Zibara v Ultra Management (Sports) Pty Ltd
[2021] FCAFC 4
•2 February 2021
FEDERAL COURT OF AUSTRALIA
Zibara v Ultra Management (Sports) Pty Ltd [2021] FCAFC 4
Appeal from: Ultra Management (Sports) Pty Ltd v Zibara [2020] FCA 31
Ultra Management (Sports) Pty Ltd (No 2) v Zibara [2020] FCA 402
File number: QUD 102 of 2020 Judgment of: MCKERRACHER, DERRINGTON AND ANDERSON JJ Date of judgment: 2 February 2021 Catchwords: EQUITY – liability under the second limb of Barnes v Addy – whether it was open to the primary judge to find that the Third Appellant was liable to account to the Respondent on the pleadings and facts found by the primary judge – whether there was a need to expressly plead that the First and Second Appellants had engaged in a “dishonest and fraudulent design” – open to the primary judge to find that Third Appellant was liable to account to the Respondent
COSTS – discretion as to costs – whether primary judge’s discretion miscarried in ordering that the Appellants pay, on an indemnity basis, the Respondent’s costs of the days of the hearing of the trial – primary judge’s decision as to costs was within the bounds of the primary judge’s discretion as to costs
Legislation: Competition and Consumer Act 2010 (Cth) s 76
Corporations Act 2001 (Cth) ss 79, 182, 183
Evidence Act 1995 (Cth) s 140
Federal Court of Australia Act 1976 (Cth), s 43
Federal Court Rules 2011 (Cth), rr 16.02(1)(a), 40.02
Cases cited:
AHRKalimpa Pty Ltd v Schmidt (No 3) [2019] VSC 197
Ancient Order of Foresters in Victoria Friendly Society v Lifeplan Australia Friendly Society (2018) 265 CLR 1
Argyle Building Services Pty Ltd v Mark Franek & Ors [2020] VSCA 196
Aucare Dairy (Aust) Pty Ltd v Huang (No 3) [2019] FCA 412
Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 340 ALR 580
Australian Competition and Consumer Commission v Online Dealz Pty Ltd [2016] FCA 732
Babcock and Brown DIF III Global Co-Investment Fund, LP v Babcock and Brown International Pty Limited (No 2) [2017] VSC 556
Baden v Société Générale pour Favoriser le Développment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509
Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279
Barnes v Addy (1874) LR9ChApp 244
Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29
Betfair Pty Ltd v Racing New South Wales [2010] FCAFC 133
Brecher v Barrack Investments Pty Limited (No 2) [2020] FCA 911
Briginshaw v Briginshaw (1938) 60 CLR 336
Chickabo Pty Ltd v Zphere Pty Ltd [2019] VSC 73
Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy (No 2) [2020] FCAFC 112
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225
CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Cook v Deeks [1916] 1 AC 554
Cornerstone Property and Development Pty Ltd v Suellen Properties Pty Ltd [2014] QSC 265
Dare v Pulham (1982) 148 CLR 658
Dowling v Fairfax Media Publications Pty Ltd (No 2) [2010] FCAFC 28
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Gencor ACP Ltd v Dalby [2000] 2 BCLC 734
Gould v The Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490
Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32
Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6
Hamilton v Whitehead (1988) 166 CLR 121
Harstedt Pty Ltd v Tomanek [2018] VSCA 84
Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659
Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266
Holdway v Arcuri Lawyers [2009] 2 Qd R 18
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
House v The King (1936) 55 CLR 499
In the matter of Australian Worldwide Pty Ltd [2019] NSWSC 1475
In the matter of Elsmore Resources Ltd [2016] NSWSC 856
In the matter of Punters Show Pty Limited [2019] NSWSC 1777
Kazar (Liquidator) v Kargarian; In the Matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136
Latoudis v Casey (1990) 170 CLR 534
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Morad v El-Ashey (No 2) [2017] FCA 1612
Mudgee Dolomite & Lime Pty Ltd v Robert Francis Murdoch; In the matter of Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510
Northern Territory v Sangare (2019) 265 CLR 164
Prestige Lifting Services Pty Ltd v Williams [2015] FCA 1063
Prysmian Cavi E Sistemi S.R.L. v Australian Competition and Consumer Commission [2018] FCAFC 30
Queensland Mines Ltd v Hudson [1975-1976] ACLC 28-658
ReGaltari Pty Ltd (in liq) [2018] NSWSC 917
Re Macadam; Dallow v Codd [1946] Ch 73
Rogers v MHM Metals Ltd [2015] FCAFC 67
Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming [1995] 2 AC 378
Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405
Sucrogen Australia Pty Ltd v Westpac Banking Corporation [2012] 2 Qd R 175
Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488
Warman International Ltd v Dwyer (1995) 182 CLR 544
Westpac Banking Corporation v Bell Group Ltd (In liq) (No. 3) [2012] WASCA 157
Yorke v Lucas (1985) 158 CLR 661
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 299 Date of hearing: 13 November 2020 Counsel for the Appellants: Mr JM Ireland QC Solicitor for the Appellants: McGirr Lawyers Counsel for the Respondent: Mr RA Perry QC and Mr I Erskine Solicitor for the Respondent: Anthony Delaney Lawyers ORDERS
QUD 102 of 2020 BETWEEN: ANTOUN COLIN ZIBARA
First Appellant
PATRICK THOMAS ANGELI
Second Appellant
GENESIS TALENT MANAGEMENT PTY LIMITED
Third Appellant
AND: ULTRA MANAGEMENT (SPORTS) PTY LTD
Respondent
ORDER MADE BY:
MCKERRACHER, DERRINGTON AND ANDERSON JJ
DATE OF ORDER:
2 FEBRUARY 2021
THE COURT ORDERS THAT:
1.The Appellants’ appeal is dismissed.
2.The Appellants will pay the Respondent’s costs of and incidental to the appeal, to be assessed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MCKERRACHER AND ANDERSON JJ:
INTRODUCTION
The First Appellant (Mr Zibara) and the Second Appellant (Mr Angeli) are each directors of, and hold 50% of the issued shares in, the Third Appellant (Genesis). The Appellants were named as Respondents in proceedings commenced in this Court by the Respondent (UMS) which claimed relief by way of various causes of action. The sole director of UMS was Mr Ayoub.
By way of summary, the Appellants contend that, for various reasons, it was not open for the trial judge to find that Genesis was liable to account to UMS, under the “second limb” of Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy), in relation to breaches of fiduciary duties that Mr Zibara and Mr Angeli owed to UMS. The Appellants also contend that, when the primary judge ordered the Appellants to pay the costs of the hearing days at trial on an indemnity basis, the primary judge’s discretion as to costs miscarried.
For the reasons which follow, we reject both of the Appellant’s contentions. It was open to the trial judge to order Genesis to account to UMS under the “second limb” of Barnes v Addy. The primary judge’s Orders concerning costs were also within the permissible bounds of the primary judge’s discretion as to costs.
As a consequence, the Appellants’ appeal will be dismissed, with costs.
THE DECISIONS AND ORDERS OF THE PRIMARY JUDGE
Ultra Management (Sports) Pty Ltd v Zibara [2020] FCA 31
On 24 January 2020, the primary judge published Ultra Management (Sports) Pty Ltd v Zibara [2020] FCA 31 (First Reasons). The primary judge noted that the essential question in this proceeding was whether Mr Zibara and Mr Angeli, who were once employees of UMS, engaged in conduct which constituted (1) a breach of the duties of good faith and fidelity they owed to UMS; and (2) a breach of the duty they owed to UMS to avoid a conflict of interest and duty.
The primary judge conducted a detailed assessment of the relevant conduct of the Appellants. The primary judge’s findings are addressed later in these reasons.
The primary judge ultimately ordered the Appellants to account to UMS. The primary judge foreshadowed directions on the question of costs. His Honour directed that UMS submit to the primary judge a proposed form of Order consistent with the primary judge’s reasons: First Reasons, [208].
On 14 February 2020, the primary judge made the following Orders (among others):
1.Consequent upon the decision of this Court delivered on 24 January 2020, the following questions of account be referred to the Registrar of the Federal Court, at Brisbane for inquiry and report, namely:
(a)the benefit or gain obtained or received by each of [Mr Zibara, Mr Angeli and Genesis], or to be obtained or received, arising, during the term, out of each of the contracts between [Genesis] and [certain players];
(b)the benefit or gain to be obtained or to be received by each of [Mr Zibara, Mr Angeli and Genesis] arising out of the real chance of renewal of each of the contracts set out in paragraph 1(a) hereof, as determined in paragraphs 205 and 206 of the [First Reasons];
(c)the amount owed, by each of the accounting parties, to [UMS] …
Ultra Management (Sports) Pty Ltd (No 2) v Zibara [2020] FCA 402
On 25 March 2020, the primary judge published Ultra Management (Sports) Pty Ltd (No 2) v Zibara [2020] FCA 402 (Second Reasons). In that judgment, the primary judge dealt with the disposition of the costs of the principal proceeding. The costs consequences arising as a result of the Second Reasons are addressed later in these reasons.
First notice of appeal
On 8 April 2020, the appellants filed an application for leave to appeal and for an extension of time. Those grounds of appeal were subsequently amended. The amended grounds are set out below.
Judgment consent orders
On 21 August 2020, the primary judge made the following consent orders:
BY CONSENT, THE COURT ORDERS THAT:
1. … [J]udgment be entered for the Applicant [UMS] against [Mr Zibara, Mr Angeli and Genesis], jointly and severally for the sum of $100,000 (Judgment Sum).
2. Execution of the judgment be stayed pending the determination of [Mr Zibara, Mr Angeli and Genesis]’s Applications for Leave to Appeal and Extension of Time filed on 8 April 2020 or further Order of the Full Court, upon terms that [Mr Zibara, Mr Angeli and Genesis] pay into the trust account of their solicitors[,] McGirr Lawyers, the following amounts as security for payment of the Judgment Sum:
(a) A sum of $20,000 by 4pm on 20 August 2020; and
(b) A further sum of $30,000 by 4pm on 17 September 2020; and
(c) A further sum of $50,000 by 4pm on 3 October 2020.
3. The Judgment Sum be thereafter held in the trust account of [those] solicitors and not disbursed except pursuant to further Order of the Court or in accordance with the written consent of the parties and the solicitors for [Mr Zibara, Mr Angeli and Genesis] shall immediately notify, in writing, the solicitors for the Applicant:
(a) When each payment is made in accordance with this Order; and
(b) Whether any payment has not been made in accordance with this Order.
4. If [Mr Zibara, Mr Angeli and Genesis] fail to make any of the payments in the amount and by the time required by this Order, the stay referred to in paragraph 2 of this Order be lifted and [UMS] be entitled to execute forthwith for the totality of the Judgment Sum less that amount, if any, paid by [Mr Zibara, Mr Angeli and Genesis] in accordance with this Order.
5. The parties shall bear their own costs of the proceedings for an account incurred after 25 March 2020 until the date of Order.
6. Interest shall not run upon the Judgment Sum until the determination by the Full Court of [Mr Zibara, Mr Angeli and Genesis]’s Applications referred to in paragraph 2 hereof.
THE COURT NOTES THAT:
7. [Mr Zibara, Mr Angeli and Genesis]’s consent to these Orders shall not operate so as to prevent [Mr Zibara, Mr Angeli and Genesis] from challenging in the Full Court their liability to [UMS] pursuant to the Draft Notice of Appeal relied on in the Application to the Full Court referred to in paragraph 2 above.
Further orders
On 6 July 2020, Derrington J ordered the Applicants to file an amended proposed notice of appeal, and for the parties to file affidavit material and submissions.
On 7 August 2020, Derrington J made the following orders:
1. Pursuant to s 25(2)(e) of the Federal Court of Australia Act 1976 (Cth) the Application filed on 8 April 2020 for leave to appeal and for extension of time within which to appeal from the Orders of Greenwood J made on 24 January 2020 and on 25 March 2020 in proceedings QUD 940 / 2018 be heard and determined by a Full Court.
2. The Appeal Papers be prepared and the parties present their arguments at the hearing both upon the Application for leave and for extension of time and also upon the substance of the grounds of appeal advanced.
3. The matter be referred to the Acting Principal Judicial Registrar and the National Operations Registrar for the setting of the matter down for hearing and for the making of directions for the hearing of the applications and of the appeal.
4.Each parties’ costs be their costs in the cause.
On 23 September 2020, Registrar Van Le made orders concerning the preparation of the papers for this appeal.
AMENDED GROUNDS OF APPEAL
The Appellants, by their Amended Notice of Appeal, advanced the following grounds of appeal:
As to the Orders made on 24 January 2020
1.The primary judge erred in making Order 1 directing the entry of judgment for the Respondent in circumstances where:
a.There was no allegation or finding of dishonesty against [Genesis];
b.Any liability of [Genesis] to account to the Respondent depended upon [Genesis] being liable either:
i. For procuring the breaches of fiduciary duty found by the Court on the part of [Mr Zibara and Mr Angeli]; or
ii. For knowingly participating in a fraudulent or dishonest design on the part of [Mr Zibara and Mr Angeli].
c.There was no basis for a finding that [Genesis] had
assisted orprocured the breaches of fiduciary duty of [Mr Zibara or Mr Angeli] which all took place before the [Genesis] came into existence.There was no allegation in the statement of claim that [Mr Zibara and Mr Angeli] had acted with a fraudulent or dishonest design and it was accordingly not open to the primary judge to so conclude.
2.There was no proof that the [Mr Zibara or Mr Angeli] personally had made any gain or profit in consequence of the
irestablished breaches of fiduciary duty. They had not personally entered into management contracts with the four identified players after leaving the employment of [UMS] in December 2017.The Third Appellant did not exist until after the employment of the First and Second Appellants by the Respondent had ended.3.
There was no pleading or finding that the Third Appellant had procured any breach of fiduciary duty established on the part of the First and Second Appellants.4.The primary judge erred in holding at paragraph [203] of the [First Reasons] that [Mr Zibara and Mr Angeli] “either by Genesis directly, or indirectly as individuals, through their shareholding in Genesis had derived a benefit or gain by reason of (Genesis’s) entitlement to remuneration under each of the four contracts described at [192] of these reasons brought into existence as a result of the breaches of fiduciary duty.”
5.The primary judge erred in concluding that [UMS] had established that [Mr Zibara and Mr Angeli] were accountable to [UMS] for any gain or benefit consequent upon the established breaches of fiduciary duty owed to [UMS].
As to the Orders made on 14 February 2020
6.The primary judge ought not have made Order 2, in the circumstances identified in Ground 1 above, directing [UMS] to submit a form of order for an account in favour of [UMS].
7.The primary judge erred in making Orders 1, 2 and 3 directing the Registrar to carry out an inquiry and to report upon the matters referred to in those orders in circumstances where [UMS] had not shown any entitlement to such an inquiry.
As to the Orders made on 25 March 2020
8.The primary judge erred in holding at paragraph [7] of the [Second Reasons] that “the election to seek that remedy (account) was the expression of the applicant’s remedial entitlement to equitable compensation for the breaches of fiduciary duty by the respondents.”
9.The primary judge’s exercise of discretion to make Orders 1, 2 and 3 regarding the disposition of the costs of the proceedings miscarried in circumstances where:
a.His Honour did not await the conclusion of the inquiry and report of the Registrar to determine the quantum of any money judgment to which [UMS] might become entitled in the proceedings.
b.His Honour disregarded the fact that the quantification of [UMS]’s entitlement might be no more than $5,625 in assessing the appropriate order for costs.
c.His Honour failed to give any weight to the likely quantification of [UMS]’s entitlement to a pecuniary remedy in assessing the appropriate order for costs.
d.His Honour disregarded the significance of [UMS] having either failed to obtain or having abandoned all other claims for relief apart from the order for an account which His Honour granted.
e.His Honour overlooked the fact that [UMS] had until the last day of the trial maintained a damages claim for “at least $750,000” against the Appellants.
f.His Honour erred in holding at paragraph [50] of the [Second Reasons] that “the seriousness of the conduct of Mr Zibara and Mr Angeli is not measured by whether the benefit they obtained by reason of the breaches turns out to be $10 or $100 or $1,000 or $5,625 or something more than that.”
10.His Honour ought not to have made an order for indemnity costs in favour of [UMS] having regard to the circumstances set forth in Ground 7 above.
11.His Honour erred in concluding that there were “special circumstances” justifying an order for indemnity costs in favour of [UMS] applying S.43 (2) of the Federal Court of Australia Act 1976.
(Underlined, strikethrough and italicised text in the original.)
It is convenient to first consider the grounds of appeal which relate to the orders appealed from in the First Reasons. These reasons will then consider the grounds of appeal which relate to the orders appealed from in the Second Reasons.
GROUNDS OF APPEAL – FIRST REASONS
Grounds 1, 2, 4, 5, 6 and 7 in the amended notice of appeal are the grounds which concerned the orders appealed from in the First Reasons.
Appellants’ submissions
The Appellants submit that the grounds of appeal in respect of the First Reasons may be encapsulated and grouped as follows. First, the Appellants challenge the primary judge’s conclusion that Genesis had a liability to account to UMS on the pleadings and upon the facts as found by the primary judge: grounds 1, 4, 6, 7 and 8. Second, the Appellants challenge the primary judge’s conclusion that UMS established that Mr Zibara and Mr Angeli had personally made any gain or profit as a consequence of their established breaches of fiduciary duty and hence the primary judge’s finding that UMS was entitled to any money judgment against them by way of an account: grounds 2, 4, 6, 7 and 8. Third, the Appellants submit that there was no basis for a finding that Genesis had procured the relevant breaches of fiduciary duty by Mr Zibara or Mr Angeli which took place before Genesis came into existence: ground 1(c).
The Appellants submit that UMS, by its originating process, made various claims for declarations, a compensation order and injunctive relief under the Corporations Act 2001 (Cth). The compensation order claim was for a sum “exceeding the sum of $750,000”, or, in the alternative, the Appellants claimed (1) equitable damages for breach of confidence; (2) alternatively, in relation to breach of fiduciary duty, an account of profits and/or necessary accounts and enquiries.
The Appellants submit that UMS on its pleaded case did not make a claim for damages at law, a claim for equitable compensation, or a claim for a constructive trust. The Appellants submit that the pleaded case is defective as contractual damages claims are interwoven with claims for breach of confidence and breach of fiduciary duty. The Appellants submit that there were possible equitable causes of action which did not depend exclusively on the existence of contractual claims.
The Appellants submit that the loss and damage that was pleaded was “by reason of” the pleaded “breaches of duty” in [25] of UMS’s Statement of Claim. That plea was in the following terms:
By reason of the facts and matters pleaded herein, [Genesis]:
(a)had (through each of [Mr] Zibara and [Mr] Angeli) actual knowledge of the facts and circumstances giving rise to the Zibara breaches of duty and the Angeli breaches of duty [the “Zibara breaches of duty” and the “Angeli breaches of duty” were terms defined earlier in UMS’s Statement of Claim];
(b)accordingly was and is knowingly concerned in the Zibara breaches of duty and the Angeli breaches of duty;
(c)further or alternatively, is liable to account to UMS for any profit derived by reason of such involvement in the Zibara breaches of duty and the Angeli breaches of duty.
The Appellants by their submissions accept that Mr Zibara and Mr Angeli were employees that were subject to duties of fidelity and good faith. The Appellants accept that those obligations were created not by the existence of express or implied contractual terms or promises, but arise because they were imposed by equity (independently of contract) and by reason of the employment relationships that existed between them and UMS in the particular circumstances of this case.
The Appellants submit that the pleading against Mr Zibara and Mr Angeli did not allege that they, or either of them, had engaged in a “dishonest or fraudulent design”. This, the Appellants submit, was a necessary element to be pleaded and established if UMS was to succeed in its case against Genesis under the “second limb” of Barnes v Addy. The Appellants submit that UMS did not allege that Genesis had knowledge of any dishonest and fraudulent design of Mr Zibara and/or Mr Angeli. The Appellants submit that it is not sufficient for UMS to plead as they did that Genesis was “knowingly concerned in the Zibara breaches of duty and the Angeli breaches of duty”: Statement of Claim, [25].
The Appellants submit that, as a consequence of the defective pleading, it was not open to the primary judge to find that Genesis was liable to UMS under the second limb of Barnes v Addy. The gravamen of the Appellants’ submissions was that UMS’s pleading did not allow recovery against Genesis under the second limb of Barnes v Addy. That was because, the Appellants submit, any claim under the second limb of Barnes v Addy required an allegation and a finding that Mr Zibara and Mr Angeli were engaged in a dishonest and fraudulent design and that Genesis was knowingly concerned with it. The Appellants submit that no such allegation was made in the Statement of Claim and therefore no such finding was open to be made by the primary judge.
The Appellants submit that the findings of the primary judge were limited to breaches of fiduciary duties by Mr Zibara and Mr Angeli during the terms of their respective periods of employment with UMS, which ended in December 2017. The Appellants submit that Mr Zibara and Mr Angeli’s fiduciary duties to UMS ceased to restrain them from undertaking commercial plans after the termination of their employment in December 2017.
The Appellants submit that there was no post-termination restraint on the commercial activity that could be undertaken by Mr Zibara and Mr Angeli. The Appellants submit that, at trial, the contractual claims, together with the claims of breach of confidence, had been abandoned. As a consequence, the Appellants submit that, absent allegations of a dishonest and fraudulent design in the Statement of Claim, no case based on such a design was ever available to be put by UMS against Genesis at trial and no such findings were open to the primary judge.
The Appellants submit that at trial they elected to call no evidence on the basis of the case pleaded in the Statement of Claim. The Statement of Claim was, in the Appellants’ submission, deficient and they are not liable to account to UMS for any profit derived by reason of any breach of fiduciary duty.
The Appellants submit that Genesis did not exist until February 2018, well after the termination of Mr Zibara and Mr Angeli’s employment with UMS in December 2017, and well after they ceased to owe any fiduciary duties to UMS. The Appellants submit that the established breaches of duty, as found by the trial judge, had ended before Genesis was incorporated in February 2018 and, as a result, no liability for Mr Zibara and Mr Angeli’s breaches of duty can be found to exist against Genesis.
The Appellants submit that, in any event, there was no gain by or benefit to Mr Zibara or Mr Angeli and, as a consequence, there is nothing which could be subject to an account or inquiry.
UMS’s submissions
UMS submits that the manner in which the Appellants ran the trial before the primary judge, and the written submissions filed by the Appellants at the conclusion of the trial, establish that the submission now being made – as to the alleged “necessity” to plead and for the primary judge to find a “dishonest and fraudulent scheme” – was not raised at any time by the Appellants during, or at the conclusion of, the trial.
UMS submits that the Appellants at the trial made a critical concession, which was recorded by the primary judge at [2] of the First Reasons, as follows:
A preliminary question in issue was whether the scope or content of the role, tasks and duties to be performed by each employee gave rise to fiduciary duties or obligations owed to the applicant by each employee. The character of the relationship and the scope or content of the role, tasks and duties to be performed is ultimately a factual question leading to a conclusion of law. Although only aspects of the content of the role, tasks and duties of each former employee respondent were admitted in the pleading, ultimately the position adopted by [Mr Zibara, Mr Angeli and Genesis] in final submissions was that if the conduct said to constitute a breach of the fiduciary obligations owed to [UMS] by the [Mr Zibara and Mr Angeli] is made good, “it has to be conceded that there was a breach of fiduciary duty” …
(Emphasis added; transcript reference omitted.)
The primary judge then at [3] of the First Reasons observed: “[t]hus, there is no issue in the proceeding that [Mr Zibara and Mr Angeli] owed fiduciary obligations to [UMS] in the relevant period.”
UMS, on the basis of the concession recorded above, submits that it is now not open to the Appellants to argue on this appeal that there was a “necessity” to plead in the Statement of Claim, and for the primary judge to find, a “dishonest and fraudulent design” to satisfy the requirements of the second limb of Barnes v Addy. In any event, UMS submits that there is no principle that a pleading must include, or that there must be an explicit finding of, a “dishonest and fraudulent design” in order to establish ancillary liability under the second limb of Barnes v Addy.
UMS in essence submits that, on the facts found by the primary judge, the conduct of the Appellants was demonstrated to be conduct which was in breach of fiduciary duty, was conduct which fell below “ordinary standards of honest behaviour”, was conduct that answers the description of a dishonest and fraudulent design, and “amounted to a transgression of ordinary standards of honest behaviour”.
UMS submits that the Statement of Claim at [19] and [25], together with the concession in the First Reasons at [2], make clear that what had been alleged and what the primary judge found was Genesis had, through Mr Zibara and Mr Angeli, actual knowledge of the facts and circumstances giving rise to Mr Zibara’s and Mr Angeli’s respective breaches of duty. UMS submits that Genesis was knowingly concerned in Mr Zibara’s and Mr Angeli’s breaches of duty such that Genesis was liable to account to UMS for any profit derived by reason of its involvement in those breaches of duty.
UMS submits that the unchallenged findings made by the primary judge concerning Mr Zibara and Mr Angeli’s conduct established a breach of fiduciary duty which amounted to a “dishonest and fraudulent design”. UMS submits that was because the seriousness of the fiduciary breaches of Mr Zibara and Mr Angeli answers the description of “dishonest or fraudulent”: citing Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd [2014] NSWCA 266; 87 NSWLR 609 (Hasler) per Leeming JA at [105]-[110].
UMS submits that Genesis was the alter ego of the wrongdoing fiduciaries, Mr Zibara and Mr Angeli, who incorporated the company to secure profits of or to inflict the losses by their breach of fiduciary duty. UMS submits Genesis is fully liable for the profits made from and the losses inflicted by the errant fiduciaries. That is so, UMS submits, as Genesis had full knowledge of all of the facts as it is the “alter ego” of the fiduciaries with a “transmitted fiduciary obligation” or that it “jointly participated in” the breach: citing Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 29 at [243] (Grimaldi).
UMS submits that, contrary to the submissions of the Appellants, it is not necessary for UMS to establish that Mr Zibara and Mr Angeli made a “gain or profit” or to show actual receipt by the fiduciaries of a sum paid to Genesis by the contracted players. Rather, UMS submits it is simply necessary to establish that they set up and entirely own and control Genesis which competes with UMS and which has signed players which would have, but for their fiduciary breaches of duty, remained with UMS.
UMS submits that the benefit thereby obtained by the Appellants arises because of the causal connection between those breaches of fiduciary duty and the player contracts entered into by Genesis: citing Ancient Order of Foresters in Victoria Friendly Society v Lifeplan Australia Friendly Society [2018] HCA 43; 265 CLR 1 (Foresters) per Kiefel CJ, Keane and Edelman JJ at [7]-[10] and per Gageler J at [83]-[85].
UMS submits that, insofar as the Appellants contend that the fiduciary duties which they owed “ceased” upon their resignation from UMS in December 2017, that contention is untenable in light of particular findings made by the primary judge. UMS submits that the primary judge found that the strategy put in place by Mr Zibara and Mr Angeli, prior to the termination of their employment in December 2017, meant that UMS would not be able to obtain the benefit of the term remaining in the original contracts with the relevant players and protect UMS’s business relationship with those players: citing Foresters per Kiefel CJ, Keane and Edelman JJ at [19].
CONSIDERATION OF GROUNDS OF APPEAL – FIRST REASONS
The Appellants’ grounds 1, 4, 6, 7 and 8 challenge the primary judge’s conclusion that Genesis had a liability to account to UMS on the pleading and upon the facts as found by the primary judge. It is therefore necessary to address the primary judge’s findings in some detail. Relevant to these grounds of appeal, the primary judge made the following findings in the First Reasons.
Relevant findings of the primary judge
UMS’s business
UMS is a sports management company incorporated on 6 February 1996 and its sole director is Mr Sam Ayoub. The core business of UMS consists of managing players in the Australian National Rugby League (NRL) and the competition known as the English Super League. UMS manages players in those leagues and players aspiring to play at the highest professional level in the sport: First Reasons, [15].
The activities undertaken by UMS involve, first, entering into management contracts with players under which UMS assumes obligations for a defined period to manage the interests of the players. The second aspect involves negotiating with clubs to seek to secure player contracts for the player with a particular club. As a sports management agent, UMS undertakes contract negotiations for the player with clubs and seeks to procure sponsorship arrangements and media opportunities for the player: First Reasons, [18] and [19].
The NRL has an “Accreditation Scheme” which is governed by “scheme rules”. UMS operates under those rules and, as an accredited agent, acts according to those rules: First Reasons, [20]. The Accreditation Scheme approves standard form contracts to be used between a player and a player agent where the player agent is a company and where the player agent is an individual: First Reasons, [21].
Mr Zibara commenced full-time employment with UMS on 1 November 2010 and his employment ceased on 15 December 2017. Mr Zibara’s role was to assist UMS with its business generally and, in particular, with player recruitment and management. Mr Zibara’s role involved scouting for, and securing the management by UMS of, new talented players for the NRL; supervising new and existing players on behalf of UMS; maintaining and fostering players; attending to the day to day liaison with UMS’s contracted players; and seeking to solve problems confronted by UMS’s contracted players: First Reasons, [22] and [23].
Mr Angeli was employed by UMS from about 27 February 2017 to 15 December 2017. Mr Angeli was employed to assist UMS as an office administrator and, in particular, to assist with player recruitment management including assisting Mr Zibara in the services he provided. Mr Angeli’s role included assisting in supervising new and existing players on behalf of UMS; assisting in maintaining and fostering players; and assisting in attending to day to day liaison with contracted players: First Reasons, [25].
As at 20 June 2017, UMS had entered into a number of management contracts with players: First Reasons, [27]. UMS had contracts to manage players which, in the ordinary course, would have expired at various times into the future between 2018 and 2022: First Reasons, [29].
The remuneration arrangements under the various contracts that existed between UMS and players operated on two relevant bases. First, UMS would be entitled to receive a sum equal to a certain percentage of all moneys payable to a player pursuant to an “NRL Playing Contract, Playing Agreement or Non-Playing Agreement”. Second, UMS would receive a certain percentage of any “Non-Playing agreement or Sponsorships, Endorsements, Speaking Engagements … but excluding in the case of any NRL Playing Contract or Playing Agreement” seven identified categories of benefits or assistance received by the player: First Reasons, [30].
The revised form of player contracts
At [38] of the First Reasons, the primary judge recorded that, on 20 June 2017, Mr Massey, the Operations Manager for the NRL Accreditation System, sent an email to all NRL Accredited Agents, including Mr Ayoub. In that email, Mr Massey said:
Dear Agents
Please be advised that last night the Accreditation Committee resolved in accordance with Rule 3 of the Accredited Player and Agent Rules to amend the current rules and in addition to that provide each Agent with a revised contract between a Player and Agent (Form 3) and a revised contract between a Player and a Company (Form 4) for use.
In accordance with Rule 3 you are advised that these amendments to the Accredited Player and Agent Rules and Management Agreements (forms 3 and 4) will come into effect in 28 days from today’s date that being the 19th July 2017.
Further to this the Committee resolved that the use of the current agreement between [a] Player and a Company will cease immediately and any Company Management Agreements executed after this date and lodged with the Secretary for registration will not be accepted for entry on to the Register of Player and Agent Contracts.
Any Agent wishing to enter into a Management Agreement with a Player from this date until the 19th July 2017 will do so using the current Standard Player and Agent Contract as attached.
I have attached a copy of the amended documents as referred above and I have highlighted the amendments in yellow.
Following the expiry of the required 28 days’ notice I will disseminate to all Agents unmarked copies of the referred documents for use from that date forward.
I have also attached a copy of the unchanged standard Player and Agent Contract for use between this date and 19th July 2017.
Regards
Paul Massey
(First Reasons, [38]; amendments and emphasis added by the primary judge.)
At [40] of the First Reasons, the primary judge observed that at the centre of this case is the change to the termination arrangements in cl 6 of the new contract to be used as between a player and a company, such as UMS. In the new contract, cl 6 has 10 sub-paragraphs (a) to (j). Relevantly for present purposes, cl 6(e) is in these terms:
(e) In the event that the Nominated Agent ceases to perform duties on behalf of or within the Company, the Player may terminate this agreement on the giving of seven (7) days’ written notice to the Company in which case this agreement will come to an end at the expiration of the period of notice.
(First Reasons, [40].)
The new contractual arrangements contemplated that the player was to deal with a “Nominated Agent” within the company, much in the same way that a player was dealing with a “Principal” of the company under the earlier form of contract: First Reasons, [41].
At [42] of the First Reasons, the primary judge observed that the “significance of the new cl 6(e) is self-explanatory”. The primary judge stated that it “creates a circumstance in which, should the “Nominated Agent” under the contract cease to perform duties either on behalf of or within the company, the [p]layer is entitled to terminate the Agreement on the giving of seven days’ written notice to the company in which case the Agreement comes to an end at the expiration of the period of notice”: First Reasons, [42].
The Operations Manager for the NRL Accreditation System, Mr Massey, gave evidence about the new cl 6(e). The primary judge noted that, although it had become “mandatory” that, after 19 July 2017, any new contracts were to be on the basis of the new Forms 3 and 4, this notion of a “mandatory” use of those forms “did not require that “existing contracts which did not contain clause 6(e) should be terminated and new contracts entered into with the new clause 6(e) after that date” …”: First Reasons, [43] (internal quotations in the original). Mr Massey gave evidence that the new clause 6(e) provided the players with “the ability to terminate the agreement that they were currently on should the nominated agent leave the employ of the company”, “[but] [only] for the relevant contracts after that time ... which contained clause 6(e)”: First Reasons, [43].
UMS’s sole director, Mr Ayoub, gave evidence about Mr Massey’s email of 20 June 2017 (ie the email which is extracted above): First Reasons, [44]. Mr Ayoub said that he “certainly did” recall receiving Mr Massey’s email: First Reasons, [45]. Mr Ayoub regarded the proposal to introduce the new clause 6(e) as a “significant change” to previous contracts and “created a situation of substantial risk” to player agent businesses (such as UMS) of losing players should an employed accredited player agent leave the employ of the company: ibid. The risk was that a former employee who had a relationship with the player might leave the employ of the company and the player might follow that former employee to a competitor by exercising rights, under cl 6(e), to terminate the management contract with the company: ibid.
At [46] of the First Reasons, the primary judge stated:
On 20 June 2017 at 6.25 pm Mr Ayoub sent an email to Mr Zibara and Mr Angeli in relation to Mr Massey’s email [which is extracted above]. Mr Ayoub sought to convene a meeting with Mr Zibara and Mr Angeli the next day about Mr Massey’s email. Mr Ayoub had such a meeting the next day. Mr Ayoub was asked about that meeting and gave evidence that Mr Massey’s email was “significant in the scheme of things [as], it had a direct bearing on my business” … Mr Ayoub says that he told Mr Zibara and Mr Angeli that UMS had received the email from Mr Massey and he asked them if they had read it. Mr Ayoub recalls Mr Zibara saying that he had read Mr Massey’s email. Mr Ayoub says that Mr Angeli sat with Mr Zibara during the meeting. Mr Ayoub says that he “made them [Mr Zibara and Mr Angeli] aware of the fact that – that basically, they don’t need to sign any contracts, the existing contracts run their course, and that was the extent of it” … Mr Ayoub gave evidence that from his perspective there was “nil benefit at all” to his business in having the existing contracts with players terminated and new contracts entered into containing the new clause 6(e) “because it basically gave people a free pass potentially to terminate with a new contract [and] nothing needed to happen with our existing contracts” … and “[t]hey [the existing contracts] were in place, they were in place for the term, and basically it was of value and benefit to the business” … Mr Ayoub was asked whether Mr Zibara or Mr Angeli raised any question about the execution of new contracts in place of the existing contracts and Mr Ayoub gave evidence that Mr Zibara and Mr Angeli agreed with what Mr Ayoub had said … I accept Mr Ayoub’s evidence on these matters.
(Transcript references omitted.)
At [47] of the First Reasons, the primary judge observed that Mr Massey gave evidence about his interaction with Mr Ayoub and Mr Zibara in relation to the new agreements and particularly clause 6(e). Mr Massey said that he received a telephone call from Mr Ayoub and Mr Zibara and he was asked a question “in regards to how clause 6(e) would affect the contract” with a player: First Reasons, [47]. Mr Massey answered the question by saying that if the player chose to use the right contained in clause 6(e) “that’s what it was intended for”: ibid. Mr Massey said that Mr Ayoub and Mr Zibara called him, they were on a loud speaker at their end of the call, and Mr Massey said that they were “seeking clarification or confirmation of the wording [of clause 6(e)] and the interpretation”: ibid. Mr Massey was asked when the call occurred and he said that he could not exactly say without referring to his notes “but it was in the weeks or months shortly after that material going out [ie presumably referring to Mr Massey’s email of 20 June 2017]”: ibid. Mr Massey produced a diary note of the conversation which shows that it occurred on 5 October 2017, and which stated:
051017 Call from agent [Mr Zibara] who was on loud speaker with S A [Sam Ayoub], he inquired as to the position with the new management agreements if he was to sign his players to them. He has read the document and believes that if he has a player on a new company agreement then if he leaves [UMS] the Player has the right to terminate. He referred to clause 6 (e).
(First Reasons, [47].)
At [48] of the First Reasons, the primary recorded that it was common ground that the reference to “He” in the above diary note is Mr Massey’s reference to Mr Zibara. The primary judge “accept[ed] Mr Massey’s evidence generally”: First Reasons, [48].
On certain dates, 16 of the original UMS contracts were replaced by the new contracts between UMS and the relevant players: First Reasons, [51]. Each of those contracts were in the form of the new “Form 4” as sent by Mr Massey to the agents in his email of 20 June 2017 and thus each contract contained the new termination provision in clause 6(e): First Reasons, [52]. Each contract recites Mr Zibara as the “Nominated Agent” and each contract is signed on behalf of UMS by Mr Zibara and witnessed by Mr Angeli: First Reasons, [52].
Mr Zibara and Mr Angeli resign from UMS
On 20 November 2017, Mr Ayoub and Mr Zibara had a discussion about Mr Zibara’s future with UMS: First Reasons, [54]. Mr Ayoub described the conversation he had with Mr Zibara in his oral evidence: ibid. Mr Zibara “went for a walk” to discuss possible future arrangements between UMS and Mr Zibara: ibid. At [54] of the First Reasons, the primary judge set out the following email sent to Mr Ayoub by Mr Zibara on 21 November 2017:
Hi Sam
I know we had a face to face discussion yesterday regarding my Resignation from [UMS], effective December 15th, 2017. I just thought it would be sensible to send you an email, so that we both have a copy on the record.
Obviously you are aware that I will be taking up another opportunity in the first week of January next year, and that it was a decision I didn’t take lightly.
Thank you very much for the opportunities for professional and personal development that you have provided me during the last seven years. I have enjoyed working for the company and truly appreciate the support and guidance that you provided me during my tenure.
I will of course assist with the transition in any way I can, and will continue to perform my duties to the best of my ability throughout my final 4 weeks.
If possible, it would be great if you could write me a Reference Letter, to assist with any personal future employment.
Sam, I wish you, your family and UMS all the very best moving forward.
On 22 November 2017, Mr Ayoub responded by email and advised Mr Zibara that his resignation had been accepted: First Reasons, [55]. Referring to Mr Zibara’s reference in the earlier email to “taking up another opportunity in the first week of January next year”, Mr Ayoub observed that “[a]s conveyed to me you have accepted a role with your best mate in an online protein powder business”: ibid. Mr Ayoub wished Mr Zibara “the absolute best with all your future endeavours”: ibid. Mr Ayoub concluded his email by wishing Mr Zibara “the utmost of luck in your future alternate industry endeavours” and “the absolute best”: ibid. In Mr Ayoub’s email of 22 November 2017, Mr Ayoub drew Mr Zibara’s attention to a non-competition period contained within particular arrangements made between UMS and Mr Zibara which was said to operate up to 15 December 2020: ibid. That caused Mr Zibara to observe in his email of 22 November 2017, in response to Mr Ayoub’s email of 22 November 2017, as follows:
I am aware of my ethical obligations to you and the company and will of course provide you with my mobile phone, desktop computer & windows surface, car etc. I can also assure you that I would never disclose any company “secrets” or IP to any third party, remove files, delete emails etc (nor have I ever) now, or in the future.
As difficult as it has been, I have spoken with you openly and honestly over the past few weeks. You know the job offers that I was subject to within our industry and my response to those companies. I was then happy to disclose to you my immediate intentions once I cease my tenure at UMS.
On Monday, I also advised you of my desire to retain my Player Agent Accreditation, whereby you kindly offered to pay my annual Accreditation Fee, to which I respectfully declined. You also said to me that, “it’s probably not a good idea to advise clients that you will still be an active agent”, which I can understand and have agreed to oblige, out of respect to you. I will not be, nor have I the intention of contracting any clients contracted to UMS, post December 2015. So I am unsure as to why you have suggested that I verbally [commit] to no longer being active in the Rugby League Management space?
(First Reasons, [55].)
Mr Angeli’s employment with UMS also came to an end on 15 December 2017: First Reasons, [58].
Genesis was incorporated on 14 February 2018: First Reasons, [59]. Genesis’s directors are Mr Zibara and Mr Angeli: ibid. The company has two ordinary paid up shares, one of which is held beneficially by Mr Angeli and the other is held beneficially by Mr Zibara: ibid.
Mr Ayoub gave evidence at trial that Genesis, since its incorporation, has been and remains in direct competition with UMS. It provides player management services on the terms and conditions of the contracts published by the Accreditation Committee of the NRL: First Reasons, [59].
Mr Zibara and Mr Angeli’s conduct as found by the primary judge and which is unchallenged on this appeal
On 13 March 2018, Mr Massey had a telephone conversation with Mr Zibara: First Reasons, [67]. Mr Massey made the call to Mr Zibara to discuss with him an “email received from [S]am [Ayoub] in regards to him [ie Mr Zibara] inducing players to go with him”: ibid. A diary note of Mr Massey (in evidence before the primary judge) notes that Mr Zibara “refutes it”: ibid. That diary note also records that Mr Massey discussed Mr Zibara “entering into new [UMS] agreements for players who still had a long time to run on old agreements and why he put them on new ones with the 6(e) clause”: ibid. Mr Massey’s diary note notes the following comment and response from Mr Zibara: “He made a brief comment “what was I meant to do leave with nothing” …”: ibid.
As noted above, the primary judge accepted Mr Massey’s evidence: First Reasons, [69]. The primary judge observed the following at [69] of the First Reasons:
The remark made by Mr Zibara is a frank admission of the considerations which influenced him to bring into existence the contracts that discharged the earlier UMS contracts and replaced them with the new UMS contracts with the particular players so that should he leave UMS he would not be in a position of leaving “with nothing”. He would, in fact, have put himself in a position where he would be able to leave UMS “with something”, that is, the crystallised opportunity for any one of those players under the new UMS contracts containing the new clause 6(e) to bring their contract with UMS (and in substance with Mr Ayoub) to an end on seven days’ notice and then go to wherever Mr Zibara (and presumably, Mr Angeli) might be.
As it turned out, that would be the company Mr Zibara and Mr Angeli brought into existence on 14 February 2018, Genesis: First Reasons, [70].
The primary judge observed that the answer given by Mr Zibara to Mr Massey on 13 March 2018 was an answer to a particularly relevant inquiry, which Mr Zibara ultimately was not required to answer in the witness box: First Reasons, [71]. Mr Massey’s question was: “why did you enter into new agreements [for UMS] with players who still had a long time to run on the old agreements and why did you put them into new contracts with clause 6(e)”: ibid. Mr Zibara’s answer was: “what was I meant to do leave with nothing”: ibid; emphasis in the original.
The primary judge observed that Mr Zibara was saying that he did not mean to leave UMS “with nothing”: First Reasons, [72]. The primary judge found that, since that response was in relation to the very question of why new contracts were put in place with clause 6(e), Mr Zibara was saying that he did not mean to leave UMS “with nothing” when new contracts could be put in place with clause 6(e) which would result in the possibility of Mr Zibara leaving UMS “with something”, namely, the opportunity to enable a player to terminate his contract with UMS and go wherever Mr Zibara might be performing the role of a player agent : ibid.
It was in those circumstances that the primary judge stated at [73] and [74]:
The remuneration payable to a Player Agent, whether an individual or a management company, by way of the particular percentage amounts adopted in the remuneration clause contained in the form of contract issued by the Accreditation Committee is the commercial lifeblood of the agent and this is particularly true of a player who is exhibiting potential to be successful in all fields of potential remuneration whether pursuant to a Playing Contract or arising out of sponsorships, endorsements, speaking engagements or other such non-player revenue. One can understand, as a matter of rational self-interest, why Mr Zibara did not want to find himself in a position where he might leave UMS “with nothing” but he nevertheless owed a duty to UMS to serve its interests and to not undermine its existing relationship with contracted players pursuant to which UMS would derive, or potentially derive, revenue in accordance with the remuneration clause in the earlier contracts terminated and replaced by Mr Zibara and Mr Angeli with the new contracts.
The adoption by the Accreditation Committee of the new form of contract containing the new clause 6(e) gave rise to a “break clause” …, which would be available only to players who were parties to such a contract. The introduction of the new form of contract to apply from 19 July 2017 meant that any new contract brought into existence after that date would contain the new break clause with the result that a player could give seven days’ notice to UMS of termination of the contract should Mr Zibara leave the employ of UMS. The new break clause would give the player an opportunity to leave UMS so as to follow Mr Zibara to wherever he might be in providing player management services, should he leave UMS. A contract containing clause 6(e) would certainly be of benefit to Mr Zibara should he leave UMS and should he be proposing to provide management services to players. Absent a new contract containing clause 6(e) the players contracted to UMS as at 20 June 2017 would not otherwise have been able to terminate those contracts at least so far as the event contemplated by clause 6(e) of the new contract is concerned. The termination of existing contracts on foot with a period to run and their substitution with the new form of contract was not required as an element of the introduction by the Accreditation Committee of the new form of contract. On the expiration of the term, any new contract would need to be on the terms of the new form of contract.
The primary judge also observed at [167]-[168]:
Mr Ayoub’s evidence, fairly understood, is that at the moment of introduction of clause 6(e), operative for new contracts from 19 July 2017, the need to put in place new contracts did not arise because the majority of the contracts were signed with time to run and that as to future contracts when the time arose to enter into such a contract with a player, there would be a future risk to the business as a player could end the contract and follow the nominated agent to wherever he or she might go. Mr Ayoub gave evidence that “[s]o I did specifically instruct them [Mr Zibara and Mr Angeli] not to res-sign [sic] them [players] to new contracts especially when most of them were signed to three and five year contracts only recently” … Mr Ayoub was pressed with the suggestion that that evidence was not true. He denied that suggestion.
I accept the evidence of Mr Ayoub on these matters and generally.
(Transcript references omitted.)
Summary of the primary judge’s unchallenged findings
It was in this context that the primary judge made several findings of fact, which are not challenged in this appeal.
The primary judge found that Mr Zibara was a trusted employee of UMS. The scope and content of his duties and responsibilities were as described by Mr Ayoub. At some point between publication of the new form of contract containing the new clause 6(e) on 20 June 2017, and 21 November 2017, Mr Zibara decided to leave UMS. It is not possible to say precisely when he formed an intention to leave UMS: First Reasons, [171]. However, the primary judge found that the following matters were clear.
First, within a day of Mr Massey publishing the proposed new form of contract containing the new clause 6(e) (to be used by an agent or a management company when contracting for the provision of management services to a player and to be adopted from 19 July 2017), Mr Zibara had read Mr Massey’s email and the changes to the contract: First Reasons, [172]. Mr Zibara attended a meeting with Mr Ayoub at which the events, described at [46] of the First Reasons (and extracted above), occurred: ibid. Mr Angeli was present at that meeting: ibid.
Second, the primary judge was satisfied that, either at that meeting or within a reasonably short period of time from that meeting, Mr Zibara knew that:
(1)A player who became a party to one of the new management contracts with clause 6(e) would be entitled to terminate the contract on seven days’ notice should the nominated agent under that contract leave the employ of the management company: First Reasons, [173].
(2)The existing contracts between UMS and a player did not contain such a clause conferring such a right on the player: ibid.
(3)Although the new form of management contract conferred, on a player, a portability benefit on seven days’ notice (enabling a player to bring such a contract to an end in accordance with clause 6(e)), the utility of the clause for the nominated agent (as distinct from the “nominated agent’s” corporate employer) was such that a player could end the contract and follow the nominated agent to the place from which the agent would be then providing management services either by himself, as an employee of another company or through his own business structures or arrangements: ibid.
(4)In order for a UMS-contracted player to be able to enjoy the benefit of such a right, and potentially exercise such a right, that player could only do so if the player entered into a new contract with UMS in accordance with the new published form of contract: ibid.
(5)Mr Ayoub had made a decision to let the existing UMS contracts run their course and Mr Ayoub’s position was that there was no need to re-sign any of the players under the new contractual arrangements: ibid.
(6)Upon the expiration of the term of each existing management contract between UMS and a player, a new management contract would have to be in accordance with the new form of contract containing the new clause 6(e). However, absent awaiting the expiration of each current UMS contract and then securing a renewal agreement containing clause 6(e), the new “break clause” could only be engaged if a new contract was put in place to replace the current UMS contracts: ibid.
Third, on several dates, Mr Zibara caused new contracts – which accorded with the new form of contract containing the clause 6(e) “break clause” – to be entered into with 16 players who were then already in a contractual relationship with UMS, in circumstances where the term of the existing contract had significant time to run: First Reasons, [174].
Fourth, the primary judge referred to (1) the evidence of Mr Ayoub described at [46] of the First Reasons (and extracted above); (2) Mr Ayoub’s oral evidence described earlier (concerning the direction he gave to Mr Zibara and Mr Angeli to the effect that it was unnecessary to re-sign players); and (3) Mr Ayoub’s evidence generally: First Reasons, [175]. In light of that evidence, the primary judge observed at [175] of the First Reasons that his Honour was:
… satisfied that Mr Zibara did not seek the consent or authority of Mr Ayoub to discharge the existing contracts and enter into the [relevant] replacement contracts … Mr Zibara did not disclose to Mr Ayoub that he was taking steps, or that, after the event he had taken steps, to replace UMS’s current contracts with new contracts which conferred the seven day portability benefit upon a player and correspondingly conferred a benefit upon Mr Zibara of enabling him to engage with a player who had exercised a right under the new contract to terminate that contract with UMS in the event that Mr Zibara elected to leave his employment with UMS. More specifically, I accept that Mr Zibara did not seek the consent of Mr Ayoub to replace the existing UMS contracts with [certain players], with new UMS contracts incorporating clause 6(e). I accept that Mr Zibara did not disclose to Mr Ayoub that he was taking steps, or that after the event he had taken steps, to replace those current contracts with the new UMS contracts.
Fifth, Mr Zibara did not seek the consent or approval of Mr Ayoub to release another player (Mosese Pope) on 27 October 2017 or to release certain other players set out in an email to Mr Massey on 7 December 2017: First Reasons, [176].
The primary judge dealt with the circumstances of particular player contracts:
(1)At [177] of the First Reasons, the primary judge recorded:
Although it is not possible to look into the mind of Mr Zibara and determine when he decided to leave UMS, the following events suggest that the possibility of his leaving UMS had become, in his mind, a “significant possibility” fairly early on following upon the catalytic announcement of the form of the new contract on 20 June 2017 to be entered into concerning management contracts on and after 19 July 2017. Mr Shane Evans recounts a telephone conversation some time before 14 August 2017 (or at least before 19 August 2017, the date of [a Mr] Caleb [Evans]’s new UMS contract) with Mr Zibara when he was told that Mr Zibara was “not going to be with [UMS] anymore” and a new UMS contract would be sent to him for Caleb [Evans] to sign (that is, a contract which would contain the new clause 6(e)). Shane Evans remembers clearly being told that under the new contract “Caleb could leave [UMS] if he wanted to”. This made Shane Evans “feel a bit uneasy” because Caleb had signed with UMS. The new contract would enable Caleb to get out of his contract with UMS … Obviously enough, UMS and Mr Ayoub had an interest in changes to the arrangements between UMS and Shane and Caleb Evans but Mr Zibara disclosed none of this to Mr Ayoub.
(2)The new UMS contract with a Michael Cheer was put in place as early as 31 July 2017: First Reasons, [178].
(3)The new UMS contract with a Lance Bagon was entered into on 6 September 2017: First Reasons, [179]. However, the email from Mr Zibara attaching the new UMS contract replacing the earlier UMS agreement of 19 June 2017 was dated 17 July 2017: ibid. Initially, the new contract was to end essentially on the same date as the earlier UMS contract: ibid. The end date of the earlier contract was 16 June 2022 and the end date recited in the email of 17 July 2017 was 21 June 2022: ibid. The new UMS contract recites an end date of 5 September 2022: ibid. No explanation of the need for a new contract is set out in the relevant email: ibid.
(4)The new UMS contract with a Hudson Young is dated 11 September 2017: First Reasons, [180]. The email attaching the new contract is dated 6 September 2017 and the explanation in the email of the need for a new contract was said to be that, since Hudson Young was now over 18, it was “preferable” that a new management agreement be signed: ibid. None of this was disclosed to Mr Ayoub: ibid.
(5)The new contract with a Jayden Tanner was signed on 28 September 2017: First Reasons, [181]. It was signed on the same day that Jayden Tanner signed a playing contract with the NRL club known as the Cronulla Sharks: ibid. Jayden Tanner said that he did not know that the new contract contained the break clause: ibid. Mr Angeli told Jayden Tanner, in an email in early December 2017, that Mr Zibara had resigned from UMS “and so we’re leaving”: ibid. He also said that Mr Zibara “was still going to manage” and “that’s why we … signed you so you could get out early” and, that being so, Mr Angeli and Mr Zibara would “let you know what to do”: ibid.
(6)On 5 October 2017, Mr Zibara had the conversation described at [47] of the First Reasons (and referred to above) with Mr Massey: First Reasons, [182]. Thereafter, new UMS contracts were signed with existing UMS contracted players on 5, 6, 18, 23, 27 and 28 October 2017: ibid. Three contracts were signed in November 2017: ibid.
(7)A Phoenix Crossland’s new contract made provision for a significant extension of the term by a further two years and eight months: First Reasons, [183]. The primary judge accepted that to have simply extended the earlier contract would have been a position which was inconsistent with the spirit and policy of the NRL’s new approach to players contracting with an agent: ibid. However, UMS and Mr Ayoub had a significant interest in the existing contractual arrangement with Phoenix Crossland: ibid. The primary judge stated that Mr Zibara ought to have disclosed to Mr Ayoub that what was contemplated was an extension of the contract which involved bringing the existing contract to an end and entering into a new UMS contract: ibid. Mr Ayoub, upon proper disclosure of that matter, might have elected not to extend Phoenix Crossland’s contract but rather rely upon the existing contract and let it run its course: ibid.
(8)As to a Illy Tohi and Ben Tohi, Illy Tohi recalls a conversation with Mr Zibara in November 2017 to the effect that he was looking at setting up his own company and “taking Ben [Tohi] with him”: First Reasons, [184].
The primary judge then stated at [186]-[187] of the First Reasons:
Having regard to all of these matters, I am willing to draw an inference that from about July 2017 Mr Zibara had in mind the possibility that he might leave UMS; that the possibility of such an event arose because of the opportunity available to him to readily retain his relationship with a player should he leave UMS if such a player could call on clause 6(e) in a contract with UMS; and that the possibility that he might leave UMS (provided players with whom he had a relationship were able to do so in reliance on a contract containing clause 6(e)) was a real or significant possibility.
I am satisfied that from July 2017 Mr Zibara found himself in a position where his personal interest in putting players in a position where they could quickly leave UMS and follow him should he leave UMS, by causing new UMS contracts to be entered into containing clause 6(e), came into conflict with his duty of loyalty to UMS. I am satisfied that Mr Zibara preferred his personal interest in respect of … 16 [particular] players … to that of the duty of loyalty he owed to UMS. Those contracts include the new UMS contracts with Volkan Er, Phoenix Crossland and Lance Bagon which were subsequently terminated in reliance upon clause 6(e) by the players leading to contracts being entered into between those players and Genesis. As to Illy Tohi and Ben Tohi, Mr Zibara sought to bring into existence a new UMS contract with them. In doing so, he was preferring his self-interest to that of his duty of loyalty to UMS. In the case of [Mr] Pope, the expression of preferring his personal interest to that of his duty of loyalty to UMS is to be found in causing Pope to be released from his UMS contract on 27 October 2017. He also preferred his personal interest to that of his duty of loyalty to UMS in causing Ben Tohi to be released from his UMS contract on 7 December 2017. When all of these events occurred as I have just described, both Mr Zibara and Mr Angeli were persons who owed a duty of loyalty to UMS which is described as a duty of absolute and disinterested loyalty to UMS imposed by proscriptive obligations in which equity regards the conduct in question as unconscionable thus attracting equitable remedies. I am satisfied that when Mr Zibara engaged in the conduct, he did so with full knowledge that in bringing the new contracts into existence, he was undermining the existing contractual arrangement between the players and UMS.
At [188]-[189] of the First Reasons, the primary judge stated:
In [Foresters], Gageler J described the equitable principles, in this way:
[67] The fiduciary duty that an employee has to an employer within the scope of the relationship of employment, no less than the fiduciary duty that any other person in a fiduciary position has to any other person to whom the fiduciary duty is owed within the scope of the venture or undertaking in respect of which the person in the fiduciary position has undertaken or assumed a responsibility to act in the exclusive interests of that other person, is a duty of “absolute and disinterested loyalty”. That duty of loyalty is imposed in equity by means of two overlapping “proscriptive obligations”. Each proscriptive obligation, or “theme,” is “descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies”.
[68] “The first” often referred to as the “conflict rule”, “is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest”. The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal.
[69] “The second”, often referred to as the “profit rule”, “is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing [the fiduciary’s] position for [the fiduciary’s] personal advantage.” The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self-interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal.
[70] Consistently with the objective of imposing each obligation, in neither case does the benefit or gain to the fiduciary need to be at the expense of the principal, though it may be. And in neither case does the fiduciary need to act dishonestly or fraudulently, or otherwise than in good faith, though again the fiduciary may do so. Where a fiduciary does act dishonestly and fraudulently, however, the dishonest and fraudulent character of the breach of fiduciary duty is not without consequence for the intensity of the equitable remedies available against the defaulting fiduciary. More important for present purposes is that the dishonest and fraudulent character of the conduct of the fiduciary gives rise to the potential for similar remedies to be available in equity against another person who might knowingly participate in the fiduciary’s breach.
[71] Knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty is conduct which is regarded in equity as itself unconscionable and as attracting equitable remedies against the knowing participant of the same kind as those available against the errant fiduciary. Knowing participation in a dishonest and fraudulent breach of fiduciary duty includes knowingly assisting the fiduciary in the execution of a “dishonest and fraudulent design” on the part of the fiduciary to engage in the conduct that is in breach of fiduciary duty. The requisite element of dishonesty and fraud on the part of the fiduciary is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour. Correspondingly, the requisite element of knowledge on the part of the participant is met where the participant has knowledge of circumstances which would indicate the fact of the dishonesty on the part of the fiduciary to an honest and reasonable person.
[citations omitted]
These principles discussed by Gageler J in Foresters address matters of general principle about the nature of the duty of an employee within the scope of the relationship of employment which are directly applicable to the circumstances of Mr Zibara’s employment and that of Mr Angeli. Gageler J also discusses the duty implications relevant to the circumstances before the Court in Foresters where the contention was that Foresters, in taking up a proposal put to it by two employees, Mr Woff and Mr Corby, of the claimants (the claimants being Lifeplan Australia Friendly Society Ltd (“Lifeplan”) and its wholly owned subsidiary, Funeral Plan Management Pty Ltd (“FPM”), knowingly took advantage of Messrs Woff and Corby’s dishonest and fraudulent design which involved breaches of fiduciary duty, in order to enhance its business by appropriating the business connections of Lifeplan and FPM. The further question addressed by Gageler J was the question of the basis upon which knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty gives rise to unconscionability and the equitable remedies attracted by such conduct. In this case both Mr Zibara and Mr Angeli owed fiduciary obligations to UMS. The vehicle they created for the purpose of deriving the gain or benefit arising out of the breaches of fiduciary duty was wholly owned by them. In equity, Genesis is regarded as Mr Zibara and Mr Angeli.
(Emphasis added.)
As to Mr Angeli, the primary judge stated at [191] of the First Reasons that:
(1)“Mr Angeli was also an employee of UMS who owed duties of absolute and disinterested loyalty to UMS”;
(2)“Mr Angeli assisted Mr Zibara in putting in place the new UMS contracts and in giving effect to the release of Mosese Pope and Ben Tohi”; and
(3)“Mr Angeli knew on or about 21 June 2017 … that Mr Ayoub had taken the position that the contracts with his players were to run their course and that there was no need to re-sign the existing players”.
The primary judge continued at [191] of the First Reasons:
… Mr Angeli was the author of the emails to Ben Tohi in which he investigated whether Ben Tohi would be willing to enter into a new management contract enabling him to leave UMS should he and Mr Zibara leave UMS. He told Ben Tohi that there was nothing wrong with Tohi signing a new UMS contract enabling Tohi to leave UMS should the clause 6(e) events occur. There was certainly no suggestion that there would need to be a discussion with Mr Ayoub about that matter. Mr Angeli was also responsible for the exchanges with Benjamin Mallia in which he explained that Mallia would be able to leave UMS because “we put you on the new MA”. Mr Angeli is also a person who told Mallia in a Facebook message on 19 January 2018 that if [Mr] Ayoub or anyone else asks if Mallia has spoken with Angeli, Mallia ought to say “nah”. In Facebook exchanges with Jayden Tanner, Mr Angeli encouraged him to tell any inquirer untruths … I am satisfied that Mr Angeli knew and appreciated that as each new UMS contract was put in place, as he assisted Mr Zibara in doing so, he was assisting Mr Zibara to undermine the existing contractual arrangements between UMS and the relevant players and that in doing so he was being disloyal to UMS and Mr Ayoub. In doing so, he was assisting Mr Zibara in the breaches of Mr Zibara’s fiduciary duty and he did so with knowledge that Mr Ayoub did not want to re-sign any of the players whose contracts had time to run. I am satisfied that when Mr Angeli did these things he was transgressing ordinary standards of honest behaviour in his dealings with Mr Ayoub and UMS. I am also satisfied that Mr Angeli behaved in like terms concerning the release of Pope and Tohi from their UMS contracts.
(Emphasis added.)
The primary judge continued at [192]:
I am satisfied that but for the breach of fiduciary duty by Mr Zibara, the players who terminated their new UMS contracts in reliance on clause 6(e) would not have had the benefit of such a contract and would not have been able to bring the existing UMS contract to an end. I am also satisfied that but for the breach of fiduciary duty by Mr Zibara, neither Mosese Pope nor Ben Tohi would have been released from their existing UMS contract by UMS. I am satisfied that but for the breach of fiduciary duty by Mr Zibara, the contracts between Genesis and Crossland, Bagon, Er and Pope of 21 October 2018, 28 November 2018, 30 November 2018 and 20 December 2018, respectively, conferring a benefit or gain upon Genesis, would not have been entered into. I am satisfied that Mr Angeli was knowingly concerned in these breaches by Mr Zibara. Genesis, as mentioned earlier, is a company wholly owned by Mr Zibara and Mr Angeli which for present purposes is the vehicle by which they have chosen to derive a benefit or gain arising out of entering into the new UMS contracts with players who were then able to be freed up from their existing contracts with UMS through the vehicle of clause 6(e) of the new contract, or otherwise released from UMS contracts.
(Emphasis added.)
As to Genesis, the primary judge recorded at [203] of the First Reasons that:
Genesis is in the market for the provision of management services. It thus engages in commercial rivalry for the provision of those services to players. It depends upon the derivation of revenue in the form of the commissions already described. I am satisfied that [UMS] has demonstrated that [Mr Zibara, Mr Angeli and Genesis] either by Genesis directly, or indirectly as individuals through their shareholding in Genesis, have derived a benefit or a gain by reason of the company’s entitlement to remuneration under each of the four contracts described at [192] of these reasons brought into existence as a result of the breaches of fiduciary duty. The benefit or gain derived in this way will be available to Genesis and the individual respondents for the life of each of those contracts.
Consideration
It is against these unchallenged findings made by the primary judge that the conduct of Mr Zibara and Mr Angeli is to be assessed to determine whether the primary judge was correct in finding that Genesis had a liability to account to UMS on the pleadings and upon the facts as found by the primary judge.
The Appellants’ grounds 1, 4, 6, 7 and 8 bring sharply into focus the ongoing controversy as to what can amount to a “dishonest and fraudulent design” for the purposes of the second limb of Barnes v Addy: see eg Hon William Gummow AC, ‘Knowing Assistance’ (2013) 87 Australian Law Journal 311; Hon T F Bathurst and Sienna Merope, ‘It tolls for thee: Accessorial liability after Bell v Westpac’ (2013) 87 Australian Law Journal 831; Patricia Cahill SC, ‘The Unsettled Second Limb of Barnes v Addy’ (2016) 42 Australian Bar Review 1.
As indicated above, the Appellants contend that UMS’s Statement of Claim failed to plead an essential element of a plea which properly engages the second limb of Barnes v Addy because the Appellants did not plead in terms that the fiduciaries, Mr Zibara and Mr Angeli, had engaged in a “dishonest and fraudulent design”. The Appellants contend that UMS did not allege that Genesis had knowledge of any dishonest and fraudulent design but only that Genesis was “knowingly concerned in the Zibara breaches of duty and the Angeli breaches of duty”: Statement of Claim, [25].
We reject the Appellants’ contentions on grounds 1, 4, 6, 7 and 8 for the reasons that follow.
Before setting out those reasons, however, it should be noted that there was no issue in the proceeding that Mr Zibara and Mr Angeli owed fiduciary duties to UMS. The Appellants conceded before the primary judge that, if the conduct said to constitute a breach of the fiduciary obligations owed to UMS by Mr Zibara and Mr Angeli was made good, then “it has to be conceded that there was a breach of fiduciary duty”: First Reasons, [2] and [3].
With that concession noted, we turn to set out the legal principles which govern this appeal, noting one other matter. It was not asserted at trial, as it is now on appeal, that the relevant dishonesty in the fiduciary breach was not contended for by UMS. For reasons considered below, such an assertion could not realistically have been advanced.
Barnes v Addy
His Honour’s comments highlight the need for a principled approach to the imposition of liability on a company as the alter ego of a defaulting fiduciary. Whilst a broad brush application of that notion in a difficult case where a litigant has failed to properly plead a cause of action against a corporate entity may satisfy equally broad brush concepts of individual justice in the subject case, it offers little in the way of certainty and nothing in the nature of fairness to defendants who are entitled to understand the case which they are to meet. In the absence of any established principle, it is unclear when or how such liability might imposed. In cases involving participation in a breach of fiduciary duty by a corporate “alter ego”, different justifications are often given for a finding of liability on this basis. In Grimaldi, it was observed that liability is commonly explained on the basis that the corporate alter ego either:
(a)had full knowledge of all the facts: see Cook v Deeks [1916] 1 AC 554 (Cook v Deeks), 565; see also Aucare Dairy (Aust) Pty Ltd v Huang (No 3) (2019) 135 ACSR 450, 475 [93]; or
(b)possessed a “transmitted fiduciary obligation”: Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 (Timber Engineering), 495 [11]; or
(c)jointly participated in the breach of fiduciary duty: CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 (CMS Dolphin) [104].
One difficulty with the passage from Grimaldi at 357 [243] cited above is that few, if any, of the myriad authorities relied on directly support the existence of any clear principle that corporate entities can be held liable for the breaches of related errant fiduciaries. Certainly, no case attempts to articulate the circumstances in which the alter ego principle is applicable. In the instances where it is purportedly invoked, it appears that the phrase “alter ego” or “creature company” has in fact been used as a short-hand way of indicating that the relevant company was imputed with the knowledge of the errant fiduciary and was thereby a knowing recipient or knowing participant in the Barnes v Addy sense: see Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 at 35 (“the evidence demonstrates that Clara was the alter ego of Green in the sense that what he knew it knew”); Gencor ACP Ltd v Dalby [2000] 2 BCLC 734 at 744 [26] (“Burnstead is simply a creature company used for receiving profits for which equity holds Mr Dalby to be accountable to ACP. Its knowledge was in all respects the same as his knowledge.”); CMS Dolphin at 736 [103] (“…the directors are equally liable with the corporate vehicle formed by them to take unlawful advantage of the business opportunities. The reason is that they have jointly participated in the breach of trust.”).
The other cases cited by the Full Court in Grimaldi do not refer to the concept of the corporate “alter ego”, and in fact appear to have been decided on the basis of the “knowing receipt” limb of Barnes v Addy: see Cook v Deeks at 565; Queensland Mines Ltd v Hudson [1975-1976] ACLC 28-658 at 28,709; Timber Engineering at 495 (“there can be no question but that the wives and the respective companies participated with knowledge in the dishonest and fraululent [(sic.)] design put into effect by Anderson and Toy”).
The concept of a corporate “alter ego” is a slippery one, at best. As remarked by Applegarth J in Sucrogen Australia Pty Ltd v Westpac Banking Corporation [2012] 2 Qd R 175 at [72], “[t]he description “alter ego” is given in many different contexts”. Its emergence in private law is suggested to have been the result of its use in interpreting statutes and contracts to allow a company to be attributed with a “guilty mind”: see P Watts, “The Company’s Alter Ego – a Parvenu and Imposter in Private Law” (2000) New Zealand Law Review 137.
Nevertheless, in Farah at 140 [110] and 148 [128], the High Court appeared to accept that a corporate “alter ego” can be liable for a breach of fiduciary duty. It is not necessary to set out the facts in full; suffice to say, that case involved a fiduciary, who, through a company controlled by him, entered into a contract to buy land in breach of his fiduciary duty. The High Court observed that as the individual was liable for the breach, the company was also liable as his alter ego on the basis that “his mind [was] its mind” (at 148 [128]), citing Hamilton v Whitehead (1988) 166 CLR 121, 127. The Court’s reliance on that case suggests that in instances where a corporation is the “alter ego” of an errant fiduciary, liability is not truly attributed to the company on the basis of its participation, but rather on the basis that the fiduciary, in breaching its fiduciary duty, was acting as the embodiment of the company, and the company is therefore directly liable. However the Court in Farah was explicit in asserting that each case will depend on its own facts, and that no universal regime of absolute liability applies where a third party is employed by the fiduciary as a “device”.
Assuming the existence of some principle which makes corporate entities liable as the alter ego of others, a question arises in relation to alleged breaches of fiduciary duties as to whether and to what extent, some dishonesty is required before liability will attach. In Grimaldi, it was opined at 357 [243]:
Liability does not turn on the need to show “dishonesty”, although it often provides the reason for the interposition of the company. Proof of a breach of fiduciary duty will suffice: Green v Bestobell at 40.
This statement is not without difficulty. In Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 340 ALR 580, Sackville AJA (with whom Bathurst CJ and Meagher JA agreed) at 615 [178] observed:
In most, if not all of these cases [cited by the Full Court in Grimaldi at [243]], the fiduciary’s conduct was regarded as fraudulent, as “wrongdoing close to fraud”, or could well have been characterised as fraudulent. However, I am prepared to accept for present purposes, that the principle stated in Grimaldi applies to the corporate “alter ego” of a fiduciary, even where the fiduciary’s breach of duty does not involve dishonesty or fraud.”
(Footnotes omitted).
In the absence of any substantial submissions as to the correctness or otherwise of the principle imposing liability on a corporate “alter ego” and of its content, there is no need to consider that matter further.
No pleaded case
Again, however, the difficulty which arises here is, as the appellants submit, no case was pleaded that in entering into the contracts with ex-UMS players, Genesis was acting as the “alter ego” of Mr Zibara and Mr Angeli. There is nothing to suggest its liability arose from the fact that it was owned and controlled by those persons or that, by the manner in which it conducted its business, it sought to advance their interests as opposed it its own. There was no pleading of any other facts necessary to support whatever are the elusive matters on which the “alter ego” liability is founded.
Neither was this issue advanced by UMS at trial. As it was put by Mr Ireland QC for the appellants, “Grimaldi … was neither mentioned in submissions, nor in the judgment”.
These are significant matters. If it is valid to say of a corporate entity that it is the “alter ego” of an individual or individuals, it necessarily means more than it is wholly owned and controlled by them. In this case, Genesis was not incorporated until sometime after the impugned conduct of Mr Zibara and Mr Angeli. It was also a company controlled by those persons and so it could not be said to be the alter ego of just one of them. Whilst it is apparent that they were acting in concert at the time they arranged for players to enter into new contracts with UMS, it is not clear what their later intentions were in respect of the new company or how it would operate. There is no allegation that Genesis acted for them or to promote their interests and not in its own interests. Such matters could have been explored had the allegation that it was their alter ego been appropriately pleaded.
At best, paragraph 25 of the pleading (set out above) makes the compendious allegation that Genesis had “actual knowledge of the facts and circumstances giving rise to the Zibara breaches of duty and the Angeli breaches of duty” and that it was accordingly “knowingly concerned” in those breaches of duty. These allegations were intended to impose third party liability on Genesis for, inter alia, breach of duties owed under the Corporations Act by reason of the operation of s 79 of that Act. If UMS intended to impose liability on Genesis on the basis that it was acting as the alter ego of Mr Zibara and Mr Angeli or, as his Honour found, it had been “created for the purpose of deriving the gain or benefit arising from the breaches of fiduciary duty”, those matters ought to have been pleaded. Again, whilst the primary judge’s finding on this issue can be supported by the evidence adduced at trial, it does not follow that it ought to have been made. There was no allegation that Genesis was or acted as the alter ego of Mr Zibara and Mr Angeli, and it was not called upon to answer that issue at any time during the trial.
As no case was brought against Genesis based on it being the alter ego of Mr Zibara and Mr Angeli, to the extent to which the judgment is founded upon that, it ought to be set aside.
Does the position change because Genesis was incorporated after Mr Zibara and Mr Angeli left the employ of UMS?
The appellants further submitted that Genesis could not be found to have participated in the breaches of fiduciary duty committed by Mr Zibara and Mr Angeli, as the company was not incorporated until after Mr Zibara and Mr Angeli ceased to owe fiduciary duties to UMS, and after their established breaches of fiduciary duty had, on the applicants’ submission, ended. Given the above conclusions it is not necessary to consider this point in any detail. It is, however, incorrect to say that a third party cannot be liable for a fiduciary’s breach of duty if they are not involved in each and every aspect of the breach. As the above discussion reveals, liability is imposed where the third party participates in a fiduciary’s dishonest and fraudulent design which involves a breach of duty. As the third party is not a fiduciary it is not often that they could participate in the actual breach. If they counselled or procured it they would be liable in any event but on a different basis. However, the third party can participate in the dishonest and fraudulent design by knowingly assisting the fiduciary to benefit from their earlier breaches. Had such a case been alleged that may have been the situation in this case.
There is no merit in the suggestion that Genesis could not have been liable on the basis of the second limb of Barnes v Addy merely because it did not exist at the time of the breach of duty.
Challenge 2: Liability of Mr Zibara and Mr Angeli
The appellants appear to accept the finding of the primary judge that Mr Zibara and Mr Angeli breached their fiduciary duty to UMS in two respects: first, in renewing the management contracts of 16 contracted UMS managed players (see [174] of PJ1), and second in releasing over 30 players without approval (see [176] of PJ1). However, they challenge the primary judge’s finding that Mr Zibara and Mr Angeli received a benefit or gain as a result of those breaches.
The parties’ submissions
The appellants submitted that Mr Zibara and Mr Angeli were not accountable to UMS because the established breaches of duty created no more than a “potential for future benefit or advantage” once they left their employment with UMS, at which point their actions were not constrained or prohibited by any enduring fiduciary obligations to UMS. As expressed in their written submissions:
[T]he essence of the breach of fiduciary found by the primary judge was simply to open up two possibilities (a) that in the event that Mr Zibara should leave UMS a player then on a new form of contract with UMS might later decide to invoke the break clause 6e, leave UMS before the end of the contractual term, and engage Mr Zibara or (b) alternatively that a released UMS player might in the future sign with Mr Zibara or Mr Angeli or an associate of theirs.
They contended that, in order for Mr Zibara and Mr Angeli to be liable to account to UMS, it had to be shown at trial that they personally had made money or were entitled to receive money and that such entitlements arose directly from their actions. In this respect, they made two broad submissions. First, that Mr Zibara and Mr Angeli could not exercise or compel the exercise of the break clause, nor could they compel players to sign new player management agreements with Genesis. These matters, they contended, were at the will of the players; and second that Mr Zibara and Mr Angeli, themselves, were not entitled to receive anything under any of the management contracts signed with Genesis. Genesis gained all such entitlements or advantages, and there was nothing to prove that Mr Zibara and Mr Angeli’s shareholding in Genesis had any value or any greater value because of the existence of the four player management contracts which were entered into with ex-UMS players.
They alternatively submitted that any benefit Mr Zibara and Mr Angeli received as a result of Genesis signing agreements with ex-UMS players was divorced from their actions taken to secure this outcome while in the employ of UMS because of one or more of the following reasons:
(1)The benefit accrued to them only after they left the employ of UMS; and
(2)The benefit accrued to them, not as a direct result of their own actions, but as a result of the exercise of free-will by the ex-UMS players.
Consideration
What is the nature of the benefit or gain obtained by Mr Zibara and Mr Angeli?
In the present case, the primary judge characterised the “benefit or gain” that Mr Zibara received in the following terms at [203] of PJ1:
[T]he respondents either by Genesis directly, or indirectly as individuals through their shareholding in Genesis, have derived a benefit or a gain by reason of the company’s entitlement to remuneration under each of the four contracts described at [192] of these reasons brought into existence as a result of the breaches of fiduciary duty.
His Honour further expanded the ambit of the gain or benefit derived by reason of Mr Zibara’s breaches of fiduciary duty at [207] of PJ1, stating:
[T]he remedy of an account should not only take into account any benefit or gain derived during the period of the management contracts as between Genesis and each player according to their term but also any benefit or gain arising out of a renewal of a management contract with those players. … [T]he enduring benefit or gain is the benefit of sustaining the relationship consolidated by reason of the breaches of fiduciary duty and the gain is the continuing right to receive remuneration or fees based upon the percentaged calculations contained in subsequent agreements which have come to pass because of the benefit.
(Emphasis in original).
Although commonly referred to as an “account of profits”, there is no reason why a benefit or gain to be made the subject of an account must answer the description of a “profit” in conventional accounting terms: Ancient Order of Foresters v Lifeplan, 32 – 33 [75]. There is also no reason for a Court to confine the notion of benefit or gain to “money” or “an entitlement to money”, as seemingly contended for by the appellants. It would be inconsistent with the underlying prophylactic nature of fiduciary obligations, to exclude from the obligation to account benefits gained by the defaulting fiduciary which were not in the nature of funds received: see Ancient Order of Foresters v Lifeplan (at 12 [9]). The obligation of the fiduciary is to account for the full value of any benefit received (at 13 [13]).
Further, contrary to the appellants’ submissions, the benefit or gain does not need to crystallise immediately upon the breach of fiduciary duty: it can be expectant or contingent: Ancient Order of Foresters v Lifeplan, 33 [75]; Grimaldi, 346 [180]. The Court in the latter case gave two such examples, namely where a trustee uses a trust’s shareholding in a company to vote himself onto the company’s board from which position he will be likely to derive directors’ fees (citing Re Macadam; Dallow v Codd [1946] Ch 73, 81) and where a dealing with an agent proceeds on the assumption that a success fee is to be paid if a transaction is effected (citing McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579).
Contrary to the appellants’ submissions, the question which arises is, in fact, merely one of causation. Mr Zibara and Mr Angeli breached their duties not to allow their personal interests to come into conflict with those of UMS and not to profit from their position. Having done so, they are liable to account for any benefit they obtain as a result. Appropriately, the causative connection between a breach of trust or fiduciary duty and a benefit or gain for the purposes of an account of profits is wide. As was said by the plurality in Ancient Order of Foresters v Lifeplan at 12 [9]:
The equitable disgorgement principle with which we are concerned is a “prophylactic rather than a restitutionary principle”. It is sufficient to show that the profit would not have been made but for dishonest wrongdoing.
(Footnotes omitted).
Similar comments were made by Gageler J at 37 [88] where his Honour said:
A causal connection between a fiduciary’s breach of fiduciary obligation and a benefit or gain sufficient for the fiduciary or knowing participant to be liable to the equitable remedy of account will exist if the benefit or gain to the fiduciary or knowing participant would not have been obtained “but for” the breach, in the same way as a causal connection sufficient for the fiduciary to be liable to the equitable remedy of compensation will exist if a loss to the person to whom the fiduciary obligation is owed would not have been sustained but for the breach. Because the concern of equity is to vindicate the equitable obligation that has been breached, the “but for” connection will be sufficient even though other contributing causes might be in play. That the fiduciary’s breach of fiduciary obligation is dishonest and fraudulent is also good reason for treating a sufficient causal connection as existing if the dishonest and fraudulent breach can be concluded to have played a material part in contributing to the benefit or gain of the fiduciary or knowing participant even in circumstances where it cannot be concluded that the benefit or gain would not have been obtained but for the breach.
(Footnotes omitted).
The application of the “but for” test has a long causative influence and will often result in the benefit or some part of it accruing to the errant fiduciary sometime after the breach has occurred. There is no limitation on the quantum of the account merely because the benefit may have been derived subsequent to the termination of the fiduciary relationship. Therefore, it is not to the point that Mr Zibara’s breaches created, on the appellants’ submissions, no more than a “potential” for the future benefit or advantage which actually arose. That is sufficient in equity to attract a remedy including an obligation to account for any benefit subsequently obtained. In response to this submission, it can be observed that in Ancient Order of Foresters v Lifeplan, the vast amount of the benefit for which Foresters was obliged to account accrued to it well after the errant fiduciaries had ceased their employment with Lifeplan. The appellants’ submission on this issue is entirely inconsistent with the result in that case.
In the assessment of the quantum of the benefit, the Court must consider the overall effect of the wrongful conduct and the scope of the account cannot be artificially cut down: Ancient Order of Foresters v Lifeplan, 11 [4], 15 [16]. But that is not to say that it ought to be artificially extended either and the question is to be determined by reference to the benefit obtained by the person liable to account.
Does it matter whether the benefit was received by Mr Zibara and Mr Angeli or Genesis?
The obligation to account is directed to the errant fiduciary in respect of the benefits which they have received consequent upon their breach. The obligation does not extend to accounting for the benefit received by other parties although, if the benefit received by those entities was commensurate with a loss suffered by the person to whom the duty was owed, an amount equal to the benefit gained can be recovered from the fiduciary by way of damages. Here, UMS abandoned any relief of that nature.
It is correct to say that in this case, the benefit gained by Mr Zibara and Mr Angeli was not the amount of revenue or profit received by Genesis consequent upon the signing of new players who had previously been contracted to UMS. On the other hand, Genesis derived revenue from those contracts, being a percentage of the income received by the players, although the profit derived would no doubt be consequential upon the exertions of Mr Zibara and Mr Angeli as directors and employees of it, and the expenditure of costs by the company. It may well be that, in assessing the actual gain made by Genesis, some allowance should be made for the time, effort and expenditure utilised in generating it: Warman International Ltd v Dwyer (1995) 182 CLR 544, 558; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 110. Ultimately, the benefit received by it includes the profit it has derived and will derive from the player contracts and possibly the increase in the value of its business consequent upon signing them. That would include the benefits to be derived from the possibility of re-signing the players who had contracted with them as a result of the breaches of fiduciary duty. However, as has been indicated, there was no case advanced against Genesis which would render it liable to account for any profits.
The benefit secured by Mr Zibara and Mr Angeli is of a different nature, although clearly derivative upon the gains made by Genesis. Their gain or benefit is to be measured by the increase in the value of the shares which they held in Genesis. That value would necessarily take into account the benefits flowing to Genesis in the manner identified above. It would also take into account the value of any likely dividends which might be distributed. It is undoubted that an appropriately qualified expert could ascertain the value.
Some difficulty arises in the unusual and unique circumstances of this case, where the account process was commenced but ceased when the parties agreed that the benefit received by the three appellants was in an amount of $100,000. The subsequent consent order, which is set out in the reasons of Anderson and McKerracher JJ, shows that, although the order preserves the appellants’ ability to challenge their respective liability to pay the agreed amount, there is no proviso which might suggest that the amount of the benefit is open to challenge.
The point which the appellants now seek to raise, which appears at paragraphs 57 and 58 of their written submissions, is that as there was no evidence before the trial judge that the events in question had resulted in any increase in the value of Mr Zibara’s and Mr Angeli’s shares in Genesis, there was no basis on which an account ought to have been ordered. This was not elucidated in their oral submissions, but it is not sustainable in any event. At [203] of PJ1, the primary judge concluded that Mr Zibara and Mr Angeli “either by Genesis directly, or indirectly as individuals through their shareholding in Genesis, have derived a benefit or a gain by reason of the company’s entitlement to remuneration” as a result of entering into player contracts with a number of players who left UMS and signed with Genesis. His Honour had earlier carefully examined the player contracts and identified the benefits which flowed to Genesis from their provisions. It is axiomatic that Genesis, which had only been incorporated in 2018, would have increased in value as a result of signing players previously contracted to UMS. The increase in the company’s revenue stream alone would be likely to have had that effect. There was more than sufficient evidence before the trial judge to conclude that Mr Zibara and Mr Angeli benefited indirectly through their shareholding in Genesis and the whole purpose of the account was to ascertain the extent of it. Further, it cannot be said that his Honour’s orders of 14 February 2020, for an inquiry into the extent of the benefit derived, were confined to the mere receipt of income from the contracts. They were apt to cover an assessment of the benefit received by Mr Zibara and Mr Angeli from the increase in the value of their shareholding in Genesis.
As mentioned, the parties have agreed upon the value of the benefit gained as being $100,000. On that basis, no error has been demonstrated in his Honour’s orders giving judgment against Mr Zibara and Mr Angeli for that amount.
Challenge 3: Costs
The appellants challenged the primary judge’s order that they pay UMS’s costs on an indemnity basis. Mr Ireland QC submitted the primary judge made a House v The King error (see House v The King (1936) 55 CLR 499) in ordering indemnity costs in circumstances where his Honour did not know the outcome of the case. He submitted that indemnity costs were ordered on the basis that the appellants acted unjustifiably in defending the case in the manner they did, and on the basis of the character of their actions. Given it was not open, on the appellants’ case, to the primary judge to find that the appellants acted dishonestly, this was not a basis on which indemnity costs could be ordered. In reply, Mr Ireland QC also pointed to the fact that the original amount claimed by the respondent was $750,000 and it was therefore not unreasonable to put the appellant to proof, particularly in circumstances where the appellants were only ordered to account for $100,000. He also pointed out that other relief sought by the respondent against the appellants, including an injunction to restrain Genesis trading, was not pressed or was successfully defended.
Mr Perry QC submitted that the primary judge rightly found that UMS was unnecessarily put to the cost of running a trial in circumstances where it was found that the appellants acted in full knowledge of the impropriety of their actions. It was therefore not material, on the respondent’s submission, for the primary judge to know the outcome of the case, as indemnity costs were ordered on the basis of the nature of the conduct engaged in by the appellants, which was proven by the respondent at trial.
Given the above conclusions in relation to the claim against Genesis, the foundation for awarding indemnity costs against all of the appellants falls away and the question of costs must be addressed on the assumption that UMS ought to have failed against Genesis at trial. On the appeal the parties did not specifically address the question of what order should be made in relation to the costs of the trial if one of the grounds of appeal was upheld in favour of one of them. Nevertheless, given the outcome of the appeal, the appellants’ opposition to UMS’s claim has been partly vindicated. That is also relevant to the question of costs as between UMS and Mr Zibara and Mr Angeli, given the defences were generally run together. In these circumstances, the appropriate order is that the costs of the trial should follow the event, although the same exception should be made as to the costs of and incidental to the claim by UMS against Mr Zibara for a breach or breaches of a Deed signed by Mr Zibara as pleaded by UMS in its statement of claim in the proceeding.
I add that had the appellants not succeeded on Challenge 1, I would have agreed with the reasons of McKerracher and Anderson JJ in relation to Challenge 3 of the appeal.
As the appellants were only partially successful before this Court, the appropriate order is that there should be no order for the costs of the appeal.
Orders
For the reasons which I have given above, I would make the following orders:
(1)The appeal be allowed.
(2)That order 1 of the primary judge’s orders of 24 January 2020 be set aside as against the third defendant and in lieu thereof it be ordered that the action against the third defendant be dismissed.
(3)The primary judge’s orders of 21 August 2020 be set aside as against the third defendant.
(4)That orders 1, 2 and 3 of the primary judge’s orders of 25 March 2020 be set aside and in lieu thereof it be ordered that:
(a)the plaintiff pay the third defendant’s costs of the action.
(b)the first and second defendant pay the plaintiff’s costs of the action save those costs of and incidental to the claim by the applicant against Mr Zibara of a breach or breaches of a Deed signed by Mr Zibara as pleaded by the applicant in its statement of claim in the proceedings.
(5)There be no order for the costs of the appeal.
I certify that the preceding one hundred and fourteen (114) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Derrington. Associate:
Dated: 2 February 2021
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