Court of Canada in Galambos v Perez [2009] SCC 48; [2009] 3 SCR 247 that “a fact based fiduciary duty cannot arise unless one party undertakes, expressly or impliedly, to act in a particular factual context solely in the interests of the other”. His Honour also emphasised the word “solely” in that proposition and observed (at [121]) that:

“That essential requirement shows why fiduciary duties, of their nature, do not ordinarily attend bargains struck at arm’s length between sophisticated parties with equal bargaining power who, in pursuing their own financial ends, take care to document their respective rights and obligations in a comprehensive way. A person of that kind who makes such a bargain in that way safeguards his or her own interests and aims to achieve the particular advantage sought for the person’s own benefit. The contract may import implied duties of good faith performance. One party may have a clear interest in fostering the ability of the other to perform and in seeing that other derive the advantages that the contract is intended to confer. A relationship with a contented counterparty is usually more productive than a relationship with a hostile one. But none of this alters the reality that each party’s role is a selfish role, not one of self-denial and subordination of personal interest.”

59. His Honour also held (at [124]) that the City of Sydney’s only vulnerability, in a detailed contract, was to breach of that contract by the other party giving rise to contractual remedies and held (at [128]) that there was no need for equity to supplement the contract, by fiduciary obligations, where the circumstances in which the contract was made and its performance required did not indicate remedies for breach of contract were not adequate to vindicate the parties’ rights and protect their interests.

60. There are also well-known examples of fiduciary duties imposed in the context of partnership, which are largely uncontroversial on the basis that partnership is a form of mutual agency, although the partners’ duties inter se can be modified by contract: for example, Birtchnell v The Equity Trustees, Executors and Agency Company Limited (1929) 42 CLR 384; Chan v Zacharia (1984) 154 CLR 178; Glandon Pty Ltd v Tilmunda Pastoral Co Pty Ltd [2008] NSWSC 218. The case law also recognises that a fiduciary duty may also arise in a “joint venture”, although it also recognises that that term is more useful as a commercial than a legal description. The essential question is whether the functions and obligations undertaken by a participant in a particular venture themselves attract fiduciary duties. Even where fiduciary obligations arise in some aspects of a joint venture, a party may be free to pursue its own interests in particular respects: Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 at 15. In Gibson Motorsport Merchandise Pty Ltd v Forbes [2006] FCAFC 44; (2006) 149 FCR 569 at [16], Finn J (with whom Sundberg and Emmett JJ agreed) distinguished between cooperative action, including the sharing of resources or interdependent conduct, which could colloquially be described as a “joint venture”, and a fiduciary duty owed in the context of a joint venture or anticipated joint venture and observed that:

“Rarely, though, will there be anything fiduciary about the arrangements themselves as they will not envisage a form or forms of cooperation which is or are particularly fiduciary in character (eg the sharing of control or of profits and losses; the creation of a commonly owned vehicle to effectuate what is agreed, the assumption of similar rights and obligations etc).”

61. The evidence does not establish a basis for a finding that Mr Ale undertook to act in the interests of Mr Mark Pauling or that Mr Mark Pauling undertook to act in the interests of Mr Ale, in respect of the arrangements governed by the Shareholder Agreement. Although Mr Mark Pauling and Mr Ale are perhaps less sophisticated than the parties in Streetscape Projects (Australia) Pty Ltd v City of Sydney above, their relationship was governed by that detailed agreement. Although that relationship contemplated a degree of trust between them and had the result that each was to some extent practically vulnerable to the other, there is no evidence and I can see no basis to find that either expressly or impliedly undertook to subordinate his own interests to the other or to any joint interests. Each of Mr Pauling and Mr Ale behaved, both during their relationship and as their relationship began to break down, in a manner that reflected a recognition of an entitlement to promote and protect his individual interests. I recognise that the Plaintiffs contend that Mr Mark Pauling was in a position of vulnerability, in particular, because Mr Pauling left Mr Ale to deal with financial aspects of and the accounts of the financial planning business. That vulnerability largely reflected Mr Pauling’s choice to pay limited attention to the companies’ financial affairs, at least until the relationship with Mr Ale began to break down, and the case law establishes that the existence of practical vulnerability is not in itself sufficient to establish a fiduciary duty.

62. Mr Wood advanced detailed submissions as to the requirements to establish informed consent to a breach of fiduciary duty and a breach of director’s duties and submitted that Mr Ale could not satisfy those requirements. It is not necessary to address those submissions in respect of this claim since I have not found that the alleged fiduciary duty owed by Mr Ale to Mr Pauling was established. The basis for this claim is not established.

Other terms of the Shareholder Agreement

63. The Plaintiffs also allege (FASOC [14]) that it was an express, or alternatively an implied, term of the Shareholder Agreement that expenses shared by entities within the Vanguard Group of companies were required to be borne by VGPL and expenses for the financial planning and accounting businesses were to be borne by VFP and VA respectively.

64. An express term to that effect is not established by cl 8(g) of the Shareholder Agreement, on which the Plaintiffs rely. That clause provides that:

“(g)   [VGPL] must cause bank accounts to be opened in the name of [VGPL] and all monies received from the ownership and trading of the business must be banked into and paid out of that account only. [VGPL] must trade and operate the business at all times in a proper and businesslike fashion.”

Mr Rennie points out that cl 8(g) of the Shareholder Agreement is directed to the establishing, and use, of bank accounts to be opened by VGPL, not VFP, and there is no basis for applying that provision to VFP. No such bank account was opened by VGPL, and the parties did not conduct their business by making payments into or out of such an account, as distinct from accounts held for VFP and VA. That clause does not address any question of how expenses were to be borne by VFP and VA, as distinct from providing that they would be borne by VGPL. The obligation in that clause is in any event placed on VGPL, not upon Mr Ale.

65. I also do not consider that an implied term to that effect is established. The requirements for the implication of such a term, at least in a detailed written agreement, were set out by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282–283, as approved by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347, namely, that the specified term (1) must be reasonable and equitable; (2) must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) must be so obvious that ‘it goes without saying’; (4) must be capable of clear expression; and (5) must not contradict any express term of the contract. The suggested implied term is neither necessary for business efficacy of the relevant arrangement nor so obvious that it goes without saying, where it would prevent one entity within the Vanguard Group incurring an expense, as a matter of business convenience, and group entities adjusting that expense between them by an accounting entry or an inter-company loan, and would cause difficulty in dealing with expenses incurred for the benefit of several entities in the Vanguard Group. The suggested implied term is also inconsistent with the express terms of cl 8(a) of the Shareholder Agreement which, as I noted above, provided for VGPL rather than VFP or VA to pay those expenses. In any event, no allegation of breach of such a term is pleaded.

Alleged improper payments

66. The Plaintiffs’ broader allegations of breach of fiduciary and other duties are substantially directed to payments authorised by Mr Ale from several bank accounts maintained by VFP. I will first outline the evidence as to the particular transactions and will then address the broader claims in respect of those transactions. The process of addressing this evidence was made significantly more difficult because the pleading identified transactions in one order; Mr Pauling’s affidavit addressed those transactions in a different order; and Mr Ale’s affidavit evidence responded to Mr Pauling’s affidavit evidence. I will deal with these matters at some length, in deference to the time and effort devoted to them in affidavit evidence and in cross-examination. However, as will emerge below, the claim on this basis must fail, because the Plaintiffs cannot establish causation in respect of the claimed loss.

67. The Plaintiffs rely on Mr Mark Pauling’s affidavit dated 12 April 2016 for identification of some of the impugned transactions and also rely on Ms Jones’ reports dated 25 August 2016 (Ex P7) and 13 December 2017 (Ex P9) in respect of some aspects of those transactions. Mr Mark Pauling refers, in paragraph 73 of that affidavit, to transfers totalling $68,015.13 to several accounts, and his evidence is that he does not know the purpose of those transactions and his consent was not given for those transfers. Paragraph 74 of that affidavit refers to payments constituting $17,445.77 by VFP as lessee for the Charlestown office, when it was occupied by all entities in the Group, and Mr Pauling’s evidence is that all rent payments for both the Charlestown and Newcastle offices were made by VFP. Paragraph 75 of that affidavit refers to payments of $201.35 to Netregistry, the domain name provider for VGPL. Mr Pauling’s evidence (which was plainly inadmissible, although not objected to) was that these expenses “should have been shared by the Group” and that he did not authorise or approve them being made from the account of VFP. Paragraph 76 of that affidavit refers to transactions totalling $66,753.53, and Mr Pauling indicates that he does not know the purpose of the transactions, and says that he did not consent to them, and he expresses his belief that they did not confer any benefit on VFP. Paragraph 77 of that affidavit in turn refers to several payments totalling $359.70 to an internet service provider, including in relation to ownership of the domain “vanguardrealestate.com.au”, and paragraph 78 refers to several payments to the Australian Taxation Office, totalling $2,640, which appear to relate to a payment plan with the Australian Taxation Office.

68. Paragraph 79 of that affidavit refers to payments to a document management service used by VA, totalling $1,574, two of which appear to relate to the registration of a company within the Vanguard Group and three of which appear to relate to registration of companies for clients of VA. Paragraph 80 of that affidavit refers to ATM withdrawals totalling $1,550 and paragraph 81 refers to “miscellaneous” transactions totalling $22,365.77. Mr Pauling’s evidence, also inadmissible but not objected to, was that he did not believe those transactions benefited VFP or had anything to do with its business. Paragraph 88 of that affidavit refers to unpaid superannuation for several employees for the period July to September 2015 and paragraphs 89–92 refer to unpaid tax in respect of VFP. The attack on several of the transactions which were the subject of pleaded challenges and were addressed in Mr Mark Pauling’s affidavit is no longer pressed. Paragraph 79 of Mr Jason Pauling’s affidavit dated 3 June 2016 also identified several expenses which Mr Jason Pauling indicated, in evidence that was also inadmissible but not objected to, “do not appear to relate to the expenses of [VFP]”.

69. In cross-examination, Mr Mark Pauling accepted that the parties’ focus was not on the profitability of the business, or any distribution of benefits upwards to shareholders, but on growing the business (T50) and that, although the intent had been that the companies would operate independently, the costs of one company could be paid by the other and the growth of the companies brought both greater income and expenses (T52). Mr Pauling did not, however, accept that the parties had commenced the relationship on the basis of a concept of “cross-subsidisation”, which Mr Rennie put to him, and observed that any “cross-subsidies” were (or, I interpolate, possibly should have been) taken into account (T59). It is unclear whether Mr Pauling and the cross-examiner had a common understanding of the concept of “cross-subsidy” in the course of that cross-examination. Mr Pauling accepted in cross-examination that the financial reports he was provided, at least after he had requested them, indicated some cross-subsidisation between the businesses (T69), although (I interpolate) the issues raised in the proceedings as to apportionment of shared expenses suggest that those accounts would not have disclosed the full extent of any cross-subsidisation.

70. Later in cross-examination, Mr Pauling expressed the understanding that rent and other outgoings would have been charged to the respective companies in respect of the proportion of use (T75). Mr Pauling’s evidence was also that he thought that “all expenses were being taken back to the identity [sic] that had expended them” (T78) and that “whenever money was flowing between the two companies, there would have been a loan account drawn up” (T80). It seemed to me that that evidence likely reflected Mr Pauling’s understanding formed by the detailed examination of these issues in the preparation of these proceedings, rather than a contemporaneous understanding of those matters. Mr Pauling’s evidence was also that, at the time, he was not aware that there was “money flowing between the companies” (T81). Accepting that Mr Pauling may well not have thought about that matter, had he done so, he must have immediately realised that monies had to flow between the companies to meet any liabilities incurred by VGPL, because VGPL itself had no bank account from which they could be met. Mr Pauling did, however, accept that a flow of monies between the companies “was supposed to happen as long as there was a loan account drawn” (T81).

71. The Plaintiffs also rely on Ms Jones’ reports, which involve the application of an accountant’s expertise as to the treatment of expenses in a company’s financial reports. Those reports are not capable of proving that particular expenses were not, in fact, properly incurred by VFP, which could only be a matter for assumption. Obviously enough, an expense may properly be incurred by VFP, because it is in the interests of VFP, or its holding company VGPL or the Vanguard Group for VFP to incur it, even if it was not correctly accounted for in the Vanguard Group’s financial reports. I will address other aspects of Ms Jones’ reports in dealing below with a broader claim advanced by the Plaintiffs in reliance on those reports.

72. Mr Ale’s evidence was that he approached the expenses of the relevant companies on a group basis. His affidavit evidence, which the Plaintiffs adopted without criticism of its accuracy in closing submissions, was that:

“The expenses of the Group were treated in whatever way was appropriate to maximise profits of the Group and the retention of profits within the Group.

The individual companies within the Group were owned by [VGPL] and were operated to favour that company first and foremost. There was no need, desire, practice or policy within the Group which required that revenue or expenses be allocated, paid or recorded in any particular other than to ensure they were paid from revenue earned within the Group and to maximise the making and retention of profits of the Group.” (Ale 23.9.16 [6]–[7]).

Mr Ale’s evidence in cross-examination, in relation to inter-company loan accounts, was that, for a lot of the time, payments were just made from “whichever account”, although he also referred to booking payments as a loan (T255).

73. The Plaintiffs’ first allegation in this respect, in paragraph 31 of the Further Amended Statement of Claim, relates to some 72 transactions between January 2013 and November 2015 from an account held with the Commonwealth Bank of Australia (“CBA”) that are alleged to have been caused or approved by Mr Ale. Paragraph 32 pleads that those 72 transactions bestowed no benefit on VFP. The attack on some of those transactions is no longer pressed.

(c)   Mark Pauling and related entities will remove the current bank guarantee that is in place for the Charlestown office and use towards its own costs. This bank guarantee is estimated to be $12,000 plus.”

225. By paragraph 10 of their Amended Defence to the Cross-Claim, VFP and Mr Pauling plead that the right of occupancy of the Charlestown premises arising under cl 3 of the Separation Agreement is subject to an express or implied term that VA’s entitlement to occupy the premises was subject to Mr Ale’s compliance with cll 3(c) and 6(a) of the Separation Agreement and an implied term that the parties would use their best endeavours to perform their obligations under that agreement in a timely manner and in good faith, and that VA’s entitlement to occupy would cease forthwith in the event of non-compliance with those terms. Paragraph 12 of the Amended Defence to Cross-Claim in turn alleges that, following a breach by Mr Ale of those terms, Mr Pauling had terminated the licence to occupy the premises.

226. The Cross-Claimants rely on VA’s exclusion from the Charlestown office as a repudiation of the Separation Agreement. Mr Rennie submits that Mr Pauling’s and VFP’s excluding VA from the Charlestown office was not justified by the differences between the parties as to the interpretation of cl 6(a) of the Separation Agreement; amounted to a repudiation of the Separation Agreement, and in particular the obligations under cl 3 of that agreement; and amounted to an unlawful seizure of VA’s business equipment and records. Mr Rennie also submits that Mr Pauling asserted ownership over the computer equipment in the Charlestown office, despite cl 12(a) of the Separation Agreement which provided that the server at the Charlestown office was to stay there, and was implicitly to be available to VA which was to operate from the Charlestown office under cl 3(a) of the Separation Agreement. Mr Wood opened on the basis that any breach of the Separation Agreement, by way of exclusion of VA from the Charlestown premises, was not a repudiatory breach and that there was no evidence of the repudiation having been accepted, with a qualification that is not presently relevant (T13).

227. It seems to me that cl 3(c) of the Separation Agreement is, in substance, an acknowledgment that Mr Pauling and his associated entities will take a particular step, namely to remove the bank guarantee that is in place for the Charlestown office. That clause does not, in terms, impose any obligation upon Mr Ale, although I recognise that an implied obligation of cooperation may arise in the relevant circumstances. It has not been established that such an implied obligation was breached. The Plaintiffs have not established that Mr Ale had not complied with cl 6(a) of the Separation Agreement, an allegation that I addressed above. I am not satisfied that any implied term as to timely or good faith performance of the relevant obligations was breached or that the suggested term that any licence would terminate forthwith is so obvious that it goes without saying and can be implied. I have not found that the alleged express or implied term was established so as to provide a lawful basis for the termination of VFP’s occupancy of the Charlestown premises.

228. It is common ground between the parties that repudiation involves an expressed unwillingness or inability to render substantial performance of a contract: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 659; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 at [44]. In JW Carter, Carter’s Breach of Contract, LexisNexis Butterworths (2011) at [8-04], the author notes, by reference to authority, that it is sufficient to establish repudiation that a promisor has behaved in such a way as to indicate a refusal to perform to a reasonable person in the promisee’s position. In Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261 at [123], Kunc J summarised the relevant legal principles as follows:

“The relevant legal principles are not in doubt … A party will be taken to have repudiated a contract if it manifests the intention no longer to be bound by it or to fulfil it only in a manner substantially inconsistent with that party’s obligations and not in any other way. That manifestation may occur before performance is due (known as anticipatory breach) and does not depend upon the existence of an actual intention to repudiate. Rather, the Court looks to how a reasonable person, in the position of the “innocent” party, would view the allegedly repudiatory conduct.”

I am also conscious that, as Lord Wright noted in Ross T Smyth & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60 at 71, repudiation of a contract is a “serious matter, not to be lightly found or inferred”.

229. It seems to me that Mr Pauling’s and VFP’s refusal to permit access to Mr Ale and VA to the premises which it was intended to occupy under the Separation Agreement, and to the data which it would be able to access on the server in those premises had that agreement been complied with, amounted to an unwillingness to render performance of the Separation Agreement. The matters to which Mr Pauling and VFP refer, in explaining why Mr Pauling reached that position, may be understandable, but they do not alter the fact of the repudiation of the Separation Agreement.

230. A question then arose as to whether Mr Ale and VA could show that they had accepted the repudiation of the Separation Agreement. In Carter’s Breach of Contract, above at [7–46], the author defines “acceptance” of a repudiation as a promisee’s election to terminate the performance of the contract at a time when a repudiation is operative. The author notes, by reference to authority, that acceptance of a repudiation must generally be communicated to the promisor. In Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2010] QB 27, on which Mr Wood relied, the Court of Appeal observed at [44] that:

“It must be borne in mind that all that is required for acceptance of a repudiation at common law is for the injured party to communicate clearly and unequivocally his intention to treat the contract as discharged.”

The Court also noted that no question of election between alternative rights arose where the contract provided a right to terminate which corresponded to a right under the general law, including because the breach went to the root of the contract. In oral submissions, Mr Wood also relied on the decision in Whittaker v Unisys Australia Pty Ltd [2010] VSC 9; (2010) VR 668 as authority that the acceptance of a repudiation has to be clear and unambiguous, and also that the termination of a contract for repudiation is not respective to the time of breach, but operates from the time of the innocent party’s election to accept the repudiation.

231. Mr Rennie relies both on the statement that Mr Ale claims to have made at the end of the settlement meeting on 14 January 2016 and the letters then sent by Mr Ale to clients on 15 January 2016 as amounting to an acceptance of that repudiation. Mr Wood responds that the Cross-Claimants did not plead acceptance of the repudiation and should not be permitted to rely on the letter sent to clients as acceptance of the repudiation. I do not accept that submission. The claim for repudiation was plainly raised by the Cross-Claimants and acceptance of that repudiation was implicit in that claim. The letters sent by Mr Ale to clients on 15 January 2016 have always been in issue, as part of the Plaintiffs’ claim for breach of confidentiality, and I am not persuaded by Mr Wood’s submission that he would have approached cross-examination differently had those matters been expressly identified as amounting to the alleged acceptance of the repudiation. Mr Wood also submits that there is no credible evidence of any acceptance of the repudiation, even if the exclusion of VA from the Charlestown premises amounted to a repudiation, but specifically addressed the matters which were discussed at the settlement conference on 14 January 2016 in submissions, giving less attention to other matters that may be capable of constituting acceptance, including the letter sent to clients on 15 January 2016 and the subsequent steps taken by VA and Mr Ale to relocate VA’s offices.

232. With hesitation, I have concluded that the evidence does not establish an unequivocal acceptance of the repudiation by Mr Ale. I am not persuaded that Mr Ale accepted the repudiation in any statement made at the settlement meeting, to which I referred above, and his walking out of the settlement meeting was not necessarily an acceptance of the repudiation, as distinct from a temporary setback in settlement negotiations. The letters to clients sent on 15 January 2016 were not an unequivocal acceptance of the repudiation, since they would not be inconsistent with the Separation Agreement if (as I have also found) cll 7 and 8 were void as contrary to public policy. The relocation of premises was also not an unequivocal acceptance of the repudiation, where it would also be consistent with a mitigation of VA’s loss and VGPL’s and Mr Ale’s affirming the Separation Agreement and maintaining a claim for damages for breach.

233. I now turn to the losses claimed by VA and Mr Ale, against the contingency that an appellate court may take a contrary view as to whether acceptance of the repudiation is established, and where those losses would potentially be recoverable for VFP’s or Mr Pauling’s breach of the Separation Agreement, even if repudiation was not established. The Cross-Claimants claim losses said to have been sustained as a result of their exclusion from the Charlestown office. Paragraph 16 of the Cross-Claim pleads loss and damage particularised by allegations of lost earnings of $93,494.20. In his affidavit, Mr Ale “estimates” a larger loss of revenue due to a reduction in VA’s capacity to service clients of $150,990.71 (Ale 2.6.17 [99]ff, Annexure R). Little of the evidence to support this claim was in admissible form or admitted. The Plaintiffs also point to difficulties with this calculation, including that the lost clients identified in the particulars to paragraph 16 of the Cross-Claim amount to revenue of only $17,889.80 per annum, and the calculations of the higher figure in Mr Ale’s evidence include clients lost prior to the exclusion of VA from the Charlestown premises. The Plaintiffs also submit, and I accept, that VA has not established a causal connection between that exclusion and any loss of clients or any other identifiable loss by VA, where VA’s staff continued to work from home and clients had already been lost by VA for other reasons. I am not satisfied that the evidence is sufficient to establish a real reduction in VA’s capacity to deliver services to clients or that the basis of that estimated loss of revenue has been established.

234. Paragraphs 17–18 of the Cross-Claim plead loss and damage particularised by time spent negotiating remission of taxation penalties imposed on clients for late lodgement of returns, and quantified as $4,207.50. That loss depends on Mr Ale’s estimate of the time spent per client, the rate to be applied, and the proposition that income could in fact have been earned from other clients had that not occurred, and little of the evidence to support that claim was in admissible form or admitted. It has not been established that any time devoted to this matter in fact led to a loss of income from other clients and this claim is not established.

235. Paragraphs 19–21 of the Cross-Claim plead loss and damage by way of relocation expenses in respect of new premises occupied by VA and VGPL and Mr Ale, being approximately $43,000 as at 29 July 2016, as recorded in VA’s general ledger (Ex P2, 2970–2972). Paragraph 96 of Mr Ale’s affidavit of 2 June 2017, which sought to prove the costs of establishing the new office, were admitted as a submission only, and Mr Wood submits that evidence (or, more precisely, submission) is insufficient to show that those costs resulted from the exclusion of VA from the premises. Mr Wood also submits, and I accept, that the weight to be given to VA’s general ledger extract (Ex P2, 2970) and a worksheet (Ex P2, 2972) is limited by the absence of invoices or receipts supporting those documents, and those documents also include expenses that do not have any apparent relationship with the relocation of VA’s office, and which predate the date on which Mr Ale says that he determined to seek alternative premises (Ale 12.8.16 [71]). I am not satisfied that the Cross-Claimants have established the loss suffered by VA in this respect and I am not satisfied that damages is established on that basis. Mr Ale’s affidavit also advances a claim for legal costs of the dispute concerning the Charlestown office prior to commencement of the proceedings, quantified as $3,730 (Ale 2.6.17 [98]). I am not satisfied that the evidence sufficiently established that loss.

236. Paragraph 22 of the Cross-Claim pleads loss and damage suffered by VA, quantified as wages paid to its employees from 1 December 2015 to 31 March 2016 (Ale 2.6.17 [105]–[106]), if its claim for lost revenue is not established. I am not satisfied that that claim is established, because it has not been shown that VA’s staff were not providing productive services over that period, while working from home, and any quantification of that loss would need to take account of the value of the services provided by those staff.

237. These claims also have the further and fundamental difficulty that they are brought by VA, which was not party to the Separation Agreement and cannot recover loss for breach of it by a claim in contract. The loss suffered by VGPL or Mr Ale, which were party to the Separation Agreement, may differ from any loss suffered by VA and the Cross-Claimants did not adequately address either any calculation of any loss by VGPL or Mr Ale or any possibility that VGPL or Mr Ale may hold their relevant rights under the Separation Agreement on trust for VA, so as to support a claim by them for the loss that it has suffered.

238. The Plaintiffs also respond to these claims by contending that Mr Ale failed to mitigate the loss suffered by VA by its exclusion from the Charlestown office and refer to access given by Mr Pauling and VFP to client information held on those premises. It does not seem to me that the complaint of lack of mitigation is established, where VFP only permitted access to nominated client files; an unsuccessful settlement meeting took place on 14 January 2016, after the intervention of the Christmas period; and Mr Ale secured new premises from 15 February 2016.

239. Paragraphs 23–24 of the Cross-Claim claim payment for unpaid accounting services and, in closing submissions, the Cross-Claimants indicate that these claims are only pursued if VA is found to be liable in respect of the Plaintiffs’ claim. VFP and Mr Mark Pauling respond to these allegations by pleading that accounting services were provided free of charge pursuant to an agreement between Mr Pauling and Mr Ale which was partly to be implied, and otherwise seek to extinguish any liability to VA by setting off as much of the amount claimed in the Further Amended Statement of Claim as necessary. Since the Plaintiffs’ claim against VA has not been established, it is not necessary to determine these matters.

240. Paragraphs 25–26 of the Cross-Claim claim unpaid financial planning revenue of $10,900 on the basis of the Separation Agreement, which (as I noted above) contemplated that Mr Ale would provide financial planning services as a representative of VFP, and, by cl 9(a) of the Separation Agreement, that VA would receive 15% of the revenue for referred clients and 60% of any trailing commission and up-front revenue. Mr Rennie submits that, although the Separation Agreement was (he submits) terminated on 18 January 2015, the Cross-Claimants’ claim relates to financial planning revenue for financial planning services provided prior to its termination. VFP and Mr Pauling plead, in their Amended Defence to Cross-Claim, that VA was entitled to be paid a percentage of financial planning revenue by VFP for the period 1 December 2015 to 31 March 2016, but that entitlement was subject to Mr Ale continuing to service clients of VFP for which Mr Ale was the financial planner, which he failed to do; otherwise deny the allegation; and plead that VFP will seek to extinguish any liability to Mr Ale, VGPL and related entities by setting off as much of the sum claimed in the Further Amended Statement of Claim as necessary. This claim appears to be addressed in paragraphs 37–38 of Mr Ale’s affidavit dated 15 June 2017, which does not establish the dealings with referred clients, or the revenue or commission underpinning the claim, or the quantification of the amount claimed. Quite apart from the other issues as to the claim, which received little attention in submissions, this claim must fail on the basis that the underlying facts giving rise to the claimed entitlement, or the quantification of that entitlement which was put in issue by the Defence to Cross-Claim, has not been established.

241. Paragraphs 29–35 of the Cross-Claim plead the content of fiduciary duties as against Mr Mark Pauling and broadly replicate paragraphs 18–24 of the Further Amended Statement of Claim, and paragraphs 44–50 of the Cross-Claim repeat that pleading for a second time, apparently without the Cross-Claimants or their legal representatives having paid sufficient attention to the claim to notice that duplication. Paragraphs 36–38 of the Cross-Claim adopt the pleading in paragraphs 25–50 of the Further Amended Statement of Claim alleging payments made by the Company without a corporate benefit. In closing submissions, Mr Rennie indicated that these claims are only pursued if VA is found to be liable in respect of the Plaintiffs’ claim. The Plaintiffs’ claim against VA has not been established, and it is therefore not strictly necessary to determine those matters. I should nonetheless observe that Mr Ale and VA there plead that, from October 2012 to 30 November 2016, VA paid wages to Mr Mark Pauling and Mr Jason Pauling for which VA received no benefit totalling $20,636. Mr Rennie submits that:

“If it be the case that Ale’s administration of VFP involved breaches of duties to that company and/or to VG[PL] as well, both Mark Pauling and Jason Pauling must also be found to have engaged in reciprocal breaches of duties to the extent that VFP was also a recipient of inter-company loans and other benefits from VA.”

That proposition does not follow. The question whether any particular benefit provided by VA to VFP involved a breach of duty must depend upon analysis of the relevant circumstances, and it appears that such benefits were largely or entirely recorded in inter-company loan accounts, which would not involve an improper transaction. That proposition also does not follow so far as Mr Jason Pauling was concerned because, as I will find below, it has not been shown that he was a director or officer of VA.

242. In closing submissions, the Cross-Claimants indicate that their claim in respect of an inter-company loan in paragraph 39 of the Cross-Claim is pursued if VA is found to be liable in respect of the Plaintiffs’ claim. The Plaintiffs’ claim against VA has not been established, and it is therefore not strictly necessary to determine that matter.

243. Paragraphs 51-55 of the Cross-Claim plead that the parties agreed that VGPL would conduct the financial planning and accounting businesses; VGPL purchased the entity by which Mr Pauling had previously conducted the financial planning business and VGPL has conducted that business through VFP; and VGPL purchased the entity by which Mr Ale had previously conducted the accounting business and that VGPL has conducted that business through VA. Paragraphs 56–80 of the Cross-Claim then advance a convoluted and opaque claim for an account of profits for benefits obtained from the relevant businesses or for a constructive trust against Mr Mark Pauling. In closing submissions, Mr Rennie indicates that their claims in paragraphs 51–80 of the Cross-Claim are pursued if VA is found to be liable in respect of the Plaintiffs’ claim. The Plaintiffs’ claim against VA has not been established, and it is therefore not necessary to determine these matters.

242. Paragraphs 81–93 of the Cross-Claim plead a claim in respect of fiduciary duties against Mr Jason Pauling which I will address below. It appears, from the Cross-Claimants’ closing submissions, that the claims pleaded in paragraphs 94–100 of the Cross-Claim, concerned with a transfer of shares to Mr Mark Pauling, and the claim pleaded in paragraphs 104–119 of the Cross-Claim, relating to the restraint of trade under the Shareholder Agreement, are no longer pressed.

243. Paragraphs 120–128 of the Cross-Claim advance a claim for misleading and deceptive conduct, which broadly corresponds to the Plaintiffs’ claim in paragraphs 88A–88J of the Further Amended Statement of Claim. The alleged misleading and deceptive conduct is that Mr Mark Pauling did not express any disagreement with, or raise any issue in relation to, the payment of amounts from funds held in the name of VFP. It is not necessary to determine whether Mr Pauling’s silence as to that matter can constitute misleading or deceptive conduct in the relevant circumstances, where Mr Pauling’s silence, like Mr Ale’s conduct, was not in trade or commerce for the reasons that I have noted above in determining the corresponding claims in the Further Amended Statement of Claim.

244. Paragraphs 129–138 of the Cross-Claim plead that Mr Pauling and VFP divulged confidential information of VA to another accounting firm in Newcastle from 1 December 2015, and VA suffered loss, being the income that would otherwise be earned from clients that moved from VA to that firm. In closing submissions, the Cross-Claimants indicated that they do not pursue that claim, on the basis that any loss claimed would overlap with that claimed in respect of the lockout from the Charlestown office. I therefore do not address those matters.

Claim for exemplary damages

247. The Cross-Claimants also claim exemplary damages, although this claim may largely have lapsed where the underlying claims are largely not now pressed. VA is not party to the Separation Agreement so as to recover damages for a breach of it and, as Mr Wood points out, there is no authority for the general availability of exemplary damages for a breach of contract in Australia: Hoath v Connect Internet Services [2006] NSWSC 158 at [205]. Exemplary damages are also not available for a breach of fiduciary duty: Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298. In any event, I am not satisfied that the conduct of Mr Pauling or VFP would, in the relevant circumstances, have warranted anything beyond ordinary contractual damages or equitable compensation, had the alleged breaches and loss arising from them been established. It will be plain, from the narrative that I have set out above, that Mr Pauling had reason to be dissatisfied with his dealings with Mr Ale and with the manner in which the parties’ separation had been implemented, notwithstanding those matters did not provide contractual justification for the exclusion of VA from the Charlestown premises.

VFP’s and Mr Mark Pauling’s other defences to the Cross-Claim

248. In paragraph 139 of their Amended Defence (as distinct from a Defence to the Cross-Claim), VFP and Mr Mark Pauling also plead a multiplicity of miscellaneous defences to the Cross-Claim, including variously unconscionability, estoppel, delay, laches or acquiescence, informed consent and that Mr Ale’s alleged reliance on their conduct was not reasonable. No material facts are pleaded to support those allegations, which would have been struck out had any application been made to do so. Those defences could not succeed in the absence of identification of material facts that might support them, but do not need to be determined where the relevant claims have either not been established or are not pressed.

Claims against Mr Jason Pauling

249. In closing submissions, the Cross-Claimants indicated that they no longer pursued the relief sought against Mr Jason Pauling in paragraph 7 of the relief sought in the Cross-Claim, in respect of delivery up of any confidential information in the possession of, relevantly, Mr Jason Pauling, where the computer server previously held in the Charlestown premises had been delivered to them during the course of the hearing. The Cross-Claim against Mr Jason Pauling is now only pursued in respect of a claim for damages, and only if the Plaintiffs are successful in their claim, which has not occurred. I nonetheless indicate the findings that I would have reached in respect of that Cross-Claim, which are likely to be relevant to the question of costs as between the Cross-Claimants and Mr Jason Pauling.

250. Paragraphs 81–90 of the Cross-Claim, which plead the content of fiduciary duties owed to VGPL and VA as against Mr Jason Pauling, broadly replicate paragraphs 18–24 of the Further Amended Statement of Claim. Mr Jason Pauling is alleged to have owed fiduciary duties to VGPL and VA as a senior employee or “officer” within the Vanguard Group, including in relation to the accounting business and VA (Cross-Claim [81]–[83]). Those duties are pleaded as including the no conflict and no profit rules and a proper purposes duty (Cross-Claim [84]–[86]), and the statutory duties under ss 180–183 of the Corporations Act and corresponding general law duties are also pleaded (Cross-Claim [87]–[89]).

251. By his Defence to the Cross-Claim, Mr Jason Pauling admits that he was employed by VGPL from January 2013 to 30 November 2015 and he also admits that he owed fiduciary duties to VGPL in his capacity as an employee. Mr Dooley, who appears for Mr Jason Pauling, submits that the nature of those duties is uncontroversial, being a duty not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. In oral submissions, Mr Dooley also submitted that there was no allegation, and no submission, that Mr Jason Pauling owed fiduciary duties to VA, as distinct from duties under the Corporations Act (T470). I do not accept that submission, since the Plaintiffs plead that Mr Jason Pauling owed fiduciary duties to VA as I have noted above. I will assume, without deciding, that the fiduciary duties owed by Mr Jason Pauling to VGPL as its employee could extend to corresponding duties owed to VA as its subsidiary. That position is at least open where an employee of one company in a corporate group has assumed an obligation to promote another company’s interests as well as performing his duties as an employee of the first company: Oliver Hume South East Queensland Pty Ltd v Investa Residential Group Pty Ltd [2017] FCAFC 141; (2017) 348 ALR 385; (2017) 122 ACSR 183. I will find below that a breach of such duties was not established.

252. Whether Mr Jason Pauling owed statutory duties under s 180 or s 181 of the Corporations Act depended on whether he was a director or “officer” of the relevant companies, although the statutory duties under ss 182 and 183 of the Corporations Act also apply to an employee of a company. Whether Mr Pauling was an “officer” of the companies within paragraph (a) of the definition of that term in s 9 of the Corporations Act depends on whether he was a director, including a statutory director, of the companies. There is no suggestion that Mr Jason Pauling was formally appointed as a statutory director of the companies. Mr Rennie opened (T25) on the basis that Mr Jason Pauling had conducted himself as a “shadow” director, although there was no evidentiary basis for any proposition that Mr Ale or Mr Mark Pauling had acted at Mr Jason Pauling’s direction, and the intended reference may have been to a “de facto” director.

253. It is not wholly clear whether an allegation was ultimately pressed that Mr Jason Pauling was a de facto director of any of the companies, although the parties referred to the relevant case law. The circumstances in which a person may be a de facto director were summarised by the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [63]ff. Relevant matters include the duties performed by that person in the context of the relevant company’s operations and circumstances; whether he or she exercises the top level of management functions; whether outsiders who deal with the company would have reasonably perceived that person as a director and whether he or she held himself or herself out as a director; the nature and extent of the functions he or she performs and any constraints imposed on him or her can have evidentiary significance: Re Swan Services Pty Limited (in liq) above; Re Central Management (NSW) Pty Ltd [2017] NSWSC 1258 at [26]–[27].

254. Mr Dooley submits that Mr Jason Pauling was not an “officer” of the companies within paragraph (b) of the definition of that term in s 9 of the Corporations Act. A person falls within that definition if, relevantly, he or she makes or participates in making decisions that affect the whole or a substantial part of the corporation's business, or has the capacity to affect significantly its financial standing. In Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) above at [490], Jacobson J observed that that definition contemplates that an “officer is involved in policy making and decisions that affect the whole or a substantial part of the business of the corporation.” There is authority that the first limb of this definition refers to participation in decision-making that is "more than administrative arrangement, and there must be a real contribution from the postulated participation to the making of the decisions, but beyond that it is a question of fact": Morley vAustralian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 at [893]. In Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 286 ALR 612; 88 ACSR 126, the High Court held that the general counsel and company secretary of a listed company was an "officer" of that company within the meaning of this section because his actual responsibilities involved participation in significant company decision-making, although the ultimate decisions were made by others. Mr Dooley submits that Mr Jason Pauling was not an “officer” of VA for the purposes of the Corporations Act, and implicitly also not a de facto director, because he had no authority from the directors of the companies; his role was subordinate to the directors, and decisions which affected the companies were made by the directors.

255. Mr Jason Pauling was the operations manager of VGPL and was not employed under a written employment agreement, and he was not a shareholder or formally appointed as director of any of the companies in issue. Mr Jason Pauling’s evidence was that his practice was to seek directions from Mr Ale or Mr Mark Pauling as to relevant issues (Jason Pauling 1.6.17 [7]–[9]). He accepted in cross-examination that, in his role as operations manager, he participated in senior management meetings of VGPL that related to operations across the broader Vanguard Group of companies and dealt with issues about VFP, VA and other entities (T168), and that his role in the business included general oversight of day-to-day operations and his evidence was that he undertook activities that arose from weekly meetings and then reported back at the next weekly meeting (T170). He did not accept in cross-examination that he had more authority than as operations manager, including by reason of being Mr Mark Pauling’s son (T185).

256. As Mr Dooley pointed out in closing submission, there was also a body of evidence which indicates that Mr Jason Pauling sought input from the directors, and particularly Mr Ale, before making a range of decisions (for example, Ex P2, 1411, 1616, 1951, 1953, 2017–2018, 2897–2898). I recognise the fact that Mr Jason Pauling sought input as to some matters does not necessarily exclude the possibility that he may have exercised an independent discretion as to other matters of substance, but there is no evidence indicating that he did so. To the extent that any conduct of Mr Jason Pauling after the date of the Separation Agreement may be relevant, Mr Mark Pauling’s evidence on cross-examination was that he made relevant decisions on 7–8 December 2015 when VA was excluded from the Charlestown premises and that he told Mr Jason Pauling to cut the internet service that was otherwise available to VA (T97).

257. It does not seem to me that the evidence establishes that Mr Jason Pauling exercised the top level of management functions or that an outsider would have perceived him, rather than Mr Mark Pauling or Mr Ale, as a director and I am not satisfied that he was a de facto director of VFP or VGPL at general law. I am also not satisfied that Mr Jason Pauling made or participated in making decisions that affected the whole or a substantial part of the companies’ business, or had the capacity to affect significantly their financial standing, although he assisted in implementing decisions that appear to have been largely made by Mr Ale and to a lesser extent by Mr Mark Pauling. I am not satisfied that Mr Jason Pauling was a de facto director or otherwise an “officer” of the companies within the scope of the definition in s 9 of the Corporations Act and the statutory duties under ss 180 and 181 of the Corporations Act are therefore not applicable. As I noted above, the statutory duties under ss 182 and 183 of the Act apply to him as an employee of at least VGPL.

258. Mr Dooley also contends that the allegations in the Cross-Claim against Mr Jason Pauling are not established because there is no evidence that he breached any fiduciary or statutory duties; there is no evidence that he received any improper benefit, including any financial benefit; and there is no evidence that would permit quantification of any loss. The Cross-Claimants did not clearly identify, and the evidence does not establish, any act on Mr Jason Pauling’s part, at least prior to the separation of the companies and while he remained an employee of VGPL, that could constitute a breach of the applicable duties under ss 182-183 of the Corporations Act or any fiduciary duties that were owed by him as an employee of VGPL, including by an extension of such duties in favour of VA.

259. Paragraphs 91–99 of the Cross-Claim plead allegations against Mr Jason Pauling, in similar terms to allegations against Mr Mark Pauling pleaded in paragraphs 59–67 of the Cross-Claim. First, paragraphs 91–93 of the Cross-Claim plead that Mr Jason Pauling used customer information of VA between January 2013 and 30 November 2015 and thereby obtained a benefit. In his Defence to the Cross-Claim, Mr Jason Pauling contests the confidentiality of the relevant client names and addresses; contests that customer information was imparted in circumstances involving an obligation of confidence; submits that there is no evidence of unauthorised use of the relevant information by him; and submits that there is no specific identification of the relevant confidential information. Mr Dooley points out that there is no evidence that the names of customers and contact details were confidential, or could not be remembered by employees of VFP (or VA) and their contact details identified by social media, mutual contacts or the telephone directory. There is also no evidence that customer information was confidential between the respective companies, where the commercial rationale for the arrangements was to make referrals as between at least VA and VFP. Mr Dooley also points out in closing submissions, and I accept, that there is also no evidence of use by Mr Jason Pauling of confidential information of VA during the period to which the Cross-Claim is directed, prior to 30 November 2015, still less of any use of such information prior to that date that was unauthorised by VA or not for the purposes of VA, in the manner in which it was managed as an entity within the Vanguard Group. The pleaded claim is not established.

260. Mr Dooley also points out that the relief claimed against Mr Jason Pauling in the Cross-Claimants’ closing submissions, in respect of access to confidential information after 30 November 2015, is not supported by the Cross-Claimants’ pleaded case in paragraphs 91–93 of the Cross-Claim, which does not extend beyond 30 November 2015. Mr Dooley submits that the Court should not permit any departure from that pleaded case having regard to the conduct of the hearing. I accept that submission, both because of the difficulties which already exist in identifying the matters in issue in the proceedings, even by reference to the pleadings, and because Mr Jason Pauling could have led evidence to respond to any case against him that travelled beyond the pleading.

261. Second, the Cross-Claimants allege that Mr Jason Pauling assisted Mr Mark Pauling to enter into a share transfer transaction in November 2015 that conferred financial benefits on Mr Mark Pauling (Cross-Claim [95]–[96]). The Cross-Claimants did not seem to put this claim other than on the basis that the same result should follow as for allegations made by the Plaintiffs against Mr Ale. Mr Jason Pauling responds to this allegation by pointing out, correctly, that it does not follow from any finding that Mr Ale breached a relevant duty, made in favour of Mr Mark Pauling and VFP, that Mr Jason Pauling breached such a duty, since that will depend upon matters such as the terms of the relevant duties and the application of the Shareholder Agreement in the relevant circumstances. This allegation has not been established.

262. Third, the Cross-Claimants allege that Mr Jason Pauling did not previously inform VGPL of the allegations made by Mr Mark Pauling in these proceedings (Cross-Claim [97]–[98]). This allegation must fail both because there is no evidence that Mr Jason Pauling knew of those claims, prior to November 2015, and, in any event, the case law establishes that fiduciary duties generally do not give rise to any freestanding positive duty of disclosure: Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 at 576; P & V Industries Pty Ltd v Porto [2006] VSC 131; (2006) 14 VR 1 at [24]; Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24; (2011) 191 FCR 1 at [108].

263. Fourth, the Cross-Claimants allege that Mr Jason Pauling participated in the operation of the financial planning business from 1 December 2015, and seek to advance parallel allegations to those made by the Plaintiffs against Mr Ale, including of breach of the restraint contained in the Shareholder Agreement (Cross-Claim [104]–[119]). The Cross-Claimants also no longer press these allegations, where the Plaintiffs do not press the corresponding claim in paragraphs 60–64 of the Further Amended Statement of Claim. Had they pressed these allegations, they would have failed since Mr Jason Pauling was not party to the Shareholder Agreement and no claim for accessorial liability, or for inducing a breach of contract, was pleaded.

Orders and costs

264. The Plaintiffs associated with Mr Mark Pauling and the Defendants associated with Mr Ale have substantially failed in their cases as against each other. My preliminary view is that justice will be served, as between the parties, if each of Mr Mark Pauling and Mr Ale and their associated companies are left to bear the costs of their unsuccessful claims against the other. Mr Ale and his associated companies have failed in their claim against Mr Jason Pauling and my preliminary view is that they should pay Mr Jason Pauling’s costs of that claim as agreed or as assessed. However, I will hear the parties as to costs.

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Amendments

21 March 2018 - Correction of typographical errors - paras 156 and 208.

Decision last updated: 21 March 2018