Warman International Limited & Anor v Dwyer

[1994] HCATrans 387

./~~

IN THE HIGH COURT OF AUSTRALIA	•
Office of the Registry

Brisbane No Bl6 of 1994

B e t w e e n -

WARMAN INTERNATIONAL LIMITED

First Applicant

and

PEKO-WALLSEND OPERATIONS LTD

Second Applicant

and

BRIAN DWYER

First Respondent

and

BONFIGLIOLI TRANSMISSION (AUST)

PTY LTD

Warman(2) 1 28/6/94

Second Respondent

and

ENGINEERING TRANSMISSION

AGENCIES PTY LTD

Third Respondent

MASON CJ
BRENNAN J
DEANE J
DAWSON J
GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT BRISBANE ON TUESDAY, 28 JUNE 1994, AT 10.17 AM

Copyright in the High Court of Australia

MR D.R. GORE, QC:  May it please the Court, I appear with my

learned friend, MR G.H. BRANDIS, for the

appellants. (instructed by Phillips Fox)

MR R.I. HANGER, QC:  May it please the Court, I appear with

my learned friend, MR D.K. SMITH, for the

respondents. (instructed by Halletts)

MASON CJ:	Mr Gore.
MR GORE:	Your Honours, in our outline of submissions as

well as in our submissions - we have not yet handed

up the outline - we have ignored the now immaterial

difference between the two appellants and for

convenience will refer only to Warman. We will

seek of the Italian company as Bonfiglioli, of the

first respondent as Dwyer, the second respondent as

BTA and the third respondent as ETA. I now hand up

our outline. I acknowledge that it exceeds the

recommended three page length but suggest that

Your Honours do not need to read the footnotes at

this stage.

Your Honours, in respect of the central

prima facie entitlement to an account was question in this appeal, namely whether Warman's	displaced, we respectfully submit that there are
both errors of substance and what might be called
errors of form in the reasoning of the majority; in
each case, errors of two broad kinds.

In relation to the errors of substance, the

two kinds are first, a failure to apply orthodox

principle and second, a failure to have regard to

the policy reasons underlying those orthodox

principles. The errors of form are, first, a

failure to clearly identify the orthodox principle

upon which Warman relied and which the trial judge

substantially accepted and, second, a failure to

clearly identify the justification for limiting

Warman's relief to damages or compensation assessed

by reference to what Warman had lost.

Warman(2) 28/6/94

Particularly in the discussion of the

liability of the corporate respondents, the primary

theme that emerges from the reasoning of the

majority is a concern about the justice of the

orders made. The majority was, for example,

concerned about an imbalance between Warman's loss

and the amount which, on the trial judges taking of

an account, the respondents had been ordered to

pay. If equitable damages or compensation had been

the basis of assessment, the trial judge himself

had concluded that an amount of $325,000, before an

unspecified interest component, was appropriate as
the loss of Warman's chance of retaining the agency

business.

The amount which the trial judge ordered the

respondents to pay was, as the majority observed,

nearly three times that amount. The majority

regarded that position as indefensible, having

regard to a number of factors which they

identified, including one which they seem to
particularly emphasize, namely that on the findings

of the trial judge the case should be approached on the footing that Dwyer's conduct merely accelerated

Warman's loss. We will return in more detail to

the particular considerations that were relied upon

later.

On the other hand, the dissenting judgment in the Court of Appeal, that of Justice of Appeal

McPherson, consistently with the conclusions of the

trial judge, thought that the case was:

a plain instance of misuse by a fiduciary of

his position to secure for himself an

advantage at the expense of, and in

competition with, his beneficiary.

I am reading now from the application book,

volume 2, page 271, and I commence at line 30.

His Honour went on to say that the case was: one that calls for the interposition of

equitable relief compelling Dwyer and the
associated corporate defendants to hold for
the benefit of the plaintiffs the advantages
they have already received or are receiving.

As far as the facts in the matter are concerned,

there is no real issue in the light of the ultimate

conclusions of the majority, however, there are

some brief observations we would make for the

Court's assistance. The first, the Court will have

noted that all three judgments, that of the trial

judge and those in the Court of Appeal, make

particular reference of two items of correspondence

generated by Dwyer duri.ng his period of employment

warman(2) 3 28/6/94

with Warman. None of the judgments set these

letters out in full. You will find them in the

appeal book, volume 1, page 65, in the case of the

first letter of 28 August 1986 and the second one

in an English translation following an Italian

version is at page 69 in the same volume. This is

the letter of 24 February 1988.

We would respectfully submit that when one

reads those letters it is difficult to see how

Dwyer could possibly have imagined that he could

ever have escaped the finding of breach that was

ultimately made and, as the Court will have noted,

he was of course found to be untruthful, not simply

to his employer when he went on his secret visit to respects to the trial judge.

Although the facts are, shall we say, common

ground, there are in the judgments obviously

different shades of emphasis and because this is

essentially an opportunity case on the findings of

the trial judge, we would commend for this Court's

particular consideration the assessment of

McPherson JA in the Court. of Appeal in volume 2 of

the appeal book, commencing at page 267 at line 30

and concluding at page 270 line 10. It involves

reference to the two letters that the Court has

just looked at and puts a particular complexion on

the facts which we submit is a correct complexion

and certainly not inconsistent with the majority

view. As we say, it is just a different shade of

emphasis.

BRENNAN J:  Is there any question of what it was which

constituted what His Honour calls the advantages

they have already received or are receiving?

MR GORE:	Is there any question about that?
BRENNAN J:	Yes .
MR GORE: There will be, Your Honour, in this argument, I

dare say. Could I come back to that later? I will

foreshadow that the approach which Warman takes on

this appeal is that equity focuses on the

fiduciary's gain, putting to one side for the

moment any question of what the principal may have

lost. In some cases, of course, the principal

never had the particular property that is the

subject of equitable relief. So the first step in

the exercise is to look at what the fiduciary has

got and, ignoring differences between respondents,

in this case that is the combined business of BTA
and ETA, and that is the property in respect of

which equitable relief will initially attach.

Warman(2) 4 28/6/94

The onus is then on the respondents to point

out whether there is any mixing of their own
property or funds or personal effort with that

property which has been identified which would

justify some division of the property so that the
order granted to the plaintiff is not in respect of
the whole business and essentially, that is the

exercise that the trial judge carried out and I

will go to the detail on that later.

MASON CJ:	Why did the trial judge carry out that exercise?
MR GORE:	He gave a reason for it in his judgment that, in

effect, there was really no point in delaying

matters - - -

MASON CJ: What, in hiving this question off and having it

dealt with subsequently?

MR GORE: Essentially yes, that is so, Your Honour.

MASON CJ: What was the attitude of the parties to that act

on the part of the trial judge? Did the parties go

along with that approach?

MR GORE:  As the judgments in the Court of Appeal reveal,

that was a step which the trial judge took without

any warning to either of the parties and without
any particular request by either of the parties

that it should be done. It involves what I think

Mr Justice McPherson called the natural justice

point, a term which we would borrow. It is an

ancillary point in this appeal. The central

question is whether there was any reason for
displacing the liability to account and the
majority conclusion was that there was some reason
for not giving Warman an account.

The focus of our submissions will be on that central question. There is however, a second

question whether there was any error in principle

shown by the trial judge in taking the account

himself. We submit that for the reasons given by

McPherson JA, there was not, in the circumstances

any error, notwithstanding, shall we say, it is a

course that ordinarily would not be encouraged when

neither of the parties has specifically requested

that course.

But if this Court was against us on that

submission but with us on the primary submission,

the order that the Court would make would

involve obviously setting aside the decision of the

majority and remitting the matter to the trial

division of the supreme court for the taking of an

account in accordance with principles expressed by

this Court in its judgment.

Warman(2) 28/6/94

The reasons given by the trial judge for taking that course are in volume 2 of the appeal

book, page 201, in the paragraph commencing at

line 32 and concluding at line 55. I have been

dealing with some brief factual matters and Justice

Brennan had asked whether there was any issues

about the advantages received or being received.

In respect of that issue, there was one item of

evidence that is in the appeal book that we would

refer the Court to. It is in volume 1 at page 64

in the evidence by way of cross-examination of

Dwyer where, after he had been asked a number of

questions about any suggested differences between

the combined business operated by BTA and ETA on
the one hand and the Warman engineering agency

division on the other, he was asked at line 15:

Would it be fair to say that the business

operated by BTA and ETA has been carved out of

the business that was operated by the

Queensland branch of the engineering agency

division of Warman?

And his answer was:

Generally yes.

And that was an answer which, it is apparent from

the reasons of the trial judge, was an answer that

was substantially true rather than one that was

substantially false.
The question, I should say, follows language used by Mr Justice Kearny in the Timber Engineering

case that Your Honours will find in part A of the authorities. I will not take Your Honours to the

case now but I will just mention that.

Returning to the concerns alluded to by the majority about the justice of the orders made, it

to which they referred raise anything new as far as	is our submission that none of the facts or factors
equitable principles are concerned.

What we emphasize in our submission is that

the case is really covered by orthodox principles

which, regrettably, the majority chose to ignore

and, perhaps more importantly, they did not refer

to the well expressed and well known reason for the

orthodox principles upon which we rely. It is

partly for that reason that we have perhaps

overdone it in our listing of the authorities in

footnote 1 of the outline of submissions where we

refer to both decisions of courts and statements by

commentators, but it has been with some purposes in

mind. The first I have already mentioned, namely

that the majority really did not really grapple

warman(2) 6 28/6/94

with any of this authority in what we would call a

direct fashion. The second is that the authority

is really of different and relevantly different

forms.

We first need to note, for example, that the

principle upon which we rely is over 250 years old,

going back to Keech v Sandford. We have given this

Court the more recent decisions by it which contain

passages involving the Keech v Sandford principle.

There are earlier cases but we have given you four

in the footnote. We have given you the leading

English cases, at least up until recently. The

well known cases of Phipps v Boardman and Regal

(Hastings) Ltd v Gulliver, still very important

because they involve honest fiduciaries, a

distinction which we emphasized in the course of

our submissions. And there are three cases there

which, although not of as high authority as the

others that I have just mentioned, are analogous

factually, they are three top management cases.

The decision of IDC v Cooley in 1972, the Canadian

decision, a supreme court decision in Canadian Aero
Service v O'Malley and the Western Australian Full

Court decision of Green v Bestobell Industries.

These cases need to be referred to, we submit,

because they do involve facts which are broadly

similar and where there was really no suggestion

that the orthodox principle should not be applied.

We do not propose to trouble the Court with a

detailed analysis of the facts of each of those cases at this stage but can we give you a brief

summary that is relevant to our submissions.

Cooley's case was a case where the plaintiffs were entitled to an account of profits of a contract

which the defendant - - -

MASON CJ:  You might give us the citations to these cases as

you deal with them so that the citations are

recorded in the transcript so that when we are

going through the transcript we are able to

identify from the transcript the page numbers and

the volumes in which the cases are to be found.

MR GORE:  Thank you, Your Honour, I will do that. I will

start again. The decision of IDC v Cooley is

reported in (1972) 1 WLR 443, it is case No 3 in

volume 1 of the bundle of cases that you have. It

is a part A case. The Court is not presently

invited to look at it but what we draw to your

attention is that it was a case where the

plaintiffs were held entitled to an account of
profits of a contract which its top manager, if I

could use that term, secured with a third party,

the Eastern Gas Board, even though the plaintiff

employer's proposition to that board had earlier

Warman(2) 28/6/94

been rejected by it and the court's assessment of

the chance that the board would change its mind was

only 10 per cent.

Canadian Aero Service v O'Malley, (1973)

40 DLR (3d) 371. It is a part A case in volume 1,

case 4. It is a lengthy case which contains

statements of principle which are entirely

consistent with Warrnan's contention on this

appeal, particularly at page 383 and 392. As far

as the facts of it were concerned, it was case

where the two faithless employees were held liable

according to their gain, which involved a contract

which they had secured, even though it had not been

shown to the satisfaction of the trial court that

Canaero, the plaintiff company, a Canadian company,

would obtain a foreign aid contract in Guyana but

being subject to contract from the Canadian

government.

So it was again factually a case where a

defaulting fiduciary who had personally benefitted

was held liable according to his gain even though

it had not been demonstrated that the plaintiff had

suffered any loss. The third top management case

is Green v Bestobell Industries Pty Ltd, (1982)

WAR 1, with relevant statement to principle at

pages 4 and 20. It is again a case which factually

is of some similarity to the present. Orders for

an account of profit were made against the
defendant employee and his company which had been

the successful tenderer for a contract, even though the employer as only the third lower tenderer would probably not have been awarded the contract in any

event.

It should also be mentioned that each of those

three decisions has been referred to with evident

approval by members of this Court, if I could read

that into the record. Cooley, (1972) 1 WLR 443 was

referred to by Your Honour the Chief Justice in

Hospital Products Ltd v United States Surgical

Corporation, (1984) 156 CLR 41 at 108 at about

point 8 on that page.

Since the Court has it open I might read on.

Your Honour also went on to refer to the principle

and the policy which underlay the cases and this is

at the heart of our submissions as comprehensively

expressed by this Court in Furs Ltd v Tomkies,

(1936) 54 CLR 583. Their Honours after pointing

out the rule that an undisclosed profit derived by
a director from the execution of his fiduciary

duties belongs in equity to the company observed.

Then there is a long observation which includes a

statement in line 4 that:

Warrnan(2) 28/6/94

It is a principle resting upon the

impossibility of allowing the conflict of duty

an interest which is involved in the pursuit

of private advantage in the course of dealing
in a fiduciary capacity with the affairs of

the company.

And the later statement about four lines up from

the bottom that:

It is neither wise nor practicable for the law to look for a criterion of liability.

That is the third reason for the principles that

we identified in paragraph 5(c) of our outline. It

is a reason which is normally attributed to a

decision of Ex parte James, (1803) 8 Ves 337 at

page 345, in 32 ER 385 at 388 referred to in Furs

Ltd v Tomkies, 54 CLR 583 at 592 to 593, Furs v

Tomkies being one of the part A cases.

In Hospital Products Your Honour the

Chief Justice also referred to Canadian Aero

Service at 156 CLR at page 102 at about point 8

after a reference to, amongst other authority,

Phipps v Boardman and Your Honour went on to refer

to Keech v Sandford and again spoke of:

The rigorous standards appropriate to a

trustee will not apply to a fiduciary who is

permitted by contract to pursue his own

interest in some respects.

Also in Hospital Products, Canadian Aero

Service was referred to by Sir Harry Gibbs at

page 68 of 156 CLR, again in amongst a collection

of authority, at about point 2 and it was referred

to by Your Honour Justice Deane in Chan v Zacharia,
(1984) 154 CLR 178 at page 205 at about point 4, in

the context of a passage which was referred to by

the majority here, so it is perhaps worth reading

the whole of what Your Honour Justice Deane had to

say from page 204 at about point 4 beginning:

Many of the statements of the general

principle -

The part referred to by the majority was the

concluding part of that passage where Your Honour

Barnes v
referred to Lord Selborne's judgment in in volume 2 of the appeal book, page 250, at about

line 15 in the context of the majority's discussion

of what they call "two other general

considerations" which we will focus upon in more

detail later in these submissions.

Warman(2) 9 28/6/94

• I·

Can we say this about Your Honour's

observations in Chan v Zacharia: none of them is at

odds, we respectfully submit, with Warman's

contentions here or with the decisions below which

favoured Warman. Your Honour noted towards the

bottom of page 204 of 154 CLR that:

It may still be arguable in this Court that,

notwithstanding general statements and perhaps

even decisions to the contrary in cases such

as Regal (Hastings) Ltd v Gulliver and Phipps

v Boardman, the liability to account for a

personal benefit or gain obtained or received

by use or by reason of fiduciary position,

opportunity or knowledge will not arise in
circumstances where it would be

unconscientious to assert it.

The rest of the sentence is not directly relevant.

There was no suggestion by the majority here that

we are dealing with that possible exception to
which Your Honour refers. All that we are dealing
with on the majority's own approach is a case where

they perceive that there was some lack of justice

in the orders made but in having that perception,

our attack upon Their Honour's judgment is that

Their Honours have ignored other cases like IDC v

Cooley, Canadian Aero Service and Green v Bestobell which involve similar facts where none of the

courts felt any difficulty in applying the orthodox

principle and each of them had regard to the

reasons for both principles in not having that

difficulty in applying the principle.

There are statements that would be familiar to

this Court that are relevant to Warman's

submissions in the judgment of Sir Harry Gibbs in Consul Development Pty Ltd v DPC Estates Pty Ltd,

(1975) 132 CLR 373. Although these statements will

be familiar to the Court we would like to identify

some of them for your assistance. At page 393, in the first complete paragraph,

His Honour observed:

Sometimes - indeed often - it is said that the

person occupying a fiduciary position is

liable to account for profits which he has

gained by the use of his position or of

property or knowledge possessed by virtue of

the position.

And reference is then made to Phipps v Boardman.

At the bottom of that page at about point 8 there

is a sentence:

warman(2) 10 28/6/94

The basis of the rule is that a person in a

fiduciary position may not place himself in a

situation where his duty and his interest

conflict.

And at page 394 at about point 4:

Where the rule applies, the liability of the

person in a fiduciary position does not depend

on the fact that the person to whom the duty

is owed has suffered injury or loss.

And reference is then made to the judgment of

Sir Owen Dixon in Birtchnell v Equity Trustees,

Executors & Agency Co Ltd, (1929) 42 CLR 384. This

is one of the judgments which contains reference to

the inflexible rule statement. A rule which must ·

be applied inexorably by the Court, statements

which Your Honour Justice Deane felt some concern

about in Chan v Zacharia.	We do not, with respect,
quarrel with that.	We do not open up that as a
live issue.	It is to be noted that in Birtchnell's

case, Sir Owen Dixon referred to Parker v McKenna,

another well known case in this area dealing with
the reasons for the rule -in (1874) LR 10 Ch 96.

Then, still in Consul Developments at page 395, in dealing with .the particular facts of the

case His Honour observed at about point 3 that it

was:

equally immaterial (if it were the case) that

no company in the group -

this is the group comprising the principal -

could have afforded to make the purchase, for

the liability of Grey -

who was the potentially defaulting fiduciary -

did not depend on the fact that D.P.C -

that is a company within the group -

had been deprived of a profit or had suffered

an injury.

And then at page 397 there is a convenient summary

of - two separate reasons for the rule commencing

at point 2:

The strict rule of equity that forbids a

person in a fiduciary position to profit from
his position appears to be designed to deter

persons holding such a position from being

swayed by interest rather than by duty (see

Warrnan(2) 11 28/6/94

Bray v Ford; it is "a rule to protect directors, trustees and others against the

fallibility of human nature".

And it is interesting to observe that His Honour

then went on to say that:

If the maintenance of a very high standard of conduct on the part of fiduciaries is the purpose of the rule it would seem equally necessary to deter other persons from

knowingly assisting those in a fiduciary

position to violate their duty.

And on the strength of that reasoning, His Honour

concluded at point 5 that:

On principle, that a person who knowingly

participates in a breach of fiduciary duty is

liable to account to the person to whom the

duty was owed for any benefit that he has

received as a result of such participation.

We mention those passages somewhat out of context for two reasons: . the first is that it is

direct authority in support of the proposition, not

challenged below, that BTA and ETA were liable as

fiduciaries. What the remedy was, what they were

liable for, is certainly in dispute, but because

Dwyer was a director and shareholder of both

companies, on the reasoning in Consul, it is

indisputable that those two respondents were

equally liable with Dwyer.

The second point of relevance, out of context,

is that this Court will have noted that the

majority in this matter were troubled by the trial

judge's treating of all respondents equally, and as

far as Dwyer was concerned, the point they made,

which has some initial attraction, was that the

profit, the subject of the account, was not profit

which Dwyer had personally earned, it was the

profit of the two companies, and furthermore, the

goodwill that the trial judge dealt with and

divided up was the goodwill of the companies, not
of Dwyer, and the majority expressed the view,

quite dogmatically, that it was wrong in principle to make Dwyer liable for profits and goodwill that

were not his.

We will be submitting later in these

submissions that there is no reason in principle or

policy for not making a defaulting fiduciary like

Dwyer liable for profits made by others where those

others are companies that he has formed and in

which he has interests as a shareholder and which

he controls or partly controls as a director. We

Warman(2) 12 28/6/94

will be submitting that the well-known work of

Goff and Jones lends support to that proposition

and we here submit that the approach taken by

Sir Harry Gibbs in Consul lends indirect support

for it, because what His Honour there did was look
at the purpose of the rule, the maintenance of a

very high standard of conduct on the part of

fiduciaries, and ask whether that provided a

foundation in principle for extending its

application to some other set of facts.

We acknowledge that there does not appear to

be any authority directly on point which holds that

a person in the position of Dwyer on facts

relevantly identical to these is equally liable to

account for either profits or property or both, but

we do submit, as I have already foreshadowed, that

there is no reason in principle for not so holding
and that there is no case that is against us

either, of which we are aware.

MASON CJ:  Of course, the majority are in agreement with you

to this extent, are they not, that prima facie the

appropriate remedy is account of profits?

MR GORE:	Yes.
MASON CJ:	The majority in this case takes a view that it is

not an appropriate remedy, because it produces an

unjust result.

MR GORE:	Yes.
MASON CJ:	Now where do we find the treatment of the unjust

result? At page 249 and the succeeding pages?

MR GORE:  Your Honour, could I say this with all respect to

the majority, and it is in answer to Your Honour's

question, that this is one of the errors in form

that I mentioned earlier. There is no clear

passage that I could take you to in the majority

judgment that a law student would regard as the

ratio of the majority judgment. Your Honour has

asked me whether it commences at page 249; my

answer to that has to be, no, it does not, because

at line 29 the passage begins: "Two other general

considerations". Now that clearly indicates that

there were other more particular considerations,

obviously more compelling in the eyes of the

majority, for concluding that the orders made by

the trial judge were wrong.

MASON CJ: Well now, the earlier discussion seems to focus

upon what the majority considered to be an error in

terms of holding Dwyer liable to account for

profits which he did not earn and would not earn,

Warman(2) 13 28/6/94

but really in effect were profits of the two

companies.

MR GORE: That is correct, Your Honour, but it also dealt

with the liability of the corporate defendants and

referred to some aspects of the facts which we

perceive, in fairness to the majority, indicated

some element of unfairness about the orders made.

For example, and I can take Your Honour to the passages in due course, the majority twice made the

point that they thought the findings of fact of the

trial judge, whilst correct in substance, should be

addressed with this reservation that the court

should proceed on the footing that all that Dwyer

did was accelerate the loss, and they referred to

it in a context which suggests to the reader that

they regarded that as one of the factors which went
to the unfairness or the injustice in the orders

made, and we are prepared to accept that for the

purpose of our submissions, but to say that in the

light of the principle and authority that is

contained in those cases in footnote 1 and the

commentator's discussions, it does not bear

scrutiny; that it is simply not something that any

court has ever suggested ;would ever amount to a

justification for displacing the rule.

If a principle can get an order requiring the

defaulting fiduciary to disgorge the profit, when

it is a profit that the fiduciary would never have

got, why should Warman suffer because it already

has the property and the trial judge thought that
it might have lost it even it Dwyer had been loyal.

Our facts are much stronger than the facts in those three top management cases to which we earlier

referred.

DAWSON J: Except that you do not complain that the account

of profit stops at trial, in point of time.

MR GORE:  No, no.

DAWSON J: Well now how do you justify that. I mean if you

have applied a principle, it should go on forever.

MR GORE: That would be so, Your Honour, unless the

relationship was severed and that is precisely what

the trial judge here did by his orders. We need to

distinguish between an account of profits on the

one hand and an order directing payment of money or

goodwill on the other. The trial judge dealt with

the two quite separately. Can I just interrupt my

response to your question by saying that sometimes

in this area one reads that an account of profits

includes that second area as well as the first.

Other times for example in Sir Harry Gibbs judgment

in Consul Development a judge is careful to draw a

Warman(2) 14 28/6/94

distinction between the two and the Consul

Development distinction is in 132 CLR at 395

between about point 2 and point 4.

Returning, in answer to Your Honour's

question, one remedy that was open to the trial

judge focusing on the goodwill component was to

order a sale of the two businesses.	The two
companies were parties to the action.	On the one

hand, an account can be taken of profits to date of

trial and that can then be put aside quite

separately. As the second component of relief, the

Court could have ordered a sale of the businesses.

Indeed, relief of that kind in a not wholly

dissimilar case was granted by Justice Willia.ms of

the Supreme Court of Queensland in one of the

part A cases in your list, Fraser Edmiston Pty Ltd

v AGT (Qld) Pty Ltd, (1988) 2 Qd R 1, case No 14.

And in that case you will see that on the ovne hand

His Honour in lieu of an account of profits awarded

equitable compensation and then on the other,
ordered that the particular business be sold. It

was a sunglasses business at the Gold Coast and

there had been negotiations about a 50:50

partnership between the plaintiff interests and the

defendant interests and whilst no partnership is

formed, His Honour considered that there was a

fiduciary obligation owed by the defendant who took

the lease over the relevant premises for himself

and conducted a sunglasses business in competition

with the plaintiff.

Now the plaintiff was given in substance, an

account for, I think a 13 month period and then the

judge ordered that the property be sold and the

proceeds divided equally because he found that

there had been a 50:50 agreement in principle and

that the goodwill of the business was basically its

location at a very prominent location on the Gold

Coast and its location derived from the lease and	it was the lease that had been the subject of
discussion with the plaintiff.

Now returning to this case again, the judge

could have ordered that kind of result. What he

did was to adopt a notional sale approach instead
of forcing the respondent companies to go out into

the market place and actually sell their businesses

and pay, on his approach, one half of it to Warman,

he tried to do a fair thing to avoid everybody that

expense and to adopt a notional sale.

Now, forgetting the difference between

notional sale and actual sale, accepting that there

is sale of the business, that disposes of the point

really raised by Your Honour because then the

Warman(2) 15 28/6/94

plaintiff no longer has an interest in the

business, no longer any entitlement to any ongoing
profit and the defendants are free to go their own

way with whatever assets and "goodwill" that

remains after the sale.

DAWSON J:  It seem to be having your cake and eating it

though, does it not?

MR GORE:  It is not, Your Honour. The leading case in this

is Keech v Sandford. Now neither party has given

it to you as a part A case but that is perhaps a

mistake on our part. It is not a very long case

but it is a student's delight. It only goes for

about ten lines and we would invite the Court to

read it and it is particularly relevant to the

question raised by Your Honour because in that

case, the court ordered that there be an account of

profits in relation to the lease which had wrongly

been taken, up to, I think, the date of trial, and

then the lease had to be divested and given to the

infant beneficiary because it was the beneficiary's

property. Why should he not have both? You are

not having your cake and eating it. It is not the

fiduciary's property to deal with in the first

place.

Consider a case, Your Honour, involving

BRENNAN J: An appropriate order would have been a

declaration that Dwyer held his shares in trust for

the plaintiff.

MR GORE:  That was relief that had been sought and it was

open to the trial judge to grant it but again he

felt for reasons which he gave, that it was

appropriate to sever the relationship between these

parties and that the taking of this account plus

the directing a payment for goodwill was an

appropriate way of doing it.

All of this just illustrates that equity is

elastic in its remedy. We do not, obviously,

quarrel with that fundamental proposition and that

what the trial judge has done, putting the natural

justice point to one side for the moment, does not

involve any error in principle and is tantamount to

what was done as long ago as Keech v Sandford.

Another example I was going to give

Your Honour Justice Dawson just involves a tangible

asset, but perhaps this case does involve

complexities because we are dealing with

businesses, intangible assets, some mixture of

personal effort and the like. But as a matter of

principle, it is no different from the case of a

tangible asset.

warman(2) 16 28/6/94

The sort of facts in Consul Development, for

example, where an employee sees an opportunity to

buy a parcel of land in the course of his

employment that he knows his employer would be
interested in, he misleads his employer in some

way, buys the property for himself, develops it and

two or three years later he is caught, there is an

action, there is judgment. It was not his property

in the first place and what a court would order in

that situation is that there be an account of

profits that he obtained from the development,

allowing for expenses and the like up to the date
of judgment, plus he would be held to be a

constructive trustee of the property and ordered to

transfer it to the plaintiff, even though it may
turn out to be property which the plaintiff could

not have got because the plaintiff could not have

afforded it.

That was the kind of difficulty that Sir Harry Gibbs was dealing with in Consul. That

would be immaterial in an equitable context because

the object of the rule is to deter fiduciaries from

doing that kind of thing. And if there is a

windfall gain for the plsintiff, so be it. What is

more important is the maintenance of high

standards, particularly amongst top managers.

DAWSON J:  So that you could wait for years to bring your

action and still obtain the same relief?

MR GORE:  No, Your Honour, because in a case that we will be

coming to shortly of In re Jarvis deceased, a well

known judgment in this area. I think it was

Lord Upjohn, in dealing there with on the one hand

a lease and on the other hand a business, said that

as far as principles of laches and acquiescence and

delay are concerned, different considerations apply

to a business.

Perhaps I should take Your Honour to that case

now. It is a part A case, case No 23, and I can

follow the Chief Justice's request, it is reported

in (1958) 1 WLR 815. It is a case that is also

relevant to the question that Your Honour Justice

Brennan asked me very early in the case so I will

try to deal with all issues at once.

Seeking to paraphrase the facts, it was a case involving certain premises which had been used for

quite a long time for some sort of shop purpose

that were damaged during the war and the defendant

who was a trustee with the plaintiff ultimately obtained a lease of those premises in breach of

duty about four years after it had been vacated and

she used it in conjunction with the business that

she already had.

Warman(2) 17 28/6/94

The premises in question were at No 7 w Road

and the defendant's premises were at No 230 T Road

which was nearby and she used the two and it became

quite a successful business apparently. The

plaintiff did not bring the action until quite some

time after 1944 which was when it was that the use commenced. 1951 the action was brought and we can

see that it was heard in 1958.	So there was really
quite significant delay.

Lord Upjohn first dealt with the lease at the

bottom of page 818. The first question is as to

the new lease of No 7 and he said that on the

principle of Keech v Sandford there was a

concession that the defendant was a constructive

trustee and so on and found in favour of the

plaintiff at 819 point 5:

There must be an inquiry as to what rent, if

any, year by year, the defendant ought to be

charged in respect of her beneficial

occupation of No. 7. Then he went on to deal quite separately with the

business:

The second question is as to the position with

regard to the business carried on by the

defendant thereat. A trustee must not place

himself in a position where his duty and

interest conflict, and if he does so he must

account for any profit thereby made or for the

property thereby acquired.

And after referring to Regal (Hastings) v Gulliver

went on to talk about the new business and the old and recognized that:

The old business had been closed down ..... but

in a sense its ghost lay there waiting for a

new lease of life ..... The business that she

opened was a new business, but it was of the

same character as the old. It necessarily
benefited from the goodwill attaching to the

premises, because the newspaper and

tobacconist business had been carried on there
for 40 or 50 years down to the end of 1940.
It may well be that the virtual closure for

over three years, coupled with the great
excess in those days of demand over supply,

made the value of the goodwill small: but it was there because of the former activities of the testator, of whose estate the defendant

was a trustee.

Now what I want to emphasize before I go any

further is that all of this discussion was not with

Warman(2) 18 28/6/94

a view to identifying what was the property that

equity could attach to, if equity was going to

attach to anything at all. On our reading of

His Honour's judgment, he was here seeking to

identify whether it could be said that more than

three years after the closure of the business there

was any property which the trustee had obtained in

breach of trust or whether it really was property

that had been obtained in some private capacity and

could not be the subject of equitable relief.

And that is made clear, we submit, by later

parts of the judgement that we are coming to.

Reading on:

Furthermore, the defendant was able to get

some supplies of cigarettes and newspapers by

reason of the testator's earlier connection

with the suppliers.

So that is use of some benefit, the testator's

earlier connection with the suppliers. Then

His Lordship said:

It seems to me clear on principle that the

defendant must be accountable as a

constructive trustee for those benefits which

came to her because of her position as a

trustee of the testator's estate.

So liability is established.	Now we move on to
remedy:

What, then, is the proper method of assessing the accountability?

And it is in that context at page 820 that

Lord Upjohn deals with the two approaches that were

particularly referred to by Mr Justice McPherson in

the Court of Appeal in this matter and, as we will

deal with in a moment, also referred to by

Your Honour the Chief Justice in Hospital Products,

156 CLR 41.	I will come to the relevant passages
later.

So then, in the context of considering what

was the proper method of assessing the

accountability, His Lordship had to return to this

question, what difference is there between the new

business and the old? Do I give relief in relation

to the whole business at No 7, can I pick up No 250

as well, what is the proper approach? And he

referred to the two competing arguments at 820

point 1:

Counsel for the defendant submits that one must look to see what is pleaded and what has

Warman(2) 19 28/6/94

been proved at the trial. One must then take

those assets of the estate, or the benefits

which have been so pleaded and proved at the

hearing to have flowed to the defendant by

reason of her position as a trustee of the

estate, and value those benefits. Counsel for

the plaintiff says, on the other hand, that

that would be an impossible inquiry and that

one must make the defendant accountable for

the whole business and its profits, making

allowances for the time, energy and skill that

the defendant has expended, the assets she has

brought in, the testator's debts that she has

paid, and, of course, her mother's annuity.

No authority is precisely in point.

A few lines down.

I do not think that it is possible to lay down any general rule in relation to businesses beyond the general principle already stated,

that a trustee may not make a profit out of

his trust.

And the example assists with an understanding of

the judgment as a whole:

Suppose that, by virtue of her position as

trustee, the defendant had been able to

influence (as possibly she did) increased

supplies to the shop at No. 230 Trafalgar Road

without reopening No. 7, Woolwich Road, she

would clearly be accountable - but surely on

the basis submitted by counsel for the

defendant rather than the basis submitted by
counsel for the plaintiff.

In other words, equity will not attach to the whole business at No 230 Trafalgar Road but only to the

particular supplier advantage that can be

identified by the plaintiff in a case like that.

Each case must depend on its own facts, and

the form of inquiry which ought to be directed

must vary according to the circumstances. In

this case, where the defendant reincarnated

the testator's own business -

a very colourful description -

on the same premises as formerly and obtained

supplies, so far as she was able, from the
suppliers of the former business, I think that

the proposition propounded by counsel for the

plaintiff is correct and that, subject to

laches, acquiescence and delay, the defendant

Warman(2) 20 28/6/94

is accountable as constructive trustee of the

business.

I am sorry it is a lengthy answer, I am still

coming to an answer to Your Honour Justice Dawson's

question about delay, but the facts of the present the facts of re Jarvis. The majority themselves

acknowledged that the new business was - this is

the ETA, BTA business - shall we say, a

reincarnation of the engineering agencies division,

albeit it that there were differences.

On the delay question though, and now I am

answering the question asked by Your Honour

Justice Dawson, at page 821 at point 4:

In dealing with the business, the principles applying are quite different from those in the

case of a specific asset, such as a renewed

lease.

And reference is made to a judgment of

Lord Justice Knight-Bruce where probably the key

words are in the end of the citation:

He should show himself in good time willing to

participate in possible loss as well as

profit, not play a game in which he alone

risks nothing.

And Lord Upjohn concluded that this particular

plaintiff was seeking to say:

that the defendant had been a trustee for her

of one moiety of this highly successful

business, although she has never been at risk

for one penny.

And he dismissed that claim on that ground. The

relevance of that issue was also alluded to in a

recent Canadian Supreme Court decision which is a

part A case, No 16 in volume 2, a decision of
Canson Enterprises Ltd v Broughton, (1991)

85 DLR (4th) 129 in the judgment of

Mr Justice McLoughlin at page 162, beginning at

letter C. This is a point of principle. Canson I

will be coming to much later. It was a remoteness

case not a measure case, but this is nevertheless
relevant to Your Honour's question:

When the plaintiff, after due notice and opportunity, fails to take the most obvious steps to alleviate his or her losses, then we

may rightly say that the plaintiff has been

"the author of his own misfortune". At this

point the plaintiff's failure to mitigate may

Warman(2) 21 28/6/94

~ : :.M.

become so egregious that it is no longer

sensible to say that the losses which followed

were caused by the fiduciary's breach. But

until that point, mitigation will not be

required.

In this case, Your Honour, there was no suggestion

by the respondents of any unreasonable delay or any

delay on the part of Warman and the judgment of the

trial judge is really to contrary effect where he

observed in volume 2 of the appeal book, page 199,

in a passage beginning at line 55 which referred to

an account of profits to date at page 200, he said:

The harshness of this remedy is somewhat

mitigated by the history of the matter for the
action was commenced speedily after the
termination of the agency. It was then open
to the defendants to consider their positions

and to take appropriate action such as the

proper purchase of the goodwill of the

business from the plaintiff.

DAWSON J: There seems to be some recognition in the cases

there is express recognition of the fact that a

business is different to something like a lease,

which as you rightfully say is considered really

the property of the beneficiary and not of the

fiduciary. But a business cannot be regarded in

that light. It is an ongoing thing and the

fiduciary puts his own efforts into it and that is

why it seems that if you obtain damages for loss of

goodwill and an account of profits over any

extended period there is a doubling up.

MR GORE:  Your Honour speaks of an extended period

DAWSON J: Well, a considerable period in terms of money,

anyway.

MR GORE:  The point that we are trying to make is that that

is not this case. It may be that in principle such

relief is open but it should rarely be granted by a

court in a case involving businesses where it is

possible to sever the relationship.

DAWSON J: Perhaps one should look at the goodwill and say,

well look, really, the goodwill here is not

something you can say is held on trust because it

is possible to sever out what really is the

goodwill which is attributed to the efforts of the

fiduciary and the goodwill which really was owned

by the beneficiary. I mean obviously, the

beneficiary in this case, Warman, did not think

much of this particular business relationship; the

goodwill which attached to it and contemplating it

coming to an end.

Warman(2) 22 28/6/94

MR GORE: Well, Your Honour, on the findings of the trial

judge, although it had been contemplating it at the
time that it was wrongfully taken from him, it had

decided to keep it.

DAWSON J: Yes.

MR GORE:  And although Warman has to recognize, before this

Court, those findings of the trial judge which are

nevertheless to the effect that Warman did have a
lack of interest in the assembly business, those

issues are irrelevant to the orthodox principles.

DAWSON J: That is why I am questioning it. I am merely

asking for your comment because of the suggestion

in the cases that businesses are different from

specific property like a lease, because you cannot

separate out the efforts of the person who is

running the business from the business itself.

MR GORE: Well that, with respect, begs the question whether

you can. If you cannot separate them out, then

that will perhaps mean one of two things, either
that the new business is so indistinguishable from

the old that the concern "to which Your Honour is

referring simply does not arise because it is for
all practical purposes equivalent to a tangible
asset, there is just no material difference, or it

will mean that the defendant has not been able to

discharge the onus on it of demonstrating that

there really is a difference.

If there is demonstration to the satisfaction

of a trial court that there is a difference between
the two, then it is open to the court not to hold
the fiduciary liable for the severable part, but
the court will not necessarily relieve a defaulting

fiduciary of such a part, and at this point can I

return to what the Chief Justice said in the

Hospital Products case which is relevant to that.

Hospital Products Ltd v United States Surgical

Corp, (1984) 156 CLR 41, relevantly at page 109, to

a point which we had really reached somewhat

earlier in the argument.	Your Honour observed at
about point 5 that:

There is authority for the proposition that

equity does not assume jurisdiction to punish

a fiduciary for misconduct by making him

account for more than he actually received as

a result of his breach of fiduciary duty.

And the authority is referred to. And then at

about point 9 Your Honour said:

The proposition which I have stated based on

the observations of James L.J. needs to be

Warman(2) 23 28/6/94

modified in order to take account of the

situation where the fiduciary has so mixed an

indeterminate profit with his own property as

to render the identification of the gain

impossible. There" ... the whole will be

treated as trust property except so far as he

may be able to distinguish what is his own". And reference is made to Brady v Stapleton. That

is not on Your Honours list but can I commend the

reference to you (1952) 88 CLR 322. There is a

passage in the judgment of Chief Justice Dixon and

Mr Justice Fullagar which deals with this

identification problem and really speaks of an

inversion of the true position. Your Honours do

not have this case, I am sorry, but I will just

read the part that you will find at page 336:

The view that impossibility of precise

identification of trust shares precludes the

making of an order for a transfer of shares

seems really to amount to something like an

inversion of the true position. In the

present case its practical effect seems to be

to place the burden.of identification upon the

wrong shoulders. In Frith v

Cartland ..... Sir w. Page Wood V-C. said said:

"If a man mixes trust funds with his own, the

whole will be treated as the trust property,

except so far as he may be able to distinguish

what is his own."

And that kind of observation is relevant to a

business as much as it is to tangible property as,

we would submit, His Honour the Chief Justice

recognizes in Hospital Products in passages that we

will go on to and Justice Kearney recognized in the

Timber Engineering case which is a part A case,

case 11, (1980) 2 NSWLR 488. I will come back to

the relevant passage, but continuing with Hospital

Products, Your Honour the Chief Justice went on:	The proposition may also need to be modified
to take account of a profit acquired by
a fraudulent fiduciary -

and that is what we are dealing with here -

through a combination of trust property and

his own property or efforts. It may well be

that equity in such circumstances will not

seek to apportion the gain.

And then Your Honour particularly went on to deal

with businesses in the next paragraph, posing two

questions. What is the breach of fiduciary duty

and what is the profit?

warman(2) 24 28/6/94

DAWSON J: His Honour essentially deals with Jarvis's case

there and points out that in that authority one

would approach the case according to its own

peculiar facts.

MR GORE:	We do not quarrel with any of that, Your Honour.
DAWSON J:	In order to determine the profit or benefit

obtained from the breach of trust.

MR GORE:  Yes, but one really examines that question

principally by reference to what it is in the hands

of the fiduciary rather than by reference to what

might have been in the principal's hands or might
have come into the principal's hands.

It has to be a profit or a benefit which the fiduciary has obtained as a result of the breach

but it does not have to be a benefit or profit

which the principal himself either had or could

have.

BRENNAN J: Is this your proposition that if there is found

in the hands of the fiduciary property which has been contributed to in part by what was or would

have been the property of the plaintiff and in part

by the efforts or other property of the defendant,
then the onus lays upon the defendant to separate

out that which is his own in order to determine

what is the measure of the relief?

MR GORE:	Yes, Your Honour.
BRENNAN J:	In this case was there any separation out?
MR GORE:	There was by a trial judge. He has been

criticized for it by the majority, but he took the

view that it was a 50:50 situation for both profits

and goodwill, having regard really to points of

difference between the engineering agencies

division and the combined business of BTA and ETA,

that the majority ultimately thought, or so we read

the judgment, provided justification for granting

no relief at all by way of an account of profits.

They have really turned principals right on their

head by saying that because there are these

differences, there is no liability to account and

moreover, the fiduciary is not liable according to

gain; he is only liable according to loss. This

plaintiff can only recover from this fraudulent

fiduciary what he has lost.

DAWSON J:	Was this ever argued before the trial judge?
MR GORE:	No.
DAWSON J:	The question of apportionment separating out?

Warman(2)	25	28/6/94
MR GORE:	I believe so, Your Honour.	I have my trial

submissions here, if I could just check those to

give Your Honour an accurate answer.

DAWSON J: Well, do not worry about it now. It just seems

you are suggesting - it seems to be	suggested that
the trial judge did all this of his	own motion.
You may not be suggesting that, but	that is the
impression I gain.

MR GORE:  No, I was not suggesting that the criticism was

that he had done it of his own motion. The

criticism was that the answer he arrived at was

arbitrary. I can take Your Honour to the

particular reasoning, but the majority, in effect,

said, "How can you justify only applying a

capitalization rate of one to this valuable

business. That means you're only giving Warman the

benefit of half of one year's profit after tax as
payment for goodwill, when the evidence established

that it was making hundreds of thousands of dollars

a year. What's the possible justification for

that?", so the majority rhetorically asked. That

is not really a question that arises before this

Court. Your Honours, in ·our submission, do not

need to get involved in the detail of the

assessment that the trial judge carried out, but we

can give you an answer to the question that the

majority raised and it involves reference back to
the trial judge's assessment of $325,000 if the

case were an equitable damages case, because he

said that reflected one year's potential, having

regard to what he called the two reasonably serious

contingencies: either on the one hand Warman would
dispose of the division itself or, on the other

hand, Bonfiglioli would terminate the agency.

So, what the trial judge has apparently

determined is that if this business were offered on

the open market, based upon the facts as they were

in 1988 at the time of the key breaches, a

purchaser would only pay one year's after tax
profit. Now, might we say that that does involve

really some error of principle on the part of the trial judge because it involves seeking to ascertain the truth about what the position would

have been had Dwyer been loyal when, as we have

sought to emphasize, and this Court and other

courts have emphasized over the years, you do not

make that sort of inquiry when you are dealing with

defaulting fiduciaries.

Having said that, we do not complain about it.

We do complain that the majority criticized us for

not complaining that the award was too low. The

majority seemed to think that somehow that meant

that we recognized that there was some error or

warman(2) 26 28/6/94

something in what the trial judge had done and we were not going to complain about it. That is not

really a proper approach for the majority to take.

Just because Warman has not complained about a

possible error in principle on the part of the

trial judge does not amount to justification for

throwing ordered principle out the window. We put

it as boldly as that; that is what this majority

has done. There is no case that we have found in

our researches where a defaulting fiduciary, who

was fraudulent and who benefited from a conflict

situation, where the principal sought an account,

where that account was denied. This will be the

first case where that has happened in 250 years of

fiduciary law, if not longer.

DAWSON J:  So you really say the award ought to have been more, but you are not complaining about it now?

MR GORE: Absolutely. And just because we are not

complaining about it does not mean there is some

error in principle, and just because there could

have been more does not mean that the principles

are wrong, because the principles say if someone

like Dwyer sees that the~e is a valuable business

and knows that he can get it for himself, that he

can make hundreds of thousands of dollars a year if

he can cheat his employer, then why should he not

be held liable for life? The object of the rules

is to stop people behaving like that. Employers

like Warman are entitled to expect employees like

Dwyer to do the best they can to keep the business.

Now, it may well be that Warman, at senior level

management, was not terribly interested in the·new

assembly process, but, in those passages from the

judgment of Mr Justice McPherson, which I

particularly commended to you at the start of the

submissions, who knows what might have happened if

Dwyer had been a loyal person. He had, on the

trial judge's findings, through Jarvis, a close

relationship with the Bonfiglioli people; he could

well have turned things around.

But Ex parte James, 1803, and cases following

it, say you just do not inquire into things like

that.	Dwyer must suffer the consequences; you keep
fiduciaries up to the mark.	If it means profits

for one hundred years, it is profits for one

hundred years. And that is why the trial judge's

observation that we took you to, that it was open

to Dwyer and the defendant companies to do

something about it, even before the trial, is

perfectly valid. He has been held to be a

defaulting fiduciary, he turned down an opportunity

to buy the businesses when he was an employee, on
the trial judge's findings, because he knew he

could get it for nothing. Why should he be let off

Warman(2) 27 28/6/94

for just paying market price? What kind of moral

standards does that involve upholding? It is just

turning principle completely on its head.

I probably have said enough about

Hospital Products at page 110. We, with respect,

support the statements of principle there and that

is the approach that the trial judge took in

volume 2. At page 202, line 24, he referred to

Re Jarvis, and then went on to make a case for allowances, and the acceptability of his overall
approach was dealt with by Mr Justice McPherson.

With this particular passage from Hospital Products

in mind, at page 277 from line 35 through to - it

is quite a lengthy set of passages, which I do not

invite the Court to read now - page 285, line 55.

Whilst we have got Hospital Products open,

could I refer to and rely upon what Your Honour
Justice Dawson said at page 146 of 156 CLR, where,

at point 2 and following, in holding that there was

in that particular case no fiduciary relationship

because there were elements of the relationship

which were the antithesis of a fiduciary

relationship, Your Honour really emphasized and

referred to cases which lie at the heart of our

submissions about the possibility of conflict and

Your Honour referred to Ex parte James and the

proposition that it is authority for, at about

point 5, and that I have emphasized, that the court

is not equal to the task of examining what would

have happened in a case like this if Dwyer had been

loyal. It is hard enough proving that he was

disloyal when he comes along to court and tells the

court untruths; the court recognizes that it is

very difficult to go that next step and find out

what the true position would have been if he had

been loyal.

I had earlier mentioned, and I apologize for not having concluded the submission, that the three

top management cases have been referred to by this

Court elsewhere. The one that I forgot to mention

was Green v Bestobell, (1982) WAR, which

Your Honour the Chief Justice did refer to with

evident approval in Hospital Products, 156 CLR 113,

at about point 3.

Your Honours, we mention in the outline at

paragraph 3 on page 2 that various American courts

have developed what has been called a "corporate

opportunity doctrine" which is to similar effect a

Commonwealth law. In the footnote No 2 in the

outline, we refer the Court to Professor Austin's

paper, "Fiduciary Accountability for Business

Opportunities", which is a Part A authority in

volume 1, No 7. I will be corning to it in some

warrnan(2) 28 28/6/94

short detail in a moment. Also in that footnote we

refer to some basically analogous examples. These

are Part B cases, but they are again cases where a fiduciary has been held liable to account or there

has been some equivalent order by way of damages

made, even though the property in question was not

shown to be property that the principal could have

obtained, so that those American courts are

operating in the same way as the Australian cases.

If we could, for the Court's convenience,

summarize the facts relevantly. Cain v Cain,

(1975) 334 NE 2d 650, was a case where the

fiduciary obtained the benefit of contracts from a
contracting party, who was already dissatisfied

with the employer, somewhat similar to the

Bonfiglioli/Warman situation. Erco v Porter,

(1982) 438 NE 2d 391, was a case where the third

party had had a change of heart about working with

the employer. Federal Sugar Equalization Board v

United States Sugar Equalization Board,

(1920) 286 FR 575, although a common law case, was

a case where a defendant induced a third party to

break his contract with the plaintiff and to

contract with him. He was held liable, even though

it was shown that the plaintiff would have lost

money if it had performed the contract with the

third party. And, as we have submitted in

paragraph 4 of the outline, on both the

Commonwealth and American authority, Warman was

entitled to an account, notwithstanding any

prospect that had Dwyer been loyal, the engineering

agencies division may nevertheless have been

discontinued or otherwise lost.

I have gone ahead of the outline in dealing

with the reasons for the principles in oral

submissions. The authority which is referred to in

paragraph 6 of Meinhard v Salmon, 249 NY 456, is an extract from a judgment of Chief Judge Cardozo, who

is highly regarded by Australian courts, at

page 464, and then we go on to deal with what two

leading commentators have had to say about this
area of the law, and they speak of a "prophylactic
principle" - a very colourful word, I suppose one
might say, but the commentators are of high regard.

Professor Gareth Jones, in a Part A work, an

article that he wrote in 1968 and which was

published in 84 LQR 472 and which is No 8 in

volume 1 of the authorities, is one of the

commentators, and the other is Professor Austin, to

whom I have already referred.

Now, I do want to take the Court to

Professor Jones' paper. Its worth, in our submission, has not been diminished by the passage of time. If anything, the expertise of this author

Warman(2) 29 28/6/94

in this area has been somewhat confirmed by court

decisions since he wrote. On the first page of the

article, at about point 5, Professor Jones refers

to this "inflexible rule of equity" and, if you

like, begins to question it in a way that

Your Honour Justice Deane did also in

Chan v Zacharia, and reference is made at page 478

to Meinhard v Salmon, the passage in

Chief Judge Cardozo's judgment, and to other

pronouncements to which we have already referred.

At page 474 at point 2, we find this reference to a

"prophylactic principle" when he says:

These pronouncements, which are very

representative, appear to suggest that a
prophylactic rather than a restitutionary
principle underlies this rule of "universal

application."

And then there is reference to Keech v Sandford and

almost the whole judgment is set out on that page.

And, in the balance of the article, Professor Jones

really goes on to question whether it is a

prophylactic basis or a restitutionary basis, and

he divides at page 475, the cases into two groups:

those:

Where the fiduciary has acted with proven dishonesty -

and those where he has not. And relevantly to this

case involving a proven dishonesty case, he says at

point 6 that:

The courts have wasted neither sympathy

nor analysis on the fiduciary who has acted

with proven dishonesty or with manifest

disregard of his principal's interests.

We respectfully submit that that is really the end

of the matter; that the majority here have wasted

both sympathy and analysis which no other court has

ever wasted on a dishonest fiduciary. That passage

as we note in footnote 6 of our outline was

referred to by the Court of Appeal in the United

States Surgical case, (1983) 2 NSWLR 157, at

page 238. Returning to Professor Jones' article,

he then goes on to deal with the well-known case of

Reading v Attorney-General, (1951) AC 507, at

page 476. He refers at page 477 to that Federal

Sugar Refining Co case, which we mentioned a little

while ago. He then at page 478 deals with cases

where the fiauciary has "acted honestly" and at

page 501 expresses some conclusions which are

relevant to this case, because what Professor Jones

does is to identify the possibility of conflict

between important equitable rules and, having

Warman(2) 30 28/6/94

identified relevant objects, he says in the second

paragraph:

In many cases these objects do not

conflict.

Now, we are mentioning all of this because,

although it is not articulated by the majority in

this Warman appeal, one's clear impression of the

reasoning is that the court, the majority there,

thought that there was some conflict of principle,

that because equity should not be used as an

instrument of punishment or something of that kind,

those unarticulated reasons for the orthodox
principles, as we describe them, should give way in

the particular circumstances of this Warman case,

but we submit that that is simply not so and

Professor Jones' article bears that out when he

goes on to say:

The dishonest fiduciary who is punished as a

warning to others has been unjustly enriched.

It is irrelevant that his gain has not been made at his principal's expense, in the sense

that something has been taken "from [the)

plaintiff and added to the treasury of [the)

defendant." For he has abused his position of

trust, and "in equity and good conscience [he]
should not be permitted to retain that by

which [he] has been enriched." In other

cases, however, the fiduciary's enrichment has

not been unjustly gained. There is then a

variance between [the] two objects which

underlie equity's inflexible rule. Some but

not all courts and judges have been aware of

this clash of principle.

Now, can we respectfully submit that that kind of

clash is the kind of clash that Your Honour

Justice Deane had in mind in Chan v Zacharia, but

it is not a clash that arises in the case of a

dishonest fiduciary.

There is another aspect of this article that

is relevant to one of our latest submissions. I foreshadowed it earlier. It is to deal with the

majority's complaint that Dwyer was made equally

liable with the corporate defendants and there are

two passages in this article which are relevant to

that issue. The first commences at page 498 in the

first full paragraph beginning:

Conversely, the fiduciary who is

dishonest or has otherwise manifestly

disregarded his principal's interest should be

deemed to be a constructive trustee for his

principal of assets acquired through his

Warman(2) 31 28/6/94

breach of duty. Indeed there may be grounds

for imposing upon him an even greater

liability.

There was then reference to the facts in

Regal (Hastings) Ltd v Gulliver. Quite by chance

it turns out that the defendant in that case, which

was not made liable, was Gulliver himself, even

though his name will always be in the title to the

case. He was honest, no mala fides, and the

summary that Professor Jones there gives is, with

respect, an accurate summary of the reasons why
Gulliver was relieved of responsibility. But

Professor Jones goes on at point 7:

On the facts of Regal the decision was,

moreover, a proper one, for there was no

evidence that the managing director had acted

with bad faith. But if one of the objects of

equity's inexorable rule is to deter

fiduciaries from following the example of the
unfaithful and the dishonest, it may not be

unreasonable, on the particular facts of the case, to make the dishonest fiduciary liable not only for any profits he has made but for the profits which his breach has enabled

others to make. On all fours, we submit, with this case.

This degree of liability -

the Professor went on -

is not the natural consequence of any theory

of unjust enrichment, but is simply, in the

words of an American judge, "an administrative

sanction for the enforcement of the rules of

fiduciary conduct set by the law."

And he obviously thought it of sufficient

importance to refer to it in his conclusion at

page 502, where in the final paragraph about

half-way through, he says:

On the other hand a fiduciary who is dishonest
or who has otherwise manifestly disregarded

his principal's interest should be held to be

a constructive trustee ..... !£, as a matter of

policy, the court imposes on him a further and

penal liability for profits made by third

parties, his liability should only be a

personal one, to account to his principal for

those profits.

To, I suppose, complete this point, it continues to

be a point which the Professor supports because, in

Warrnan(2) 32 28/6/94

an abbreviated form, it is in the fourth edition,

the 1993 edition of Goff and Jones, in Chapter 33,

which is a Part A authority, No 6 in volume 1, and

it is at page 647 of that work in the third line:

In some circumstances a fiduciary may be

liable for the profits which others make. And there is then really an abbreviated summary of

what the professor had said back in 1968.

Turning to Professor Austin's article, which

is a case A authority in volume 1 No 7, it is an

article in one of the many works edited by

Professor Finn, "Equity and Commercial immediately relevant commence at page 175 of that

article with the heading, "The Irrelevance of

Corporate Damage and Corporate Inability".	I think
it was earlier in the article that the author
explained what he meant by those terms:	"corporate

damage" is obviously damage suffered by a company;

"corporate inability" is an inability of the

company to enter into a particular contract or take

some other step. So that what this section is

dealing with is really the Keech v Sandford

principle that the fact that a company has not

suffered damage or that it was unable to get a

particular property right is irrelevant to

equitable relief when you are dealing with a
defaulting fiduciary.

Professor Austin at page 177 deals with the question of principle as addressed by

Professor Jones in the article that we have just

canvassed, and he joins issue really with

Professor Jones, not in a way which in any way

undermines Warman's submissions; more so in a way

which identifies those areas where equity courts

may see fit to adjust relief to the circumstances

of a particular case, but not a case involving a

dishonest fiduciary. For example, Professor Austin

observes at about point 7, in the passage beginning

"While Professor Jones' plea" at line 4:

His approach treats unjust enrichment as

the proper starting point in both of his

groups of cases.

I identified those two groups in the article.

He would move to a prophylactic rule only if

the particular circumstances justify that

step. This makes a controversial assumption

about the prophylactic approach, namely that

there is no justification for imposing a

Warman(2) 33 28/6/94

strict rule or set of rules generally and as a

starting point ..... Is that so?

And Professor Austin contends that the prophylactic

approach is justifiable generally and that

including on page 178 at about point 8 a reference to Ex parte James as a separate justification for the principle. At page 179, in the first full

accordingly Professor Jones' assumption is wrong.

paragraph, he deals with Professor Jones'

insistence:

on a subdivision into honest and dishonest

breaches -

but identifies a:

risk of improper advantage -

as being more important. It has to be

acknowledqed, we would submit, that on the

authorities to date, Professor Austin is correct

about this, with Regal (~astings) Ltd v Gulliver

and Boardman v Phipps, involving honest

fiduciaries, and at page 180 he expresses the

conclusion:

that the attitude of Commonwealth courts to

the questions of corporate damage and
corporate inability is justifiable in terms of

a prophylactic approach designed to avoid the

risk of harm and difficulties of factual

determination of matters to do with corporate

inability.

There are some useful passages also in the fourth

edition of Goff and Jones, which as mentioned is a

Part A authority No 6. It is our respectful

submission that by way of overview there is nothing

in this discussion which supports the majority or

undermines Warman's submissions before this Court;

indeed, really quite the contrary. Some relevant

passages are at pages 645 to 647 of this work. At

page 645 at about line 6, having identified

relevant questions:

In answering these questions it is said to be irrelevant that the fiduciary has acted honestly and in the beneficiary's best

interests, that the profit would not have been

made without the fiduciary's own personal

skill and judgment, that the beneficiary as

well as the fiduciary benefited -

and so on. And there is then a discussion

reminiscent of the 1968 article of whether you

Warman(2) 28/6/94

should adopt that approach with an honest

fiduciary. There is identification at page 646,

third line:

'The more intense the fiduciary relationship,

the more vigilant is the court's surveillance

of the conduct of the fiduciary.

Now, we are not at some low level of the scale
here. This is a top management case. We are not
dealing with the errand boy, who can sometimes be a

fiduciary when he has got your milk money. We are

dealing with a person who was in control of a very

valuable business and you are at the upper end of the fiduciary scale, not entirely in the realm of trustee, but at the higher end of the fiduciary

scale. And at the bottom of page 646, after some

academic observations, the conclusion is expressed: But, as the law now stands, the only exception

to the general rule is in favour of the

dishonest fiduciary: a fiduciary who receives

a sum as a bribe from a third party must

account for but is ~ot a trustee of that sum.

And that is a reference in footnote 40 to
Lister v Stubbs, (1890) 45 Ch D 1. There is now no

longer any exception in favour of the dishonest
fiduciary who accepts the bribe in view of the more

recent decision of the Privy Council in

Attorney-General for Hong Kong v Reid,

(1994) 1 AC 324, which is case 9 in your bundle in

volume 1. In this case, Lister v Stubbs' shaky

survival for 100 years has finally been put to an

end, at least as far as English courts are
concerned; I do not wish to usurp what this Court

may say ultimately about Lister v Stubbs. But

relevantly, to this case, there is affirmation of

the Keech v Sandford principle and the strictness

of the rule, commencing at page 337 of the report,

where reference is made at about point 2 to

Regal (Hastings) Ltd v Gulliver and to

Keech v Sandford, then to the broadly analogous case of Reading v Attorney-General, then to a

decision of a Singapore judge to an article by

Sir Peter Millett, and relevantly at page 338 to

Phipps v Boardman:

which demonstrates the strictness with which

equity regards the conduct of the fiduciary

and the extent to which equity is willing to

impose a constructive trust on property

obtained by a fiduciary by virtue of his

office.

And, between letters C and D:

Warman(2) 35 28/6/94

If a fiduciary acting honestly and in good

faith and making a profit which his principal

could not make for himself becomes a

constructive trustee of that profit then it
seems to their Lordships that a fiduciary
acting dishonestly and criminally who accepts
a bribe and thereby causes loss and damage to

his principal must also be a constructive

trustee and must not be allowed by any means

to make any profit from his wrongdoing.

So one does not discern there any softening in the
attitude of that court towards the strictness of
the equitable rules, at least in cases involving

dishonest fiduciaries and, of course, the fiduciary

in Reid was a very dishonest Crown servant who was
in the legal profession, doubtless gave it a bad

name in Hong Kong for some time, and accepted

bribes.

DEANE J:  Mr Gore, if one accepts the finding by the

majority that all that was involved was, as it

were, a hastening of the end, what significance has

been or, in your view, s~ould be given to the fact

that the Bonfiglioli interests owned half of the

second respondent? On one approach, if there was

just a delay in terminating the agency, Dwyer

brought to the enterprise the residue of the agency and the other joint owner brought to the enterprise

itself the - whatever it is - 18 or 19 years of the

rest of the agency agreement.	Do you follow the
query I am making of you?

MR GORE:  If I could just ask Your Honour what Your Honour

means by the 18 or 19 years.	Up to that point, do
you mean?

DEANE J: It was a 20 year agency agreement, was it not?

MR GORE:

I think it was unlimited as to time, but

terminable on three months' notice.

DEANE J:	I am talking about the new agreement.
MR GORE:	The new agreement was, I think, a 20 year

agreement, from memory.

DEANE J: Well, what I was asking you about is: on one

approach Dwyer brought to the second respondent the
residue of the agency which already existed; the

other joint owner brought to the second respondent

the agency agreement over and beyond what was seen
to be the residue. Now, what I was asking is: was

any account taken of that in the courts below and,

if not, should any account be taken of it?

Warman(2) 36 28/6/94

MR GORE:  In answer to the first part of Your Honour's

question, account was taken of it, in an indirect

sense, by the trial judge at page 202 of volume 2

of the appeal book, in the passage beginning at

line 32 where he expressed the view that the case

for the Jarvis-type allowances was quite strong:

because some of the profits were derived from

the assembly venture itself, which are

difficult to evaluate. Further, other parts

of the profits came from the increase in or

maintenance of sales because of the

combination of the larger stock holding and

the flexibility produced by the assembly

process.

I say that that reveals some indirect taking into

account of the matter that Your Honour has referred

to because an earlier part of the judgment reveals

that Bonfiglioli did wish to enter into a joint

venture with Warman, or somebody else, for assembly

and ultimately the somebody else turned out to be

Dwyer and that, secondly, there had been concern

expressed by Dwyer about the amount of stock which

Warman was holding in itq Brisbane office of the

Engineering Agencies Division which, by the end of

his employment, was the only office controlling the

division - this is in the judgment - and it was a

matter that he had referred to in that letter of

28 August 1986.

I think I am correct in saying that the

judgment of the trial judge referred to some

discontent that a Mr Carbone, an employee of

Bonfiglioli, had about that matter. But in any

event, on an overall reading of the judgment, we

would submit that the fact that Bonfiglioli was now
involved in a more secure way was indirectly taken

into account in those respects.

that ought to have been taken into account, As to the question whether it is something opinions on that can differ because there is

authority which suggests that you really should not

be making allowances of any kind, or at least of a

liberal kind, in the case of dishonest fiduciaries.

Phipps v Boardman is an indirect authority in that

respect. Phipps v Boardman, in the judgment of

Lord Wilberforce at first instance is, I regret,

not a Part A case but I can give the Court the

reference. At first instance it is reported in

(1964) 1 WLR 993, and the relevant passage is on
the last page of the judgment at page 1018, where

His Lordship expressed the view that payment for

these allowances should be on a liberal scale

because, in effect, the fiduciaries had acted

honestly and the trust had benefited, and that view

Warman(2) 37 28/6/94

was supported both in the Court of Appeal and in

the House of Lords.

DEANE J: What I really have in mind is this: if you take

the United States Surgical - or whatever the case

is called - by way of example or by way of analogy,

there would be something to be said for the view

here that the Bonfiglioli - or whatever they are

called - overseas interests owned the local

goodwill to the extent that that local goodwill

related to the excess of an agency agreement that

could be terminated by three months notice. Now,

what I am really asking you is: is that a relevant

thing when one comes to land the second respondent,

in which the overseas interests own half the

equity, with the full profits earned over a period

of years from the exploitation of the goodwill of

whatever you define it?

MR GORE:  I would say two things, Your Honour. The first is

that it really is irrelevant to the liability of
the second respondent, BTA, that half of the
shareholding is held by the Italians, as they were

affectionately called at the trial, because the

second respondent is itself liable to account. As

a separate company it is liable to account because

it, on the trial judge's findings, did participate

in the breach because of the Dwyer's position in

the company as a director and shareholder.

DEANE J:  I follow that, but what I was asking you was: is

the view open that what came to the second

respondent, as a result of Dwyer's breach, in view

of the finding of the majority, the residue, as it

were, of the agency agreement and goodwill attached

to that, whereas the balance of the goodwill was

brought by the Italian interests which owned the

local goodwill over and above the agency agreement

by analogy with United States Surgical?

MR GORE:  Your Honour, I hope I am not misunderstanding the

question.

DEANE J:  I am not surprised if you do. It is getting a

little bit away from me, too.

MR GORE:  Your Honour, I will take the responsibility for

that. I am not focusing correctly, I suspect, on

Your Honour's question. The second thing I was

going to say earlier was that, for our part, we

would not really accept the proposition that the

Italians relevantly owned any goodwill. The

property that needs to be identified by an equity

court in this Dwyer context really is the right to

sell Bonfiglioli products. That was a right which

Warman had, albeit not as secure a right as the second respondent ultimately obtained.

Warman(2) 38 28/6/94

That right had goodwill attaching to its

ability to be exercised in Australia by skilled

staff headed by Dwyer. That right was lost by

Warman, to the extent that loss is an issue, and

that right is now held by the second respondent.

It would not be right to say that the Italians

owned any goodwill in Australia, we would submit.

I hope I am not missing the thrust of Your Honour's

question.

DEANE J:  I do not think you are but, by analogy with

United States Surgical if, for example, the

Italians had terminated the agency agreement by

three months notice - I am more or less assuming
that the Italians would have owned the local

goodwill for their products. Now, it is that local

goodwill to the excess of what was involved in the

expiring agency agreement which, on one approach,

they brought to the second respondent. I am not

suggesting it is a critical factor, I am just

asking you.

MR GORE:  Yes. Could I ask Your Honour to perhaps identify

where Your Honour sees the analogy, because with

Hospital Products there was a period when there was no local goodwill, the United States company pulled

out as it were.	Is that the part Your Honour is
referring to?

DEANE J:  If it were ordinary agency agreement the Italians

would own the local goodwill, subject only to the

rights of Warman to exploit that local goodwill in

accordance with the agency agreement; if the agency

agreement had been terminated and Warmans purported

to apply the Italian goodwill for their own purposes, you would move into United States Surgical territory.

MR GORE:	You possibly would.
DEANE J: Yes, I should have said "possibly".
MR GORE:	Can I change the facts of this case only slightly?

Assume that the facts are that Bonfiglioli is

looking for its first exclusive distributor in

Australia, that Warman through Dwyer, learns of

that, that Dwyer knows that Warman would be
interested in having that agency to supplement its

main line products, and that Dwyer misleads his employer and secures the precise arrangement he

entered into in 1988 with the Italians on this new

set of postulated facts. On that set of facts we

would submit that Warman would be entitled to

constructive trust relief in relation to the new

business set up, notwithstanding the input of the

Italians and the fact that Warman never had any

ongoing business, any residue, to talk about.

Warman(2) 39 28/6/94

DEANE J:  I follow that, and I will just put one more

scenario to you. Assume a partnership, as distinct

from a company, and assume the Italians terminated

Warman's agency and then entered into a partnership

with Mr Dwyer for doing what the second respondent
was going to do, I have no trouble at all in

following you all the way down the road to saying

Dwyer has to account for everything he obtains. It

is not so apparent to me that the Italians, having

entered into a new arrangement with respect to

their goodwill, have to account for whatever they

draw from the new partnership, on the basis that

what they draw somehow represents the fruits of a

breach of fiduciary duty.

MR GORE:  And, in a sense, Your Honour's point raises a

party's point: is there some issue here because

the Italian company is not a party to the action?

DEANE J:  I was not trying to confront you with a party's

point.

MR GORE:  No. It is not really a point that, with all

respect to our learned friends, was agitated below

in those terms. Obviousiy, I take the force of

Your Honour's example involving the partnership.

In the corporate context it is a little easier for
equity not to be too concerned about the
shareholding because of the orthodox common law
principle that the shareholder does not have any
interest in the assets of the company and unless
there was some reason why equity would want to lift

the corporate veil in this context then, if I am

understanding Your Honour's question correctly,

there is not a problem as far as an equity court is

concerned.

Could I say, Justice Deane, that my junior brings it to my attention that a case that he is

familiar with, and that I concede I have not read,
is of some relevance to your question.	It is a

Canadian decision, not on anybody's list, of
Abbey Glen Property Corp. v Stumborg,

(1978) 85 DLR (3d) 35, where by majority, as I

understand the summary Mr Brandis has just given,

changes in shareholding were held to be irrelevant

in a context not dissimilar to the present.

Your Honours, there is another recent case

that we submit supports the proposition that there

is really no softening of the attitude of

Commonwealth courts towards the strictness of the

rule in cases where it is necessary to keep

fiduciaries up to the mark. It is a decision of

the English Court of Appeal in Target Holdings Ltd

v Redferns, (1994) 2 All ER 337, case number 10,

volume 1. It was a decision by majority. I will

Warman(2) 40 28/6/94

not trouble Your Honours with the particular facts but the passage that is relevant to the submission

being made appears at page 353 in the principal

judgment of Lord Justice Peter Gibson between

letters hand j, where there was some

acknowledgement of possible harshness.

His Lordship said:

If this appears harsh treatment of a

defaulting trustee, it has to be acknowledged

that equity has always treated a defaulting

trustee severely, no doubt, as was said in

Nocton v Lord Ashburton by Lord Dunedin, in

exercise of its jurisdiction 'to keep persons

in a fiduciary capacity up to their duty'.

Can I return to the particular reasoning then of

the majority in this case. In our outline, on

page 3, you will find in paragraph 8 one of our

major attacks of the judgment. In large measure it

has been covered but we do, and I will re-submit

that if the majority decision is right then the law

is that a fiduciary can seek to dishonestly obtain

his principal's property for nothing, knowing that

if he is caught he will be allowed to keep the

property and will not have to pay any more than

ordinary market value for it, and potentially

nothing, if it should emerge that the principal

would have lost the property anyway.

We mention that particularly because of one of the observations made by the majority in volume 2

of the appeal book at page 251 at line 26.	The
majority seem troubled by the notion that:

The cheat may have to pay nothing, or a great sum, depending on whether or not he was a

fiduciary. The defendant who in a marginal

case is held to have breached a fiduciary duty

may think it odd that this mistake - for it

may be no more than that - is more expensive

that simple fraud would have been.

Now, as far as that second sentence is concerned,

that is simply not this case. We are not dealing

with a marginal case and someone who has made a

mistake.	We are dealing with a dishonest
fiduciary.	So that second sentence may be relevant

to the two categories of case that Professor Jones

dealt with in his article in the Law Quarterly
Review when a decision in relation to those categories needs squarely to be confronted by this

Court.

As far as the first sentence is concerned, the

nothing possibility has not really been explained

but the sentence ignores that on the current state

Warman(2) 41 28/6/94

of the law, and it involves decisions of high

authority, even the honest fiduciary will be held

accountable, at least in most cases, and now the

majority would have it, by limiting warman's

recovery in the case of a dishonest fiduciary to

perceived loss, that the cheat may have to pay

nothing in the sense that he may not be caught, or
he may not have to pay a very great sum if he is

caught, whether or not he is a fiduciary, if it turns out that the employer really has not lost very much.

Again, vary the facts here only slightly:

assume that Warman had made the decision to dispose

of the Engineering Agencies Division and, itself,

to terminate the Bonfiglioli agency, but in its own time. Assume that it had decided to do that in the

near future. It would be quite wrong for a senior

employee, whilst in his employment, to seek to

secure that agency for himself if it would involve competition with the employer and, if he did that,

on the current state of the law, and we submit

there is no reason for change, he would be held

liable to account even if it were demonstrated that

it was something that the principal decided to

dispose of anyway.

In our outline we refer to a passing

acknowledgement of the orthodox principles. That

is at page 250 of the record between lines 10 to

12, "It has to be conceded" and so on. Going back

to page 249, as already mentioned, because the

majority at line 28 speak of two other general
considerations, one must conclude that there are

other more particular considerations that were

referred to earlier. As far as the liability of

the corporate respondents is concerned, it would

seem possible to identify four matters that the

majority seemed troubled by; I will simply

summarize them and give Your Honours record

references. First, that the BTA business was different

from the Engineering Agencies Division in two ways:

the first way being that it was a joint venture

and, secondly, part of its business was assembly;

see appeal book pages 244 to 245. Second, that the

role of BTA and ETA was not in substance

participation in Dwyer's breach of duty; appeal

book page 247 line 15. Third, "that Dwyer merely

accelerated Warman's loss of the Bonfiglioli

agency"; appeal book 247 line 55. Fourth,

"Warman's apparent lack of interest in the proposed

joint venture"; appeal book 249 line 20.

We submit that if they were matters which the majority thought justified displacement of the

Warman(2) 42 28/6/94

prima facie entitlement, on principle an authority

Their Honours were, with respect, wrong. In

addition to what we have said already, we would

refer the Court to the analysis by the dissenting

judge below in the appeal book at pages 271 to 276,

in particular relating to those four factors, or

some simile of them.

We also submit that given the unwillingness of

the courts to ascertain the truth in the case of a
dishonest fiduciary, because of the difficulties in
doing so, the majority was wrong to act on the
basis that the loss of the agency was merely
accelerated because that involves seeking to

ascertain what would have happened if Dwyer had been loyal, and we submit that the majority was wrong in taking the view that the role of BTA and

ETA was not in substance participation in Dwyer's

breach of duty. As companies essentially

controlled by him, it was participation in the

Consul Development sense, and we have already

submitted that the differences in the businesses

are not relevant to whether there is a liability to

account, but only to whether in taking the account

the benefits obtained by·the respondents should be

regarded as their whole business or something less,

and it is in that context that we refer to the

judgments in Re Jarvis (Deceased), (1958) 1 WLR

815, and the decision of this Court in Hospital

Products, (1984) 156 CLR 41.

Can I briefly mention Timber Engineering Co

Pty Ltd v Anderson, (1980) 2 NSWLR 488, case 11 in volume 2 of the bundle. This was a case involving

businesses, so it has some bearing upon the

exchange between Your Honour Justice Dawson and
ourselves earlier in the day. It is a judgment of

some length and we will not take time going through
it. It is an important judgment though, and we ask

the Court to consider it in the context of this

case. It was a case where there was a time issue

involved and where there was some concern about

permanently preventing the defaulting fiduciaries

from using the skill that they had obtained in the

course of working for the plaintiff for the rest of

their lives. I have not put that very well, but

broadly relevant to the question that Your Honour

Justice Dawson asked us about.

In that respect the relevant part of the

judgment is really the second consideration of some

questions at pages 500 through to 507, but for the

more orthodox application of principle it is the

first judgment which concludes at page 500 which is

relevant, and what His Honour there ordered was

Warman(2) 43 28/6/94

that there was a constructive trust and in

paragraph (28) at page 499 he declared a lien over

the shares and expressed the view then, at page 504

in paragraph (60), that:

after the trusts have been full executed

pursuant to the orders to be made in these
proceedings, the personal defendants will be

free to compete with the business formerly the

subject of the trust.

MASON CJ:  Mr Gore, we will adjourn now and resume at 2.15.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.17 PM:

MASON CJ: Yes, Mr Gore.

MR GORE:  Thank you, Your Honour.· I would ask the Court to

look now at case No 15 in volume 2 of the part A

authorities, a decision of the Supreme Court of

Canada in LAC Minerals Ltd v International Corona

Resources Ltd, (1989) 61 DLR (4th) 14. This is a

case where the policy reasons underlying the rules

relating to breach of confidence or breach of

fiduciary duty were influential in the selection of

remedy in a breach situation in the majority's

view. It involved the perhaps not unfamiliar

situation where there was a proposed joint venture

in relation to land which had certain mining rights

and the defendant, in breach of a duty of

confidence or a fiduciary obligation, put in a

competing bid first and developed the land for

mining purposes. It was held at first instance to

be liable and that finding survived appeals, but so

far as the question of remedy is concerned, the

majority of the Supreme Court of Canada concluded

that the appropriate remedy was the imposition upon

the defendant of a constructive trust.	I am not
suggesting that the case involves factual

similarities with the present: it is just the

principle I am concerned with.

The leading judgment on remedy is that of

Justice La Forest, but before turning to it, we

invite the Court to look at the judgment of

Mr Justice Wilson, who agreed with

Justice La Forest on remedy and at page 17 had some observations of his own to make under "The remedy"

heading, and he expressed the view in the first

sentence of that section that:

Warman(2) 44 28/6/94

when the same conduct gives rise to

alternative causes of action, one at common

law and the other in equity, and the available

remedies are different, the court should

consider which will provide the more
appropriate remedy to the innocent party and

give the innocent party the benefit of that

remedy.

That is relevant here, because on the approach

taken by the majority there was no advantage at all

to Warman to pursue an equitable remedy; it has

been given common law relief, and that is contrary

to the traditional approach that equity provides,

in appropriate cases, more substantial relief than

ordinary common law relief.

Continuing with this judgment at page 17 at

about point 6:

The imposition of a constructive trust also ensures, of course, that the wrongdoer does not benefit from his wrongdoing, an important

consideration in e~ity which may not be

achieved by a damage award.

That has relevance here.

In the judgment of Mr Justice La Forest-at

page 47, having acknowledged that there was

remedial flexibility, His Honour said, at about

point 1, that:

In view of this remedial flexibility,

detailed consideration must be given to the

reasons a remedy measured by LAC's gain at

Corona's expense is more appropriate than a

remedy compensating the plaintiff for the loss

suffered.

And in the course of that detailed consideration,

he observed at point 4 that:

The essence of the imposition of

fiduciary obligations is its utility in the

promotion and preservation of desired social

behaviour and institutions.

And later, at point 6, he referred to the approach

taken by Mr Justice Sopinka, who preferred a

damages approach, but in the view of the majority,

per Mr Justice La Forest, that would:

have the effect not of encouraging bargaining

in good faith, but of encouraging the

contrary. If by breaching an obligation of

confidence one party is able to acquire an

Warman(2) 45 28/6/94

asset entirely for itself, at a risk of only

having to compensate the other for what the

other would have received if a formal

relationship between them were concluded, the

former would be given a strong incentive to

breach the obligation and acquire the asset.

And earlier at page 45 at about point 5, His Honour

had observed that the measure of restitutionary

recovery is the gain the defendant made at the

plaintiff's expense.

There is an interesting discussion in the fourth edition of Goff and Jones as to what is

meant by "at the plaintiff's expense",

acknowledging that that element of the principle
can be satisfied in cases where it is not property

which the principal originally acquired or owned.

In our outline we acknowledge on page 5 in

about the fifth line that there are some recent

examples of the court's borrowing common law
concepts in deciding claims for equitable

compensation and we note what seemed to be the

three more important cases in that regard in

footnote 18. The last of those cases is a part A

case, Canson Enterprises;	I will return to it in a
moment.	The other two cases are part B cases, and

it is sufficient to just speak briefly to those:

Day v Mead, (1987) 2 NZLR 443, was a decision of

the New Zealand Court of Appeal where the court
held that in assessing compensation for breach of
fiduciary duty, the assessment could take into

account a plaintiff's share of responsibility for

the loss and the court drew on common law concepts

in that regard.

MASON CJ:	Why are we concerned with that point?
MR GORE:	We are not, Your Honour; I did not mean to

distract the Court. We were acknowledging that

there have been cases where, in recent times,

appellate courts have applied common law

principles.	We distinguish them and say they do
not involve circumstances like the present.	So the

Court is not concerned with them. And the same

applies to Aquaculture Corporation,

(1990) 3 NZLR 299, and to Canson Enterprises Ltd v

Boughton, (1991) 85 DLR (4th) 129. That was a

claim for the balance of the purchaser's loss. It

was a remoteness case, not a measure case. It was

a case where the defaulting fiduciary solicitor had

made no personal benefit - - -

MASON CJ: Well, we are not really concerned with them

unless reliance is placed upon them.

warman(2) 46 28/6/94

MR GORE:  I will say nothing more about them, Your Honour.

Finally, then, there is the natural justice

point, as it has been termed.	We deal with that at
page 7 of the outline.	The reasons which

Mr Justice McPherson gave in relation to that issue

are to be found in volume 2 of the record from

page 285 line 56 to page 289 line 30. His Honour

could see some obvious superficial attraction in

the point, but upon analysis he did not think that

it bore scrutiny. The majority tentatively

favoured the opposite view at page 236 volume 2
between lines 20 and 50.

In respect of the two considerations that the majority particularly referred to on that page, we

say, as to the first, that consideration being that

Dwyer himself did not make any profits, that that

point, on the submissions we have advanced to this

Court, really involves a matter of law. If this

Court accepts the submissions we have already

advanced that a person in Dwyer's position can be

made liable to account for the profits made by the

businesses, then that consideration referred to by

the majority disappears.

The second consideration that the majority

referred to is that the two corporate appellants

had different businesses and different profits.	We
are, with respect, unclear as to what point is

there being made, because there was evidence about

both those things, quite clear evidence, together

with findings. The findings of particular

relevance are at page 203 of volume 2 of the.appeal book, where, in the two tables at the bottom of the page, the trial judge specifically set out his

conclusions as to the net profits for the two

companies. At line 40 the reference to BT is an

error for the third respondent, and as referred to

both by the trial judge and by Mr Justice

McPherson, there was extensive evidence by
accountants on the point.	The record includes part
of that evidence in report form.	It need only be

noted that that evidence was exhibit 3, between

pages 73 and 110, in particular in relation to the

earnings of the respondent companies, between

pages 99 and 107, and although the material has not

been reproduced in the record, the Court can see

from the description in the indices of exhibits 16,

17, 18, 19 and 34, that there were accounts of the

two companies produced at the trial.

As submitted in paragraph 13 of the outline,

another way of viewing the matter is to regard the

assessment by the trial judge as being one of

equitable compensation. Because this natural

justice point is a somewhat secondary point, we

Warman(2) 47 28/6/94

hope in saying this we are not opening up a much

wider issue, but the analogy with the Canadian Aero

Service decision, which is a part A decision,

case 4 in volume 1, (1973) 40 DLR (3rd) 371, is of

some relevance. In that case, which we have

already described as a top management case, at the
conclusion of the judgment at page 392, the court

upheld the award of damages below and in doing so

said, at about point S, that:

It -

meaning Canaero -

is entitled to compel the faithless

fiduciaries to answer for their default

according to their gain. Whether the damages

awarded here be viewed as an accounting of

profits or, what amounts to the same thing, as

based on unjust enrichment, I would not

interfere with the quantum.

They are our submissions.

MASON CJ: Yes, thank you, Mr Gore. Mr Hanger.

MR HANGER:  Could I hand up an outline of submissions.

MASON CJ: Yes.

MR HANGER:  What the Court of Appeal suggested as a right

way of approaching a problem was to determine loss

consequent on the breaches of fiduciary duty. That

kind of approach has been adopted in other cases

and might I refer first to Markwell, because

Markwell was the case that the Court of Appeal

actually referred to, suggesting His Honour should

find some guidance in that. Markwell was a case

very similar to this in so far as directors and

employees had seized an opportunity - - -

BRENNAN J: Where do we find this?

MR HANGER:  Markwell is No 19 in the book, Your Honour. A

Japanese distributor had threatened to cancel an

agency come franchise, unless the employer accepted

a couple of proposals, one of them being that they

were to get rid of their managing director.	The
managing director was seeking to remedy the

problems that he faced with the Japanese, but while

he was seeking to do that, the other directors and

employees set up their own company and dealt with

the Japanese and took the franchise. And what the

court, consisting of Mr Justice Thomas, did was

allow damages for loss of a chance of that managing

director of persuading the Japanese that his

company should keep the franchise, and the court

warrnan(2) 48 28/6/94

said the chances were very small, and so assessed

the damages for loss of the chance of retaining the

franchise at only $1000. Had a remedy of account

been awarded - and it was not sought, I can tell

you that - the damages may well have been very very

very large. They were very small because of the

limited chance that Markwell had of persuading the

Japanese to give him his franchise or to keep the

franchise. We cite the case as being an approach

adopted in the Supreme Court of Queensland and a

proper approach leading to justice and equity.	An
account would not, in that case, have led to the
same result.

The second case, Industrial Development

Consultants, which is No 3 on our list, was indeed

a case where an account was granted by the court.

We refer to it simply for the passage at page 454F

where Mr Justice Roskill says that if, indeed,

account is not the appropriate remedy, then he

would assess it by loss of a chance. And he did

not put the chance very high. He said:

I cannot rate it, as I am dealing with

liability only, at a greater than 10 per cent

chance.

So that in that case it cannot be disputed that

great injustice was achieved. There may be a

prophylactic approach, of course, but great

injustice was achieved and this was adverted to by

the Court of Appeal, because the Court of Appeal

said, well there was a tenfold windfall profit to

the innocent party in that case. Once again, loss

of a chance was considered as an option.

The third case, from which I do not want to

Talbot v General
read anything, is case 25, involved confidential information, and again the

court assessed damages, the proper way of assessing	it was loss of the chance of using the confidential
information that had been appropriated.

The fourth case supporting loss of a chance is

case 24, Schilling v Kidd Garrett, (1977)

1 NZLR 243, where the facts were very similar to

this one, ironically, another case involving taking

a distributorship or a franchise. Those cases, we

would suggest, are somewhat in a class of their own

because there is not really a tangible asset that

one can identify. The Court of Appeal in New

Zealand, each of the judges while going their own

individual ways, each worked on the basis of loss

of a chance. What had happened here is that

Schilling, who was employed by Garrett, left his

employment and then took holidays, but took

Warman(2) 49 28/6/94

holidays in the course of his employment, and in
the last week of his holidays he solicited a

franchise from a key customer of Kidd Garrett and

he got it, and the court said, well you should not
have done that, but then it looked like he could

have done it the following week, after he had

ceased his employment or ceased his holidays, and

again assessed damages for loss of a chance, the
loss of the chance in the employer's hands of
retaining that distributorship in the face of

proper competition by an ex-employee.

BRENNAN J: Is that not a breach of contract case?

MR HANGER:  Your Honour, I cannot see anywhere in the

judgment where it was argued that an account should

be taken, if that is the question you are directing

my attention to.

BRENNAN J: Yes, well I did notice there was a reference to

measure of damages for breach of contracts.

MR HANGER:  Yes, there is. But that, in our respectful

submission, leads to a j~st result, because again -

in fact we do not know what the ultimate result of

the case was; we do not know what amount was

awarded by way of loss of a chance. But at the

passages that I have referred to, the principles

are discussed, the passages being 250 line 5 to

251 line 10; 257 lines 25 to 30 and 269 line 40, a

case very similar on the facts to this case.

And the last case in that part of our synopsis

is Sanders v Parry, (1967) 1 WLR 753, which I think
is not on the list of authorities; if I might just

refer to it briefly. That was a solicitor who was

employed and who was approached by a principal

client of his employer who said, if you go out on

your own into private practice, I will give you all

my land development-type work, all the conveyancing	in relation to that, and again there, the court
said, well the proper remedy is loss of a chance.
If he had discharged his fiduciary duty, he should have gone to his employer and said, "Look, I have
been approached by somebody that if I go on my own
they will give me all their work. Is there
anything you want to do about it?" And the
employer would have had a chance to regain the business and damages were assessed on that basis.

MASON CJ: What do you get out of Industrial Development

Consultants v Cooley?

MR HANGER:  Your Honour, only the passage at page 454F that

it is an alternative remedy that the judge

obviously favoured the account there.

warrnan(2) 50 28/6/94

MASON CJ: Yes, he ordered an account, notwithstanding that

the benefit was one which the plaintiff could not

have got in the circumstances.

MR HANGER:  Yes, I do not argue with that, Your Honour. If

I look at loss of a chance in this case, you would

say this: in 1986 Dwyer made an approach, which is

in exhibit 2; the Italians are saying, "I am

interested in doing business with you". He should

not have done it. That was round about September

1986. Then things seem to have gone dead, because

the next relevant matter is late 1987, and in

November 1987, the Italians who had been looking

around in 1987 for someone else in Australia to do

their assembly work and had not found anyone, in

late 1987 the Italians approach him and say, "Let

us have your proposal". Now, what should he have

done then? The answer is, he should have told his

employer, "Look, last year I talked to the Italians

and to be frank with you, this year they have come

back and said to me 'We are interested in going

into business with you'". Now if he told his

employer then and if he had said, "And what is more

I want to do that, because of all the things that

have been happening here'', what would the employer

do? The employer would say, "Well I had better go

and strengthen my relationship with the Italians" or the employer could say, "Go your own way'.'. Of course, in fact, the employer, one month after he

should have done this, said to him, "Do you want to

buy this part of the business?" and within another

month had said, "Justify the continued existence of

this part of the business". But I digress there.

Had he discharged his fiduciary duty, then Warman

would have had a chance to do something about it;

to rectify the situation that had occurred. So

what he did by his wrongful conduct was to deprive

them of that chance.

Now, in reality, of course, later on in the year, as soon as Warman did find out that he had

been dealing with the Italians, Warman did attempt

to persuade the Italians to stay with Warman and

they would not, even though, at that point, there

was no binding agreement with anyone else, they did not stay with them. So the point is there that, if

you are looking at loss of a chance, the chances of

retaining the distributorship were small. That is

one possible approach to the matter and, as I say,

we support the decision of the court that loss of a

chance is the proper way to go.

We draw to the Court's attention, and really

have reluctance to do more, that the approach of

the court over the last few years seems to have

been to favour loss of chance as by way of a

remedy, where that is possible to be assessed, and

Warman(2) 51 28/6/94

we refer to Sellars v Adelaide Petroleum NL,

(1994) 68 ALJR 313, and we also refer to that case

for another, shall we say, principle, and that is

of the court - - - at page 323, where in the judgment of the majority

DEANE J: Where do we find that?

MR HANGER:  I am sorry, Your Honour, it is not on my list in

so far as it is ALJ. Since it is recent, may I be

pardoned. What was said was this:

The approach results in fair compensation,

whereas the all or nothing outcome produced by

the civil standard of proof would result in

the vast majority of cases in over

compensation or under compensation to an

applicant who has been deprived of a

commercial opportunity.

We deduce - - -

MASON CJ: But that is all in the context of compensation

damages, as distinct from an account of profits

applicable to a fiduciarr.

MR HANGER:  Yes, Your Honour; we are merely referring to it

for the proposition that the court seems to be

concerned with compensation being not over
compensated or under compensated. If that is a

principle applicable in the common law jurisdiction

it is our submission that it is a principle that

should be applicable in the equitable jurisdiction

as well, particularly in the equitable

jurisdiction.

A reluctance to go beyond compensation for loss is also to be found in the Canadian cases to

which my learned friends referred to one of them

this morning:	Canson Enterprises Limited v
Boughton, 85 DLR (4th) 129, case 16, and could we

refer the Court to the passage at the middle of

page 151 down to 153, and especially at the end of

page 153.

BRENNAN J: What is it about this case that makes

compensation a preferable approach to the relief to

be granted rather than an account?

MR HANGER:  Your Honour, later on in our submission, we say

that you could take an account, but it is very

difficult because it is not like cases where a

trustee or a fiduciary has taken a particular

asset. What is taken here is the nebulous goodwill

and what is that goodwill. That there is nothing

else taken other than the goodwill.	So can you
take an account of a bit of goodwill.	It is not

Warman(2) 52 28/6/94

the whole goodwill, it is a bit of goodwill. That

is one basis. It is an intangible. It is much

easier to take an account of, what I will call, a

tangible, or I think Justice Dawson talked before

of, you know, Keech v Sanford or Chan v Zacharia,

where you take a lease; that has got to be

distinguished from a case like this where you

cannot grab, put your hand on, what has been taken.

BRENNAN J: Is that because of the nature of goodwill

generally or the particular kind of goodwill that

was involved in this case?

MR HANGER:  Both, Your Honour, both. The particular kind of

goodwill involved in this case was one that might

stop after three months and one which was dinted in

a fairly poor way and the problem with goodwill

generally is that it is really a sticky kind of

substance, it sticks to a person; there can be no

doubt that goodwill belonged to the employer, but

it also goes away when a particular employee

leaves, without any wrongdoing, it leaves at that

point, or some of it leaves, a large part of it in

this case. That is really why it is very hard to

take an account.

DEANE J: Mr Hanger, on the basis that Mr Dwyer used his

position to build up this structure, why should not

he be liable to account for the profit he has made,

which is the excess of the value of his shares in

both companies over what it cost him to get .. them?

MR HANGER:  Your Honour, first of all when you say he. used

his position to build up the structure, I think the

extent of that is that he approached Bonfiglioli

while employed.

DEANE J: If I could just correct what I said to you. It

should have been the excess of the value of his

shares over what they cost him to the extent that

that value can be related to the relevant business

activities and not the side activities which,

taking the trial judge would be half, half of half

in the case of the company with the Italians and

half of half in the case of the other company.

MR HANGER:  Your Honour, if there is to be an account it

must be, in our respectful submission, of that

which he took and what flows from that certainly.

Now, how does one identify that which he took?

DEANE J:  He took an opportunity which, if he had abided by

his fiduciary obligations he would have taken as

trustee to the company, and he turned that

opportunity into the excess value of the shares,

which he owns, to the extent that that excess value

Warman(2) 53 28/6/94

relates to the relevant business. I am asking you,

I am not indicating any firm view about it.

MR HANGER:  No. Your Honour, when you say he took an

opportunity, I would suggest the opportunity is

something that is intangible. What one should say

is he took some part of goodwill and what was that

goodwill? Look at it this way. He was entitled,

we would suggest, to leave the company, obviously.

Without any breach of fiduciary duty he would be

entitled to approach Bonfiglioli and say, "Can I

distribute" - - -

DEANE J: Yes, I follow that, but he did not. That is like

saying if an opportunity of buying something comes

along while he is an employee in that capacity that

he does not hold the benefit for the company

because if he had left the company and the

opportunity had then come along he would have been

able to do it.

MR HANGER: First of all - just following on that, I would

submit that if, to take the hypothetical case, the

day before someone leaves a company as in

Schilling v Kidd Garrett; and look at the case a

day afterwards, he did unlawfully one day what he

could have done lawfully next, then it it grossly

unfair to say, "You must account for everything you

got, or for all the shares and the value of the

shares four year later", or forever. Forever is

what His Honour did - - -

DEANE J: That is a matter of opinion, is it not, in that if

he had gone to the company and said, "I have this

opportunity" the company was entitled to say,

"Well, pursue it on our account." And he may have

said, "No, I will not pursue it on your account."

But if, in that context, he pursues it on his

account that is the very context where constructive

trust, or whatever you want to call it, is the

appropriate form of relief.

MR HANGER:  Your Honour, I am getting away from answering your question. If I can come back. I would

suggest that if he has - - -

DEANE J:  I am making it hard by keeping talking.

MR HANGER:  No, no. If he has to account it should be for

that which he got by virtue of his breach of

fiduciary duty. There seem to be many cases that

say that, and what he got by virtue of his breach

of fiduciary duty, we would suggest, is some

tainted goodwill. You know what I mean by

"tainted", that obviously things were pretty bad

between Warman and Bonfiglioli. And also I would

submit that when you value that tainted goodwill

Warman(2) 28/6/94

you take out of it the Dwyer factor because Dwyer

is entitled to leave.

So what is the goodwill that remains in the

company in the absence of Dwyer and bearing in mind

that it is poor goodwill, there is something wrong

with it, and bearing in mind, as I say in the

outline, that the business is limited to three

months; and that is the basis on which the account would be taken, and that would probably reach then

a fair result. And that is a way that a fair

result can be attained in this case consistent with

all the authorities. Yes, he is liable to account,

but for what? For the profit arising from that

which he took wrongfully, and that which he took
wrongfully is a bit of goodwill, or the goodwill

that remained in the company after he leaves

subject to the three month limit and the fact that

it is tainted anyway. That is the answer I make to

that question.

Can I come back to the other possible approach

to damages here which, we would suggest, try to get

a consistent overview or overarching principle so

that the way you compensate them under various

headings reaches similar kinds of results, and that

is looking at it from the springboard point of view

as happened in Seager v Copydex, (1967) 1 WLR 932,

and as was accepted, I think, by Your Honour and by

the Chief Justice in Hospital Products, 156CLR 41,

at 112 as being a proper method in that case,

albeit you were dissenting, of course.

If you look at the springboard concept he did, before he left, that which he could have lawfully

done after he left. How much did he gain by that?

Again, the answer would be very little. And let me test it another way by saying if he had acted wrongfully, in breach of fiduciary duty, and an

injunction was sought by Warman, and it was in this

case and not proceeded with, an injunction was

sought, for how long would the court injunct him

from setting up in business with Bonfiglioli? Once

again, that might give the answer as to what the

compensation should be. For how much head start,

how long would he be injuncted?

We would suggest, with respect, that he would

not have been injuncted, or only for a short time.

The court would have said, "You should not have

done this.	We will restrain you from taking this
opportunity for a period of a couple of months."	I
was talking in terms of a head start and saying if
he acted in breach of fiduciary duty and that is
found, the proper way of compensating the plaintiff
would be to say, "He could have achieved this
result at a later point in time quite lawfully."

Warman(2) 55 28/6/94

Now, I know he did not and he should not have, but bearing in mind that that is something he could have done at a later point in time, it might be

appropriate to apply the head start method of

assessment of damages which, I would suggest, would

be consistent again with applying the loss of a

chance assessment.

BRENNAN J:  How realistic is that, Mr Hanger? I mean what

is the sequence of events and scenario that would

have allowed him to start legitimately with

Bonfiglioli?

MR HANGER:	Your Honour, I would suggest this, that he would be entitled, for a start, to leave this employer
and deal for the first time then with Bonfiglioli after leaving and start up in business straight
away. Now, that may not be entirely correct, but,
my friend refers to him as very senior management.
BRENNAN J:	In other words he could have left without any

dealings with the Italians, and then have

endeavoured to establish a relationship with the

Italians. Is that a rea~istic hypothesis?

MR HANGER:	Yes, I mean realistic in so far as he is entitled to leave carrying with him his personal
goodwill.
BRENNAN J:	Of course he is entitled to leave, but why would he have left?
MR HANGER:	I cannot say that he would have left, and I

accept that, but what he was entitled to do is the

way one looks at the head start, surely. What he
was entitled to do was to leave, and then you have

to ask yourself was he entitled, after leaving, to

go and talk to the Italians and say, "How about me? You know me, I am a good fellow" and I would submit

that he was entitled to straight away because while

he is referred to as the Queensland manager, I

think the evidence is he had seven employees under

him in this division, so that he is not like the

boss of Pepsi-Cola.

So the court would allow him to start up

straight away, had he not done anything beforehand,

and if it would not, it might stop him for a short

period of time, but it would not be very long. And

on that basis I would suggest that what he has got

is a head start.

BRENNAN J: It seems a rather artificial approach, if I

might say so, at first blush, because one would

think that if the Italians were going to be

interested in anybody at all as a partner, to use a

loose term, in an Australian venture, they wanted

warman(2) 56 28/6/94

somebody who was familiar with the market, who had

some contact with the mechanics who would be needed

to service the goods and to assemble then and who

would have outlets that would be known to that

person. So that altogether, apart from the Warman

Bonfiglioli agency, there would be other aspects of

the attractiveness of such a person that, as a

matter of goodwill, would have belonged to Warman.

So that if he had simply left it does not

immediately appear to me that he would have been

able to take with him into a Bonfiglioli

partnership everything that was necessary for that

purpose.

MR HANGER:  Your Honour, he takes his know-how and I would

suggest that he can take everything but -

BRENNAN J: A list of customers?

MR HANGER:  No, not a list of customers. It is not

suggested he did take these things. He cannot take

a list of customers. People come and buy stuff

from them. It is not as if it is a complex

business, Your Honour. So that while it might be

unrealistic to say he would have left and proceeded

in this pure fashion the point, in my submission,

is that that is what he could have done without

breaching any duties. And the way I test that

proposition is to say, if someone came up and asked

for an injunction, "How long will you give me an

injunction for?" You would not give it forever.

You would not be sa} 1 -g, "You cannot work ever in

this sort of area." rhis is the only area he

knows, and he has been in it for 20 years. --The

courts would be very reluctant to stop somebody

working. That being so, how long would you stop

him working? That is why I come back to saying how

much head start does he get by virtue of the

wrongful conduct, as being a possible approach
which would lead to a fair result.

GAUDRON J: It seems to me that you are approaching it

really quite from the wrong end. It may be that

these matters are relevant to a fair result, but in
terms of what it is that your client and the

companies have contributed to the business over and

above that which was taken. It may mean that they

are relevant but it is at a different end. It does

not seem to mean when you have breached a fiduciary

duty you can approach it in the way you do.

MR HANGER:  I approach it, Your Honour, on that basis, from

the point of view of what we set out in the

synopsis as "equity" seeking to approach things

fairly.

Warman(2) 57 28/6/94

GAUDRON J:  Does it not seek to do that by allowing for what

it is, the effort and so on and expertise that is

brought to the business, over and above that which

was taken?

MR HANGER:  Yes, once that which is taken is precisely identified. But it would be unfair - - -

GAUDRON J: That again assumes an onus in one direction

rather than another to add to that question that

way.

MR HANGER:  That is to say that if the onus is on my client

to identify - to split up the goodwill that he took

from the goodwill that Bonfiglioli - - -

GAUDRON J:	From what was put into the business over and above what was taken.
MR HANGER:	As I think Justice Deane was suggesting in a

question before, what is put into the business by

Bonfiglioli is all of its goodwill, which is the goodwill that exists after a three month

termination of contract. What is put into the

business by my client is "the goodwill that attaches

to him personally and what is brought in from

Warman is the very very limited goodwill that he

had had at that point in time when my client has

left. I say if there is to be an account that is

the way it proceeds. But there should not be an

account in view of the complexity of that kind of

exercise, and the proper approach to it is by way
of damages.

We would suggest that it is not an inflexible rule, that there be an account given, and we have

referred to cases in the outline where it is said
that "equity must mould its remedies to suit the

particular facts", referring to Chan v Zacharia,

154 CLR 178 at 205; Phipps v Boardman, (1967)

2 AC 46, at 125; Hospital Products, 156 CLR 41, at

124; McKenzie v McDonald, [1927] VLR 134, at 144 to
145, and Re Jarvis, (1958) 1 WLR 815, at 820, to
which my friend referred.

In support of the proposition in the outline that it is not an inflexible rule that the

defaulting beneficiary is always obliged to account but is simply a rule of general application, can we

refer to Phipps v Boardman at 103. That is case No

2 in the list. At the top of page 103 on the

second line Lord Cohen says that:

His liability to account must depend on the

facts of the case.

Warman(2) 58 28/6/94

In Regal (Hastings) v Gulliver, (1967) 2 AC at 139,

similar propositions.	We refer to Re Coomber,
(1911) 1 Ch at 728 to 729.	I think Re Coomber is

referred to in Queensland Mines v Hudson,

(1978) 52 ALJR 399, case No 12 in the book. At

page 401 this Court quoted Lord Cohen, who said:

" ... it does not necessarily follow that

because an agent acquired information and

opportunity while acting in a fiduciary
capacity he is accountable to his principals
for any profit that comes his way as the

result of the use he makes of that information

and opportunity. His liability to account

must depend on the facts of the case."

DAWSON J: Let me understand again what you are saying,

Mr Hanger. Are you saying that if you look for what Dwyer, choosing one, held on trust or what it

was that he was fiduciary for, it was not his own

personal goodwill, he could take that with him when

he went and he was entitled to go. It was not

goodwill which attached to the product, the product

of goodwill. At most it was the remaining goodwill

which belonged to Warman; that that was very little

because it only attached to a contract which was

determined along, what was it, two months notice or

three months notice?

MR HANGER: Three months.

DAWSON J: And that the real goodwill resided with the first

two, or was within the first two categories.

MR HANGER:  Yes, the product and demand.

DAWSON J: And you say in any event, whatever the break up, it is impossible to break up an account of profits

upon that basis, but failure to do so will result

in inequity. Is that the way you put it?

MR HANGER:  Yes, except that I am not going to concede that

you cannot do that because I might have to, or lose

the lot.

DAWSON J: It is very difficult.

MR HANGER:  But it is very difficult.

DAWSON J: And that is the way you put it.

MR HANGER:  Yes, that is the way I put it. That is really

all that Warman lost, or it is really all he gained

from Warman.	The rest is from Bonfiglioli and
himself.

Warman(2) 59 28/6/94

I was just finishing off the reference to

Queensland Mines, and again there is a passage at

the top of page 404, again quoting Lord Cohen in

Phipps. There is, as Mr Gore has pointed out, a

very learned discussion on this difficult problem by Mr Justice Kearney, in the article to which he

has referred, and I will not go to that since he

has dealt with it.

We also say in the synopsis, apart from the

fact that nothing tangible has been taken or used,

apart from the goodwill that we have just been

talking about, the other problem with the account

in general, and in particular in this case, is that

it is unlimited as to time. I think Your Honour

Justice Dawson raised this kind of problem this

morning, because what His Honour did was say,

right, the profits up to the trial, which is very

arbitrary of course, I will give you half for

allowance for your own work and so on, and then as

at the date of trial you buy the goodwill, once

again for a 50 per cent discount.

Now, if you are buy~ng the goodwill you are

buying the future. "Goodwill" is defined as

future maintainable earnings, so you are buying future maintainable earnings, or profit, in the

future. So really the remedy awarded by the trial

judge is to say you must account forever for your

wrongful act of dealing with these people before

you left. With respect, that is unfair, simply

unfair, because it restricts somebody's ability to

earn a living, or at least to go into business.

The third difficulty with the account is that third party interests are involved; that is to say

the other two companies. That was a reason that

Sir Owen Dixon gave as not awarding an account in

McKenzie v McDonald, (1927) VLR 134, at 146. That

is case No 20 in the book.

GAUDRON J: Could I just take you back to that last point?

Do you maintain that point even if the third

parties were parties to the breach of fiduciary
duty in the first place, knowingly parties

to the - - -

MR HANGER:	No, no.
GAUDRON J:	Now, is that not a problem you face in this case

though? There was a finding against you to that

effect.

MR HANGER:  The Court of Appeal really deal with that,

Your Honour, in so far as they say they were not

parties to the breach of fiduciary duty. They did

not exist then. They came into existence after any

Warman(2) 60 28/6/94

breach of fiduciary duty had occurred. Then you

may say to me they took, knowing of the breach of

fiduciary duty. But it is a bit of a conundrum in

so far as the gift of the franchise is within the

power of the 50 per cent shareholder, and to hold

it liable on the breach of fiduciary duty is to say

you are liable for the profit you make, which you

can make anyway because you are the person who can

give the franchise which, once again, seems very
inequitable and we would adopt the reasoning of the

Court of Appeal on that point.

It is a peculiar situation which I have not

found any analogy to but Bonfiglioli, the person

who gives the franchise, is the person who goes

into the joint venture.

BRENNAN J:  Can you pray that in aid of your client,

Mr Dwyer?

MR HANGER:	Not Dwyer personally.
BRENNAN J:	So that it may be that there will be, on that

approach, a different relief that might go against

some of your clients, noe against others.

MR HANGER:  Yes. Now, as far as Dwyer is concerned, we

would adopt what was said by the Court of Appeal

and that is to say that Dwyer himself does not

benefit. He does not receive the benefit.· May I

say that is another good reason for not awarding an

account. Dwyer might be liable for damages, but

not for an account. Now, the next company:-:- - -

BRENNAN J:	Why not?
MR HANGER:	Because he does not receive it, Your Honour,

because he does not receive anything.

BRENNAN J: He directed it elsewhere. That really is

tantamount to saying that a trustee who hands it

over to his child is not to be accountable?

MR HANGER:  Yes, all right, I accept Your Honour's point.

Now, as far as the first company BTA is concerned,

there is the fact that it is in a different

business, and it is a different business. BTA is

doing the assembly and the finding of the trial

judge is that Mitton said that Warman were not

interested in the assembly of the products.

BRENNAN J:  Can you tell us where that passage is in

the - - -

MR HANGER:	Yes.	I think it might be at page 184, line 25:
Warrnan(2)	61	28/6/94

Mr Mitton made it very clear that Warman would not be interested in participating in such a

venture though he invited Mr Carboni to make a

submission about it to Mr Weekes. His

expressed view was probably accurate because

far from entering into new enterprises of that

nature, Warrnan's rationalisation tendencies

were in the opposite direction ..... and his

response must have been very discouraging to

Mr Carboni.

That is the passage to which I was referring.

As far as ETA is concerned, the second respondent, ETA is buying its agency business. It

is getting products from Bonfiglioli and from other distributors and you cannot say, with respect, that

the fiduciary duty that was breached results in the

business of ETA. Both of those companies are

really somewhat distant from the breach of

fiduciary duty.

There were just three cases to which I wanted

to refer under the heading of what one should take

an account of if one is taken.	They are Re Dawson,
84 WN(NSW) Part 1 399, at page 406, case No 22.	I
see that the reference I have for that is a
different one from the one that has been
photocopied.	The page I wanted to refer to was
page 406.	Can I also refer there to Canson v

Boughton, case No 16, at pages 159F and 160 to 163.

In particular at page 163E it is said:

In summary, compensation is an equitable

monetary remedy which is available when the
equitable remedies of restitution and account

are not appropriate.

We go back to what is appropriate:

By analogy with restitution, it attempts to

restore to the plaintiff what has been lost as
a result of the breach, ie, the plaintiff's

lost opportunity. The plaintiff's actual loss

as a consequence of the breach is to be

assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing

compensation, but it is essential that the

losses made good are only those which, on a

common sense view of causation, were caused by

the breach.

BRENNAN J: That really turns on the question of whether

there is any real analogy with restitution in the

case of an account being given to remedy a breach

of fiduciary duty. I would have thought that, from

the argument presented against you, the basic

Warrnan(2) 62 28/6/94

proposition that there is an analogy with

restitution is very suspect, and that for the

reason that restitution looks to what the plaintiff
has been deprived of as distinct from what the

defendant has gained.

MR HANGER:  Your Honour, first of all I cannot quarrel with

the fact that there are many fiduciary duty cases

which go beyond restitution. There are too many of

them to take them on. I have to say that this is

not an appropriate case to apply that strict

measure.

BRENNAN J: Yes, I understand.

MR HANGER:  I cannot go beyond that. It is not an

appropriate case for the reasons I have given. Nor

is it right, we would suggest, even to do what one

suspects may be a hint dropped by Your Honour

Justice Deane in Chan v Zacharia and look at Phipps

v Boardman and Regal (Hastings) and perhaps adopt

what the academic commentators say and say, "Well,

let's separate the honest from the dishonest and

maybe treat them differently", because there are

degrees of dishonesty. ·

One of the points made in the judgment of the

trial judge in respect of Dwyer, whom my learned

friend refers to in short as an absolute villain,

are these factors. I am not saying he did not act

in breach of fiduciary duty, but there is this,

that he has got an employer who has laid down a

policy in respect of holding spare parts and stock;

you cannot hold as much stock. He has got an

employer who closed down this business in every

other State.	He has got an employer who declined
the opportunity to assemble, discourage them.	He

has got an employer who asked him, "Do you want to

buy this part of the business?"	He said, "No,
you've only got it for three months".	He has got
an employer who says, "Now, justify the continued

existence of this business". Those are the threats

to this man.

On the other hand, he has got Bonfiglioli, the franchisor, who he knows is displeased with Warman

because of the spare parts, because of the refusal

to assemble, and he knows that the Italians are

looking round for someone else. Against that

backdrop, while he is in breach of fiduciary duty

you cannot put him into the corner where he is

completely immoral. Those are factors again that

did influence the Court of Appeal and should

influence the Court in not ordering an account of

such a size that it amounts to enormous sums of

money. A way around it, the way to achieve equity,

is to say, "Yes, it's an account but only of that,

Warman(2) 63 28/6/94

what you got, arising out of that limited goodwill

that you took.

BRENNAN J:  In other words, to assess what would have been a

reasonable price to have exacted from him, if he

had accepted Warman's offer.

MR HANGER:	I suppose that is right.
BRENNAN J:	So that, therefore, he ends up with the remedy

of having to pay what he declined to pay because he

thought he could get the lot for himself for

nothing.

MR HANGER:  What is it worth? Had he accepted Warman's

offer, what would it be worth, a three month

franchise? A term of what, three months? It is

worth nothing.

BRENNAN J: That is right, with all the options that that

opens to proceed to develop the relationship with

Bonfiglioli.

MR HANGER:  See, surely the Court _of Appeal have a point

when they are saying, a person would be better off

being fraudulent and not in a fiduciary position

than being in fiduciary and acting honestly. And

that is not right.

BRENNAN J:	The dichotomy escapes me.
MR HANGER:	It did not escape the Court of Appeal. I will

rely on them in that respect, Your Honour.

BRENNAN J:  Mr Hanger, while I am interrupting you, can I

ask you this: if on the taking of an account on the

basis of assessing the value to Dwyer and the

companies of the exploitation of the goodwill,

whatever it may have been, and after allowing

whatever should be allowed by way of factors

reducing that assessment and taking out the amounts

that should be paid, is there any reason why the

form of the relief should not be a charge upon

Dwyer's shares for whatever might be found to be

the amount of the benefit derived by the companies?

MR HANGER:  I see, so that the charges on his shares by

virtue of the amount attributable to those shares

in respect of the benefit derived by the company;

am I understanding Your Honour?

BRENNAN J: Not about attributable to those shares; whatever

amount the companies have benefited by, as a result

of the exploitation of the goodwill, should then be

charged upon Dwyer's shares, perhaps so as to

consume them in terms of value, but charged upon

them, so that the burden of the judgment does not

Warman(2) 64 28/6/94

fall upon the company in which Bonfiglioli has a SO

per cent interest.

MR HANGER:  I suppose, first of all, I would have to agree

that the burden should not fall on the company in

which Bonfiglioli has the interest. But the only

basis on which I say it should not fall on the

shares is because of the quite disparate businesses

conducted by each of the companies and what was

conducted by Warman.

BRENNAN J: Yes, I understand what you say about ETA; I was

just thinking of the BTA situation then?

MR HANGER:  No. As far as BTA is concerned, I could not

argue against that, to the extent of the amount of
the account. Those are our submissions, thank you.

GAUDRON J: Could I ask you, do you say anything about the form of relief ..... by the trial judge, if you are unsuccessful on your main argument?

MR HANGER:  The form of the relief given by the trial judge

was an account forever. That is what it amounts to

and that is wrong.

GAUDRON J: As against the defendants, I was thinking?

MR HANGER: Sorry, Your Honour, if you lumped them together,

it is an account forever.

GAUDRON J: Yes. Well, it is relief against all

defendants - - -

MR HANGER: Yes.

GAUDRON J:	Were they a charge by way of security against the assets of the two companies?
MR HANGER:	Yes, I think, in fairness to the trial judge

there, during the course of the trial, not a great

deal of distinction was drawn between the

particular defendants. But, what His Honour did at

page 206 was charge by way of security against the

assets of the second and third defendants just the

$146,000.

GAUDRON J:  Yes, thank you. And you do not have any

submissions on the matter for the justice point?

MR HANGER: Sorry. As I say, what His Honour did was take

an account, and we were given no notice of that and

my learned friend accepts that there is no issue

about that. He was not asked to take an account,

and should not have done so. Apart from saying
that it was on the wrong basis, he should not have

done so because we did not have a chance to be

Warman(2) 65 28/6/94

heard on it. Had we had a chance to be heard, we

would have put material before His Honour, dealing

in detail with that particular aspect of the case.

GAUDRON J:  You do not accept what was said by

Mr Justice McPherson, that it is not the practice

for the account to be deferred - the taking of the

account to be deferred?

MR HANGER:  No. It is the practice for the taking of the

account to be deferred. In fact, it is a very rare

remedy, because it does not work very well, but the

proper thing to do would have been to say, "I order

a taking of account", and if he was going to do it

himself he should have at least told us that he was

proposing to do that, and in that respect we adopt

what was said by the Court of Appeal, that they

thought that was the proper approach as well.	It
would have been different if the submission had

been, "Well, Your Honour should take the account",

but it took us all by surprise.

GAUDRON J: What was the purpose of all the evidence as to

profits and the like, if .it was thought that the

trial judge was not going to take the account?

MR HANGER:  I suppose it went in related to loss.

GAUDRON J: Well, how were the profits of the defendants

relevant to the loss of the plaintiff?

MR HANGER: Well, Your Honour, what that would do would be

assist in assessing the future maintainable

earnings of the defendant. It would have helped in

doing that. That is to say, this was a good

business and this is what we lost because this is

what they have earned. It would be of assistance

in that respect.

GAUDRON J:  The material is not all here from which to

decide the matter, it seems, but it looks very much

as though the case was conducted on the basis that

the trial judge would have regard to the profits

and take an account of the profits.

MR HANGER:  May have regard to that in assessing the loss of

Warman.

GAUDRON J: But he does not assess the loss of Warman, does

he?

MR HANGER:  Well, it would surely be of relevance to the

trial judge, if he is going to assess the loss of

Warman, to show that the business is carrying on

and functioning successfully.

Warman(2) 66 28/6/94

GAUDRON J: Well, His Honour says - when he does assess the

loss to Warman, he said, "The figure would have

been reached by assessing the value of the business

at that time, at one year's potential profits

before tax", and that looks as though it was

Warman's profits before tax.

MR H.A.NGER:  Yes, it does, it seems so. That was certainly a

matter, the way in which he chose to proceed -

doubtless the evidence was put before him with a

view to showing that the business was not at a dead

end, and had something going for it. Surely the

point is that he did not tell anyone that he

proposed to take an account, and had he done so

there may have been other evidence put before him.

MASON CJ: Thank you, Mr Hanger. Mr Gore.

MR GORE:  Thank you, Your Honour. The cases in paragraph 1

of our learned friend's outline, other than
Industrial Development Consultants v Cooley, are
all cases where no account of profits was sought,

but they were damages cases. Indeed, the last two,

Schilling v Kidd Garrett, (1977) 1 NZLR 243, and

Sanders v Parry, (1967) ~ WLR 753, were contract

cases.

The case in paragraph 2, Sellars v Adelaide Petroleum was also a compensation case in the

context of the Trade Practices Act. The ca~e in

paragraph 3, Canson Enterprises Limited v Boughton, was again a damages case only. Certainly there are

statements by Mr Justice La Forest, in the pages

relied upon, which might be thought to be of

general application, but His Honour was careful to
distinguish the position where a fiduciary

benefited from the breach, that not being the

position in Canson. Canson is case No 16 in the

bundle, (1991) 85 DLR (4th) 129, and the passages

at which Mr Justice La Forest was careful to

distinguish a case like the present, appear at

page 143, at letters f tog, where he concluded by

saying:

What we are left with is a claim for

compensation for simple failure to perform a

fiduciary duty as occurred in Nocton v Lord

Ashburton.

And, at page 146, between letters e and f:

In the case of a mere breach of duty, the concern of equity is to ascertain the loss

resulting from the breach of the particular

duty. Where the wrongdoer has received some

benefit, that benefit can be disgorged, but

the measure of compensation where no such

Warman(2) 67 28/6/94

benefit has been obtained by the wrongdoer

raises different issues.

It is difficult not to resist the temptation to

refer the Court to an article by Professor Davies

on Canson's case, which is referred to in the

outline, in part B, authority No 31, in a book

publishing a series of papers at a convention held

in British Columbia at which Your Honour the

Chief Justice delivered the opening address, and

Professor Davies deals with Canson's case in his

article, and expresses the view at page 314, in

dealing with the notion of "measure", as opposed to

the notion of "remoteness", with which Canson was

concerned, that the opinions are:

a minefield of remarks to be quoted out of
context. It could be thought that the

majority opinion is recommending a resort to

common law on all fronts and that the

equitable rules that favour a plaintiff are no

longer to be resorted to. I cannot think that

this is what is intended. The majority

opinion does not discuss measure or the

presumptions and it ·should not be taken as

bringing about a revolution in either area.

The reliance, in our learned friend's outline, in

paragraph 4, upon the Hospital Products case, in

the context of springboard, is, with respect,

misconceived in that in so far as the dissenting

judgments in that case dealt with any related

notion, it was only in a search for what profit

should be identified as the subject of an account

of profits. So it is really an account of profits

case. Seager v Copydex, the other case referred to

in paragraph 4, was a damages case and will not

assist this Court in the present context.

McKenzie v McDonald, referred to in

paragraph 8(c) of the outline, being case No 20 in

the bundle in part 2, (1927) VLR 134, has been,

with respect, cited out of context. What

Acting Justice Dixon said at page 146 was that the

remedy of rescission was inappropriate because

third party interests were involved. They were not

only involved, what had happened was the

plaintiff's farm, which had been wrongly taken, as

it were, by the defendant, has been onsold by the

defendant at a substantial profit to a third party.

And, in those circumstances, the court quite sensibly concluded that rescission was

inappropriate, but went on to observe that, if an

account was what was being sought, that it would be

appropriate to order an account of the assessed

difference between what it was sold for and what it

Warrnan(2) 68 28/6/94

was really worth. But apparently that was not what

was being pressed.

Two final matters: first, in view of

particularly, I think, observations by Your Honour

Justice Brennan, in the course of our learned

friend's discussion about what might be taken into
account if there were some fresh account and what
allowances should be made, could we return briefly

to the topic whether any allowance should be made

in the case of a defaulting fiduciary by simply

referring the Court to case 14 in part A of the

list, a decision of Fraser Edmiston Pty Ltd v AGT

(QLD) Pty Ltd, (1988) 2 Qd R 1, a decision of

Mr Justice Williams of the Queensland Supreme Court

who, after reference to higher authority in this

field, concluded at page 13, between lines 10 and

15, that in the case before him:

no proper basis for adopting a liberal

approach -

had been shown -

because of the nature of the breaches of trust

involved here the court should adopt a

stricter approach to the fixing of proper

allowance for work and skill.

And, finally, just a correction of a mc1tter of

fact. We rather understood our learned friend to

suggest that the respondent companies did not come

into existence until after some relevant breach of duty had occurred. If that was the suggestion, it

is contrary to the findings of fact. The trial

judge dealt with incorporation in volume 2,

page 190, at line 40, in a sense which was

amplified upon - or some might say corrected - by

the majority at 227, between lines 20 to 55.

Relevantly it comes down to this, that the

memoranda and articles of association were dated

February 1988, that the companies were incorporated

at slightly different dates in April of 1988, and

the deceitful trip to Italy took place in May of

1988, at which time the trial judge found some suitable arrangement had been made between the

Italians and Dwyer.

BRENNAN J: Is it right that ETA conducts a business which

has no relevant connection with the business on

Warmans?

MR GORE:  Quite incorrect, Your Honour. The substance of

the case put by Warman and accepted by the trial

judge, and indeed basically accepted by the

majority, to the extent that they had a fresh look

at the facts, was that the combined business of BTA

Warman(2) 69 28/6/94

and ETA was a reincarnation, to use Lord Upjohn's

term - of the Warman Engineering Agencies Division,

which had at its core the Bonfiglioli products but

had a range of complementary products from other

suppliers, which were important.

BRENNAN J: What about the assembly?

MR GORE: Assembly, no. But that is BTA, Your Honour, not

ETA.

BRENNAN J:  I am sorry, BTA. What about BTA then?

MR GORE: With BTA, in the passages that we have already

referred the Court to from the judgment of

Mr Justice McPherson, His Honour observes that the

assembly process was a small one - perhaps I should

give Your Honour the particular passage.

BRENNAN J:	If you just give me the reference to the passages, that would suffice. You can hand it in
later perhaps, Mr Gore.  You can leave a note with
the associate later. It is BTA which is a joint
venture company, is it nQt?

MR GORE:  Yes, Your Honour. I have found it; page 275,

lines 40 through to page 276, line 12.

BRENNAN J: Thank you. What do you have to say with regard

to the suggestion that I raised for Mr Hanger's

observation about the remedy being a charge upon

Dwyer's shares?

MR GORE:  That is analogous to part of the order which the

trial judge made, and would be plainly within

power. I am not sure, though, that that is what

Your Honour is asking.

BRENNAN J:  I am asking whether you think that it is

appropriate that the relief, if any, should go

against Dwyer by way of a charge on his shares,

quantified, however, by the profits derived by the

companies in which he has an interest.

MR GORE:  Your Honour, that would be an appropriate form of

relief. There is no reason, I should add, why the

corporate respondents should not remain subject to

liability because they are participators in the

Consul Development sense, and one can put to one

side the shareholding, in particular involving the

Italians in BTA, as being any ground for precluding

the making of an ordinary order against them as

defendants.

GAUDRON J:  Mr Gore, could I take you to the question of the

assembly being a small part of the business, and

ask you to look at the figures on page 203 for BTA,

warman(2) 70 28/6/94

the profit figures, which seem to be somewhat

greater than those for ETA, if I have correctly

marked - ETA - I have amended the page, yes.

MR GORE:  Your Honour, that is correct, but that is because,

to put it in Warman terms, consistently with the

trial judge's findings, BTA is all about just

selling Bonfiglioli products, in the same way as

the Warman Engineering Agencies Division did. To

the extent that it was suggested that it is also

about assembling the products, the evidence that

Mr Justice McPherson refers to demonstrated that

that was a small component. It was perhaps a big

idea in the Italians' mind and Dwyer's mind when

they made their arrangement, but it would seem

that, at least by the time of the trial, it had not

matured into anything of real value.

GAUDRON J: Thank you.

MASON CJ: Yes, Mr Hanger.

MR HANGER:  Can I just address one thing to

Mr Justice Brennan, just in case you think I was

misleading you: ETA sells products that were

formerly sold by Warman, and other products.	I did
not mean to suggest that was not the case. But
what I was saying about ETA, other than that it

sells Bonfiglioli products as well, the products

that it sells do not arise out of, and are not

connected with, any breach of fiduciary duty. That

was what I was trying to say, but I did not say it

clearly.

MASON CJ:  The Court will consider its decision in this

case.

AT 3.59 PM THE MATTER WAS ADJOURNED SINE DIE

Warman(2) 71 28/6/94