Warman International Ltd, Peko-Wallsend Operations Ltd v Dwyer - [1994] QCA 12

IN THE COURT OF APPEAL	[1994] QCA 012
SUPREME COURT OF QUEENSLAND

Appeal No. 189 of 1992.

Brisbane
[Warman v. Dwyer & Ors.]

BETWEEN:

WARMAN INTERNATIONAL LIMITED
(First Plaintiff)

First Respondent

- and -

PEKO-WALLSEND OPERATIONS LTD
(Second Plaintiff)

Second Respondent

- and -

BRIAN DWYER
(First Defendant)

First Appellant

- and -

BONFIGLIOLI TRANSMISSION (AUST)

PTY LTD (Second Defendant)

Second Appellant

- and -

ENGINEERING TRANSMISSION AGENCIES

PTY LTD (Third Defendant)

Third Appellant

____________________________________________________________

_____

Macrossan C.J.
Pincus J.A.
McPherson J.A.

____________________________________________________________

_____

Judgment delivered 23/02/94

Joint reasons for judgment of Macrossan C.J. and Pincus
J.A., separate dissenting reasons of McPherson J.A.
____________________________________________________________

_____

1. APPEAL ALLOWED.

2.   ORDERS MADE BELOW BY THE PRIMARY JUDGE, OTHER THAN ORDERS AS TO COSTS, SET ASIDE.
3.    ORDER THAT THE MATTER BE REMITTED TO THE TRIAL DIVISION FOR THE ASSESSMENT OF THE LOSS OF THE SECOND PLAINTIFF PEKO-WALLSEND OPERATIONS LIMITED DUE TO THE BREACHES OF FIDUCIARY DUTY FOUND BY THE PRIMARY JUDGE AND TO GIVE JUDGMENT ACCORDINGLY.
4.    RESPONDENTS TO PAY ONE HALF OF THE APPELLANTS' COSTS OF THE APPEAL, TO BE TAXED.

____________________________________________________________

_____

CATCHWORDS:	EQUITY - BREACH OF FIDUCIARY DUTY - employee of company commenced negotiations with supplier to company as to agency business - breach of duty had accelerating effect on principal terminating agency with employer.
EQUITY - REMEDY - account of profits taken below without hearing submissions as to an account - individual and corporate defendants treated in same manner - whether better basis should be equitable damages for the loss of Warman's chance of retaining the agency.
Counsel:	Mr R I Hanger Q.C. with him Mr D Smith for the appellants. Mr D R Gore Q.C. with him Mr G Brandis for the respondents.
Solicitors:	Halletts for the appellants. Phillips Fox for the respondents.

Hearing Dates: 25-26/11/92.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND

Appeal No. 189 of 1992.

Brisbane

[Warman v. Dwyer & Ors.]

Before	Macrossan C.J. Pincus J.A. McPherson J.A.
BETWEEN:

WARMAN INTERNATIONAL LIMITED
(First Plaintiff)

First Respondent

- and -

PEKO-WALLSEND OPERATIONS LTD
(Second Plaintiff)

Second Respondent

- and -

BRIAN DWYER
(First Defendant)

First Appellant

- and -

BONFIGLIOLI TRANSMISSION (AUST)

PTY LTD (Second Defendant)

Second Appellant

- and -

ENGINEERING TRANSMISSION AGENCIES

PTY LTD (Third Defendant)

Third Appellant

JOINT REASONS FOR JUDGMENT OF MACROSSAN C.J.

AND PINCUS J.A.

Judgment delivered 23/02/94

This is an appeal from a judgment of the Supreme Court in a case concerning breach of a fiduciary obligation. The first appellant ("Dwyer") was held to have breached his duty by causing an Italian company with which his employer dealt ("Bonfiglioli") to terminate an agency relationship it had with his employer; the other two appellants ("Bonfiglioli (Aust)" and "ETA") were made liable on the basis of this connection with Dwyer's breach.

The argument presented on behalf of the appellants did not dispute that there was a breach of Dwyer's fiduciary obligation, but challenged the judge's findings as to the nature and extent of that breach. That was, however, a subsidiary point; the main attack in the outline of argument, as on the oral argument, was on the judge's treatment of the question of remedy. As it appears to us, in substance the judge's findings with respect to breach of fiduciary duty should be upheld; the more difficult point is whether his Honour came to a correct conclusion as to the remedy.

Dwyer entered the employment of the first respondent ("Warman") in 1962 and in 1972 became the manager of Warman's Queensland branch. Its business from 1981 included an "agency", as it was called, for distribution of Italian gearboxes made by Bonfiglioli, together with some related products. The judge found that Warman conducted this business as agent for the second respondent, but the case was conducted on the basis that it is unnecessary to discriminate between the respective functions of the respondents. Dwyer reported to Warman's Australian sales manager, one Weekes, who worked in Sydney and whose job was later taken by one Mitton. In the first half of 1986, Warman's executives discussed getting rid of parts of the business which were not sufficiently profitable and in the course of that Dwyer made a report bearing upon those parts of the Queensland business of Warman which might be discontinued. That report did not recommend disposal of the agency division, which included the agency for Bonfiglioli.

However, at the end of 1986 the agency business in New South Wales was discontinued "in favour of a sub-dealership to an independent company which then dealt through the Queensland branch", to quote the judge's finding. The result was that the Queensland branch conducted the only remaining Bonfiglioli agency, all others having been dealt with in the same way as was the New South Wales agency business.

The judge found that prior to August 1986 some decisions had been made by Warman which adversely affected the agency business; in particular, the amount of stock held was carefully limited and this caused some difficulty in handling the Bonfiglioli business. A representative of Bonfiglioli, one Carboni, came to Sydney in August 1986 and spoke to Mitton about the possibility of a joint arrangement for the assembly of Bonfiglioli products. Mitton's evidence, which the judge appears to have accepted, was that Carboni :

"...asked me if we would be interested in setting up an assembly of an organisation in Sydney to assist with the sales of Bonfiglioli gearboxes, to which I replied I didn't think that was a good idea at the time..."

The judge's finding was that Mitton :

"...made it very clear that Warman would not be
interested in participating in such a venture..."

Carboni then came to the Warman office in Brisbane and he discussed with one Jarvis, who worked under Dwyer, complaints about Warman's performance in the Bonfiglioli agency and Dwyer was told about that. Dwyer and Jarvis signed a letter dated 28 August 1986 addressed to "Mr Bonfiglioli" complaining of Warman's performance with respect to the Bonfiglioli agency and explaining that Dwyer and Jarvis were trying to improve matters. The letter went on:

"However, if we are unsuccessful, I am considering leaving Warman...It would be my intention to set up our own business which would include and feature Bonfiglioli."

It appears that "I" was Dwyer, not Jarvis. The letter suggested consideration of "our being your Australian distributor if this parting of the way eventuated" and sought confidentiality. As the judge pointed out in his reasons, a postscript showed an interest in a joint venture relating to assembly in Australia. Carboni went back to Italy, from where there were communications with Warman again expressing Bonfiglioli's interest in setting up a joint venture for assembly in Australia. The judge found that it was likely by then that :

"Bonfiglioli had decided to seek alternative arrangements for the assembly of the products in Australia"

In December 1986 Bonfiglioli wrote to Dwyer to say that the project involving assembly of products in Australia had been delayed and mentioning that it had taken up the matter with a company named Lucas Fluid Power. The letter suggested that "it", presumably meaning the possibility of a joint venture with Dwyer, be left "for the moment" and that it be taken up again in a couple of months. But the Lucas Fluid Power proposal was abandoned in the following year and Carboni, in a fax dated 19 November 1987 (identified in the judge's reasons as being one of 13 November 1987), asked Jarvis to :

"...let us know your thoughts about joint
operation with Bonfiglioli..."

Shortly after that, one Lockhart, who had taken over Mitton's job as Australian sales manager of Warman and become Dwyer's superior, discussed with Dwyer his position within the company. Lockhart asked Dwyer whether he would be interested in leaving the company and buying the agency division, which consisted principally of the Bonfiglioli business; Dwyer declined the suggestion.

According to the judge's findings the two corporate appellants were incorporated in about January or early February 1988. It appears from the documents that this in fact occurred in April 1988, although the Memoranda of Association are both dated 1 February 1988. The judge found that ETA was created to enable it to be used as a vehicle for Dwyer's business in relation to non-Bonfiglioli products. Shortly after the date of execution of the Memoranda of Association, there were negotiations involving Bonfiglioli, Jarvis and Dwyer concerning the proposed joint venture which was ultimately the business of Bonfiglioli (Aust.) and concerning the role of ETA. In April 1988 Lockhart asked Dwyer to prepare a document including a review of the benefits to Warman of the agency division which, in the judge's view, "implied that it had not been decided that [that division] would go...". There were about this time discussions, referred to in detail in the reasons, within Warman, with respect to the question of whether the agency division would be continued.

Dwyer went overseas in May 1988 and, concealing his purposes from Warman, visited Bonfiglioli. The judge inferred that during that visit he made a "suitable" arrangement with Bonfiglioli. On 26 May 1988 Bonfiglioli wrote a letter to Warman, which the judge thought was probably carried back to Australia by Dwyer, giving a three month notice of termination of Warman's agency relationship with Dwyer. Warman tried to talk Bonfiglioli out of this by threatening to take "strong legal and commercial action to protect its interests", but to no avail. On 20 June 1988 Dwyer gave Lockhart one month's notice of termination of his employment, but by agreement between Warman and Dwyer the date of his departure was brought forward to 30 June 1988.

At that stage the agency relationship between Warman and Bonfiglioli was still in existence and no doubt Warman had an opportunity to keep it alive after Dwyer ceased to be its employee. Also, Dwyer was then legally quite free to get the Bonfiglioli business for himself, if he could. It was suggested by Mr Hanger QC, who led for the appellants, that after Dwyer's resignation became effective he was in open and proper competition with Warman for the Bonfiglioli business. In our opinion that is not the whole truth, as it seems plain on the face of the documents that before resigning Dwyer had taken the precaution of making at least preliminary arrangements to go into business with Bonfiglioli, supplanting Warman. His having done so involved a breach of fiduciary duty.

Nothing appears and indeed little was said to justify the appellants' contention that the learned primary judge was in error in holding that Dwyer breached his fiduciary duty, insofar as he negotiated with Bonfiglioli on his own behalf before the termination of his employment. The point taken in the written submissions was that Dwyer's negotiations related, not to the precise business then being conducted by Warman in its relationship with Bonfiglioli, but to a proposed new venture. It appears to us clear that if Bonfiglioli contemplated changing the way in which it did business in Australia, then Dwyer had no right to attempt, while in the service of Warman, to establish his own business connection with Bonfiglioli, with a view to becoming involved in the new proposals, to the exclusion of his employer. The fact that the businesses which Dwyer helped to establish after he left Warman differed from that which Warman had assists the appellants, however, on the issue of remedy.

The appellants' submissions included a number of

detailed criticisms of the learned trial judge's findings.
By way of general comment upon them, it must be said that
the arguments advanced against the judge's findings depend,
in substantial part, upon the evidence of Dwyer, about which
the primary judge had reservations. To justify setting
aside a finding adverse to Dwyer it is not necessarily
enough to show that a passage or passages in Dwyer's
evidence conflict with the finding; yet too often that is
the only basis of attack on a finding.

Examples should be given. The judge said that Dwyer's conduct caused termination of Warman's agency earlier than it would otherwise have been terminated. All the appellants' criticisms of that finding depend on acceptance of Dwyer. The appellants point to a remark, in the course of evidence given by Dwyer, that he "wouldn't know what Mr Bonfiglioli thought", which is advanced by the appellants as a basis for holding that: "Mr Dwyer did not ever know what Mr Bonfiglioli was either planning to do or had proposed to do". There was clear evidence supporting a contrary conclusion, some of which is referred to above: Dwyer went to see Bonfiglioli in Italy in May 1988 and in that same month Bonfiglioli terminated its agency relationship. It is true that there was no direct evidence of a connection between the Dwyer-Bonfiglioli discussions and the latter's termination of Warman's agency. But it would have been almost perverse on the part of the trial judge to have held that the two were in truth unconnected. The same finding is criticised on the basis that the letter Dwyer and Jarvis wrote on 28 August 1986, referred to above, was "perhaps not as clearly thought out as [Dwyer] would have liked". Dwyer gave evidence to that effect, but that was plainly of no importance. The judge was sharply critical of Dwyer's evidence on the subject, saying that he was "quite untruthful about his motive and purpose in writing the letter".

Another category of criticisms of the judge's findings relates to inferences his Honour drew as to matters not the subject of any, or any considerable amount, of direct evidence. The judge found that Dwyer criticised Warman's handling of the agency; the written submission is simply: "cannot find evidence to support this finding". There plainly was such evidence, consisting inter alia in the same letter, of 28 August 1986, referred to above, and a letter Dwyer wrote to Bonfiglioli dated 24 February 1988. Then the judge's reasons are criticised for having found that Dwyer made an arrangement with Bonfiglioli during his visit in May 1988. This is, rather absurdly, criticised on the ground that passages can be found in Dwyer's evidence which are arguably inconsistent with the finding. The judge did not accept evidence of that kind and was entitled to draw the inference that, before cutting his own ties with Warman, Dwyer made some kind of arrangement with Bonfiglioli which matured in the formal steps taken after his resignation.

The judge laboured under the difficulty that the evidence led on behalf of the appellants did not provide a reliable account of the course of events which led up to the formation of the businesses the subject of the litigation.

His Honour was not obliged to rely upon the account put forward by the appellants, as there was documentary evidence pointing to a process of negotiation between Dwyer and Bonfiglioli, concealed from Warman, shortly before Dwyer's resignation on 20 June 1988. We feel obliged to say that the appellants' written submissions on the facts do not appear to have been carefully scrutinised, to ensure that the assertions being made were full and accurate. Written submissions of that kind increase the burden on the Court in deciding complex factual appeals.

In the judge's reasons there is reference at a number of places to Warman's prospects of retaining the Bonfiglioli agency. His Honour explains that it might have gone one of two ways which he described as "reasonably serious contingencies": abandonment of the agency business by Warman, or Bonfiglioli's deciding to terminate the agency.

It appears desirable to quote some of what his Honour said on the subject of the chance of Warman's not continuing the relevant business, whether or not Dwyer had acted in breach of his duty:

"...in the absence of [Dwyer's] own conduct in providing an alternative, Bonfiglioli may well have retained Warman as its agent indefinitely"
...
"While Warman was content to retain the agency at [the end of 1987], it probably would not have been willing to enter into any arrangement such as presently exists for holding a substantially larger amount of stock or for a joint venture in the assembly of the machinery"
...
"[Dwyer's breach of duty] was injurious to Warman
because it caused Bonfiglioli to terminate its
agency earlier than it probably would otherwise
have done..."
...
"...although Bonfiglioli would probably have terminated the agency because of the factors discussed above, it would probably not have done so as quickly as it did but for Mr Dwyer's conduct..."

On this point the onus was on Warman. The documents throw some light on the subject, but its resolution depended, at least to some extent, upon his Honour's impressions of the witnesses. It seems to us that this Court should proceed on the basis that it was not established that Dwyer's breach of duty had any more than an accelerating effect on Bonfiglioli's terminating its relationship with Warman. Also, it appears to be clear that, independently of its discussions with Dwyer, Bonfiglioli was bent upon entering into a joint venture involving assembly in Australia. We do not think that Warman managed to satisfy the primary judge that (if the point is relevant) it would, but for Dwyer's actions, have obtained that business.

In our opinion the judge's primary findings of fact should, in substance, be accepted, subject to one reservation; for the reason explained above, this Court should proceed on the basis that Dwyer's conduct was not shown to have had any more than an accelerating effect on Warman's loss of the Bonfiglioli agency. That conclusion is consistent with some, but not necessarily all, of what the primary judge says on that subject. Some of the evidence with respect to that point is mentioned further below.

It is necessary to pass to the more substantial question in the case, which is the matter of remedy. The statement of claim alleged that Bonfiglioli (Aust.) and ETA began business in the sale in Australia of products including gear boxes for use in industrial equipment manufactured by Bonfiglioli. That is not correct:

Bonfiglioli (Aust.), in which the Dwyer interest and Bonfiglioli had equal shareholding, began the business of assembly and distribution of Bonfiglioli products; ETA on the other hand, which was owned by the Dwyer interests solely, did no assembly but sold both Bonfiglioli and other engineering products. Dwyer obtained no direct interest in either business; he was and presumably still is a shareholder in both of the other appellants.

It is relevant to note that the statement of claim evinces the respondents' consciousness that the three appellants did not all have the same interest; by paragraph 9, a declaration is sought that Dwyer held his shares in the two companies, now his co-appellants, on trust for the respondents. There is also sought a declaration that Bonfiglioli (Aust.) held the "Bonfiglioli distributorship" on trust for the respondents. Further, damages are claimed against Dwyer for breach of fiduciary duty, but not against the other respondents.

The allegations of breach of fiduciary duty pleaded in the statement of claim are of course not made against the corporate appellants, but only against Dwyer. As against the other respondents, the statement of claim pleads in effect that as a result of Dwyer's conduct the corporate appellants commenced business in the way just mentioned. It is also alleged, in paragraph 6 of the statement of claim, that they so commenced business "and continued to carry on such business knowing of [Dwyer's] breaches of his duties to the [respondents]".

It should be noted that Bonfiglioli (the Italian company) was not made a party to the proceedings and that the corporate appellants did not participate in any of the breaches of fiduciary duty alleged against Dwyer. The only basis upon which they were sought to be made liable was that just mentioned - namely, that they commenced business and carried on business knowing of Dwyer's breach of his duty.

Before explaining the way in which the primary judge dealt with the question of remedy, mention should be made of the remedies potentially available, if the respondents were to obtain financial recompense for the wrongs done to them. The respondents might have obtained proprietary or personal remedies; in fact they sued for both. As has been mentioned, they sought declarations of trust; but those claims failed and no complaint is made, by way of cross- appeal, about that. By way of relief against the appellants personally, as opposed to proprietary relief, damages might have been claimed, or an account of profits. In fact, both these sorts of relief were claimed, although in a restricted way: damages were claimed against Dwyer only, not against the other appellants, and an account of profits was sought only in respect of profits made in the selling of Bonfiglioli products.

As we understood the argument, it was not suggested on either side that the course of events at the trial was such as to show that the parties implicitly agreed to treat the statement of claim as amended, in any respect relevant to the subject under discussion, i.e., remedy. That has some relevance to one of the criticisms made of the judgment, on behalf of the appellants. The appellants contended that the judge treated them unfairly in that, although nobody asked his Honour to do so, he did not merely order an account of profits, but took one himself. It was conceded on behalf of the respondents, with commendable candour, that the judge had not been asked to do that; but the respondents contended that the course adopted did no injustice to the appellants. That was so, counsel argued, because of the presence of the claim for damages in the statement of claim and the fact that the decision of that claim must have involved much the same considerations as an account of profits would have done.

Each side adduced accounting evidence. For the respondents, KPMG Peat Marwick produced a report arguing for a certain figure as being the respondents' loss consequent on losing the Bonfiglioli agency, calculated on the basis of an estimate of the respondents' loss of future profit, and also on the basis of the profits in fact earned by the appellants. For the appellants, Coopers and Lybrand made calculations of the respondent's loss of profits, and also advanced criticisms of the KPMG Peat Marwick figures. It appears clear that, although only by way of measuring the respondent's loss, the amount of profits made by the corporate appellants was in issue.

But it is argued for the appellants, and is in our view correct, that in the carrying out of an order that an account of profits be taken, considerations other than those relevant to a claim for damages on the basis of the losses incurred by the respondents would arise. One such consideration is the fact that Dwyer, as is recognised by the framing of the relief in the statement of claim, did not himself make any profits as a direct result of trading in Bonfiglioli products; he engaged in no such trading.

Another is that the two corporate appellants had different businesses and different profits. It is unnecessary to reach a concluded view on the point, but we can see no good answer to the appellants' contention that the primary judge should not have awarded a sum representing an amount of profits without giving the appellants a warning that it was proposed to do so. But it is convenient now to turn to the way in which the primary judge disposed of the question of remedy.

His Honour, dealing with the corporate defendants, explained his view that those who constituted their minds were aware of Dwyer's breach of his fiduciary duty and are therefore "equally liable with him".

The judge held that if equitable damages had been the
basis of assessment he would have awarded $325,000 "as the

loss of Warman's chance of retaining the agencies business".

That figure, his Honour explained -

"would have been reached by assessing the value of the business at that time at one year's potential profits before tax".

His Honour went on to say that some interest would have been allowed and that the period adopted would have taken into account Warman's chances of keeping the business.

The amount awarded in fact by his Honour was considerably in excess of the $325,000 which represented his Honour's assessment of Warman's loss; the award, including interest, was not much short of a million dollars. It was made up of:

Account of profits $801,090.00
Interest $ 10,000.00
Payment for goodwill $146,731.00
$957,821.00 ___________

The process by which the judge arrived at that figure was as follows. His Honour held that Warman was entitled to the benefit of so much of the original agency business as remained in the hands of the defendants and an account of the profits wrongly received by them from that source. This approach involved an apportionment of the value of the business and an apportionment of the profits - between that part corresponding to the original agency business and that part which did not so correspond. His Honour said that:

"...allowances must be made for the time, energy and skill that the defendants have expended and the assets which they have brought into the business".

As a matter of impression, the judge made an allowance to the defendants of one half of the goodwill and the profits.

Both sides agreed that there was an error in the judge's award in that the payment for goodwill ($146,731.00) should, on his Honour's figures, have been $96,731.00 - $50,000.00 less than the amount the judge fixed.

His Honour considered the question whether the corporate defendants held the relevant part of the business as trustee for Warman. He said that:

"...it is undesirable to thrust the parties into a continuing business relationship which would be the result of a declaration that part of the business is held by the relevant defendants in trust for the plaintiff".

The judge subsequently dealt with the position of Dwyer personally, holding that he was "primarily responsible for the situation and should be answerable to the plaintiff...in this respect".

The judge declined to declare a trust of part of the business in favour of the plaintiffs, as he was invited to do; had he done so, that would have given the plaintiffs more extensive relief. They would have received, without express limit as to time, that share of the profits of the corporate defendants' businesses which the judge thought was attributable to the "original agency business" - namely one half.

The primary argument advanced with respect to remedy on behalf of the appellants was that there should have been an award of damages, on the basis of the value of the respondent's lost chance of retaining the business which was lost as a result, so the judge held, of Dwyer's actions;

that value was assessed at $325,000, plus interest of an
unspecified amount.

The appellants' argument was that the case was one in which it was inappropriate to make an award based upon profits earned by the appellants and that the proper course was to award merely what the respondents could be shown to have lost. There is a substantial difference between the two sums, on the trial judge's calculations; his Honour assessed the amount payable to the respondents at a sum about three times as great as their loss.

The arguments in this Court did not analyse in detail the principles on which such an award as that made by the primary judge might be based; it is nevertheless necessary to discuss that subject.

The judge's award lumped the three appellants together, holding each liable to account for all the profits made by the others. With respect to Dwyer, at least, that does not appear to be correct. If Dwyer is liable to account for the profits made by the two companies, that must be on the footing that equity "lifts the veil" of incorporation, as in Jones v. Lipman [1962] 1 W.L.R. 832. But the learned primary judge does not appear to have proceeded on that basis; at least as far as Bonfiglioli (Aust.) is concerned, there is no possible basis for disregarding incorporation, since the Dwyer family had only a half-interest in that company.

Prima facie, an account of profits taken against a defendant in a suit of this kind produces a figure which represents profits the defendant has earned - not profits which might have been earned but for supervening circumstances. It is true that the equitable remedy of compensation can give a beneficiary sums which a trustee should have, but has not earned: e.g. Elders Trustee and Executor Co. Ltd v. Higgins (1963) 113 C.L.R. 426; Scott v. Scott (1963) 109 C.L.R. 649, and the same remedy is available against a fiduciary, treated as a constructive trustee. But we have been unable to find any authority for the view that if a fiduciary, in breach of duty, takes part in the formation of a company which earns profits which would, but for the breach, have gone to the plaintiff, then the fiduciary is in general liable to account as if he had himself earned the profits. Green and Clara Pty Ltd v. Bestobell Industries Pty Ltd (1982) W.A.R. 1, was an appeal in a case involving an employee who, in breach of his fiduciary duty, tendered for a contract in the name of a company he controlled, and in competition with his employer.

His tender succeeded; it was held that there was a liability to account for the profit earned. No question was raised in the Full Court as to the nature of the remedy granted by the primary judge who directed (p. 20) that an account be taken of the profit earned by the employee and also an account of the profit earned by the company. The situation is somewhat similar to the present, except that here there were two companies and Dwyer was part owner only of each. In the West Australian case it was unnecessary for the court to determine the basis on which each account should be taken, but the fact that two separate orders were made suggests that, as one would expect, the intention was that the employee should account only for the profit he personally received, e.g. in the form of dividends from the company.

One can see that equity would or might treat the profits earned by the corporate appellants as relevant to the amount of damages or compensation to be awarded against Dwyer, but in our view ordering Dwyer to account for profits earned by the two companies, as if he himself had earned them, was incorrect.

Then it is necessary to consider the other part of the award made against Dwyer, which the judge intended to equate to one half of his Honour's assessment of the value of the goodwill of the businesses of the two companies. That was, of course, an asset of the companies, and his Honour made the award on the basis that the respondents were entitled to the benefit of so much of the original agency business as remained in the hands of the appellants. But it is unclear on what basis Dwyer should have been held liable to pay that sum; he held no part of the goodwill. If Dwyer is treated as having the liability of a constructive trustee, that "arises from the fact that a personal benefit or gain has been...obtained or received...": Chan v. Zacharia (1984) 154 C.L.R. 178 at 199, per Deane J; the goodwill of the two companies cannot accurately be described as a personal benefit or gain of Dwyer.

In Hospital Products Ltd v. United States Surgical Corporation (1984) 156 C.L.R. 41 at 110, Mason J mentioned an approach to the problem "with respect to the declaration of a constructive trust of a competing business established and carried on by a fiduciary in breach of his duty." His Honour said:

"One approach, more favourable to the fiduciary, is that he should be held liable to account as constructive trustee not of the entire business but of the particular benefits which flowed to him in breach of his duty".

Although that approach was not expressly adopted by the primary judge, what his Honour did followed, to some extent, the line indicated in the dictum we have quoted. But the "particular benefit" consisting in the goodwill of the Warman agency business did not flow to Dwyer; it may perhaps be regarded as part of the assets of the joint venture company, Bonfiglioli (Aust.). Further the assessment made was in our view an arbitrary one. The judge arrived at it by using a capitalisation rate of 1 applied to the combined nett profit after tax of "the whole business", by which was meant the whole of each of the businesses of the two corporate appellants. Such a capitalisation rate is quite abnormal. A buyer would be expected to pay for such businesses, producing a series of solid and apparently reliable profits, a multiple of the figure his Honour awarded. And it is difficult to see that there was any real foundation for the view that one half of the goodwill, rather than some other fraction, should be attributed to the business which Warman had lost. His Honour appeared to recognise this difficulty, saying that it was "possible only to act upon impression".

The allowance for goodwill was made, as we understand his Honour's reasons, because the judge regarded the respondents as retaining their interest in the business at the time of the judgment. His Honour, for reasons stated by him, thought it undesirable to make a declaration that "part of the business is held by the relevant defendants in trust for the plaintiff". One can only agree with that view, but it seems plain that what his Honour did was by no means equivalent, in its result, to such a declaration. As owners in equity of half the businesses of the corporate appellants, the respondents would have been entitled not merely to a share of the profits up to about the date of judgment, which is what they got, but to a share of the profits without limit as to time. Further, as we understand his Honour's reasoning, the payment to them of the estimated value of half the goodwill justified putting an end to the respondents' entitlement to half the profits. But it could hardly do so; under the judge's orders the respondents became entitled, in respect of the financial year of each company immediately preceding the date of judgment, to half of $251,084 in respect of Bonfiglioli (Aust.) and half of $101,092 in respect of ETA. That sum is $176,088; the sum payable for half the goodwill was only (correcting the arithmetical error in the reasons) $96,731, a sum which would not be attractive as the price of giving up an annual income of the order of $176,000.

To put the matter broadly, what Dwyer has been ordered to pay is half the pre-tax profits of the business of the two companies up to about the date of judgment, plus half the post-tax profit for the last full year. The award was based, in our view, on the notion that the respondents were entitled to have from Dwyer, by way of an accounting for the profits he received because of his breach of duty, about half of what the two businesses produced. If that was the entitlement, then there was no justification for cutting it off at the date of judgment, and the notional sale of half the goodwill could not make the award one which had a sound foundation in principle.

In our respectful opinion, if the proper award was a sum estimated to be that proportion of the profits of the businesses which should be regarded as attributable to the business the respondents carried on before Bonfiglioli terminated the agency in 1988, then the award, on the figures given in the judgment, should have been very substantially larger. It must, logically, have included an estimate of the present value of the expected future profits, without specific limit as to time. Neither side complained of the award's being too low, but an analysis of it shows, with respect, that the primary judge must have awarded a much higher figure, to carry out his purpose of treating the respondents as entitled to half the financial benefits produced by the two businesses.

We now pass to consider the position of the corporate appellants. Speaking broadly, Bonfiglioli (Aust.) can be identified as having succeeded to the business which the respondents formerly owned; but that is subject, as Mr Hanger stressed, to the qualification that it carried on a business which was different in two ways. First, it was a joint venture between the Australian agent and the Italian company Bonfiglioli, and secondly, part of its business was assembly. The other company, ETA, distributed a range of complementary products in conjunction with the joint venture; the primary judge so held.

The fact that there was not simply a take over of the former agency business of Warman, but a joint venture with Bonfiglioli, and an expansion of the old business involving a new business of assembly tends to distinguish the case from some of those upon which the learned primary judge relied. His Honour held that "because those who constituted the minds of the second and third defendants were fully aware of and joined in [Dwyer's] breach, those defendants are equally liable with him", and referred to Markwell Bros. Pty Ltd v. C.P.N. Diesels Queensland [1983] 2 Qd.R. 508;

Timber Engineering Co. Pty Ltd v. Anderson 1980 2 N.S.W.L.R. 488, and Green and Clara Pty Ltd v. Bestobell Industries Pty Ltd (1982) W.A.R. 1. An examination of those authorities, however, does not produce a conviction that they justify the imposition of the remedies granted to the respondents against the two corporate appellants here. In the Markwell Bros. case the directors who breached their fiduciary duty set up a company which is called in the judgment C.P.N. The judge said:

"In the present case, all the benefits and knowledge obtained by Mr Newbery and Mr Pallister [the two directors] were transposed immediately into their own company (C.P.N.) which must be taken to have received the benefits and used the confidential information with full knowledge of the relevant facts. The errant fiduciaries were the actual directors, shareholders and controllers of the recipient company. All four breaches of duty involved the actual receipt by C.P.N. of money, rights, property, or confidential information which should have been held for the benefit of Markwell. It is clear on the present state of the authorities that, if the present claim were for an account of the profits consequential upon the said breaches of fiduciary duty, C.P.N. would be liable..."

The present case is, so far as the two corporate defendants are concerned, of a very different character. In the Timber Engineering case the two employees, Anderson and Toy, incorporated a company, they and their wives being the directors and shareholders. In the reasons for judgment, Kearney J referred to the first plaintiff as TECO and the company which Anderson and Toy set up as Mallory Trading.

His Honour remarked, speaking of the business of Mallory
Trading:

"It is clear that this business had its genesis in the resources and facilities of TECO which were available to Anderson and Toy. It is also clear that they did take advantage of such resources and facilities so as to cause life to be breathed into the mere shell of Mallory Trading, bearing in mind that the business developed by Mallory Trading was built upon cash flow and sales. The whole substance of Mallory Trading as a viable business enterprise stemmed from the resources of TECO which were utilized in Mallory Trading."

Again, it is difficult to see that the two corporate appellants here were in a position which is in any way comparable to that of Mallory Trading.

Lastly, in Green and Clara Pty Ltd, Green, in breach of
his fiduciary duty to his employer acquired a shelf company
(Clara Pty Ltd) and caused it to tender for a contract.
Clara Pty Ltd was ordered to account for the profit it made
on the contract. The case was one where a benefit to which
the employer plaintiff was entitled went to Clara Pty Ltd,
directly; Kennedy J referred to Clara Pty Ltd as having,
through the agency of the employee Green, participated in
the breach of duty: pp. 19, 20.

It should be noted that the finding made below against the corporate appellants went beyond the pleading; it was not alleged that the corporate appellants "joined in" Dwyer's breach of fiduciary duty, but merely that they began and carried on business knowing of Dwyer's breach. The argument for the appellants did not rely on that pleading point; it is however relevant to the question of remedy to note that the corporate appellants' role was not, in substance, participation in Dwyer's breach of duty. It was Bonfiglioli, the Italian company, which did so.

It was no part of the argument for the appellants that any liability should be shouldered by Dwyer, rather than the corporate appellants. Mr Hanger did not so contend, nor is it, as it appears to me, open to this Court to exonerate the corporate appellants, at the expense of Dwyer.

Nevertheless, the basis of the orders made below can only be analysed having regard to the position of each individual appellant.

During the course of argument in this Court, some emphasis was laid upon the history of Bonfiglioli's efforts to make some arrangement of the kind it ultimately made with Dwyer; that appears to us to bear upon the justice of the orders made against the two corporate appellants and in particular upon that made against Bonfiglioli (Aust.). It will be recalled that there is discussion above of the view that this Court should decide the case on the basis that Dwyer merely accelerated Warman's loss of the Bonfiglioli agency. So far as the evidence shows, the first substantial move Dwyer made towards going into business with Bonfiglioli himself was the letter of 28 August 1986 referred to above.

But after that letter was written, Bonfiglioli appears to have made substantial attempts to enter into a new arrangement with other parties suitable to it. On 5 September 1986 Bonfiglioli faxed Weekes referring to a discussion he had had with Mitton. It was that discussion, it appears, to which the judge made reference in his reasons, saying that Mitton "made it very clear that Warman would not be interested in participating in" such a venture as Bonfiglioli then had in mind. The letter of 5 September 1986 referred to the prospect of Warman's being offered -

"...as our Agent to build up an independent Company as a joint-venture with Bonfiglioli Riduttori, being able to make the complete assembling of our most popular gearboxes using parts coming from our factories in Italy and locally purchased standard components such as bearings, oil seals etc..."

Further details of the proposal were given in the fax of 5 September 1986 which was, it appears, located by Lockhart in July 1988 during the period of notice given by Bonfiglioli of termination of Warman's agency. Lockhart faxed Bonfiglioli on 8 July 1988:

"The situation is somewhat clarified by your mention of a fax dated 5 September 1986 from Mr Carboni. This communication had been missing from our file. Locating and reading this fax has given us a better understanding of your intentions.
We now understand more fully your rescinding of our sole agency agreement and are prepared to work with Bonfiglioli to ensure the changeover occurs with a minimum of disruption."

Lockhart also sent a fax to rather similar effect dated 12
July 1988.

Between Bonfiglioli's fax of 1986 just referred to and the replies sent in July 1988 from Warman, Bonfiglioli was engaged in discussions with Lucas Fluid Power, at the end of 1986 and in early 1987, and with Gibson Battle & Co. in 1987 and 1988, on the same subject. That Bonfiglioli was bent on making new arrangements in Australia seems clear and, as has been mentioned, its approach to Warman in 1986 on the subject had been rebuffed. That the arrangement Dwyer made was not one which Warman would have been prepared to make with Bonfiglioli does not make Dwyer's action any the less a breach of duty; but Warman's apparent lack of interest in the proposed joint venture is not irrelevant to the fairness of making the joint venture company, when ultimately formed, account to Warman for profits earned by it.

Two other general considerations bear upon the question whether the judge's orders should be upheld. One is that in this field a liability to account should not be imposed rigidly but flexibly. In Phipps v. Boardman [1967] 2 A.C. 46 at 103, Lord Cohen pointed out that the fiduciary's "liability to account must depend on the facts of the case", and the reasons of Dunn L.J in O'Sullivan v. Management Agency and Music Ltd [1985] 1 Q.B. 428 at 458 are authority against a narrow approach to the question of remedy for breach of a fiduciary obligation. In Queensland Mines Ltd v. Hudson (1978) 52 A.L.J.R. 399, the Board referred to Lord Cohen's statement at p. 401 and again at p. 404. There, the appellant was held not liable to account in the circumstances, although he was held to have used the good name and the resources of the company of which he had been managing director to secure the benefits in issue. A further useful reference to the question of flexibility is to be found in Kearney J's article in the work edited by Professor Finn, Equity and Commercial Relationships at p. 209. It has to be conceded that a fiduciary is, to use a general expression, liable to account for benefits gained in breach of his duty; but the apparent simplicity of that rule cannot be allowed to produce an unjust result. "There is no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them" - per Deane J in Chan v. Zacharia (1984) 154 C.L.R. 178, citing Lord Selborne in Barnes v. Addy (1874) L.R. 9 Ch. App. 244 at 251.

A second and broader consideration is that one can see some reluctance to let the wronged party reap a great benefit from the wrong done to it, manifested in the actual results of the cases. The decision under appeal is, in our respectful opinion, an example; only by assessing the profits gained on the assumption that they ceased at trial and attaching a remarkably low value to the goodwill was the learned primary judge able to arrive at a figure which might not seem to be beyond the bounds of reason. The opposing models are that of the law of trusts, which makes the trustee who abuses his position liable for what he has gained by doing so and the dominant compensatory model which gives a plaintiff what has been lost by the defendant's wrong. Mr Doyle Q.C. points out in Professor Finn's book (pp. 213, 214) that the "litigant who can bring his action under the umbrella of breach of fiduciary duty" is in a favourable position as regards remedy and goes on:

"...if it is so there should be some sensible reason why it should be so, and if there is none then the fact that there is none is likely to produce pressures for the spread of equitable principles and the more beneficial equitable remedies which they attract to areas in which they are inappropriate, or a restriction in the scope of the equitable remedies".

Some cases evince a marked reluctance to contemplate any relaxation of the rule that the fiduciary must account for profits even where its application seems to lead to anomalous results. An example is Industrial Development Consultants Ltd v. Cooley (1972) 1 W.L.R. 443, where the plaintiff fortunate enough to be able to bring its claim into the fiduciary area reaped a gain of 900% - that is, recovered 10 times its loss. Results of this kind seem particularly anomalous where the fiduciary has not been dishonest and the plaintiff has suffered no loss: see Regal (Hastings) Ltd v. Gulliver [1967] 2 A.C. 134 at 144G. 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 his mistake - for it may be no more than that - is more expensive than simple fraud would have been.

The law has not responded eagerly to invitations to inflate awards of damages beyond the compensatory, usually declining "a happy opportunity of combining the expression of moral indignation with generosity in the disposition of other peoples' money" (Johnstone v. Stewart (1968) S.A.S.R. 142 at 146). A recent example of this tendency, in the law of defamation, is the decision of the High Court in Carson v. John Fairfax & Sons Ltd (1993) 67 A.L.J.R. 634.

In the present case, in our opinion, the learned primary judge's attempt to make a fair estimate of the benefits gained by the appellants as a result of the breach of fiduciary duty did not reach a defensible result, in the particular circumstances. There does not appear to be any fair and rational means of making the appellants liable on that basis. In our view, the judge should have assessed equitable damages or given compensation in a sum reflecting the respondent's loss, as was done in the Markwell Bros. case (above). His Honour made an estimate of that as we have mentioned, as being $325,000 plus an unspecified amount of interest. No argument was addressed to the correctness of his Honour's view on that point and it is therefore impossible to replace the award made by one for equitable damages or compensation along the lines mentioned by his Honour - as we would otherwise be inclined to do. Of course, the parties may agree on that figure, rather than incur the expense of a further hearing.

The appeal will be allowed and the orders made by the learned primary judge, other than the orders for costs, set aside. The case will be remitted to enable an assessment to be made and judgment given against the defendants for that sum which the Court finds to be the second plaintiff's loss consequent upon the breaches of fiduciary duty found by the primary judge. The judge will not be bound by the provisional assessment of equitable damages which was made as explained above; that is, the judge will not be bound to adhere to the sum of $325,000 arrived at as representing the loss of Warman's chance of retaining the relevant business.

Particularly, the judge should not feel constrained by the method used in reaching that figure, but rather should consider the whole matter in the light of the above reasons and the further evidence (if any) presented to the Court. It will be ordered that the appellants recover against the respondents one half of their costs of this appeal.

THE COURT OF APPEAL	[1994] QCA 012
SUPREME COURT OF QUEENSLAND

No. 189 of 1992

Brisbane

Before The Chief Justice

Mr Justice McPherson
Mr Justice Pincus

[Warman International Ltd. v. Peko-Wallsend Operations Ltd.]

BETWEEN

WARMAN INTERNATIONAL LIMITED

(First Plaintiff)

First Respondent

AND

PEKO-WALLSEND OPERATIONS LTD.

(Second Plaintiff)

Second Respondent

AND

BRIAN DWYER

(First Defendant)

First Appellant

AND

BONFIGLIOLI TRANSMISSION (AUST.) PTY. LTD.

(Second Defendant)

Second Appellant

AND

ENGINEERING TRANSMISSION AGENCIES PTY. LTD.

(Third Defendant)

Third Appellant

REASONS FOR JUDGMENT - McPHERSON J.A.

Judgment delivered 23/02/1994

The respondent first plaintiff Warman is a subsidiary

company of the respondent second plaintiff Peko-Wallsend.
Warman's principal business activity is the manufacture and
sale of slurry pumps, but in the past it has had various
other agencies and "lines", which before 1988 included the
importation and distribution, as Australian dealer or
"agent", of gearboxes manufactured in Italy by the
Bonfiglioli group. Their legal relations were governed by a
written "Contract of Agency and Distribution" made in 1981
and determinable by notice on either side of three months
duration.

Warman's head office is in Sydney, where in 1986 a Mr Weekes was the sales manager for Australia. Upon his promotion to chief executive officer of the organisation, he was succeeded in 1987 by a Mr Mitton, and later in that year by a Mr Lockhart. The sales manager in Sydney controlled the distribution of Bonfiglioli products in New South Wales, Victoria and South Australia. Although Queensland was a branch office of Warman, it was by far the major seller of Bonfiglioli products, of which the value to Warman increased from a gross profit of some $361,000 in 1983/84 to $821,000 in 1987/88.

The general manager of the Queensland branch in Brisbane of Warman's was the first appellant defendant Dwyer, who was answerable to the Sydney sales manager for Australia. For many years the sales manager of the Queensland branch had been a Mr Ron Jarvis, who was succeeded in that position by his son Gary Jarvis. Dwyer, who is by qualification an engineer, had been an employee of Warman from 1962. However, for various reasons, he was by 1986 becoming dissatisfied with his employer and with his future in the organisation. In that year a Mr Carboni, overseas sales manager of the Bonfiglioli parent group, visited Australia.

Carboni had a number of concerns. One was the low level of Bonfiglioli stock maintained in Australia. Another was that sales of products elsewhere in Australia were much lower than in Queensland. As a means of increasing sales he broached with Mitton in Sydney a suggestion for an arrangement with Warman under which gearbox parts would be imported and assembled in Australia. Mitton's response made it plain that Warman would not wish to be involved in such an enterprise, although he invited Carboni to approach his then superior Mr Weekes about the matter.

The trial judge described this reaction as "very
discouraging" to Mr Carboni, who, he found, was
"discontented" with the results of his inquiries in Sydney.

Carboni repeated his complaints to Jarvis jnr. when he

called on the Brisbane office in the course of his visit.
What he said was passed on to Dwyer, who with Jarvis snr.
signed a letter to Bonfiglioli dated 28 August 1986.
Although signed by both of them, the letter appears to have
been mainly the work of Dwyer. After lauding his own
efforts on behalf of Bonfiglioli in Australia, Dwyer went on
to claim that "top management ... are imposing certain
restrictions", but that "we are working to have these
restrictions changed". The letter added that if Dwyer was
unsuccessful, "I am considering leaving Warman ... to set up
our own business which would include and feature
Bonfiglioli". Bonfiglioli was asked to consider "our being
your Australian distributor", and that the communication be
treated as a "confidential exploratory request", adding that
Dwyer would be prepared to visit Italy for further
discussions. The letter concluded with a postscript
explaining that it had been written before discussions with
Carboni concerning assembly of units in Australia, which
"would also prove of great interest to us". It was intended
that Carboni take the letter back to Italy with him on his
returning there.

Evidently there were subsequent communications on the same subject, including a telephone call. After referring to one of them, a telex dated 19 November 1987 from Carboni asked for "your thoughts" about a joint operation with Bonfiglioli. In his evidence at the trial Dwyer agreed this was a reference to a proposed joint venture with him in relation to assembly of Bonfiglioli units in Australia. He nevertheless claimed that at the time he was collecting information from Carboni about prices in order to put such a proposal to Weekes. He never, however, spoke to Weekes about that matter at all.

The next telex from Carboni was dated 11 February 1988.
It mentioned his having asked Dwyer before Christmas 1987
for "a proposal for future co-operation", in which he said
Bonfiglioli were still interested. Dwyer responded by
letter dated 24 February 1988 to Mr Bonfiglioli himself -
which he went to the trouble of having translated into
Italian - in which he said that changes in the Warman
management "make it timely for a move to be made in the near
future". He advised Bonfiglioli that Warman wished to
concentrate on slurry plumps, which was their main product,
and to "divest themselves of other divisions". By late
January 1988 Dwyer had already arranged for the two
corporate defendants Bonfiglioli Transmission (Aust.) Pty.
Ltd. and Engineering Transmission Agencies Pty. Ltd. to be
incorporated. The names chosen reveal his intentions. His
letter of 24 February explained the arrangements he was
proposing for the name of the second defendant; for sharing
ownership and control of the business; and for bringing in
as shareholders the existing Warman staff in Queensland,
who, it was said, "would be available to sell the
Bonfiglioli equipment if the scheme goes ahead".

This exchange of communications was followed by discussions between Dwyer and representatives of Bonfiglioli, which took place in Italy. He kept his visit to Italy a secret. It took place at some time in May 1988 during his annual leave. Dwyer did not tell Warman's executives that he was going there, and he diverted their inquiries about his destination with answers that were only half true. It was evidently in the course of his Italian visit that agreement was reached between Dwyer and Bonfiglioli for their future joint enterprise.

Having arranged to secure the agencies for himself, Dwyer resumed work in Brisbane on 6 June 1988 without at first telling Warman anything about his arrangements. When he met Lockhart on 16 June 1988 he revealed some of his discussions with Bonfiglioli. Some two days later Lockhart in Sydney received written notice dated 26 May 1988 from Bonfiglioli terminating the Warman agency agreement. The notice was addressed to Dwyer in Brisbane, and his Honour suspected that Dwyer might even have brought it back from Italy with him. Despite concentrated efforts on their part, Warman's representatives were unable to persuade Bonfiglioli to reverse its decision to terminate the agency. It was not until after the notice of termination had been received by Warman in Sydney that Dwyer disclosed that he had been offered and had accepted a proposal to enter a joint venture with Bonfiglioli. As recently as December of the previous year, he had rejected an inquiry from Mitton asking whether he might be interested in buying Warman's agencies. On that occasion Dwyer told him the Bonfiglioli agencies were worthless because Warman's contract was determinable on three months notice. Having secured those agencies for the defendants, Dwyer then arranged for most of Warman's stock, furniture and fittings to be purchased. The stock had become useless to Warman once it lost the agencies and the staff involved in conducting that side of its business.

Consequently Dwyer was able to pick it up cheaply.

On 20 June 1988 Dwyer gave a month's notice of resignation from his employment with Warman. His departure date was brought forward, so that he in fact stopped working for Warman on 30 June 1988. On 26 August 1988 the agency agreement with Bonfiglioli came to an end in consequence of the notice dated 26 May that had been received by Warman in mid-June. Only a few days before, substantial numbers of shares in the corporate second defendant had been issued to Dwyer and Finbonfiglioli SPA, which is a company in the Bonfiglioli group. On 12 September 1988 both companies executed written agreements with Dwyer and Mrs Dwyer. One was a joint venture agreement for the assembly and the distribution of Bonfiglioli gearboxes in Australia. The term of the agreement is expressed to be 20 years, with a power under cl.10.3 for earlier determination in certain specified events, such as insolvency, misconduct, etc.

Since that time the corporate second defendant has been conducting the agency business in Australia, which includes assembling as well as distributing those gearboxes. This component of the venture has proved successful, resulting in aggregate net profits of the order of some $1.6 million over the four or more years down to trial from the time when the two defendants commenced business in 1988. In the action instituted by the plaintiffs in the Supreme Court on 25 October 1988, judgment with costs was given against the defendants for $957,821. That figure was arrived at by taking half of the aggregate net profits of $1.6 million, together with an interest component of $10,000, and adding an amount of $146,731 representing half of the capital value, as assessed by the trial judge, of so much of the new business as his Honour considered the defendants to be accountable for as having been acquired from the plaintiffs.

It is against that judgment that the defendants now appeal.
The foundation of the judgment against the defendants
was his Honour's conclusion that Dwyer had, with the
connivance of the two corporate defendants and Bonfiglioli,
acted in breach of his fiduciary duty to his employer
Warman. Dwyer had done so, his Honour found, by using his
knowledge and his position as a senior executive of Warman
to diminish Bonfiglioli's confidence in Warman and to offer
himself and the existing Warman agency staff as an
attractive alternative distributing agent. The result was,
the judge found, that Bonfiglioli terminated the agency
agreement earlier than it would otherwise have done,
resulting in the eventual loss to Warman of the whole agency
business. This included some Warman agencies that were not
associated with Bonfiglioli, but which were not viable on
their own.

On appeal the defendants questioned, although not perhaps with great vigour, a number of the factual findings underlying the conclusions arrived at by the trial judge. A major obstacle to the success of their challenge is that his Honour rejected the evidence of Dwyer as being "substantially but not entirely unacceptable". He also thought that Jarvis snr., in his testimony, was "trying to assist Mr Dwyer as best he could". Jarvis jnr. was not called as a witness by the defence. Neither was Carboni, whose evidence was admitted in affidavit form, so that it was never tested in cross-examination; for this and other reasons the trial judge thought it should be accepted "only if supported by convincing objective evidence from another source".

A reading of the transcript of Dwyer's evidence at the trial confirms the correctness of the judge's adverse assessment of the credibility of that witness. Even without the advantage of seeing and hearing Dwyer as a witness, instances of serious inconsistency, and in some cases outright evasion, are readily apparent in what he said.

Moreover, the broad thrust of his Honour's findings is amply confirmed by the documentary evidence emanating from Dwyer, Jarvis, and Carboni or Bonfiglioli, to some of which reference has already been made in these reasons. The trial judge was therefore plainly entitled to make the findings he did and to arrive at the conclusion he based on them.

On appeal the respondent plaintiffs founded their claim for relief against the defendant Dwyer primarily on the principle expressed in Chan v. Zacharia (1984) 154 C.L.R. 178, 199:

"Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it".

Before us both aspects of this principle were relied on; however, there would be no need for the plaintiffs here to resort to proposition (i) in the foregoing passage from the reasons of Deane J. in Chan v. Zacharia if they bring themselves within proposition (ii). It speaks of accounting for a benefit "received by use ... of his fiduciary position or of opportunity or knowledge resulting from it". It was his Honour's finding that Dwyer had, at the expense of Warman, "used his knowledge and his position" to advance his own interests and those of the other defendants that formed the essential basis of the judgment in the Court below.

The defendants do not dispute that Dwyer owed fiduciary duties to his employer Warman. The concession is well advised. As Queensland manager Dwyer was not a mere employee owing a duty that was limited only to respecting trade secrets and confidential customer lists. He is accurately described as part of the plaintiff's "top management" : Canadian Aero Service Ltd. v. O'Malley (1973) 40 D.L.R. (3d) 371, 381. See also Aberdeen Railway Co. v. Blaikie Bros. (1854) Macq. 461, 472, where it was held that fiduciary obligations attached to a person managing a mercantile or trading business for the benefit of others.

A person occupying a position like that is under a duty to refrain from acquiring for himself property of his principal or beneficiary that has been entrusted to him : see Scott on Trusts, 4th ed., vol.V, paras. 497-499, at 502-506. He is also precluded from acquiring for himself the property of other people that he has undertaken or is otherwise obliged to obtain for his principal or beneficiary : ibid, para. 499, at 506-517. Scott treats these obligations as aspects of a wider duty not to compete improperly with the beneficiary, which is he says "especially clear" where the purchase is facilitated by "confidential information acquired by him as a result of his fiduciary position" : Scott, para. 499, at 521-522. Whether or not competition is improper is said to depend on the character of the fiduciary relation, the nature of the fiduciary's duties, and the character of the transaction in which the property was acquired : Scott para. 504, at 533- 543.

There are many illustrations in the United States of the application of these principles. In Patterson v. Pollock 84 N.E. 2d 606 (1948) an employer was held entitled in equity to the benefit of a contract to manufacture office supplies which was diverted by the defendant in his own favour while carrying out as employee the function of negotiating the contract on his employer's behalf. In Sialkot Importing Corporation v. Berlin 68 N.E. 2d. 501 (1946), directors and officers of a corporation were held liable to account in equity for appropriating the benefit of a contract conferring exclusive rights of sale and distribution of imported products that had previously belonged to the corporation. In Beatty v. Guggenheim Exploration Co. 122 N.E. 378 (1919) an agent sent by the plaintiff to investigate gold mining claims that were under option to the plaintiff was required to account for profit earned on resale of other mining claims which, although not subject to the option, were essential to the successful utilisation of those that were. On behalf of the New York Court of Appeals, Cardozo J. said (122 N.E. 378, 380):

"We think it would be against good conscience for the plaintiff to retain these profits unless his employer has consented. The tie was close between the employer's business and the forbidden venture."

There is equally cogent American authority on breach of fiduciary duty in cases of employees using confidential information. In H.C. Giriard Co. v. Lamoureux 116 N.E. 572 (1917) the Supreme Judicial Court of Massachusetts held a director to be trustee of a lease of premises in which the plaintiff corporation had been conducting its business as a tenant at will that was acquired by the director after learning in the course of his employment about the peculiar value to the plaintiff of the premises of which he then took the lease. To the same effect is Horn Pond Ice Co. v. Pearson 166 N.E. 640 (1929). Both decisions relied on an earlier case before the Supreme Judicial Court of Essex Trust Co. v. Enwright 102 N.E. 441 (1913), where an employee obtained a lease of part of a building housing the printing press for the newspaper published by his employer, doing so behind the employer's back using information that there was no other suitable place for the press and that the rent on the premises was in arrear. The Court there thought that to obtain equitable relief it was enough that the employee had "made use of information which has come to him in his employment to the detriment of his employer" (102 N.E.441, 443).

The Court in Essex Trust Co. v. Enwright seems to have regarded the information obtained by the employee as confidential. Apart from that feature, the decision might be difficult to sustain. The reasoning relied on two earlier American decisions of Gower v. Andrew (1881) 43 Am. Rep. 242 and Davis v. Hamilton (1883) 48 Am.Rep. 541, which were considered and approved by the Full Court of Victoria in Prebble v. Reeves [1910] V.L.R. 88. In that case the plaintiff was an ironmonger at Canterbury, who decided to sell a branch of his business carried on at a shop in Footscray, where his employee the defendant resided. Having been told of the projected sale, the defendant surreptitiously acquired a lease of the premises for himself. In holding him trustee for the plaintiff of the lease, Madden C.J. agreed with the trial judge that the defendant was liable because he had misused confidential knowledge, and also because he had promised to do his best to effect a sale ([1910] V.L.R. 88, 97). Hood J. (with whom Cussen J. agreed) appears to have regarded the second consideration as more important. His Honour said ([1910] V.L.R. 88, 108):

"The moment that the defendant undertook to assist his employer in the sale of the business, he became interested for and with him in the said sale, and was thereby prohibited from acquiring rights in that business antagonistic to those of the plaintiff."

On that view, the case was one of a fiduciary competing with his beneficiary; although Hood J. also stressed (at 108, 109) the relationship that would have grown up between the defendant in his capacity as manager of the shop and the landlady of the premises, "which must have had some weight in inducing the latter to grant the lease".

In Prebble v. Reeves the employee's position as manager, with the knowledge and influence it afforded him, and his undertaking to promote the sale of the shop business, combined to preclude him from acting to the detriment of his employer. The detriment to his employer resulted from the fact that once the defendant obtained a lease of the premises, he became in a practical sense the only prospective purchaser for the shop business. In England the decision in Industrial Development Consultants Ltd. v. Cooley [1972] 1 W.L.R. 443; in Canada Canadian Aero Service Ltd. v. O'Malley (1973) 40 D.L.R. (3d) 371; in New Zealand G.E. Smith Limited v. Smith [1952] N.Z.L.R. 470; and in Western Australia Green v. Bestobell Industries Pty. Ltd. [1982] W.A.R. 1, all proceed on similar reasoning and arrive at results like those in the American decisions. Each involved a director or senior executive being held liable in equity to account for advantages misappropriated for himself that he ought to have exploited for the benefit of his company or employer. Likewise in Furs Limited v. Tomkies (1936) 54 C.L.R. 583, 597-598, 604, knowledge and opportunity were treated as formative elements in the liability of a director to account for benefits received in exchange for improper disclosure of trade secrets belonging to the company. See also Surveys & Mining Limited v. Morrison [1969] Qd.R. 470, where a consulting geologist, who used information obtained from his client to apply for mineral leases in his own name, was declared to hold them as trustee.

In the present case the defendant Dwyer to the detriment of Warman used his position, together with the influence, knowledge and opportunities it afforded him, to further his own interests in competition with his employer.

As a senior employee and Queensland general manager, he had come to know the strengths and the weaknesses of the plaintiff's organisation and administration, both generally and particularly in relation to the Bonfiglioli agency and products, including the extent of their saleability, their profitability, and otherwise. Because of his position in the plaintiff's service he learned of Bonfiglioli's disenchantment with Warman and the reasons for it; he was also able in August 1986 to inform Bonfiglioli about "restrictions" he said were being imposed by "top management" in Warman, which he claimed he was working to change. He was in a position to sense the atmosphere and thus to gauge the right moment for his approach. In February 1988 he advised Bonfiglioli of Warman's intention to concentrate on pumps and divest themselves of other divisions. Dwyer's knowledge of matters like these was plainly confidential to his employer. The accuracy of some of the information he supplied was disputed at the trial; but if on occasions it suited Dwyer's private interests to pass on information that was false, it was nevertheless his position as general manager that gave him the opportunities to transmit it to Bonfiglioli.

Moreover, coming as it did from a person occupying a position like his, the information had an appearance of reliability that would have been lacking if it had come only from some junior employee, or from someone who was a complete stranger to the Warman organisation and the Bonfiglioli agency. The impression that it was reliable was enhanced by his using the Warman letterhead for the initiating letter of 28 August 1986, which was signed by Dwyer and the sales manager Jarvis snr. Utilising Warman's employees Jarvis snr. and Jarvis jnr. as the channel of communication also tended to facilitate negotiations with Bonfiglioli for the joint assembly and distribution venture; through their past dealings with the two Jarvises, representatives of Bonfiglioli had come to know them better than they knew Dwyer. Jarvis snr., in particular, had in the course of his employment built up a close relationship with Bonfiglioli, which made him a valuable point of contact for Dwyer in communicating with the Italian parent company.

Above all, Dwyer was aware of the vulnerability of Warman's rights under the Contract of Agency and Distribution made with Bonfiglioli in 1981. It was because he knew that the contract was terminable after only three months notice that he could confidently reject Mitton's offer to sell, acting on the footing that, as he said in December 1987, Warman's rights were worthless. He was able to approach and treat with Bonfiglioli on that basis. The contrast with the detailed provisions regulating termination of the 20-year contract that Dwyer negotiated with Bonfiglioli is instructive. It goes to show that Dwyer recognised the principal weakness of Warman's position. In dealing with Bonfiglioli he was careful not to make the same mistake himself.

In addition, there were the various ways in which Dwyer actively undermined Warman's position. The trial judge found that, instead of loyally defending Warman's handling of the agency, Dwyer actively denigrated it in his discussions with Bonfiglioli. Some of his Honour's findings to that effect were challenged on appeal; but it is a fair inference that that was what happened, and the Judge was plainly entitled on the evidence before him to reach that conclusion. By contrast, Dwyer refrained from giving information or advice to Warman that would have alerted it to the fact that the agency was in danger of being lost. He thus in effect appropriated to himself the goodwill of Bonfiglioli for Warman and induced other staff members to leave their employment with Warman. His communications to Bonfiglioli, like his letter of 24 February 1988, envisaged that other staff members would leave Warman, and would be issued with shares in the third defendant, which is what in due course happened.

As well as these general equitable principles precluding Dwyer from using his position and knowledge as a means of furthering his own interests to the detriment of those of his employer, there was also a written confidentiality agreement between him and Warman. It is dated 16 December 1967 and was executed by Dwyer, although only after extensive negotiations, in the course of which he succeeded in having some of its provisions modified in his favour. Clauses 3.1, 3.2 and 3.3 imposed on Dwyer as employee of Warman express obligations to maintain secrecy and avoid disclosure in relation to confidential information; and to refrain from using such information in a manner that might cause loss to Warman.

The expression "confidential information" is defined in cl.2.1.3 of the agreement in such a way as to identify as its principal subject-matter information about Warman pumps and associated business; but it also extends generally to "all information relating to Warman, its business, products, customers or suppliers ... which is not in the public domain". It is therefore capable of comprehending information about Warman of the kind previously described that was passed on by Dwyer to Bonfiglioli, as well as information that he used to promote his plans to supplant Warman as Australian distributor for Bonfiglioli. The restraints imposed by the clauses referred to are expressed to apply both during the continuance of the employee's employment by Warman, and also "at any time after the termination of such employment". A contractual restraint, if broken, "does not, as a matter of course, make the employee chargeable as a trustee for the profits of the forbidden venture" : see Beatty v. Guggenheim Exploration Co. 122 N.E. 378, 380; but, as Cardozo J. pointed out in that case, "the contract reinforces that conclusion". That is so here. Dwyer acquired confidential knowledge while acting as Warman's manager. It did not lose the character of confidentiality when and simply because he ceased to be manager. The decision in Beatty earned an approving reference from Mason J. in Hospital Products Ltd. v. United States Surgical Corporation (1984) 156 C.L.R. 41, 108.

The present case is thus 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. It is 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. On appeal, however, the defendants contended that they ought not to have been made liable to account for the full amount of $957,821 for which judgment was given against them. If liable for anything, the liability should, it was argued, be only for damages, or for some lesser portion of the profits accruing to the defendants from acquiring this part of Warman's business.

The attack on the judgment or its amount assumed a variety of forms. It was said, first, that the case did not involve any breach of fiduciary duty, but was one where Dwyer had simply taken advantage of a business opportunity declined by Warman. The decision in Regal (Hastings) Ltd. v. Gulliver [1967] 2 A.C. 134 might be considered a complete answer to that contention. See also Cook v. Deeks [1916] 1 A.C. 554. A fiduciary may not avail himself of an opportunity coming to him in that capacity even if the beneficiary is unable or unwilling to make use of it himself; instead the fiduciary must first obtain the full and informed consent of the beneficiary. In this regard, it was submitted to be a relevant factor that in or after 1986 Warman had rejected an invitation from Bonfiglioli to participate in a joint venture involving the assembly of gearboxes in Australia, which would have required substantial quantities of Bonfiglioli stock to be maintained locally. The matter was raised in a letter dated 5 September 1986 addressed to Weekes by Carboni after his return to Italy. It speaks of "a small assembling facility for our products in your Country, that I discussed with Mr Dwyer, not being exactly sure of your internal organisation". The writer adds that he knows Mr Dwyer "will have to talk to you before making any decision", and goes on to offer Warman a share in building up an independent company as a joint venture with Bonfiglioli to make the complete gearbox assembly in Australia. The letter concludes by saying that, from Carboni's discussion with him, Dwyer had more details which "we expect he will discuss with you in the very near future ...".

No such discussion ensued; but there was a further letter from Carboni relative to the matter. It is dated 9 December 1986 and was addressed to Dwyer at the Brisbane office. Its significance is twofold. It referred to the willingness of Lucas Fluid Power to start assembling Transmital gearboxes in Sydney. More ominously, it added that "in case we come to an agreement on that we will have to review our position about all matters, as it will probably be convenient to set up one single Company to handle both Bonfiglioli and Transmital products". This would have served as a warning to Warman that it might be in danger of losing the agency if it did not participate in the suggested local assembly venture. However, although Dwyer claimed he passed the letter on to Sydney, both Weekes and Lockhart swore that they never saw it until after discovery in the action. By about February 1987 the idea of combining with Lucas Fluid Power to assemble gearboxes had been dropped. Similar proposals to involve Muir Engineering and Gibson Battle also came to nothing.

It is the defendants who bear the onus of proving that the beneficiary consented after a full and frank disclosure of all material facts. See Phipps v. Boardman [1967] 2 A.C. 46, 93; New Zealand Netherlands Society "Oranje" Inc. v. Ruys [1973] 1 W.L.R. 1126, 1131-1132; Ford & Lee : Principles of the Law of Trusts, 2nd ed., paras. 1809-1812; Scott on Trusts, 4th ed., vol.V, para. 499, at 517; para. 504, at 541. As appears from Scott, the only completely safe and sure method of demonstrating consent is by showing that, before acquiring for himself, the fiduciary offered the opportunity to the beneficiary, who declined it : Scott, at 541; cf. Energy Resources Corporation Inc. v. Porter 438 N.E. 2d. 391 (1982). Nothing resembling that was done here.

Warman is not shown to have declined a business opportunity that was in any way comparable to that offered by Bonfiglioli to the defendants.

Another challenge to the judgment was that it was inappropriate to grant relief that involved an accounting for "profits", which in the context of accounting in equity is not confined in meaning to the net business earnings but extends to other benefits and advantages acquired, including assets of a capital nature. For the most part the point being made here is covered in what has already been said about the basis for the equitable liability of the defendants and the evidence available to support it. It is, however, submitted that the business now being conducted by the defendants is fundamentally different from the agency or distribution business that formerly belonged to Warman; in particular, it is stressed that, in addition to distributing Bonfiglioli products, the defendants are now engaged in assembly of gearboxes locally; they have and maintain larger quantities of stock in Australia; and, in addition, some former agencies have been shed and others taken on.

Differences of that order and character are, however, not enough to defeat the plaintiff's right to an account. The fiduciary is not permitted to make off with property by transforming it into something else. As was said in Sialkot Importing Corporation v. Berlin 68 N.E. 2d. 501, 502-503:

"More is involved than merely breach of contract or injury to property ... Equity will regard the new contract [as] an offshoot of the old, will deem it made for the benefit of the corporation, and will enforce the resulting trust in its favour".

In appropriate cases a resulting or constructive trust may be imposed not only in respect of the tree itself but also the buds and fruit, including the fruit of new branches : see Franklin v. Giddins [1978] Qd.R. 72, which illustrates the point both literally and metaphorically. The new lease in Chan v. Zacharia (1984) 154 C.L.R.178 is an example of the same principle at work. Another local illustration is Australian Energy Ltd. v. Lennard Oil N.L. (1985) reported on this point only in AMPLA Bulletin vol.4(2), 21, at 23-24 (on appeal [1986] 2 Qd.R. 216, and [1988] 2 Qd.R. 230, particularly at 237-238).

The question whether the Bonfiglioli business now being conducted by the defendants is the same or substantially as that formerly conducted by Warman, which the defendants misappropriated, is essentially one of fact : (see Universal Thermosensors Ltd. v. Hibben [1992] 1 W.L.R. 840, 850-851.

The trial judge decided the issue in favour of Warman. While there are some differences in the particular agencies and the quantities of stock now held by the defendants, they are not sufficient to prevent their present business from being identified with the business formerly conducted by the plaintiff. The gear assembly side of the defendants' business is new, but it is relatively small in comparison to the whole. According to the annual accounts, in the year 1991 only $10,403 was spent on wages for gear assembly work.

This was said by Dwyer to be a mere accounting device; but he agreed that there was only one person employed full-time on the assembly work, together with what his Honour described as a "few part-time helpers, depending on the need". Even assuming, as was expected, that the assembly side generates some additional sales, the proportion of profits attributable to that element is not substantial.

A second complaint, perhaps not unrelated to the first, is that, whereas the defendants now have the benefit of a 20-year contract determinable only on specific grounds, Warman previously had no more than an agency agreement of indefinite duration determinable at will on a mere three months notice. In Prebble v. Reeves [1910] V.L.R. 88, 105, the point that the plaintiff had had only a slight interest was said by Madden C.J. to be "nothing to the purpose". The courts, his Honour continued:

"have not been troubled by the thinness or precariousness of the property if the person in the fiduciary relationship has procured it to his own advantage to the disadvantage of the person to whom he owed a duty, and by reason of knowledge and opportunity which he acquired in that employment."

Because it focuses on substance rather than form, equity is prepared to impose a trust even where a lease has expired : Edwards v. Lewis (1747) 3 Atk. 538; or where there was no right but simply an expectation of renewal : Davis v. Hamlin (1883) 48 Am.R. 541, referred to in Prebble v. Reeves [1910] V.L.R. 88, at 105.

However, the defendants' principal submission on appeal is that the relief granted in favour of Warman in the action is simply inappropriate; in particular, the learned judge was wrong in imposing a constructive trust making Dwyer and the other defendants liable to account to Warman for profits. A proper and sufficient remedy would (so the argument ran) have been to make the defendants compensate Warman in damages for loss of its chance of retaining the Bonfiglioli agency business, to be measured by comparing Dwyer's present position with the position he would have occupied if he had resigned before arranging to obtain the agency. The difference would then have represented the "headstart" obtained by Dwyer and the corporate defendants as a result of his breach of fiduciary duty. Alternatively, the defendants should be accountable only for some of the profits earned during a limited (but unspecified) period, bearing in mind that (so it was urged) no breach of fiduciary duty would have been committed if Dwyer had waited until after his employment had ended before setting out to acquire the distribution business.

The remedy of compensation for an unfair "headstart"

is, as McLelland J. observed out in United States Surgical

Corporation v. Hospital Products International Pty. Ltd.

[1982] 2 N.S.W.L.R. 766, 815, well established as a form of
redress in the field of misusing confidential information.
Acknowledging that resort to analogy is needed to make it
applicable to a case of breach of fiduciary duty, McLelland
J. nevertheless adopted it in the Hospital Products case.
His decision was reversed on appeal; but in the High Court
Mason J. considered that the orders made by McLelland J.
should be restored : see Hospital Products Ltd. v. United
States Surgical Corporation (1984) 156 C.L.R. 41, 116; and
on this point Deane J. agreed with Mason J. : see 156 C.L.R.
41, 125.

Some of the reasoning of Mason J. (as he then was) in the Hospital Products case was relied on by the appellants in the present appeal. It is, however, necessary to recall not only that Mason and Deane JJ. were dissentients in that case, but also that the relevant part of the order at first instance that was approved by their Honours was one that conferred on the plaintiff the right to elect from among three alternative remedies. The first was to receive an account of profits earned by the defendant through sales of its product on the Australian market. It was this, and not damages for breach of contract, that the plaintiff elected to take : see [1982] 2 N.S.W.L.R. 766, 821. The reason why McLelland J. declined to declare a trust of the defendant's business assets in that case was that at some time before the trial sales of the defendant's product had been discontinued in Australia, which was the only jurisdiction in which the defendant's breach of fiduciary duty was relevant : see Hospital Products [1982] 2 N.S.W.L.R. 766, 815; and 156 C.L.R. 41, 112. Liability to account for profits was therefore confined to the "headstart" period from 1 December 1979 to 30 November 1980, during which the defendant was appropriating the plaintiff's goodwill by selling its products in Australia. Marketing them in the United States was not considered to be within the scope of the fiduciary duty : see 156 C.L.R. 41, 113, per Mason J.

Accounting for profits after the headstart period was
therefore inappropriate.

The judgment of Mason J. in the Hospital Products case is therefore not authority for permitting the defendants in this action to escape liability to account for assets, advantages, or profits derived from Dwyer's breach of fiduciary duty. On the contrary, as his Honour in that case emphasised (156 C.L.R. 41, 108), what is important:

"is that the advantage has accrued to him in breach of his fiduciary duty or by his misuse of his fiduciary position. The consequence is that he must account for it, and in equity the appropriate remedy is by means of a constructive trust."

Imposition of a liability as constructive trustee in those circumstances is said to be simply an equitable formula for imposing a personal liability to account : English v. Dedham Vale Properties Ltd. [1978] 1 W.L.R. 93, 110. It does not give rise to a proprietary remedy in favour of the beneficiaries in respect of property that is subject to the constructive trust : see 48 Halsbury's Laws of England, 4th ed., para. 596, at 330.

On behalf of the appellant Dwyer, Mr Hangar Q.C. nevertheless sought to rely on another passage in the reasons of Mason J. in the Hospital Products case (156 C.L.R. 41, 110), where his Honour spoke of:

"... one approach more favourable to the fiduciary ... [which] is that he should be held liable to account as constructive trustee not of the entire business but of the particular benefit which flowed to him in breach of his duty."

This, it was submitted, revealed a tendency in this area of the law to introduce general concepts of causation having the effect of limiting liability to losses shown to be causally related to the breach of fiduciary duty in question.

It is, however, not possible to read the foregoing remarks as manifesting the tendency ascribed to them by Mr Hangar. Mason J. was not speaking about losses sustained by the beneficiary but about benefits flowing to the fiduciary. Specifically, in that part of his reasons (156 C.L.R. 41, 110), his Honour was contrasting the approach which he described as more favourable to the fiduciary, with one he described as less favourable, which was to hold the fiduciary accountable for the entire business and its profits after making due allowance in his favour for his time, energy, skill and financial contribution. The less favourable approach would ordinarily result in a declaration of trust extending to whole the business and assets; the more favourable to a liability to account only for profits or other benefits flowing from the breach of fiduciary duty.

The distinction was recognised in Re Jervis [1958] 1 W.L.R. 815, 820, where Upjohn J. said it was not possible to regard one approach as universally preferable to the other. In giving it his approval in Hospital Products Mason J. added that in each case the form of inquiry directed will be such as "will reflect as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty" (156 C.L.R. 41, 110). In accepting the distinction made by Upjohn J., his Honour in the Hospital Benefits case went on to hold that the duty to account should be confined to benefits in the form of profits flowing to the defendants during what he called the "headstart" period. The reason he gave for preferring that more limited form of relief was that the defendant had not succeeded in appropriating for itself the plaintiff's goodwill on a permanent basis (156 C.L.R. 41, 112). For somewhat different reasons, Deane J. agreed that equitable relief of that kind was "appropriate to the particular circumstances" (156 C.L.R. 41, 124).

The questions here are therefore, first, whether the less or the more favourable approach is appropriate in this instance; and, if the less favourable approach, then to determine what are the particular benefits that flowed to Dwyer in consequence of his breach of fiduciary duty for which he should be required to account. The theoretical main difference between the two approaches appears to be that in one the liability to account ordinarily extends to the capital assets of the business; in the other it is confined to profits and other benefits. In practice, however, the distinction is perhaps seldom likely to be as clear as this because the purpose always is to ascertain the true measure of benefits resulting from the breach of duty.

With respect to the first question mentioned, there is no reason to doubt that the primary judge was correct in regarding this as a case in which the defendant should be called on to account for the value of the whole business and profits, although only after making due allowance for factors such as the time, effort, skill, capital etc., used or expended by them in building it up. In other words, the action was rightly regarded as one in which an accounting on the basis less favourable to the fiduciary was proper.

Unlike Hospital Benefits, it is a case in which the fiduciary Dwyer has succeeded in permanently appropriating substantially the whole of Warman's distributorship business including the goodwill of the customers, of the manufacturer Bonfiglioli, and of the Queensland employees. The present case therefore closely resembles Re Jervis [1958] 1 W.L.R. 815, 820, where the fiduciary took over and appropriated to herself the whole of the business, together with its suppliers and customers which she was administering.

However, even if the accounting here were restricted to the first, or more favourable, approach, there would be little if any difference in the result. The "particular benefits" that flowed to the defendants as the result of breach of his fiduciary duty to Warman included the goodwill and some physical assets of the Bonfiglioli dealership in Australia, together with the trading profits earned in conducting that business. Those benefits were acquired by Dwyer using his position, power, influence and knowledge as the general manager of the Queensland business successfully to lure Bonfiglioli away from Warman and to acquire for the defendants the dealership along with customers and employees of the business associated with it.

On either approach the appropriate relief in equity to be granted for breaches of fiduciary duty having results of that kind is to make the defendants liable for the value of what they have received from the plaintiff. On the face of it, that would include the assets of the business and the net profits derived from trading. A legitimate method of arriving at an assets figure would be to take the value (measured by capitalising the yield, or by some other accepted method) of the current business of the defendants, and to deduct from it the value of components in the business that were not acquired from the plaintiff, at the same time making due allowance for the other factors identified in cases like Re Jervis. This was essentially the course adopted by the learned trial judge in arriving at the amount for which judgment was given in this action. In his reasons he said that the form of accounting adopted "take the form of a more general inquiry as to the proportion of the defendants' business which flowed to them by reason of the breach". In arriving at the amount for which he gave judgment, he expressly made allowance for the following circumstances : (a) that some of the profits earned in the defendants' business resulted from increased sales; (b) that the defendants had injected a large amount of capital into the business; (c) that they had invested in the venture extensive knowledge, skill and effort; and (d)that the defendants had acquired some additional agencies not enjoyed by the plaintiffs in conducting their business.

The allowance he made, which may be viewed as generous to the defendants, was to reduce by one half both the value of the goodwill and the net profits for which he held the defendants liable to account.

The figures adopted for this purpose, which were substantially those put forward by accountants Peat Marwick at the trial, are as follows. For each of the years ending 31 December 1988 and concluding at the date of judgment, in the case of the first defendant (BTA):

1988       $163,323
1989       $245,823
1990       $258,637
1991       $251,084
1992       $167,390 (1.1.92 to 31.8.92)

For each of the years ending 30 June 1992 and concluding at judgment, in the case of the second defendant (ETA):

1989 $ 90,226
1990 $ 206,665
1991 $ 101,092

1992 $ 16,848 (30.6.92 to 31.8.92)
$1,602,180

The total of $1,602,180 was then reduced by 50% to $801,090 to accommodate the allowance his Honour had previously decided upon.

Interest at 15% was calculated by his Honour on the resulting figure of $801,090 at 7.5% for half the period from 1988 to 1992 to produce a rounded-off figure of $200,000. However, bearing in mind that most of the defendants' profits had been re-invested in the business or else used to reduce interest on borrowings so as to enlarge the profits already being accounted for to the plaintiffs, the judge awarded only what he described as "a fairly nominal allowance" of $10,000 as representing the extent to which the stock had been built up by reinvesting profits.

Finally, the learned judge dealt with the matter of the goodwill of the business that has since 1988 been conducted by the second and third defendants. Accepting that in some cases it would be appropriate to declare that a proportionate part of the business be held on trust by those acquiring it in breach of fiduciary duty, his Honour declined to make such a declaration in the present case.

His principal reason for this was the obvious undesirability of fostering a result by which the parties would be kept together in a continuing commercial relationship because of a shared interest in the business now being conducted. The date of judgment was selected as the cut-off point of liability to account because it was from then that the plaintiffs would be paid out and their interest in the business finally extinguished. Other reasons favouring this course adopted included the unfairness that would follow from vesting in the plaintiffs a half share of the enlarged business and assets, and the impracticability of separating out a part as properly attributable to the plaintiff's half share.

The good sense of the approach adopted by his Honour is self-evident. In arriving at a figure representing the present value of a one half share of the business goodwill to which the plaintiffs were entitled, the trial judge adopted the combined after-tax earnings of the two defendants for a single year, choosing for this purpose 1991, which was the last full year for which trading results were available. The figure arrived at by this method was $293,462 which represented the combined amount of the defendants' net earnings for that period. It is accepted by the parties to the appeal that an error was made in calculating this amount, which should have been only $193,462, with the result that the correct figure should have been equal to half of this, or $96,731. The judgment sum should in consequence be reduced accordingly. It results in a judgment sum of $907,821, instead of the amount of $957,821.00 awarded to the plaintiffs at trial.

On appeal the defendants' attack on this aspect of the judgment is not directed to particular amounts or items forming part of the reduced judgment sum. Rather, it is that the trial judge was never asked to take an account of profits himself but only to order that there be one. As a result, it is said that the defendants lost the opportunity of presenting evidence and submissions going to various matters of quantum that have now been decided against them.

In short, what they complain of is, that in relation to assessing the amount awarded, they were denied natural justice at the trial.

There is a superficial attraction in the argument on this point, however, which tends initially to conceal an underlying element of disingenuousness. Both in the writ of summons and in para. 9 of the amended statement of claim the relief claimed includes "an account of the profits made by the defendants and each of them in the selling" of Bonfiglioli products; the claim as pleaded also includes the standard general prayer for further or other relief, which claims an order for payment of money found to be due on the taking of accounts. For the defendant Mr Hangar Q.C. submitted that it was not "the normal course" for the judge to take such an account at the trial, but instead to order an inquiry on the matter. With respect, however, it has for at least the last 10 or 20 years been most unusual in Queensland for the taking of accounts to be deferred to some later occasion following the trial. Thus in Edward Street Properties Pty Ltd. v. Collins [1977] Qd.R. 399, a successful plaintiff who omitted at the trial to present evidence of damage was refused an inquiry into the equitable damages that it claimed to have sustained. In a particular case, the course that is adopted no doubt falls to be determined according to the practicalities as they emerge at the trial. If evidence adduced is sufficient, and the process of determination is not likely to be unduly difficult, detailed, or time-consuming, there is no good reason why the trial judge should defer the assessment of profits to another occasion or another judge. Indeed, such an assessment may in the end turn out to be so much a matter of mechanical or arithmetical calculation as to be simpler than the process of assessing common law damages in complex commercial or even some personal injuries cases. If the necessary evidence is adduced at the trial, there is no rule of principle or practice that the final step of determining the amount should be postponed.

In the present instance the plaintiffs, while acknowledging that his Honour was not asked at trial to take the account himself, deny that the defendants were prejudiced by his doing so, or that they thereby lost their opportunity of adducing evidence, or of being heard in relation to the proper amount to be awarded. The reason, they submit, is that the appropriate form of the relief to be granted was throughout a central issue that was strenuously contested at the trial. Whether the defendants should be required to account for profits or on some other footing was something that could be determined only upon hearing the evidence, which was adduced by both sides at the trial, of what the results of doing so would be. In addition, damages were claimed against Dwyer for his breach of fiduciary duty, and in consequence there was extensive evidence from both sides directed to that issue; accountants were called to give evidence, based on the defendants' accounting records, about the condition and profitability of the defendants' business; comparisons were made with the trading results of the plaintiffs' business; and Dwyer and other witnesses were cross-examined about these matters.

In an effort to meet the plaintiffs' response on this point, the defendants in the course of the appeal produced a document entitled Schedule Two. Paragraph 12 of the Schedule lists particulars of matters which are said to be relevant to the kind of post-trial account-taking envisaged by the defendants. It is apparent that the matters specified in sub-paras. 12(a), (b), (d), (e), and (g) are no more and no less relevant to the assessment of damages, whether at law or in equity, than to an account of profits in equity, while the matters in sub-paras. (c) and (f) are equally irrelevant to both. Indeed, the boundary between liability in equity for damages and liability for profits proved on appeal to be so elusive that counsel for the defendants was not successful in identifying any evidence or any submission which could have been but was not presented at the trial. It was suggested that trading profits were relevant to an accounting for profits but not to the assessment of damages; but, even if this were so, the matter of those profits and their attribution was the subject of extensive evidence and examination at the hearing below.

It is thus not possible to accept the broad sweep of the defendants' complaint that his Honour's assessment of the profits or benefits he found to have accrued to the defendants through Dwyer's breach of fiduciary duty took place in a way or under circumstances in which the defendants were denied an adequate opportunity of presenting their case and of being heard. As it is, the defendants were in equity prima facie liable for all the profits and benefits they received from the business excepting only those that resulted from the particular matters identified, like the gear assembly business, expansion of sales, and maintenance of additional stock. The allowance of 50% that was made by his Honour appears, in the context of this case, to have been if anything unduly generous to the defendants.

A final matter that must be dealt with is the suggestion that the defendants were not equally liable for the whole of the profits, and that judgment for the amount found due should not have been given against all three of them. The point made can be reduced to this, that while it may have been the corporate defendants who received the profits, it was not they but Dwyer who acted in breach of fiduciary duty; and while it was Dwyer who acted in breach of that duty, it was not he who received the profits. The logical result of this reasoning would be that the plaintiffs should recover nothing by way of profits from any of the defendants.

The short answer is that the point has never been raised by the defendants. No doubt that is because, if it had been taken, it certainly would have failed. As already mentioned, in the plaintiffs' prayer for relief, an account of profits is claimed against all defendants. The matters in paras. 3, 4, 5, and 6 of the statement of claim may fairly be summed up as alleging that the second and third defendants commenced and carried on the Bonfiglioli distributorship knowing that Dwyer had acted in breach of the fiduciary duties he owed to the plaintiffs, and as a result of his having done so. The breaches of duty specifically alleged in para.4 of the statement of claim are, or include, informing Bonfiglioli of the plaintiffs' intention to terminate the distributorship; inducing Bonfiglioli to terminate it; and inducing Bonfiglioli to acquire, in company with Dwyer, an interest in the second defendant, and to distribute its products in Australia through the second and third defendants.

Those allegations were established at the trial. The effect is, that, at the instance of Dwyer, the second and third defendants have been found to have set up and carried on a business which they at all times knew Dwyer had in breach of his fiduciary duty misappropriated from the plaintiffs. In those circumstances his Honour was justified in concluding that "those who constituted the minds of the second and third defendants were fully aware of and joined in his breach". The judicial decisions referred to by his Honour in his reasons on this point are ample authority for holding all of the defendants liable to account for ensuing profits acquired in breach of Dwyer's fiduciary duty. As was said by Gibbs J. in Consul Developments Pty. Ltd. v. D.P.C. Estates Pty. Ltd. (1975) 132 C.L.R. 373, 397:

"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 he has received as a result of such participation."

In the end, however, it is for present purposes enough to say that the point now under consideration was never taken on this appeal. It is not among the grounds of appeal; nor in the written outlines of the appellants; nor in the oral submissions of their counsel on appeal, which are transcribed. In these circumstances, this Court would not be justified in entertaining it.

The appeal should be allowed, but only to the limited extent agreed of reducing the amount for which judgment was given from $957,821 to $907,821. Otherwise it should be dismissed with costs.

Account of profits	$801,090.00
Interest	$ 10,000.00
Payment for goodwill	$146,731.00
$957,821.00 ___________