Legal Research
Cases
Warman International Ltd v Dwyer

Warman International Ltd v Dwyer

Link copied

Case Copied 23 March 1995 51 min read

Contents

On this page

HIGH COURT OF AUSTRALIA

MASON CJ, BRENNAN, DEANE, DAWSON AND GAUDRON JJ

WARMAN INTERNATIONAL LIMITED AND ANOTHER v DWYER AND OTHERS

(1995) 182 CLR 544

23 March 1995

Equity—Fiduciary duty—Breach—Remedies—Equitable damages—Account of profits—Diversion by manager of part of employer's business to own company—Whether employer entitled to whole profit of business—Onus—Whether allowance to be made for manager's endeavour and skill.

Headnote

An Australian company's business included an agency for the distribution of gearboxes manufactured in Italy. The company declined the manufacturer's invitation to enter into a joint venture for the assembly of its products in Australia, whereupon the manager of the company's branch which controlled the running of the agency told the manufacturer he was considering leaving the company to set up his own business. The manager later rejected the company's suggestion that he purchase the agency. The manager negotiated with the manufacturer about a joint venture between them and about the control of a company incorporated by him for the purpose of the venture. He arranged for the company's Queensland staff to work for the new venture. The manufacturer then terminated the agency agreement with the company and the manager resigned from its employment. Shares in the new company were then issued to the manager and his wife jointly and the manufacturer so that the shareholding was equally divided between them, and the new company and the manufacturer entered into a joint venture agreement for the assembly and distribution of the manufacturer's gearboxes in Australia. The new company took over the agency business. In an action by the Australian company against the former manager and the new company, the judge held that the manager had acted in breach of the fiduciary relationship between him and the company and awarded the company a sum as an account of profits. He refused to declare that the defendants held part of the new company's business on trust for the Australian company, but awarded equitable compensation equal to one half of the value of the goodwill of the business. On appeal by the defendants, the Court of Appeal upheld the finding of a breach of fiduciary duty but allowed the appeal on the ground that the Australian company was entitled only to the loss flowing from the breach and not to an account of profits. The Australian company did not attack the judge's refusal to declare a trust of the goodwill of the new company's business.

Held that the Australian company was entitled to an account of profits made by the new company in its first two years of operation on the basis of the net profits of the business before tax less an appropriate allowance for the expenses, skill, expertise, effort and resources contributed by the defendants.

Per curiam. (1) In assessing the profits to which a plaintiff is entitled against an errant fiduciary a distinction should be drawn between those cases in which a specific asset is acquired by the fiduciary and those in which a business is acquired and operated. In…

Grounds of appeal

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

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

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

Consideration

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

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

Keep reading for free

Create a free CaseChat account to read Warman International Ltd v Dwyer and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [1995] HCA 18
Decision Date: 23 March 1995

CaseChat Overview and Summary

Warman International Ltd (Warman) appealed to the High Court of Australia against a decision of the Full Federal Court, which had affirmed a judgment in favour of Mr Dwyer (Dwyer). The dispute concerned Dwyer's alleged breach of fiduciary duties owed to Warman, his former employer, and the subsequent profits he made through a competing business. Warman alleged that Dwyer had misused confidential information and business opportunities belonging to Warman for his own benefit.

The High Court was required to determine whether Dwyer had breached his fiduciary duty to Warman by competing with his employer during his employment and by diverting business opportunities. Further, the Court had to consider the appropriate remedy for such a breach, specifically whether Warman was entitled to an account of profits made by Dwyer in his competing venture. The central question was the extent to which a fiduciary's personal profits, derived from a breach of duty, should be disgorged for the benefit of the principal.

The High Court, in a joint judgment, held that Dwyer had breached his fiduciary duty to Warman. The Court reasoned that an employee owes a duty of loyalty to their employer, which includes refraining from competing with the employer or diverting business opportunities during the course of employment. The Court applied the principle that a fiduciary who profits from a breach of duty must account for those profits to the principal, regardless of whether the principal suffered any loss. The Court found that Dwyer had deliberately exploited opportunities that rightfully belonged to Warman, and therefore, Warman was entitled to the profits Dwyer had gained from his competing business.

The High Court ordered that Dwyer account to Warman for the profits made from the competing business. The appeal was allowed, and the judgment of the Full Federal Court was set aside, with the matter remitted to the Federal Court for the assessment of the profits to be paid to Warman.

Orders