Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Ltd - [2016] NSWSC 1005 - NSWSC 2016 case summary — Zoe

NSWNSWSC

Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Ltd

[2016] NSWSC 1005

Supreme Court of NSW|2016-04-14|Before: Ball J, Deane J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2016-04-14

Before

Ball J, Deane J

Catchwords

(2004) 218 CLR 592 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25
(1981) 146 CLR 336 Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54
(1984) 156 CLR 41 Howe v Teefy (1927) 27 SR (NSW) 301 IOOF Australia Trustees (NSW) Ltd v Tantipech [1998] FCA 924
(1998) 156 ALR 470 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61

Source

Original judgment source is linked above.

Catchwords

(2004) 218 CLR 592 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25(1981) 146 CLR 336 Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54(1984) 156 CLR 41 Howe v Teefy (1927) 27 SR (NSW) 301 IOOF Australia Trustees (NSW) Ltd v Tantipech [1998] FCA 924(1998) 156 ALR 470 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61(2007) 233 CLR 115 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23(2013) 295 ALR 760 Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11(1988) 166 CLR 245 Suttor v Gundowda Pty Ltd [1950] HCA 35(1950) 81 CLR 418 Sykes v Reserve Bank of Australia (1998) 88 FCR 511(1998) 158 ALR 710 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389(2011) 15 BPR 29,699 Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206(2000) 18 ACLC 285 Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49

Judgment (53 paragraphs)

[1]

Introduction

In these proceedings the plaintiffs claim damages from the defendants in connection with an agreement by which the second plaintiff, Armstrong Consulting Pty Ltd (AC), became a franchisee of an expense reduction consulting business carried on by the eighth defendant, Expense Reduction Analysts International Limited (ERAI), and its subsidiaries. The plaintiffs also claim damages in connection with agreements by which the first plaintiff, Armstrong Strategic Marketing and Management Pty Ltd (ASMM), agreed with ERAI to establish a business in Australia of providing insurance expense reduction consulting services and later to expand that business into other territories in which ERAI (through subsidiaries or licensees) operated. Under the terms of the later agreements, the third plaintiff, Mr Armstrong, became the Managing Director first of the company established to conduct the insurance expense reduction business in Australia and then of the principal company established for the purpose of conducting the business in the other territories in which ERAI operated.
The plaintiffs put their claims in various ways. They allege that the agreements to which they were parties were wrongfully repudiated by ERAI or the relevant subsidiary, that the defendants made misleading and deceptive representations in connection with the agreements in contravention of s 52 of the Trade Practices Act 1974 (Cth) (as it then was) (the TPA) or the equivalent provisions of the Fair Trading Acts in New South Wales and Victoria. They also allege that ERAI and the relevant subsidiaries owed ASMM and Mr Armstrong fiduciary duties in connection with the business they agreed to establish and that they breached those fiduciary duties by preferring their own interests over those of the business to be carried on by them jointly. The plaintiffs also claim that ERAI and its subsidiaries engaged in unconscionable conduct in contravention of s 51AC of the TPA by improperly seeking to bring about circumstances in which Mr Armstrong resigned as Managing Director and in which the agreement under which he was retained as Managing Director would be terminated and by improperly seeking to bring about circumstances in which AC would be deprived of its rights under its franchise agreement. Lastly, a number of the directors of ERAI and its subsidiaries at the time are said to have accessorial liability for the breaches of the corporate defendants.

[2]

The ERA group

The Expense Reduction Analysts group (ERA) is a group of companies that operates a franchised business of providing consulting services to clients to assist them to reduce the costs of a range of operating overheads such as information technology, telecommunications, energy and stationery supplies. The business was established in 1993 by the sixth defendant, Mr Marfleet. It operates throughout the world either by selling master licences in particular territories or establishing subsidiaries in those territories. The master licensees or subsidiaries in turn may enter into franchise agreements (called Licence Agreements) in respect of franchised areas falling within the relevant territory. In the United States and Continental Europe, there are also entities known as "Area Developers" who are contracted to sell and to develop the ERA business in particular regions falling within the territory. Franchisees charge their clients by reference to the savings achieved in relation to particular categories of expense - usually 50 percent of the amount saved. Most franchisees specialise in particular types of expense and it is not unusual for more than one franchisee to provide services to a client in relation to the types of expense that fall within their areas of expertise, in which case the fees are shared by the franchisees who provide the services.
From 2005 until it went into administration on 25 January 2011, ERAI was the global parent company of ERA. ERAI made its income primarily by selling Master Licences and franchises and by charging fees for services it provided to franchisees. Master Licensees made their income by charging a royalty to franchisees, which was normally 15 percent of the income the franchisee earned from the franchise. In Australia and New Zealand, ERAI conducted its business through a subsidiary known as Expense Reduction Analysts Group Pty Ltd (ERAG), which is the first defendant. The ultimate holding company of ERAI's Australian and New Zealand assets (including its shares in ERAG) was the third defendant, Expense Reduction Analysts Australasia Pty Ltd (ERAA).
Following the administration of ERAI, Montgomery Investments Co SA, a company associated with Mr Marfleet, acquired all of the intellectual property of ERA and that company continues to operate a franchised expense reduction advisory business under the name "Expense Reduction Analysts".

[4]

AC becomes an ERA franchisee

On or about 1 March 2004, AC entered into an agreement (the Licence Agreement) with ERAG to acquire an ERA licence and from that time AC began trading under the name "Expense Reduction Analysts". At that stage, ERAG had approximately 50 licensees in Australia. The initial term of the licence was 10 years. AC was required to pay an initial licence fee of $50,000 and an initial training fee of $29,500 together with a monthly fee equal to 15 percent of Gross Trading Income (as defined) (or a specified minimum, whichever was the lesser). Under cl 10.1(c), AC agreed "not to be involved in any business activity other than the Business which would affect your ability to fulfil your obligations under this Agreement without our prior written consent, where such consent will not unreasonably be withheld". Under cl 10.3(b), AC was required actively to promote the business in the Territory and use its best effort "to promote the mutual business interests of yourself and us". Under cl 10.20, AC was required not to be a party "to any act, matter or thing whereby the reputation of ourselves or the ERA System may be prejudicially affected either during the currency of this Agreement or after its termination for whatever reason". "ERA System" is defined broadly to include the operational, sales and promotional techniques used as part of the expense reduction analysis business conducted by ERA.
Under clause 19.3 of the Licence Agreement, ERAG had a right to terminate the agreement immediately in certain circumstances. One circumstance was where AC had breached the agreement, the breach could not be remedied and ERAG had suffered or was likely to suffer substantial loss or damage as a result of the breach. Another was where the licensee acted in a way "that would entitle us to immediate termination at law". ERAG also had a right under cl 19.3(c) to terminate the agreement if AC breached a term of the agreement and AC failed to remedy the breach within a reasonable time (which was no longer than 30 days) in accordance with a notice given by ERAG.
Mr Armstrong was a party to the Licence Agreement, although for what purpose is not clear. The agreement does not purport to impose any obligations on him, although a number of terms (for example, those dealing with the effect of death or permanent disability) seem to assume that the contracting party is an individual rather than a company.
AC focussed on insurance cost reduction consulting services and in doing so it developed systems and documents to assist it in providing those services. Mr Armstrong's son, Mr Mark Armstrong (Mr Armstrong Jnr), also worked in the business and it was Mr Armstrong's intention that he would eventually take over the franchise.
AC, and Mr Armstrong in particular, were well received by other ERA licensees in Australia and quickly became well‑known within the group. His success came to the attention of Mr Marfleet. Mr Marfleet had been interested for some time in expanding ERA's business to cover insurance and in or about July 2004 he and Mr Armstrong had a number of preliminary conversations about establishing a company to provide specialist insurance costs reduction services to the ERA network in Australia and New Zealand.

[5]

Establishment of ERAIS

Following those initial conversations, Mr Armstrong and Mr Stan Zets, a director of ERAG, negotiated an agreement by which ERAG and ASMM established a company in Australia that became known as ERA Insurance Services Pty Ltd (ERAIS), the second defendant. On 31 August 2004, ASMM and ERAG signed a Shareholders Agreement regulating their respective interests in ERAIS.
Under the terms of the Shareholders Agreement, it was agreed that 50.1 percent of the shares in ERAIS would be owned by ERAG and the balance would be owned by ASMM. It was also agreed that ERAIS would provide specialist insurance consulting services to the ERA network in Australia and New Zealand. Under cl 6.1 of the Shareholder Agreement, Mr Armstrong was appointed ERAIS's Managing Director, for which he received an initial salary of $120,000. In addition, ASMM was to be paid a management fee in the first year of $240,000 but only out of the gross profits of ERAIS. Mr Armstrong's salary increased and the management fee decreased in subsequent years so that by the financial year ending 30 June 2007 Mr Armstrong was to receive a salary of $240,000 and ASMM a management fee of $120,000.
Clause 7.1 of the Shareholders Agreement provided: The Company herein established, shall conduct its business in accordance with the terms and conditions of an ERAG license agreement. The Company shall in particular, comply with the financial terms of the said license agreement and pay to ERAG the royalty contemplated therein at the rate of 15% of all revenue received by the Company from the ERA System. In consideration thereof, ERAG shall not itself develop any insurance operation in competition with The Company and use its best efforts at all times to promote and develop the business of the Company.
Clause 7.2 provided that ERAG was entitled to all intellectual property rights relating to the development of the ERA System, which was defined as "the distinctive and unique system for assisting businesses to reduce their expenses developed under the trademark "Expense Reduction Analysts"".
Each shareholder having 20 percent or more of the shares was entitled to appoint a director for each 20 percent of the shares held by it. However, the directors appointed by a shareholder were together only entitled to exercise one vote. Under cl 8.7, to the extent permitted by law, a director was entitled to make decisions in the interests of the director's appointor.
Clause 10.4 of the Shareholders Agreement provided: The income of the Company must first be applied towards meeting the operating expenses of the Company and then repaying Shareholder loans in accordance with the Business Plan. Subject to the Company meeting all legal requirements, the balance of the income of the Company must be paid as dividends to the Shareholders.
At some stage, ERAIS also employed Mr Armstrong Jnr. At the time ERAIS was established, AC transferred to it an application it had made for an Australian Financial Services Licence (AFSL), which was subsequently granted. San Regis Pty Ltd, the trustee of Mr and Mrs Armstrong's superannuation fund also agreed to lease suite 1204 in a building in Queens Road, Melbourne to ERAG for the use of ERAG and ERAIS. At about the same time ERAIS entered into a lease of suite 1220 in the same building. The premises in Queens Road were initially also shared with AC.
It is common ground that ERAIS provided specialist insurance services to other ERA licensees. In doing so, it entered into separate agreements with clients and entered into a Referral Agreement with the licensee who referred the client. Under the terms of the Referral Agreement, ERAIS generally agreed to pay the licensee 40 percent of the fee paid to it by the client, although in the case of two licensees who attracted a lot of business it paid 50 percent. Most often, ERAIS charged the client 50 percent of the savings made by the client as a result of ERAIS's services, although in some cases it charged a fixed fee.
Despite the arrangements in relation to ERAIS, the Licence Agreement between AC and ERAG remained on foot. According to Mr Armstrong's affidavit evidence, once ERAIS was established, it and AC worked together on insurance projects. However, the only examples Mr Armstrong gives of ERAIS and AC working together are affinity schemes entered into with industry bodies. The first such scheme was entered into in about April or May 2007 with FCA Insurance Services Pty Ltd (FCAIS), which was a special purpose subsidiary established by the Franchise Council of Australia (FCA) for the purposes of the scheme. Under the terms of the scheme, ERAIS and AC arranged through an insurance broker, Willis Australia Limited (Willis), to provide insurance to FCA members on favourable terms. Willis paid FCAIS a proportion of the commission it earned from placing the insurance and FCAIS paid ERAIS a management fee for managing the scheme. After paying expenses, including a 15 percent royalty payable to ERAG, ERAIS paid 50 percent of the amount it received to AC. AC and ERAIS entered into a similar scheme with Clubs NSW on or about 27 May 2008. Mr Armstrong says that AC also entered into affinity schemes with Australian Hotels Association (NSW) trading as Australian Hospitality Insurance Services, Australian Hotels Association (ACT) trading as Australian Hospitality Insurance Services and Diabetes Australia trading as Diabetes Australia Insurance Services. In addition, he says that in mid-2009, AC and ERAIS were negotiating to enter into affinity schemes with Clubs WA and Clubs Queensland.

[6]

Expansion of the insurance business and the establishment of ERAGICS

The business conducted by ERAIS was successful and in June 2006 Mr Marfleet and Mr Armstrong had a number of discussions concerning the possibility of expanding the business conducted by ERAIS to other territories in which ERA operated, starting with the United States. Following those initial discussions, Mr Armstrong had detailed negotiations with ERA concerning the expansion. Initially, those negotiations were handled by Mr Zets. Mr Ken Hagerstrom, the CEO of Expense Reduction Analysts Inc (ERA-US), the company through which ERAI conducted business in the United States, was also involved. In June 2007, Mr Stuart Michael, the fourth defendant, took over responsibility for the negotiations with Mr Armstrong from Mr Zets.
The discussions were protracted and sometimes fractious. Eventually they resulted in two principal agreements. One, which was entered into on or around 25 February 2008, was known as the Consultancy Agreement. The other, which was entered into on 27 February 2008, was known as the Cooperation Deed. In contemplation of those agreements, ERAI incorporated in the United Kingdom the seventh defendant, ERAGICS Limited (ERAGICS), which was to be the company through which the international insurance business was to be carried on.
The parties to the Cooperation Deed were Mr Armstrong, ASMM, ERAI, ERAG and ERAGICS. Under the terms of the Cooperation Deed, Mr Armstrong was to become the initial Managing Director of ERAGICS. ERAI had a right to terminate the agreement at any time within the first 12 months (referred to by the parties as the "wind-back period"). If ERAI did not exercise that right, then it was to cause ERAGICS to issue 25 percent of its shares to Mr Armstrong and to allot conditionally and to place in escrow a further 10 percent of the enlarged share capital of the company to be transferred to Mr Armstrong if the EBITDA (earnings before interest, tax, depreciation and amortisation) of ERAGICS reached $2 million within 3 years of the date of the deed or 5 years if ERAI was not listed within 3 years of the date of the deed. In return, ASMM agreed to transfer its shares in ERAIS to ERAI or its nominee. ERAI also agreed to provide ERAGICS with sufficient funds to carry on the business in accordance with each business plan that was to be prepared by the Managing Director and submitted to the board for approval. Under cl 10.1.3 of the Cooperation Deed, the adoption or variation of a business plan required the prior written consent of ERAI and Mr Armstrong.
Clause 11 required the Board to consider and to adopt a Business Plan for each Financial Year (which ran from 1 January to 31 December). Under cl 11.1.1, the Managing Director (Mr Armstrong) was required as soon as reasonably possible after the execution of the Cooperation Deed, and at least two months before the commencement of each subsequent Financial Year, to submit to each director a draft business plan, which, with any agreed modifications, was to be approved by the Board before the beginning of the Financial Year to which it related. Clause 11 set out the information the business plan was to include. It also permitted the Managing Director to submit an amended business plan "at any time he reasonably considers it is in the interest of the Company to do so". The table of contents of the Cooperation Deed contemplated that an initial business plan would be annexed as schedule 4 to the deed, although no plan was annexed.
Although no business plan was annexed, Mr Armstrong had on 16 September 2007, well in advance of the Cooperation Deed being signed, circulated a first draft of the initial business plan for the operations in the United States. That business plan assumed that fees would be split between ERAGICS and the relevant licensee on a 50/50 basis but that ERA US would pay for the US Sales Manager "in lieu of the Fee split being forty sixty (40/60)". It also assumed in the first year that the US operations would employ a general manager and a sales manager and broker in the second quarter of that year and a clerk in the third quarter of that year. Staff numbers were projected to increase in future years. On those assumptions, the business plan projected that the US operations would require funding of $1,121,250 in the first year of operations but would generate increasing profits in subsequent years. Mr Clucas, who is the fifth defendant, and who had recently been appointed the finance director of ERA, in particular, did considerable work on that business plan. However, it is common ground that the business plan prepared by Mr Armstrong was approved; and that it was the only business plan for the US operations to receive approval from Mr Armstrong and ERAI in accordance with the Cooperation Deed.
Clause 13.1.1 of the Cooperation Deed provided that Mr Armstrong and ERAI, and companies in the ERAI group, would not during the term of the deed either directly or indirectly, on their own account or on behalf of any other person "be engaged or involved in any capacity in any business or activity which is the same as, substantially similar to or competitive with the Business". The clause goes on to state that "engaged or involved in" includes "direct or indirect involvement as a principal, agent, partner, employee, shareholder, director, trustee, beneficiary, financier, consultant or advisor". "Business" is defined to mean "the ERA System which includes the business of providing corporate insurance advisory services using the skill and expertise provided by [Mr Armstrong]".
The Cooperation Deed contained in cl 14 a mechanism for breaking deadlocks, which involved reference of the deadlock to an independent accountant, who was to determine the matter as an expert and not as an arbitrator.
Under the terms of the Consultancy Agreement, Mr Armstrong was appointed a consultant to ERAGICS for an initial period of 36 months and then until terminated by either party on 12 months written notice. ERAGICS agreed to pay Mr Armstrong a consulting fee of $360,000 per annum together with his expenses.
Under cl 8 of the Cooperation Deed, the parties agreed that ERAGICS was to enter into service level agreements (which the parties referred to as "SLAs") with certain companies that were associated with, or were subsidiaries of, ERAI, which the parties referred to as "Local Operating Companies" or "LOCs". The terms of the SLAs were agreed between the parties. ERAGICS entered into two SLAs. The first, which was between ERAI, ERAGICS, Mr Armstrong and Expense Reduction Analysts Insurance Inc, later known as ERAGICS Inc (ERAGICS USA). That agreement was entered into in the United States on or about 24 or 25 February 2008. Under the terms of the agreement, ERAGICS agreed to provide ERAGICS USA with analytical consulting and marketing services in relation to insurance. In return, ERAGICS USA agreed to pay ERAGICS 90 percent of its EBITDA, the components of which were to be agreed by ERAGICS and ERAGICS USA each year. ERAI agreed to provide ERAGICS USA with sufficient funds to carry on the business in accordance with each Business Plan agreed between ERAI and Mr Armstrong or that was agreed in accordance with the Cooperation Deed. "Business Plan" was defined in the agreement to mean: … a detailed business plan of the Company for carrying on the Business during a financial year that is adopted by the board of directors of the Company that comprises: (a) a detailed description of the Company's proposed products, marketing activities, financing, expenditure and other activities during that period; (b) a budget containing an estimate of the income to be received and the expenses to be incurred in implementing and carrying on the activities described in paragraph (a) and not containing any material expenditure outside the normal course of the Business unless such expenditure has been approved by [Mr Armstrong]; (c) a program for equity or debt contributions, if any, to be made by [ERAI].
An Australian SLA, which was in similar terms, was entered into on 8 April 2008 between ERAI, ERAGICS, Mr Armstrong and ERAIS. At about the same time, ERAG transferred its shares in ERAIS to ERAA, although that transfer was backdated to 31 December 2006.

[7]

Commencement of business in the US; Mr Sellwood joins ERAIS

The US insurance business commenced operations in March 2008, although considerable preparatory work was done before then. Local licensees had been informed of the proposal to commence an insurance business at an ERA conference held in Dallas between 5 and 7 November 2007. At about the time the business commenced, Mr Armstrong went to the United States for about four or five months and Mr Peter Sellwood, who had previously worked for Willis, and who had become and who remains a close personal friend of Mr Armstrong, became the General Manager of ERAIS. Also at about the same time, Mr Stuart Michael was appointed a director of ERAIS and Mr Clucas became a director of a number of group companies including ERAG, ERAIS and ERAGICS. Subsequently, on 17 November 2008, Mr Dormer, who is the tenth defendant, and who founded Kreston Dormers, a multidisciplinary professional services firm which provided accounting, taxation and other services to the ERA Australian companies, was also appointed a director of ERAIS.
There is a question of how well the business in the US performed in the first year to which it will be necessary to return, although reports from Mr Armstrong in the second half of 2008 suggested that the US operations would go close to achieving the business plan.
During the first year that ERAGICS operated, the relationship between Mr Armstrong and ERA deteriorated to some extent. Mr Dormer, Mr Clucas and Mr Michael, in particular, began to raise questions concerning the operation of ERAIS's business in Australia and Mr Armstrong took particular offence to an email Mr Michael sent to Mr Sellwood on 18 August 2008 in which he sought advice "in strict confidence" concerning the employment by ERAIS of Mr Neil Musgrave, Mr Armstrong's brother-in-law as "State Manager". Mr Armstrong replied to that email, which he copied to a number of others, including Mr Hagerstrom and Mr Marfleet, by describing Mr Michael as "the most pathetic executive I have ever had to [sic] the displeasure to work with". In a subsequent email to Mr Marfleet and others, which appears to be undated, Mr Armstrong complained about the fact that he had not been notified of the appointment of Mr Sellwood as CEO of ERAIS, the alleged failure of ERAI to provide appropriate funding for the global insurance operation and Mr Michael's conduct. Mr Armstrong asserted that these matters involved "substantial breaches of the agreement between ourselves and our companies" and said that as soon as he returned to Australia he would "be referring the matter to my attorneries [sic] in regard to accepting your actions as a repudiation of the agreements".
Following these emails Mr Armstrong and Mr Marfleet met and it was agreed that Mr Armstrong would no longer deal with Mr Michael and that he would report directly to Mr Clucas and Mr Marfleet in relation to financial matters and to Mr Hagerstrom in respect of US insurance operations and to Mr John Goodhardt in respect of the European operations, although ultimately no European LOC was established and initial attempts to set up a European insurance business were abandoned after Mr Labau, who had been engaged in France to establish the business, refused to become the responsible officer. During this time, Mr Armstrong also began to raise concern about the structure of the insurance operations. In his view, the existing structure did not work efficiently and needed to be amended so that the LOCs were owned directly by ERAGICS and he had control over them.

[8]

Agreements continue; breakdown of the relationship

Despite these developments, ERAI did not exercise its right to terminate the Cooperation Deed during the wind-back period. Following the expiration of the wind-back period, Mr Armstrong caused ASMM to transfer its shares in ERAIS to ERAG as ERAI's nominee. ERAI took steps to arrange for the issue of shares in ERAGICS to Mr Armstrong. However, the issue of the shares was never registered at Companies House and there is a dispute whether ERAGICS actually issued the shares, although the defendants accept that ERAGICS was under a contractual obligation to do so.
The relationship between Mr Armstrong and ERA continued to worsen. ERA became increasingly concerned about the financial performance of the insurance business. Following Mr Sellwood's appointment, the financial performance of ERAIS deteriorated substantially. It made a loss of $1,866 for the year ending 31 December 2008 compared with a profit of $218,926 in the previous financial year. Its total revenue for the financial year ending 31 December 2009 was $410,517 (compared with $1,218,576 in 2008 and $1,701,273 in 2007) and it made a loss in that year of $626,330. The US business did not perform well. Mr Armstrong blamed the poor performance on the failure of ERAI to provide sufficient capital, the structure of the business and problems with the client engagement letter, which permitted a client to terminate its contract with ERAGICS USA before payment, even if the client achieved savings as a result of ERAGICS' efforts. Mr Armstrong pressed aggressively for a change in structure and at the same time made it clear that, under the arrangements that had been established, he had limited involvement in the LOCs and consequently limited control over the success of the insurance business. He spent less time in the United States. After travelling there on 5 April 2009, he left on 8 June 2009 and only returned in October for approximately a week. On several occasions, he suggested that he and ERAI agree to part ways.
Although there were several meetings and a great deal of correspondence between Mr Armstrong and Mr Marfleet and others on the issues raised by Mr Armstrong, no resolution was reached. In addition, Mr Armstrong claimed that ASMM was entitled to be paid its share of the retained earnings of ERAIS as at the date it was agreed ASMM would transfer its shares in ERAIS to ERAG (which were said to total $226,350.00) and tensions were increased by ERAIS's failure to make that payment and to repay a loan of $30,000 that ASMM had made to ERAIS to provide it with working capital. Mr Armstrong also claimed that ERAIS owed AC $79,500 in exchange for AC's agreement to transfer its ERA licence to ERAIS.
Matters reached something of a head in June 2009. In that month, Mr Armstrong had two meetings with Mr Marfleet and Mr Howson in an attempt to resolve the issues between them. Mr Howson was the second largest investor in ERAI and one of its four directors. He had had little to do with Mr Armstrong up until that time. It appears that Mr Marfleet thought that a new person from the ERA side might make it easier to resolve what seemed to be an impasse. The first meeting occurred at ERA's offices in Kent on 8 and 9 June 2009. Mr Clucas was also present at that meeting.
Following the meeting in Kent, Mr Armstrong prepared draft heads of agreement setting out the proposals that he had raised at the meeting, which he circulated to Mr Marfleet and Mr Clucas on 17 June 2009. Those heads of agreement proposed that each of the LOCs would become subsidiaries of ERAGICS and that the Board of ERAGICS would consist of Mr Marfleet, Mr Howson, Mr Clucas, Mr Armstrong, Mr Armstrong Jnr and Mr Armstrong's wife as Mr Armstrong Jnr's alternate. ERAI would hold 65 percent of the shares in ERAGICS and the balance would be held by ASMM. ERAI would remain responsible for funding the business in accordance with agreed business plans. The business would have its own accounting functions and IT systems and would operate independently of the master franchisee in each country.
On 22 June 2009, Mr Clucas sent to Mr Armstrong with a copy to Mr Marfleet revised projections for ERAGICS USA based on information that had been supplied by Mr Armstrong. In his covering email, Mr Clucas described the figures as "disastrous". According to Mr Clucas, the figures showed that ERAGICS USA was projected to make a loss in 2009 of $416,000 compared to a projected operating profit of $425,000. According to Mr Clucas, the figures also showed that "Peak cash requirement is now $704k compared with a current funding level of $413k". The figures also showed that there would not be a cumulative operating profit until the last week in December 2010. Mr Clucas was not challenged on these projections in cross-examination.
The draft heads of agreement prepared by Mr Armstrong were discussed at a second meeting that occurred on 26 June 2009 in London. It appears that at that meeting, Mr Marfleet put forward an alternative proposal under which Mr Armstrong's interest in the business would depend on the business achieving both profit and cash flow targets and that, in the meantime, Mr Armstrong would agree to a reduction in his salary. However, no resolution was reached at the meeting. It is Mr Marfleet's evidence that, following the meeting in London, Mr Howson told Mr Marfleet that he was no longer prepared to deal with Mr Armstrong. Mr Howson does not recall saying that, although he does recall expressing frustration with Mr Armstrong's attitude. Mr Marfleet says that, following the meeting in London, he reached the conclusion that ERA would be unable to satisfy Mr Armstrong's demands. As a result, ERA began to investigate how the agreements with Mr Armstrong and his companies might be terminated.
The plaintiffs contend that, from that time at least, the defendants were determined to do whatever it took to terminate Mr Armstrong's relationship with ERA. There can be little doubt that by about this stage a number of people within ERA, including Mr Michael, Mr Hagerstrom and, to a lesser extent, Mr Clucas, had formed that view. However, Mr Marfleet gave evidence that that was not his view and that his attitude at the time was that Mr Armstrong should be given one last chance to turn the insurance business around. I accept that evidence. Mr Marfleet came across as a credible witness who made concessions where it was appropriate to do so. He also came across as a calm and rational person. He accepted that ERA began to investigate how it could terminate its relationship with Mr Armstrong. But the fact that it did so is not inconsistent with a desire by Mr Marfleet still to try to make the relationship work. Mr Marfleet had been a strong supporter of Mr Armstrong in the past, even in the face of sometimes intemperate behaviour on the part of Mr Armstrong. Mr Marfleet was committed to developing the insurance business, which depended heavily on Mr Armstrong. Everyone accepts that Mr Armstrong was good at his job and an exceptional salesman. It is natural in those circumstances that Mr Marfleet would not readily want to terminate ERA's relationship with him. As will become apparent, that conclusion is supported by subsequent events and, in particular, the decision that was taken at the Board meeting of ERAI on 3 July 2009.
On 2 July 2009, Mr Marfleet circulated a paper he had prepared for that Board meeting. The paper pointed out that ERAGICS had lost £152,000 in 2008 and was projected to lose £202,000 in 2009. ERAGICS USA had lost £439,000 in 2008 and was projected to lose £74,000 in 2009, making a total loss for the two years of £867,000 or approximately $1,445,000. ERAGICS was projected to make further losses in 2010. It is not easy to reconcile these figures with the figures produced by Mr Clucas in relation to ERAGICS USA. Again, Mr Marfleet was not cross‑examined on them. However, the figures support the view that the performance of the US business was substantially worse than was projected in the initial agreed business plan.
Mr Marfleet's paper also set out three options to deal with the impasse with Mr Armstrong. The first was not to agree to a revised business plan, with the result that the impasse would be referred to an independent accountant in accordance with the provisions of the Cooperation Deed. The second was to require Mr Armstrong to work 48 weeks a year in the United States, which Mr Marfleet thought would be unattractive to him given that his home and family were in Melbourne. The third was to work with Mr Armstrong constructively. That alternative was described in Mr Marfleet's paper in these terms: This would be carry out a restructure of the business which he has continually asked us to do whereby ERAGICS owns 100% of ERAIS & ERAGICS USA. He is made MD of both companies and we agree a new business plan with lower investment and slower growth. We would also require him to spend at least 40 weeks a year in the USA and agree a cap on our investment after which he would be watered down.
The Board meeting was attended by the four directors of ERAI - Mr Marfleet, Mr Howson, Mr Michael and Mr Chapman, who was a non-executive Board member and is the ninth defendant. Mr Clucas was also present. At that Board meeting it was agreed that ERAI would write to ERAGICS "to request [Mr Armstrong] to relocate to USA and act as interim CEO while preparing revised business plans for USA and Australia". It was also agreed that ERAI "would be prepared to consider changing the ownership of the insurance subsidiaries and to invite [Mr Armstrong] to join the boards of those companies if he could demonstrate that the USA subsidiary could achieve an agreed revised business plan for 2009".
Following that meeting, on 9 July 2009, ERAI wrote to the Board of ERAGICS stating that future funding of the insurance operations in the United States and Australasia would be subject to ERAI's agreement to revised business plans and to Mr Armstrong being based permanently in the United States. The letter also stated that if the revised business plans were achieved "[ERAI] will review the ownership of the USA and Australian insurance subsidiaries and consider Ken Armstrong's request to be appointed to the board of each insurance subsidiaries". Mr Clucas forwarded a copy of that letter to Mr Armstrong on 11 July 2009. Mr Chapman gave evidence that, in his view at least, the letter was sent to persuade Mr Armstrong to go to the United States to develop the business. I accept that evidence. That evidence is also consistent with the evidence given by Mr Howson, which I also accept. Mr Howson says that his view was that Mr Armstrong had developed a successful business in Australia, that he was very important to the success of the business in the United States and that in those circumstances it was appropriate that he spend most of his time there developing the business.
Mr Armstrong replied on the same day. He maintained that with certain adjustments that needed to be made to the accounts of ERAGICS, the results "are in line with the operating forecasts". He also maintained that he was not contractually obliged to live in the United States. Lastly, he maintained that ERAIS was insolvent and it would be necessary to advise the Australian Securities and Investment Commission (ASIC) and the Trade Practices Commission of that fact on the following Monday. The following day, Mr Armstrong gave notice to the Board of ERAIS of his resignation as a "key person" appointed by ERAIS under the conditions of its AFSL.
On 14 July 2009, Mr Clucas sent an email enclosing a draft agenda for a Board meeting of ERAGICS to be held later that week. Mr Armstrong responded on the same day asking for the Board meeting to be postponed because he was not available in the next three days. In that email, Mr Armstrong asserted that it would be impossible for him to relocate to the United States because "this would require citizenship to be obtained and for a 62 year male worker this would probably be close to impossible in the current economic climate and could not be achieved in the immediate short term to have any effect of [sic] the 2009 business plan". On that basis, Mr Armstrong asserted that the letter dated 9 July 2009 "evinces [ERAI's] intent to breach the USA and Australian Service Agreements and the Board can accept that these agreements are as good as terminated and legal advice is currently be [sic] sought". Mr Armstrong also said that he had "absolutely no interest in being on the insurance subsidiaries boards unless he is the Managing Director and the companies are owned 100% by ERAGICS Limited".
Following further correspondence between the parties that was often characterised by a degree of vitriol, particularly on Mr Armstrong's part, Mr Marfleet wrote to Mr Armstrong on 21 July 2009 giving notice of a deadlock because of what was said to be a refusal by Mr Armstrong to attend a Board meeting of ERAGICS.
On 29 July 2009, ASMM served two statutory demands on ERAIS. One claimed the amount lent by ASMM together with interest on that amount totalling $44,846.36. The other claimed $117,350.00, which was the amount said to be due to ASMM in respect of retained earnings as at the date ASMM transferred it shares in ERAIS to ERAG. On the same day, AC served a third statutory demand on ERAIS claiming $79,500 as the amount due to it in relation to what was said to be an agreement by which AC would transfer its licence to ERAIS. ERAIS paid the amount claimed in the first statutory demand. The other two were ultimately set aside by consent.
By this stage, Mr Armstrong formed the view that it was impossible for him to continue to develop the global insurance practice. In cross-examination, he gave the following evidence on that subject: A. …. I was banned from Australia and shortly thereafter I was banned from the USA and the French business I was told was closed. Q. So the answer is that you agree that you weren't continuing to develop the global insurance practice? A. It was impossible.
On 3 August 2009, Mr Armstrong sent an email to Mr Marfleet and others alleging the rent in respect of the premises leased by ERAG from Mr Armstrong was overdue and threatening to commence proceedings if it was not paid by the following day. Following further correspondence between Mr Armstrong and Kreston Dormer, Kreston Dormer sought access to the premises to remove what was said to be ERA's confidential information on the server located there. Mr Armstrong refused that access. It appears that subsequently the rent was paid and, on 12 August 2009, Mr Dormer went to the premises with security guards and an IT specialist for the purpose, Mr Dormer says, of obtaining ERAG's intellectual property. The police were called and, following negotiations, the representatives of ERAG were able to remove some files and laptops, which Mr Armstrong says belonged to ASMM. At the same time, Mr Dormer arranged for the locks to suite 1220 to be changed. It is apparent that one purpose of the action taken by Mr Dormer was to secure information belonging to ERAIS, including information concerning ERAIS's clients. But it is equally apparent that another purpose was to obtain material that may have been of assistance to ERAIS in its looming dispute with Mr Armstrong and the companies associated with him.
In the meantime, on 10 August 2009, Mr Sellwood and Mr Tobin resigned from ERAIS. Mr Sellwood's resignation followed intense questioning of him concerning the financial performance of ERAIS at a Board meeting of that company on 29 July 2009 and an email dated 31 July 2009 from Mr Dormer to Mr Sellwood in which Mr Sellwood was instructed not to discuss the business of ERAIS with Mr Armstrong. In his letter of resignation, which Mr Sellwood showed Mr Armstrong before sending it, Mr Sellwood listed various complaints about the way he had been treated by ERAIS that caused him to resign. He sent a copy of his letter of resignation to a large number of licensees.
On the day that Mr Dormer arranged for the locks to suite 1220 to be changed, Mr Armstrong Jnr and another ERAIS employee, Ms Vanessa Reinehr, were told to go home. There is a question whether they subsequently abandoned their employment or whether they were constructively dismissed. In any event, ERAIS purported to terminate Mr Armstrong Jnr's employment on 24 August 2009 and took possession of his laptop at that time.
The day after Mr Dormer's visit to the premises of ERAIS, Mr Tobin and Mr Armstrong Jnr met for lunch and at that time they discussed the possibility of setting up a consulting business that became known as The Lion Partnership. A company with that name was registered on 14 September 2009. There is a question concerning the degree to which Mr Armstrong was involved in the setting up of that business to which it will be necessary to return. In the meantime, in an email sent from the ERA email address of Mr Armstrong Jnr on 11 August 2009, Mr Armstrong proposed to licensees in Australasia that if they wanted insurance analysis work done they could enter into a joint venture arrangement with Mr Tobin directly, "until ERAIS Directors can provide us with an alternative solution". Mr Armstrong also said that he was willing to assist the licensees personally by providing sales, seminars and client presentations. In response, on 14 August 2009, Truman Hoyle wrote to Mr Armstrong on behalf of ERAIS alleging that Mr Armstrong had wrongfully retained intellectual property belonging to ERAIS and that he had engaged in misleading and deceptive conduct by suggesting in his email dated 11 August 2009 to licensees and other correspondence that ERAIS was unable to continue to provide services to licensees following the resignation of Mr Tobin and Mr Sellwood, that ERAIS had forcibly deprived Mr Tobin of his laptop and that ERAIS had engaged persons who had or were likely to have engaged in violent and illegal behaviour. On 17 August 2009, Truman Hoyle sent a copy of that letter to ERAGICS asking that the Board of ERAGICS "takes immediate steps to ensure that there is no repetition of such conduct by Mr Armstrong". As a result, Mr Armstrong withdrew the proposal that licensees could engage in a joint venture with Mr Tobin.
An ERAGICS Board meeting occurred on 19 August 2009. Nothing of significance was agreed at the meeting. However, it provoked a flurry of correspondence between Mr Armstrong and Mr Clucas. In an email dated 22 August 2009 that Mr Clucas sent to Mr Armstrong in response to an email from Mr Armstrong of 20 August 2009, Mr Clucas said, among other things: You are aware that your actions in Australasia have been the subject of a formal complaint from ERAIS. I believe from discussion with our Client in Australia that there is now a significant and extremely widespread antipathy towards you both personally and professionally. We, your fellow Directors, feel you will find it very difficult to improve the current trading position there. ERAIS has now made other arrangements and whilst the SLA is of course still in place, your services in Australia are not currently required.
On 2 September 2009, Mr Marfleet wrote to the Board of ERAGICS stating that there had been a number of complaints about Mr Armstrong in relation to the US business. The letter concluded: ERA USA Inc and USA Insurance subsidiary do not therefore require or desire Ken Armstrong to provide any further assistance to, or have any further involvement with, ERA USA Inc, or the US insurance business. Ken Armstrong will not be permitted to attend any ERA event in the US.
Despite that, Mr Armstrong presented at a seminar in Houston on 5 October 2009 organised by Mr Stronck, an ERA licensee. While he was in the US, Mr Armstrong also assisted Ms Brandel, another ERA licensee with an insurance background who was the Responsible Manager of ERAGICS USA for insurance regulatory purposes, to establish a business that was operated by a company that Ms Brandel was in the process of setting up known as The Lion Partnership LLC. Mr Stronck gave evidence that Mr Armstrong and Ms Brandel approached him some time in mid-2009, well before the seminar in Houston, about using The Lion Partnership rather than ERA for analytical work in relation to insurance. However, that is denied by Ms Brandel and Mr Armstrong. Mr Stronck has no actual recollection of when he was approached and there is no direct evidence that it was before 5 October 2009. Mr Stronck infers that it was before that date because, shortly after the seminar, he, Ms Brandel and Mr Armstrong approached clients on behalf of The Lion Partnership. According to him, it is likely that those meetings were arranged some time before. However, The Lion Partnership LLC was not registered until 8 October 2009. The meetings with clients could have been arranged in anticipation of the seminar whether or not Mr Armstrong and Ms Brandel were meeting on behalf of The Lion Partnership or on behalf of ERA. In the absence of any direct evidence, I am not prepared to conclude that Mr Armstrong and Ms Brandel approached Mr Stronck about The Lion Partnership before about 5 October 2009. However, there can be no doubt that, following the conference on 5 October 2009, they approached clients of ERA or potential clients with a view to providing them with insurance related services through The Lion Partnership LLC.

[9]

Termination of the Agreements

On 7 October 2009, Truman Hoyle, ERA's solicitors, sent Mr Armstrong a notice to remedy breaches of the Licence Agreement. The breaches identified included making representations to licensees that ERAIS would be unable to continue to provide services to them, encouraging licensees to enter into a joint venture with Mr Tobin, making derogatory comments about the management and officers of ERAIS and interfering with the business and confidential proprietary information of ERAIS. The letter proposed that the breaches be remedied by AC advising the licensees that the statements made by Mr Armstrong were without foundation and that Mr Armstrong had been reprimanded for his conduct.
AC did not send the letter and on 22 October 2009 Truman Hoyle sent a notice to AC terminating the Licence Agreement.
On 18 November 2009, there was a meeting of the ERAGICS Board attended by Mr Chapman, Mr Clucas and Mr Armstrong. At that meeting, Mr Chapman and Mr Clucas voted to terminate the Consultancy Agreement. Following the meeting, Mr Chapman wrote to Mr Armstrong in the following terms: I refer to the Board Meeting that took place on 18 November 2009 and the resolution that the Consultancy Agreement be terminated which was passed by a vote of the directors. For the avoidance of doubt, I write to notify you that the Board of ERAGICS has terminated the Consultancy Agreement under Clause 15.1.4. I also note that as a result of the above, the Co-operation Deed has also terminated under Clause 20.1. Clause 15.1.4 permitted ERAGICS to terminate the Consultancy Agreement forthwith without compensation "by notice in writing to the Consultant [Mr Armstrong] and or the Intermediary Company [ASMM]" in circumstances where "the Consultant is guilty of gross or persistent misconduct or shall be guilty of conduct likely to bring himself or the Group [defined to mean ERAGICS and its related companies] into disrepute". Under cl 20.1 of the Cooperation Deed, it terminated automatically on termination of the Consultancy Agreement.
On the following day, Mr Armstrong resigned as the Managing Director of ERAGICS and on 11 December 2009, Arnold Bloch Leibler, who at that time were acting for Mr Armstrong, wrote to ERAI and ERAGICS advising that the Consultancy Agreement had been repudiated and that Mr Armstrong accepted the repudiation.
Following Mr Armstrong's departure, ERA was unable to make a success of the insurance business and ERAI got into other financial difficulties. ERAIS was placed into administration on 6 July 2010. ERAGICS and ERAI were placed into administration on 25 January 2011.
At some stage, Mr Armstrong became the "Managing Partner" of The Lion Partnership, although more recently he has been described as the "Non-Executive Chairman". The Lion Partnership has operated successfully since it was established, In the year ended 30 June 2010, it paid ASMM in respect of consulting services provided by Mr Armstrong $179,977. In the year ended 30 June 2011, the amount was $195,492. In the year ended 30 June 2012, it was $247,714. In the year ended 30 June 2013, it was $565,678. In the year ended 30 June 2014, it was $474,804.

[10]

Misleading and deceptive conduct inducing Cooperation Deed

The plaintiffs allege that prior to or at about the time of execution of the Cooperation Deed, ERAI, ERAG, Mr Michael, Mr Marfleet and Mr Clucas made the following representations: 1. Mr Armstrong would be a director of the LOCs; 2. Mr Armstrong would have access to the accounts of the LOCs; 3. ERAI would provide all necessary funding to the LOCs; 4. ERAI would provide all necessary funding for ERAGICS;
Those representations and the failure to correct them are said to be misleading and deceptive because the representors had determined before the Cooperation Deed was executed that Mr Armstrong would not be a director of the LOCs, that he would not have access to the LOC accounts and that he would not be involved in approving the budgets and business plans of the LOCs. Alternatively, the plaintiffs allege that the representors did not have reasonable grounds for making the representations, with the result that, absent evidence of reasonable grounds from the representors, the representations, which are said to be representations as to the future, are deemed to be misleading and deceptive under s 51A of the TPA and the equivalent provisions of the Fair Trading Act 1987 (NSW) (FTA) and Fair Trading Act 1985 (Vic) (VFTA).
In addition, to the extent that ERAI, ERAG, Mr Michael, Mr Marfleet and Mr Clucas did not themselves engage in misleading and deceptive conduct, they are each said to have accessorial liability for the misleading and deceptive conduct of the others.
The same claim is framed as a claim for breach of fiduciary duties. The plaintiffs allege that ERAI, ERAG and ERAGICS (from its incorporation) owed Mr Armstrong and ASMM fiduciary obligations not to: 1. Place themselves in a position of conflict between their interests and the interest of Mr Armstrong and ASMM except with the informed consent of Mr Armstrong and ASMM; 2. Withhold knowledge and information from Mr Armstrong and ASMM relating to the way in which the global insurance practice would be established; 3. Act capriciously and unreasonably.
It is alleged that ERAI, ERAG and ERAGICS breached those duties by dishonestly and fraudulently making the representations referred to above. Alternatively, it is alleged that Mr Michael, Mr Marfleet, Mr Clucas and Mr Chapman are liable for the breaches of fiduciary duty because they assisted with the breaches or did so dishonestly.

[15]

Relevant legal principles relating to misleading and deceptive conduct

The plaintiffs rely on the provisions of the TPA and the equivalent provisions of the FTA and VFTA. For the most part, the provisions are substantially the same and it is sufficient to focus on the provisions of the TPA.
Section 52 of the TPA provided: A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive.
In order to characterise conduct as misleading or deceptive or as conduct which is likely to mislead or deceive the relevant conduct must be viewed as a whole. As French CJ explained in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [25]: Characterisation [of conduct that is misleading or deceptive or likely to mislead or deceive] is a task that generally requires consideration of whether the impugned conduct viewed as a whole has a tendency to lead a person into error. It may be undertaken by reference to the public or a relevant section of the public. In cases of misleading or deceptive conduct analogous to passing off and involving reputational issues, the relevant section of the public may be defined, according to the nature of the conduct, by geographical distribution, age or some other common attribute or interest. On the other hand, characterisation may be undertaken in the context of commercial negotiations between individuals. In either case it involves consideration of a notional cause and effect relationship between the conduct and the state of mind of the relevant person or class of persons. The test is necessarily objective. (Footnotes omitted).
In the case of silence or a failure to disclose, the person alleged to have been deceived must have had a reasonable expectation of disclosure. The principles were summarised by Sackville AJA in these terms in Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at [209], which were cited with approval by Barrett JA (with whom Bathurst CJ and Beazley P agreed) in Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 at [192] [citations omitted]: (iii) The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether in the light of all relevant circumstances, there has been conduct which is misleading or deceptive … While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist. (iv) In commercial dealings between individual entities, the characterisation of conduct must be undertaken by reference to circumstances and context. The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged. (v) The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The judgment as to whether there is such a reasonable expectation is objective. (vi) The invocation of a reasonable expectation that if a fact exists it will be disclosed, directs attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs, or high moral expectations that exceed the requirements of the general law or of the prohibition imposed by [s 42 of the Fair Trading Act]. (vi) In general, [s 42 of the Fair Trading Act] does not require a party to commercial negotiations to volunteer information which will assist the decision-making of the other party. A fortiori, s 42 does not require a party to volunteer information in order to avoid the careless disregard of its own interests of a party of equal bargaining power and competence.
Section 51A of the TPA operates where a corporation or person makes a representation with respect to any future matter and the corporation or person does not have reasonable grounds for making that representation. In such a case, the representation will be taken to be misleading.
Section 51A and the State equivalents reverse the onus of proof concerning the existence of reasonable grounds. In the case of the FTA, it is clear that it is the persuasive or legal onus which is reversed: Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300; (2011) 284 ALR 601 at [33] per Allsop P (with whom Macfarlan JA and Handley AJA agreed). In the case of s 51A and s 10A of the VFTA (which is in the same terms as s 51A of the TPA), the balance of authority is in favour of the view that it is only the evidential onus that is reversed: see Australian Competition & Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 at [44] - [46] per Emmett J; North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60; (2010) 269 ALR 262 per Sundberg, Siopis and Greenwood JJ.
In order to characterise a representation as one with respect to a future matter it is necessary to take into account the context in which the representation was made. As Wheelan J explained in Civoken Pty Ltd v Madden Grove Developments Pty Ltd [2006] VSC 283 at [508]: [T]he representations made concerning intention, expectation and anticipation were representations of a state of mind. Such representations can be, and often are, representations with respect to a future matter and thereby attract the operation of s.51A. It is conceivable that a representation could in a sense concern a future matter but, in the particular circumstances, be no more than a representation of a present state of mind, thereby not attracting s.51A. This issue was not raised before me. It has arisen in a number of cases. Where this issue does arise the Court is required to identify the character of the representation so as to determine whether it is with respect to a future matter or with respect to a matter which is present or past. It would be an unusual case where a representation as to state of mind concerning matters in the future would not attract s.51A, but I accept the possibility that it could occur. All of the state of mind type representations which I have found were made here say more than merely what was the representor's present state of mind. They each involved an element of prediction and were directed towards supporting a conclusion that there were prospects that the matter which was the subject of the state of mind would occur. Accordingly, in this case, s.51A is applicable to the representations couched in terms of intention, expectation and anticipation which I have found were made. (Footnotes omitted) See also Sykes v Reserve Bank of Australia (1998) 88 FCR 511; (1998) 158 ALR 710 at 535 per Emmett J (in dissent, but not on this point).
A disclaimer or exclusion clause in a contract cannot be relied upon to exclude liability for misleading or deceptive conduct. However, the clause is part of the surrounding circumstances which must be considered in order to determine the question whether or not conduct is misleading or deceptive: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 at [39] per Gleeson CJ, Hayne and Heydon JJ; Campbell v Backoffice Investments at [29] per French CJ. In addition, an exclusion clause may be relevant to the question of causation. As the Full Federal Court explained in IOOF Australia Trustees (NSW) Ltd v Tantipech [1998] FCA 924; (1998) 156 ALR 470 at 480: Although an exculpatory clause cannot be relied on to answer a claim based on s 52, the fact that an applicant states that he was not induced to enter into an agreement in reliance on representations may bear upon the question whether he should be believed when he asserts that the representations were an inducement. … See also Campbell v Backoffice Investments at [31] per French CJ.
One of the defences raised by the defendants is that, to the extent that they engaged in misleading or deceptive conduct, that conduct occurred outside of Australia and consequently a claim in respect of it can only be brought with the consent in writing of the relevant Minister as a result of s 5 of the TPA as it then was.
Prior to amendments introduced by the Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009 (Cth), which came into effect on 26 June 2009, s 5 of the TPA relevantly provided: (1) …Part V [which includes s 52] …extends to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or by Australian citizens or persons ordinarily resident within Australia. … (3) Where a claim under section 82 is made in a proceeding, a person is not entitled to rely at a hearing in respect of that proceeding on conduct to which a provision of this Act extends by virtue of subsection (1) … of this section except with the consent in writing of the Minister.
The plaintiffs submit that the requirement of Ministerial consent does not apply to claims under the FTA and VFTA, which both apply extra-territorially: see FTA, s 5; VFTA, s 6. In response, the defendants submit that to the extent that those Acts apply extra-territorially without the Minister's consent, they are inconsistent with the TPA and are therefore invalid under s 109 of the Constitution. That defence was not pleaded and no notices were served in accordance with s 78B of the Judiciary Act 1903 (Cth). Consequently, I do not think that that defence is available in this proceeding. However, as will become apparent, on the conclusions that I have reached, it is unnecessary to consider this issue further.

[16]

Some general observations

Before addressing the specific representations on which the plaintiffs rely, it is necessary to make two general comments.
First, the terms of the agreements which governed the relationship between Mr Armstrong and ERAI were carefully negotiated over an extensive period of time. During the course of the negotiations, the parties sometimes took positions from which they ultimate retreated. Although on occasions Mr Armstrong asserted that agreement had been reached well before the formal agreements were signed and although on occasions he accused representatives of ERAI of resiling from those agreements, it is plain that he understood that that the parties' agreement would be embodied in the formal documents that they were negotiating and that no binding agreement would be reached until those documents were signed. The principle that what was agreed was to be found in the written documents was reflected in entire agreement clauses contained in the Cooperation Deed and the Consultancy Agreement. The representations on which the plaintiffs rely relate to the structure of the joint venture that they were negotiating. In the normal course of events, it is to be expected that if one or other of the parties had put forward a particular matter that was agreed by the other party and was significant, it would have been dealt with in the formal agreements.
Second, the Cooperation Deed contained a clause by which Mr Armstrong "confirms that before entering into this deed, he has taken independent advice regarding the transactions contemplated by this deed". Although that statement was not true, it is plain that Mr Armstrong is a highly intelligent and sophisticated businessman who was able to look after his own interests. Much of the negotiations of the terms governing the relationship between Mr Armstrong and ASMM on the one hand and ERAI occurred in writing, usually in the form of email exchanges. Where there were oral discussions, Mr Armstrong frequently followed those discussions up with an email setting out what he understood had been agreed. In addition, Mr Armstrong gave evidence that he did not trust the representatives of ERAI during the course of the negotiations. It is to be expected that in those circumstances Mr Armstrong would have reduced to writing anything that was said to him that he considered was important to the proposed joint venture.

[17]

The representation that Mr Armstrong would be a director of the LOCs

The representation that Mr Armstrong would be a director of the LOCs is said to have been made in writing, orally and is to be implied.
Insofar as it was in writing, Mr Armstrong relies on an email dated 30 August 2007, which was copied to Mr Marfleet and Mr Hagerstrom, in which Mr Michael said: On the commercial side, all our terms are agreed (as we discussed) and it is now a matter of drafting a simple shareholders agreement with buy out options as discussed, and finalising the terms of Management/Directors contract for you, which we do not envisage any problems with. Mr Armstrong also relies on an email dated 30 October 2007 from Mr Michael, which was copied to Messrs Chapman, Clucas, Hagerstrom, Marfleet and Brent, in which he said: As I suggested when we met, and following a further meeting with Keith in London, my proposal is that you and Keith … will become the Directors of the local operational companies.
Insofar as the representation is alleged to be oral, the plaintiffs submit that the representation was made to Mr Armstrong at a meeting in Sydney on 2 August 2007 attended by Mr Zets and Mr Michael. The plaintiffs contend that that conclusion is supported by the fact that subsequent internal documents of ERA refer to Mr Armstrong becoming a director of the LOCs. The clearest example is an email dated 16 November 2007 from Mr Hagerstrom to Mr Mugel, a lawyer, which was copied to Mr Armstrong and Mr Michael, concerning the establishment of the US LOC, which refers to Mr Armstrong being a "Director or Member". However, Mr Armstrong did not give evidence in chief that Mr Michael or Mr Zets said to him at the meeting on 2 August 2007 words to the effect that he would be a director of each of the LOCs and Mr Armstrong made no reference to his becoming a director of the LOCs in an email he sent the following day recording what had been discussed at the meeting. When re-examined, Mr Armstrong said that Mr Michael and Mr Zets said that he would be the Managing Director of the LOCs.
Insofar as the representation is implied, the representation is said to be implied from the fact that the global business was to be modelled on the Australian business, that Mr Armstrong had the relevant expertise and was the person responsible for driving the insurance expansion. In addition, his ultimate shareholding in ERAGICS depended on the performance of the LOCs. Without a directorship, Mr Armstrong would not have sufficient control to drive the global expansion or achieve the financial results that gave rise to his entitlement to an additional 10 percent of ERAGICS.
In my opinion, none of these matters establishes that the representation was made. Apart from Mr Armstrong's evidence in re-examination, there is no evidence of an oral representation to him. I do not accept the evidence given by Mr Armstrong in re-examination. When giving evidence, Mr Armstrong was inclined to say things which he thought supported his case rather than give an account of matters that he genuinely recalled, and Mr Armstrong's evidence in re-examination appeared to be an example of that. If he really recalled a statement made to him that he would be a director of the LOCS, it is to be expected that he would have said so in his evidence in chief or in cross-examination.
As to the allegation that the representation was implied, I do not think that the implication can be drawn from the matters that the plaintiffs point to. Those matters suggest that it was expected that Mr Armstrong would have a substantial involvement in the insurance business. But just what that involvement would be was a matter for negotiation. Ultimately, the extent of Mr Armstrong's involvement was set out in the agreements the parties executed. It is plain from the terms of the Cooperation Deed and the SLAs that important decisions in relation to the operation of the insurance business had to be agreed between Mr Armstrong and ERAI. In relation to the activities of ERAGICS, that was achieved through clauses which set out how the Board was to be constituted and which governed voting by the Board and the matters that required Board approval. One important matter was approval of the Business Plan for each financial year. The Cooperation Deed contained a provision to resolve deadlocks. There were no equivalent provisions in relation to the LOCs. However, the SLAs contemplated that each LOC would prepare a detailed Business Plan, that the company would be funded by ERAI in accordance with the Business Plan and that the Business Plan had to be approved by Mr Armstrong. Mr Armstrong exercised significant control over the activities of the LOCs through that mechanism.
In addition, it is to be expected that if it was intended that Mr Armstrong would be a director of each of the LOCs, then the agreements would make provision for Board representation on the LOCs, would specify the matters requiring Board approval and would contain a mechanism for resolving deadlocks, as the Cooperation Deed did in relation to the ERAGICS Board. The implication that arises from the fact that the agreements did not do that is that Mr Armstrong would not to be a director of the LOCs.
Mr Armstrong did not give evidence that he inferred that he would be a director of the LOCs from the matters from which the representation is said to be implied and why he drew that inference. Nor did he give evidence of what being a director of the LOCs would enable him to do which he would not be able to do under the arrangements that existed.
That leaves the express written statements. It is apparent from the documents on which the plaintiffs rely that in the earlier stages of the negotiations Mr Michael, in particular, proposed that Mr Armstrong would be a director of the LOCs and communicated that proposal to Mr Armstrong. However, I do not think that that proposal could be said to have had a tendency to lead Mr Armstrong to believe erroneously that he would be a director of each of the LOCs irrespective of what the parties finally agreed. Rather, at most all the emails conveyed was that it was Mr Michael's or ERAI's then current thinking that the structure would be one which had as one of its elements that Mr Armstrong would be a director of the LOCs.
The proposal was put by Mr Michael at a time when it was contemplated that the LOCs would be subsidiaries of ERAGICS and in a context where the parties were negotiating the terms of an agreement which they understood would ultimately be reduced to writing. The initial proposal that the LOCs would be subsidiaries of ERAGICS and that Mr Armstrong would be a director of each LOC was ultimately superseded by a proposal that ERAGICS would enter into SLAs with the LOCs and Mr Armstrong would exercise a degree of control over the LOCs through the services provided by ERAGICS and his approval of the business plans of the LOCs. That was evident from the course of the negotiations, the terms of the agreements, and in particular the fact that the agreements did not deal with the Boards of the LOCs, and the fact that the Cooperation Deed and Consultancy Agreement contained entire agreement clauses.
In any event, I do not accept that Mr Armstrong relied on the representation. If Mr Armstrong entered into the Cooperation Deed and Consultancy Agreement believing that he would be a director of the LOCs, it is to be expected that he would have made some reference to it in the emails he wrote recording the discussions he had with representatives of ERA and the proposed terms of the agreements, or to have asked for an appropriate term to be included in the Cooperation Deed. Having regard to his general disposition, it is certainly to be expected that he would have complained about the fact that he had not been appointed a director of the LOCs as soon as he found out that that was the case. However, he did none of those things.
As became apparent in July 2009 if not before, Mr Armstrong's real complaint was that he did not have management control of the LOCs and the freedom to operate the insurance business independently of the other expense reduction businesses carried on by ERA. A directorship of each of the LOCs would not have given him that management control; and, indeed, it is not clear what, as a practical matter, directorships of the LOCs would have given him. At most, a directorship would have given Mr Armstrong the ability to veto proposals that required Board approval (other than approval of the Business Plans, in respect of which he already had a veto). If Mr Armstrong had relied on the representation, it is to be expected that he would have explained in his evidence why a power of veto over matters that were considered by the LOC Boards was important to him. However, he did not do so.

[18]

Access to the accounts of the LOCs

The representation in relation to access to the accounts of the LOCs is pleaded to be express and implied, but in their final written submissions the plaintiffs point only to matters from which it is said that the representation is to be implied. They rely on three matters. The first is the representation that Mr Armstrong would be a director of the LOCs. The second is statements said to have been made to Mr Armstrong that he would be responsible for managing the business. The third is the fact that under the SLAs, ERAGICS was to charge the LOCs 90 percent of their EBITDA.
The first matter can be put to one side, since I do not accept that the representation was made.
The second representation is too vague to provide a basis for an implied representation that Mr Armstrong would be provided with the accounts of the LOCs and, in my opinion, any pre-contractual statements concerning Mr Armstrong's role in relation to the business were ultimately subsumed in the Cooperation Deed and Consultancy Agreement, which set out in some detail Mr Armstrong's role in relation to the global insurance business.
The third matter arises from the terms of the SLAs, which were not actually signed until after the Cooperation Deed. Consequently, it is difficult to see how it could give rise to misleading and deceptive conduct that is said to have induced the Cooperation Deed.
These points aside, the plaintiffs' real complaint appears to be that, having regard to the terms of the Cooperation Deed and SLAs and Mr Armstrong's responsibility in relation to the development of the insurance business, it must have been contemplated that he would have access to the accounts of the LOCs. However, put in that way, there are two difficulties with the plaintiffs' case.
First, for the reasons that the plaintiffs give, it is to be expected that it would be an implied term of the SLAs that Mr Armstrong would have access to the accounts of the SLAs. Apart from anything else, he would need that information for the purposes of approving the LOCs' Business Plans. ERAGICS would also need that information for the purposes of agreeing the components of the EBITDA each year and determining 90 percent of that amount, which was the amount to be paid to it. As a director of ERAGICS, it is hard to see how Mr Armstrong was not entitled to the information to which ERAGICS was entitled.
In other words, if the representation for which the plaintiffs contend is to be implied, it is difficult to see why for similar reasons, a term to the same effect would not to be implied in the Cooperation Deed and the SLAs. Such a term appears to meet the requirements set out by the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266. That is, the term appears to be reasonable and equitable, it is necessary to give business efficacy to the contract, it is obvious, it is capable of clear expression and it does not contradict any express term of the contract. However, if the term is to be implied, ERA had reasonable grounds for making the representation because Mr Armstrong was given a contractual right under the Cooperation Deed to obtain the information.
Second, it is plain that Mr Armstrong was given information concerning the financial performance of ERAGICS USA and ERAIS. Mr Armstrong prepared reports dealing with the financial performance of ERAGICS USA. It appears that his only complaint is that on 13 July 2009 he asked Mr Clucas for the audited financial statements of ERAGICS USA and Mr Clucas refused to supply them on the basis that the accounts were audited as part of the ERA USA Inc Group. That refusal does not establish that the representation turned out to be misleading or deceptive.
For those reasons, in my opinion this representation goes nowhere.

[19]

The funding representations

The plaintiffs point to various representations said to have been made to Mr Armstrong concerning funding during the course of negotiations which resulted in the Cooperation Deed. An email dated 18 September 2007 from Mr Marfleet to Mr Armstrong, which was copied to Mr Michael and Mr Zets is typical. In that email, Mr Marfleet said: The simple answer regarding funding is that yes ERA international has got the funding capacity to fund the business until break even; however before the board will approve such a large investment it will need to be assured that the business plan and model will work inside the insurance regulatory framework of the USA.
Two points need to be made about this and similar statements on which the plaintiffs rely.
First, in each case, the statements were made in the context of discussions concerning a proposed business plan or budget. In particular, Mr Marfleet's email dated 18 September 2007 was sent in response to an email dated 16 September 2007 from Mr Armstrong which attached a draft business plan for the United States business. According to Mr Armstrong's covering email, that business plan disclosed that "[t]he "cash" required for the first two years is approximately $1.2M". That business plan was ultimately adopted as the first agreed business plan under the Cooperation Deed. Statements about ERAI's willingness to fund cannot be interpreted as statements that ERAI was willing to fund the global expansion indefinitely irrespective of the actual financial performance of the relevant companies. Rather, they must be understood as representations concerning ERAI's willingness to fund the losses that were projected at the time.
In his affidavit evidence, Mr Armstrong says that at a meeting in London on 15 October 2007 at which Messrs Marfleet, Michael, Hagerstrom and Goodhardt were present, he indicated that ERAGICS and the USA insurance operations could require up to $2 million. However, there are no documents that support that statement. Mr Marfleet denies that Mr Armstrong referred to an amount of $2 million and the others cannot recall him doing so. The figure of $2 million is not consistent with the projections that existed at the time and which ultimately were agreed. In cross-examination, Mr Armstrong could not be certain that he referred to a figure of $2 million and at one stage he mentioned a figure of $1.5 million to $2 million. I prefer the evidence of Mr Marfleet. In my opinion, it is unlikely that Mr Armstrong would have referred to a figure of $2 million when the projections suggested that the figure was $1.2 million.
Secondly, ERAI's funding of the expansion was an important part of the agreement between the parties. It is to be expected that whatever was said, ultimately the agreement in relation to funding would be reduced to writing and included in the agreement that recorded the terms on which the parties would proceed. That, of course, is what happened. The Cooperation Deed required ERAI to fund ERAGICS and the LOCs in accordance with agreed business plans. The business plan that was agreed at the time the Cooperation Deed was signed (which was the one circulated by Mr Armstrong on 16 September 2007) indicated that the US business would require $1,121,250 in the first year and would start to make profits in future years. No further business plan was agreed. It is not suggested that ERAI failed to fund the US business in accordance with that business plan. In my opinion, any representation concerning funding was subsumed by the parties' agreement in relation to that matter.
For similar reasons, I do not think that Mr Armstrong relied on any representation concerning funding in entering into the Cooperation Deed. Rather, what he relied on were the contractual rights concerning funding in the Cooperation Deed and SLAs. No case is brought that ERAI breached those contractual obligations.
The plaintiffs do complain about the fact that ERAIS ran into financial difficulties and about the fact that, on occasions, ERAIS and ERAGICS failed to make payments that they were due to make, such as the payment of tax by ERAIS and the payment of ERAGICS staff. But those complaints are not put in terms of a failure to fund in accordance with the approved business plan and for that reason they are in my opinion irrelevant.

[20]

Damages

Having regard to the conclusions I have reached, a number of other issues raised by the parties in relation to the plaintiffs' claim based on pre-contractual representations fall away. In particular, it is not necessary to consider who, if anyone, has accessorial liability for misleading or deceptive conduct. Nor is it necessary to consider the question whether the plaintiffs required Ministerial consent to bring the claims that they make under the TPA.
I should, however, say something about the plaintiffs' damages claim.
The claim is put on the basis that this is a "no transaction" case - that is, on the basis that if the misleading and deceptive conduct had not occurred, ASMM and Mr Armstrong would not have terminated the Shareholders Agreement and entered into the Cooperation Deed. On that basis, the plaintiffs submit that ASMM's damages should be calculated by reference to the value of a 49.9 per cent interest in ERAIS together with the value of the amounts that would have been paid to ASMM and Mr Armstrong under the Shareholders Agreement less the amounts that were paid to Mr Armstrong under the Consultancy Agreement. Relying on reports of Mr John Temple-Cole, an expert accountant they retained, the plaintiffs contend that the value of the shares was in the range of $327,000 and $409,000, the value of the salary payable to Mr Armstrong (at the rate of $240,000 per annum) was $2,107,000 and the value of the management fees payable to ASMM (at the rate of $120,000 per annum) was $740,000. Those amounts reflect the value as at 25 February 2008.
Mr Cully Gower, the expert accountant retained by the defendants, takes issue with these figures. According to his evidence, the loss calculated by reference to the value of a 49.9 percent interest in ERAIS is $117,000, which represented the 49.9 percent of the value of the net assets of ERAIS. On the other hand, in his opinion once credit is given for amounts earned through The Lion Partnership, no losses were suffered in relation to the payment of Mr Armstrong's salary and the management fees payable to ASMM and, in fact, the plaintiffs were better off by $239,000, with the result that no loss was suffered at all as a consequence of the termination of the Shareholders Agreement.
In my opinion, there is a degree of unreality in treating this case as a no transaction case. Accepting the plaintiffs' case that ERAI (and other defendants) engaged in misleading and deceptive conduct, if ERA had made no representations concerning Mr Armstrong's directorships of the LOCs, then presumably Mr Armstrong would have said that he was not prepared to proceed with the Cooperation Deed. The question is what would have happened then. The likelihood, in my opinion, is that ERAI would have agreed to him being a director of the LOCs and would have put into place terms that regulated the voting on the relevant boards and provided for the resolution of deadlocks, as happened in the case of ERAGICS. It is true that Mr Michael proposed the structure that was adopted as a means of distancing Mr Armstrong from the LOCs. But there is no evidence that Mr Marfleet was wedded to the view that Mr Armstrong should not be a director of the LOCs. In August 2009, Mr Marfleet and other ERAI Board members were prepared to consider a restructure of the arrangements under which ERAGICS US would become a subsidiary of ERAGICS and Mr Armstrong would be a director or the managing director of both companies, even after all that had happened. It is hard to believe that Mr Marfleet and the other Board members would not have been prepared to agree to Mr Armstrong being a director of the LOCs at the time the agreements were negotiated. Mr Marfleet was keen to proceed with the expansion of the insurance business. If that expansion depended on Mr Armstrong being appointed a director of each of the LOCs, the likelihood it seems to me is that Mr Marfleet, and the ERAI Board, would have agreed to those appointments.
It is more difficult to say what would have happened in relation to the other representations because it is not clear from the plaintiffs' case precisely what errors it is said Mr Armstrong fell into as a result of the representations on which the plaintiffs rely. If the representation in relation to financial information had not been made, then presumably on the plaintiffs' case Mr Armstrong would have understood that there was some restriction on the financial information that would be provided to him. In that case, it is to be expected that he would have raised that restriction with Mr Marfleet; and it is hard to believe that the issue would not have been resolved if the alternative was that the expansion would not proceed.
If Mr Armstrong had understood that there was some limitation on the funding that ERAI would provide, it is hard to believe that that issue also would not have been resolved. It could not seriously be suggested that Mr Armstrong was only prepared to enter into the agreements if ERAI gave an unqualified and unlimited commitment to fund. In the proposal Mr Armstrong put following his meeting in Kent on 8 and 9 June 2009, he suggested that ERAI fund ERAGICS and ERAGICS US in accordance with agreed business plans. It is hard to believe that he would have insisted on more at the time the terms of the Cooperation Deed were negotiated. And again, if he was labouring under a mistake concerning the level of funding that had been induced by a representation made by ERAI or others on its behalf, it is hard to believe that a compromise would not have been reached on that issue if the mistaken belief had been corrected. What was important was that ERAI would be responsible for funding the expansion, not Mr Armstrong or ASMM and that the level of funding would be sufficient to give the business a reasonable opportunity to succeed. There was no dispute about the first of these propositions; and it is difficult to believe that the parties would not have reached agreement in relation to the second, if the agreement that they did reach was based on a misunderstanding on the part of Mr Armstrong.
Damages are more difficult to assess if the case is a no transaction case. Mr Gower, and the defendants relying on his evidence, make a number of criticisms of the conclusions of Mr Temple-Cole. First, Mr Temple-Cole based his projections that were prepared in September 2007 and did not take into account subsequent results which demonstrated that those projections were far too optimistic. Second, Mr Temple-Cole did not give credit for income earned from The Lion Partnership. Third, Mr Temple-Cole assumed that losses would continue to arise under the Shareholders Agreement notwithstanding the fact that ERAIS entered into a Deed of Company Arrangement on 9 September 2010.
I accept the second of these criticisms, but not the other two.
If the Shareholders Agreement had not been terminated and ASMM's shares in ERAIS transferred to ERAG, then Mr Armstrong would have continued as ERAIS's Managing Director. I accept that it is likely that ERAIS would have continued to be successful. Its success in the past was due to the efforts of Mr Armstrong; and the rapid decline in its fortunes is to be explained largely by Mr Armstrong's departure. That conclusion is consistent with the fact that The Lion Partnership has been successful, and in my opinion its success can be attributed to a large degree to Mr Armstrong. In those circumstances, I accept that it is appropriate to assess the value of ERAIS on the basis of the projections made at the time that Mr Armstrong was still managing director; and I do not accept that it should be assumed that ERAIS would have entered into a Deed of Company Arrangement if Mr Armstrong had continued in that position. No challenge is made to the date at which Mr Temple-Cole assessed the loss. On that basis, I would have concluded that the value of ASMM's shares was the midpoint of Mr Temple-Cole's high and low values - that is, $368,000.
As to the defendants' second point, it is plain that Mr Armstrong could not have worked for both The Lion Partnership and ERAIS. ASMM earns fees from The Lion Partnership by providing Mr Armstrong's services. It would also have earned fees under the Shareholders Agreement from the provision of services by Mr Armstrong. Consequently, in my opinion, it needs to give credit for the fees it earned from The Lion Partnership against the loss it claims as a result of not earning any fees from ERAIS.
The position is different in the case of Mr Armstrong himself. Although it may be assumed that he benefits indirectly from the fees earned by ASMM from The Lion Partnership, he does not himself earn any income from The Lion Partnership and there is no evidence from which it is possible to quantify the value of the indirect benefit he receives. On the other hand, if the Shareholders Agreement had continued, Mr Armstrong would have been paid $240,000 per annum (with adjustments for increases in the Consumer Price Index). It follows that if the plaintiffs had otherwise made out their case, I would have concluded that ASMM's loss was $368,000 and that Mr Armstrong's loss was $2,107,000.

[21]

Relevant legal principles

The circumstances in which courts will find the existence of a fiduciary duty are not closed. However, normally a fiduciary duty arises where one party has agreed to act for or on behalf of another, with the result that the latter is vulnerable to abuse by the former. As Mason J explained in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 96-7: The critical feature of [fiduciary] relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of", and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.
The fact that a normal incidence of a fiduciary relationship is that the fiduciary acts for the benefit of another explains why fiduciary obligations are not an incidence of ordinary commercial relationships. As Barrett JA (with whom Meagher and Ward JJA agreed) said in Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2; (2013) 295 ALR 760 at [121]: The Supreme Court of Canada emphasised in Galambos v Perez [2009] SCC 48; [2009] 3 SCR 247 that a fact-based fiduciary duty cannot arise unless one party undertakes, expressly or impliedly, to act in the particular factual context solely in the interests of the other. The word "solely" deserves particular emphasis. That essential requirement shows why fiduciary duties, of their nature, do not ordinarily attend bargains struck at arm's length between sophisticated parties with equal bargaining power who, in pursuing their own financial ends, take care to document their respective rights and obligations in a comprehensive way. A person of that kind who makes such a bargain in that way safeguards his or her own interests and aims to achieve the particular advantage sought for the person's own benefit. The contract may import implied duties of good faith performance. One party may have a clear interest in fostering the ability of the other to perform and in seeing that other derive the advantages that the contract is intended to confer. A relationship with a contented counterparty is usually more productive than a relationship with a hostile one. But none of this alters the reality that each party's role is a selfish role, not one of self-denial and subordination of personal interest.

[22]

No fiduciary relationship in this case

In the present case, the plaintiffs seek to characterise the relationship between Mr Armstrong and ASMM on the one hand and ERAI, ERAG and ERAGICS on the other as a joint venture, which they point out is the type of relationship that can give rise to fiduciary obligations. They also rely on the following passage from the judgment of Mason, Brennan and Deane JJ in United Dominions Corporations Limited v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 11-12 for the proposition that fiduciary obligations can arise before a joint venture is concluded: It was submitted on behalf of UDC that no fiduciary relationship existed and no fiduciary duties arose between the prospective participants in the joint venture until the joint venture agreement was actually executed in July 1974. To the extent that that submission involves a general legal proposition that the relationship between prospective partners or joint venturers cannot be a fiduciary one until a formal agreement is executed, it is clearly wrong.
In this case, the plaintiffs submit that the relationship between Mr Armstrong and ERA had continued since 2004 and that the relationship was built on mutual confidence in which each party worked together toward a common goal. Consequently, it was a fiduciary one.
In my opinion, the plaintiffs' submissions are misconceived. The relationship between Mr Armstrong and ERA was not a single relationship which, having regard to its nature, attracted fiduciary obligations. Rather, the relationship had a number of different characteristics and changed over time. It is necessary to examine the particular relationship in question to determine whether that aspect of the relationship attracted fiduciary obligations and the extent of those obligations.
In the present context, the question is whether ERA owed Mr Armstrong fiduciary obligations in connection with the negotiation of the Cooperation Deed and associated agreements. In my opinion, it is plain that they did not. Mr Armstrong and ASMM on the one hand and the ERA parties on the other were negotiating the terms of a commercial relationship between them relating to the global expansion of the insurance business. Both parties were sophisticated. Their bargaining power was equal. Each party was seeking to achieve an outcome in the negotiations which was in his or its own best interests. That relationship is the antithesis of a fiduciary one.
The plaintiffs' reliance on United Dominions is misplaced. In that case the plurality rejected the submission that fiduciary obligations could not be an incidence of a joint venture because the joint venture agreement had not been signed and was still in the process of being negotiated. But in the present case, the plaintiffs contend that fiduciary duties were an incidence of the negotiations themselves. United Dominions does not stand for that proposition, and for the reasons I have given the proposition must be rejected.

[24]

Factual background

In his affidavit evidence, Mr Armstrong suggests that he had a conversation with Mr Michael on or about 10 December 2007 in which Mr Michael agreed that ASMM was entitled to its share of ERAIS's retained earnings as at 31 December 2007. However, in cross-examination, Mr Armstrong retreated from that evidence somewhat. He said that he could not recall when the conversation was and he accepted that he would have referred to the conversation in written documentation.
However, there are no documents referring to a conversation in the terms alleged by Mr Armstrong. On 23 December 2007, Mr Armstrong provided Mr Michael with his comments on the then current draft of the Cooperation Deed. Clause 5.4 of that draft together with Mr Armstrong's underlined comments were in these terms: ERAG and [Mr Armstrong] shall procure that [ERAIS] makes no distributions of profits until such time as the transactions contemplated by clause 3.1 have been completed or this deed has been terminated. Why would KAA agree to transfer his 49% share of profits of ERAIS to ERAG or ERAI as at 31 December 2007. This clause surely only relates to profits made by ERAIS after 1 January 2008.
On 8 January 2008, Mr Michael circulated an amended draft cl 5.4 adopting Mr Armstrong's comment. That draft was in these terms: ERAG and [Mr Armstrong] shall procure that [ERAIS] makes no distributions of profits until such time as the transactions contemplated by clause 3.1 have been completed or this deed has been terminated. Why would KAA agree to transfer his 49% share of profits of ERAIS to ERAG or ERAI as at 31 December 2007. This clause surely only relates to profits made by ERAIS after 1 January 2008. AGREED
Clause 5.4, which ultimately became cl 4.5, went through some additional modifications. In its final form, it read: ERAG and [Mr Armstrong] shall procure that [ERAIS] makes no distributions of profits made after 1 January 2008 until such time as the transactions contemplated by clause 3.1 have been complete or this deed has been terminated and that all monies owing to [Mr Armstrong] or to ASMM by [ERAIS], or by [Mr Armstrong] and ASMM to the Group will be paid prior to any distribution of profits by [ERAIS].
Commenting on that version of the clause in an email dated 1 February 2008 to Mr Michael, Mr Armstrong said: So as at 31 December 2007 it is expected that dividends will be distributed and the Loan Account to ASMM or KA repaid either way. If you wish to not actually pay until after the end of the first 12 months and windback has not occurred that is OK but ASMM and KA does not fund ERAIS or any of the other Country Insurance Companies or ERAGICS and therefore a date has to be agreed for the settlement of the ERAIS current loan Accounts to or from KAA/ASMM.
It appears that the matter was left there and the issue did not resurface until the parties began discussing what would be required to complete the transaction once it became apparent that ERAI did not intend to exercise its wind-back rights. In an email dated 22 January 2009 from Mr Armstrong to Mr Marfleet, which was copied to Mr Clucas, Mr Armstrong said: The outstanding Dividend/Retained Earnings payment as at 31 December 2007 owing to Armstrong Strategic Management and Marketing Pty Ltd is 49.9% of $235,070 and will need to be paid to ASMM on 27 February 2009 The email went on to describe the completion requirements as including: 7. ERA (ERAIS) is to purchase the Armstrong Consulting Pty Ltd ERA Licence for $79,500 (plus GST). 8. Payment of 49.9% or retained earnings as at 31 December 2009 - $117,350.
Mr Marfleet and Mr Armstrong then discussed the issue on or about 9 February 2009. According to Mr Armstrong, Mr Marfleet said that he agreed that all the amounts outlined in Mr Armstrong's email were payable, although Mr Marfleet asked if the payments could be spread out to assist with ERA's cash flow. On the other hand, Mr Marfleet says that he was willing to make the payments out of ERAIS's cash flow as a goodwill gesture. He gave the following evidence in cross-examination: We had been discussing buying the licence back 'cause we thought that would be good for our relationship and the retained earnings, we had advice that they weren't part of the cooperation deed and probably the - the deposit of $30,000.00 wasn't either. But at that time we wanted to try and build our relationship Mr Armstrong. I'd taken over from Mr Michael in the end of 2008 and I was hoping to build this business and I didn't want to have a very unhappy Mr Armstrong if that's what he believed he was entitled to. So I was trying to work out a way that would improve our relationship. Mr Marfleet went on to say that at that time the cash flows for ERAIS in 2009 were very positive and it was expected that ERAIS would generate sufficient funds to make the payments.
Following that conversation, Mr Marfleet asked Mr Clucas to put a payment plan in place. Mr Clucas arranged to discuss that issue with Mr Armstrong on 26 February 2009 and in advance of that discussion he sent Mr Armstrong an email dated 25 February 2009 in which he said: … I thought I should outline what I am currently thinking in respect of the timing of various payments. 1. Payable by 31 March 2009 - $30k being your Term Deposit Contribution. 2. I then propose that ERAIS purchase your AC consulting license by 30 June 2009 3. Distribution of your 49.9% of retained earnings to be paid in 3 instalments, $40k on 30 Sep 2009, $40k on 31 Dec 2009 and the balance by 31 March 2010. Mr Armstrong agreed to that timetable.
ERA did not make any of the payments contemplated by that timetable. It appears that one of the reasons was the poor performance of ERAIS after Mr Armstrong left and the fact that it had no cash with which to make the payments. The matter was one of the issues discussed at the meeting in Kent on 8 June 2009, although Mr Armstrong's notes of that meeting do not suggest that any resolution of the issue was reached.

[25]

The claim based on an agreement

In my opinion, no agreement was reached between Mr Michael and Mr Armstrong that ASMM would be paid an amount equal to its share of the retained earnings. There are no documents which evidence such an agreement. The amendments to what became cl 4.5 of the Cooperation Deed, and the correspondence leading to those amendments, are consistent only with an agreement that the restriction contained in cl 4.5 on the payment out of retained earnings of ERAIS during the wind-back period did not apply to amounts earned prior to 1 January 2008. The agreement left open what, if any, amounts were payable in accordance with the Shareholders Agreement.
If an agreement had been reached in the terms alleged, it is to be expected that it would have been included in the Cooperation Deed, or at least be the subject of emails passing between Mr Armstrong and Mr Michael. But there are no such emails and the existence of an agreement as alleged is inconsistent with the entire agreement clause of the Cooperation Deed.
Mr Armstrong obviously believed that ASMM was entitled to its share of the amount shown as retained earnings as at 31 December 2007. But if that entitlement existed, it was to be found in the terms of the Shareholders Agreement, not some agreement that was reached as part of the negotiations for the Cooperation Deed. As I have said, the only relevance of the Cooperation Deed is that it did not place a restriction on the payment of retained earnings to ASMM if it was otherwise entitled to them.
Clause 10.4 of the Shareholders Agreement required the balance of the income of ERAIS, after all operating expenses were paid and shareholder loans repaid, to be paid as dividends to the shareholders "[s]ubject to [ERAIS] meeting all legal requirements". However, ASMM does not advance a case that ERAIS or ERAG was in breach of that clause. In my opinion, it is not entitled to do so now. Moreover, for such a case to succeed, ASMM would need to establish that all operating expenses had been paid, that all shareholder loans had been repaid and that all legal requirements were satisfied. ASMM has not done that. In particular, it has not demonstrated that after payment of the amounts that had to be paid in advance of a dividend, ERAIS would have had cash available from which to pay a dividend. Indeed, the evidence is to the contrary. According to the evidence, ERAIS did not have sufficient cash for example to pay royalties owing to ERAG.

[26]

The claim based on estoppel

In order for the claim based on estoppel in the present case to succeed, the plaintiffs accept that they must at least establish that a representation or promise was made to them by or on behalf of an entity said to be bound by the estoppel to the effect that a dividend would be declared or the amount of the dividend would be paid and that ASMM acted to its detriment in reliance on that representation or promise.
The representations or promises on which the plaintiffs rely are said to have been made by Mr Marfleet and Mr Clucas on behalf of ERAG or ERAA. However, I do not accept that either Mr Marfleet or Mr Clucas made unqualified representations or promises to the effect alleged. I accept that what Mr Marfleet proposed was to pay the amounts sought by Mr Armstrong out of ERAIS's cash flow. Mr Marfleet gave evidence that his belief at the time was that ASMM did not have a legal entitlement to be paid its share of the retained earnings. I accept that evidence. For the reasons I have given, ERAIS was not under a legal obligation to pay the amount of retained earnings as a dividend. That conclusion is consistent with legal advice that Mr Marfleet had obtained and was consistent with what he was told by Mr Michael. It strikes me as implausible that, believing that, Mr Marfleet would make an unqualified statement that ASMM would be paid its share of the retained earnings. At the time, it was believed that ERAIS was doing well and would have the financial capacity in the future to pay ASMM its share of the retained earnings. In that context, Mr Marfleet's evidence that he proposed paying ASMM its share of retained earnings out of future profits as a goodwill gesture strikes me as plausible.
In my opinion, Mr Armstrong's discussions with Mr Clucas did not go beyond what Mr Armstrong had agreed with Mr Marfleet. The discussions and correspondence between Mr Armstrong and Mr Clucas need to be understood against the background of Mr Armstrong's earlier discussion with Mr Marfleet. Mr Clucas's role was to agree a timetable for the payments having regard to the expected performance of ERAIS. The fact that Mr Clucas proposed a timetable and that Mr Armstrong agreed to it cannot be interpreted as an unqualified representation or promise that the amounts would be paid in accordance with the timetable irrespective of the financial performance of ERAIS. Rather, their agreement must be understood in the context of the agreement with Mr Marfleet that the payments would be made out of profits generated by ERAIS. That is apparent from Mr Clucas's statement that "I am having to plan these payments out of ongoing operating cash flow". As things turned out, ERAIS did not generate profits from which the payments could be made.
Nor do I accept that ASMM acted to its detriment on the basis of the representation. The plaintiffs contend that it did so by transferring its shares in ERAIS, not calling a meeting to declare a dividend prior to the share transfer and not commencing an oppression suit. But none of these matters count as relevant detriment. ASMM was under a contractual obligation to transfer its shares. For the reasons I have given, ERAIS was not in a position to declare a dividend. There was no basis on which ASMM could have commenced an oppression suit.
It follows that the estoppel claim must fail.

[27]

Claim in respect of ERAGICS shares

ERAGICS was obliged under cl 3.1.3 of the Cooperation Deed to "allot and issue such number of B Shares to [Mr Armstrong] or his nominees as is equal when issued to 25% of the then allotted and issued share capital in the Company". The terms "allot" and "issue" are not technical terms and their meaning is imprecise. However, it seems clear that shares are allotted and issued when they are created and allocated to a particular person and that person is shown in the share register of the company as a member of the company entitled to those shares: see Commissioner of Taxation of Commonwealth of Australia v St Helens Farm (ACT) Pty Limited [1981] HCA 4; (1981) 146 CLR 336 at 424ff per Aickin J. In this case, the allotment of the shares was never registered at Companies House. The only question is whether the shares were actually allotted and issued.
It is not necessary to set out in detail the history relating to the allotment of shares. There can be no doubt that that history demonstrates a degree of indifference or incompetence on the part of ERAI in preparing all the necessary documents relating to the allotment and issue of the shares. However, the question remains whether the shares were allotted and issued, not the circumstances in which that came about.
It is not disputed that the ERAGICS share register records an allotment of 36 shares to Mr Armstrong on 6 April 2009, which represents 25 percent of the issued capital of the company. The plaintiffs' case appears to be that that entry was recorded only recently, which is tantamount to an allegation of deceit. In support of that allegation, the plaintiffs point to the fact that the Annual Return for ERAGICS that was lodged with Companies House on 6 November 2009 stated that the company's share capital consisted of two allotted shares. They also point to the fact that the joint administrators report for ERAI and ERAGICS dated 18 March 2011 shows that ERAGICS had issued only two ordinary shares, which were held by ERAI.
The likelihood, however, is that the statements in the two documents on which the plaintiffs rely were errors. On 6 April 2009, Mr Marfleet signed a written resolution on behalf of ERAI (at that time, the only shareholder in ERAGICS) which permitted the reorganisation of the share capital of ERAGICS so as to enable the B Shares in the company to be issued to Mr Armstrong. There are no Board minutes recording the allotment of the shares, although there are minutes of an improperly constituted Board meeting which purport to record the allotment of the shares. However, that is not conclusive. It appears that Board minutes for ERAGICS were not always prepared. On 20 November 2009, following a Board meeting on 18 November 2009 when the issue was discussed, amended Articles of Association for ERAGICS were lodged with Companies House which provide for the creation of the additional shares and, on 25 November 2009, a form was lodged with Companies House recording the allotment of 106 shares to ERAI. The likelihood, then, is that at some stage the Board did pass a resolution allotting the additional shares. As I have said, that resolution is consistent with ERAGICS share register. The suggestion that the relevant entry in that register was created only recently is inconsistent with the fact that the Annual Report of ERAGICS for the 14 months ended 31 December 2009 records that 142 shares were issued during 2009. Those 142 shares plainly represent the 36 issued to Mr Armstrong and the 106 additional shares issued to ERAI.
Having regard to those matters, I accept that the share register is correct and that Mr Armstrong was allotted shares in accordance with the Cooperation Deed, although he was never supplied with a share certificate and the allotment was never recorded with Companies House.
Even if I am wrong in that conclusion, in my opinion, Mr Armstrong has suffered no loss as a consequence of the failure to allot the shares. ERAGICS is now in liquidation and, in fact, was only restored to the register for the purposes of these proceedings. As a result, any shares in it are worthless.
The plaintiffs say, somewhat unhelpfully, that they rely on the reports of Mr Temple-Cole in relation to the value of the ERAGICS shares. Mr Temple-Cole values a 35 percent interest in ERAGICS as at 25 February 2008 (the date the Consultancy Agreement was signed) using a discounted cash flow methodology. His valuation is relevant to the plaintiffs' claim for damages based on its case that ERAI wrongfully terminated the Cooperation Deed; and it will be necessary to return to it in that context. However, it is difficult to see how the evidence given by Mr Temple-Cole is relevant to the loss suffered by Mr Armstrong as a consequence of the failure to issue 25 percent of the shares one year later. Moreover, in my opinion, it is appropriate to assess Mr Armstrong's damages as at the date of judgment, not as at the date of breach in this case. Mr Armstrong's complaint is that he does not have shares that he was entitled to. There is no suggestion that he would or could have sold those shares. Consequently, his true loss is the current value of the shares he says he does not have: see McCrohon v Harith [2010] NSWCA 67 at [65] per McColl JA (with Campbell JA and Handley AJA agreeing); Bunge SA v Nidera BV [2015] UKSC 43; Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353. That value is zero.
Having regard to the conclusions I have reached, it is not necessary to consider the plaintiffs' alternative case based on breach of fiduciary duties. That case raises the question whether ERAI and ERAGICS owed fiduciary duties to Mr Armstrong in relation to the issue of the shares. But, even if that question is answered in the affirmative, for the reasons I have given, there was no breach of that duty and no loss flowed from it.

[29]

Relevant legal principles relating to termination

A party is entitled to terminate a contract in accordance with an express term in the contract: Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441-2. A party may also be entitled to terminate the contract for breach of an essential term (a condition) of the contract or a serious breach of an intermediate term: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115. Lastly, a party may be entitled to terminate the contract if the other party repudiates the contract. Repudiation occurs where one party evinces an intention "no longer to be bound by the contract … or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way": Shevill v Builders' Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 625-6 per Gibbs CJ, referred to with approval in Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 634; see also Koompahtoo at [44].
A party who gives reasons for termination is not bound by those reasons. The termination is effective so long as a basis for termination existed at the time of termination: Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 262.
A party in breach of a non-essential term is not prevented by that breach from terminating the contract for a fundamental breach or repudiation by the other party. An exception exists where the breach or the repudiation was caused by the terminating party's breach. A party whose breach causes a breach by the other party or makes performance by the other party futile is not entitled to terminate the contract for non-performance by that party: Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 632; Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (Rec and Mgr apptd) (1997) 42 NSWLR 462, 479ff per Gleeson CJ, Handley JA and Brownie AJA.
There is a question whether that principle applies where the terminating party has itself repudiated the contract or breached a fundamental term of it. There is conflicting authority on that question. In Emhill Pty Ltd v Bonsoc Pty Ltd (No 2) [2007] VSCA 108, Warren CJ at [68] (with whom Buchanan and Ashley JJA agreed), quoting with approval the following passage from N C Seddon and M P Ellinghaus, Chesire & Fifoot's Law of Contract (8th ed, 2002) at 943, concluded that a party who had breached a fundamental term of a contract was not entitled to terminate the contract for breach of a fundamental term by the other party: A party need only be ready and willing to perform the contract in substance. A party who is in breach may nevertheless have the right to terminate, so long as the breach is not repudiatory or of an essential term or such as to deprive the other party of the substantial benefit of the contract. See also Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40 at 50-1.
However, other cases have taken a different view, on the basis that it makes no sense to treat both parties as bound by a contract which neither is willing to perform in a fundamental respect: see, for example, Highmist Pty Ltd v Tricare Ltd [2005] QCA 357 at [61], where Keane JA explained the principle in these terms: It makes commercial sense to allow a party to recover damages for loss of bargain only where that party was itself in a position to perform its side of the bargain. If it were otherwise, it could not sensibly be said that it was the other side's conduct which caused the loss of the profit involved in the bargain. That advantage could not have been obtained even if the other side had fulfilled its obligations. On the other hand, it does not make much sense to say that, where both parties to a contract declare to each other their fixed resolve not to perform their contract, the contract continues in existence in some legal limbo for the reason that neither party is ready, willing and able to perform the contract. Such a proposition may be intelligible to metaphysicians, but it is of little use in terms of the regulation of commerce according to the reasonable expectations of honest people.
The same approach was taken by Gleeson CJ, Handley JA and Brownie AJA in Roadshow at 481, who, referring to State Trading Corporation of India Ltd v Golodetz Ltd [1989] 2 Lloyd's Rep 279 at 286 (Kerr LJ), stated the principle in these terms: A party in breach of non-essential terms who has not repudiated may rescind for fundamental breach … A party in breach of an essential but independent term may also rescind for fundamental breach … See also Craftsmen Restoration & Renovations Pty Ltd v Boland [2011] NSWCA 147 at [51] per Basten JA (with whom Allsop P and Sackville AJA agreed).
In my opinion, I should apply the principle stated in Highmist and Roadshow in this case. Even if obiter, the statement in Roadshow represents a considered statement of the Court of Appeal, which was followed in Craftsmen. For the reasons given by Keane JA, the statement of principle seems to me to be correct.
As Keane JA pointed out in Highmist, even assuming that a party that has breached a fundamental term of the contract or has repudiated the contract retains a right of termination for breach or repudiation by the other party, the party in breach who terminates the contract will not be entitled to claim damages.
A company director cannot be liable for inducing a breach of contract by a company where the director is merely the individual through which the company acts: Tsaprazis v Goldcrest Properties Pty Limited [2000] NSWSC 206; (2000) 18 ACLC 285 at [11] per Hodgson CJ in Eq; Mad Dogs Pty Ltd (in liq) v Gilligan's Backpackers Hotel & Resort Pty Ltd (No 3) [2015] QSC 319 at [243]ff. In my opinion, those authorities should be followed notwithstanding contrary authority in other jurisdictions: see, for example, Cook Straight Skyferry Ltd v Dennis Thompson International Limited [1993] 2 NZLR 72; Ridgeway Maritime Inc v Beulah Wings Limited (The Leon) [1991] 2 Lloyd's Rep 611. Similarly, a holding company cannot be liable for inducing a breach of contract by a subsidiary merely because they share common directors: LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Limited [2003] NSWCA 74 at [11] per Hodgson JA (Meagher JA agreeing).

[30]

The plaintiffs' case on termination

The plaintiffs advance two arguments for why ERAI and ERAGICS were not entitled to terminate the Cooperation Deed and the Consultancy Agreement without paying compensation. First, they deny that any of the grounds for termination are made out. Consequently, they contend that they were entitled to treat the purported termination of the agreements as a wrongful repudiation of them, terminate the agreements themselves and sue for damages calculated by reference to the benefits they would have received under the agreements if they had been performed by ERAI and ERAGICS in accordance with their terms. Second, they contend that prior to the time that ERAI and ERAGICS purported to terminate the two agreements, ERAI and ERAGICS themselves had repudiated the two agreements or rendered performance of them by Mr Armstrong and ASMM impossible. That, in turn, is said to have two consequences. One is that Mr Armstrong and ASMM were entitled to treat themselves as absolved of their responsibilities under the agreements. The other is that ERAI and ERAGICS could not terminate the agreements without paying Mr Armstrong and ASMM compensation.
Before dealing with the factual issues that these arguments raise, two preliminary points need to be made about the second of the two arguments advanced by the plaintiffs.
First, the plaintiffs make no real attempt to explain the connection between what is said to be the repudiatory conduct on the part of ERAI and ERAGICS and the breaches they are said to have committed. As will become apparent, in many cases the connection is not obvious. But unless that connection can be established, it is difficult to see how repudiatory conduct on the part of ERAI and ERAGICS can relieve the plaintiffs from any consequences of their own repudiatory conduct. If ERAI and ERAGICS really did by their conduct repudiate the Cooperation Deed and the Consultancy Agreement, Mr Armstrong and ASMM had a choice. They could accept the repudiation and terminate the contract. Alternatively, they could affirm the contracts and continue to discharge their obligations under them except to the extent that they were prevented from doing so by the conduct of ERAI and ERAGICS. What they could not do was affirm the contracts but regard themselves as free from any contractual obligations that the contracts imposed on them without suffering any consequences of doing so.
Second, and related to the first point, the plaintiffs do not explain how, accepting that their own conduct was a breach of the Cooperation Deed or Consultancy Agreement, or a repudiation of those agreements, they were entitled themselves to terminate the contracts and claim damages without also establishing that their own conduct was caused by ERAI and ERAGICS' breaches. The plaintiffs' second argument appears to proceed on the false assumption that it is sufficient if they can establish that ERAI and ERAGICS repudiated the agreements. But that is not the case. In order to claim damages they must establish that they were not themselves in breach or that any breach by them was caused by the defendants.

[31]

Termination of the Consultancy Agreement by ERAGICS

As I have already said, cl 15.1.4 of the Consultancy Agreement permitted ERAGICS to terminate the agreement if Mr Armstrong was guilty of gross or persistent misconduct, or conduct that was likely to bring himself or the Group (as defined) into disrepute. Clause 15.1.2. permitted ERAGICS to terminate the Consultancy Agreement if Mr Armstrong breached a material term of the agreement which was capable of being remedied but was not remedied within 30 days of a written notice of the Board requiring it to be remedied. Clause 15.1.3 permitted ERAGICS to terminate the Consultancy Agreement if Mr Armstrong failed to comply with a reasonable instruction given to him by the Board.
ERAGIGS at the time gave two reasons why it was entitled to terminate the Consultancy Agreement for breaches by Mr Armstrong of cl 15.1.4. The first was that Mr Armstrong was guilty of gross or persistent misconduct, or conduct that was likely to bring himself or the Group (as defined) into disrepute by making statements to ERA's licensees in Australia and New Zealand that ERAIS would not be able to continue to provide consultancy services to those licensees and his encouragement of those licensees to breach the terms of their licence agreements with ERA by collaborating with third parties who were not authorised to provide services without the approval of ERA. The second is that Mr Armstrong was guilty of conduct meeting that description by making anti-Semitic remarks to Mr Newstadt.
In addition, the defendants rely on an extensive catalogue of breaches or repudiatory conduct that was not relied on at the time. The breaches and repudiatory conduct relied on are: 1. Mr Armstrong failed to comply with the direction given to him on or about 11 July 2009 to relocate to the United States; 2. Mr Armstrong breached various provisions of the Consultancy Agreement or repudiated the agreement, and ASMM repudiated the Cooperation Deed, through their involvement with The Lion Partnership and The Lion Global Partnership and the misuse of confidential information; 3. Mr Armstrong was guilty of gross misconduct in connection with a contract signed with Tasracing or by their conduct in connection with that contract he and ASMM repudiated the Consultancy Agreement and Cooperation Deed respectively; 4. Mr Armstrong and ASMM repudiated the agreements to which they were a party by insisting that the Cooperation Deed was unworkable and claiming that ERAI had terminated or otherwise repudiated the Cooperation Deed; 5. Mr Armstrong and ASMM repudiated the agreements by failing to continue to develop the global insurance business, by making disparaging comments about senior management, by asserting that ERAIS was insolvent or likely to be insolvent, by being knowingly involved in the employees of ERAIS and ERA Inc terminating their employment with ERA, by threatening to report ERAIS to ASIC, by Mr Armstrong resigning as the responsible officer for ERAIS, by threatening to terminate the lease for the offices occupied by ERAIS and by procuring licensees of ERA to breach the terms of their licence; 6. Mr Armstrong and ASMM repudiated the agreements by representing to Clubs NSW that ERAIS was insolvent and that Mr Armstrong or ERAIS intended to terminate the Clubs NSW affinity scheme.

[32]

Mr Armstrong's statements to licensees

The defendants rely on three emails sent by Mr Armstrong. The first is an email dated 10 August 2009 to Mr Phil O'Shea and Ms Ruth Cohen, who were both ERA licensees in Australia, which included the statement "With the demise of the Australian insurance department I do not think it wise to take on new insurance projects until new staff are in place to process them". The second is Mr Armstrong's email dated 11 August 2009 to Australasian licensees offering them an opportunity to enter into a joint venture with Mr Tobin "until ERAIS directors can provide us with an alternative solution". The third is an email dated 12 August 2009 which was sent to ERA licensees in which Mr Armstrong advised them that Mr Tobin had withdrawn his offer to assist as an interim measure (following objection from ERA) and which concluded with the words "I also understand some "thugs" sent by Kreston Dormer have taken his lap top. Sorry and good luck".
Viewed in context, in my opinion these three emails amounted to gross misconduct on the part of Mr Armstrong or conduct that was likely to bring the ERA group into disrepute. By the time the emails were sent the relationship between Mr Armstrong and ERA had broken down. Mr Armstrong was using the emails to discredit ERA. The effect of the emails was to cause licensees to believe that ERAIS was no longer in a position to offer insurance services and in doing so to undermine the licensees' confidence in ERA. The impression also given by the emails was that Mr Armstrong was not in a position to assist the licensees, and that he was not proposing to take any steps himself to assist in remedying the problems caused by the resignation of the Australian staff. It is no answer to these points to say that ERAIS was not at the time the emails were sent in a position to offer insurance services to licensees. ERAIS was faced with the task of convincing licensees that active steps were been taken to overcome the problems arising from the resignation of staff, that it still had the benefit of Mr Armstrong's undoubted expertise and that they should not be concerned. Far from assisting in that task, Mr Armstrong by his emails made it more difficult.
The plaintiffs contend that the Board of ERAGICS was not able to terminate the Consultancy Agreement without Mr Armstrong's consent. For that proposition, they rely on cl 10.1.20 of the Cooperation Deed, which provides: 10.1 Any decision relating to any of the following matters shall require the prior written consent (which may be given by way of written consent or otherwise) of both [ERAI] and [Mr Armstrong] … … 10.1.20 executing and or amending contract between the Company (or any Subsidiary of the Company or the group of companies to which the Company belongs) and any Shareholder or any Related Party of a Shareholder; However, cl 10.1.20 says nothing about termination; and it would be a nonsense to interpret the Cooperation Deed as imposing a requirement that Mr Armstrong had to consent to his own termination for gross or persistent misconduct.
The plaintiffs also contend that Mr Clucas and Mr Chapman, who were the other Board members of ERAGICS, did not take proper steps to investigate the matters alleged against Mr Armstrong. However, investigation by the Board was not a precondition to termination of the Consultancy Agreement under cl 15.1.4. ERAGICS was entitled to terminate the agreement under that clause if the objective facts were made out.

[34]

Mr Armstrong's refusal to relocate to the United States

The Consultancy Agreement relevantly contained the following terms: 3 Duties 3.1 During the term of this agreement, the Consultant is retained via the Intermediary Company [ASMM] to provide advisory and consulting services to the Company and its associated companies including, without limitation, in relation to insurance expense reduction analysis on a full time basis which shall mean a minimum of 40 hours each working week for 48 weeks of each calendar year. 3.2 During the continuance of this agreement the Consultant shall provide his services at such times as the Consultant and the board of directors of the Company shall agree from time to time. 3.3 The Consultant shall comply with the reasonable directions of the Board and shall use his reasonable endeavours to promote the business and interests of the Company and its associated companies ... 3.4 The Consultant shall at all times give priority to the provision of the services to the Company during the times provided for the provision of the services over all other services or business activities undertaken by the Consultant. … 6 Place of work 6.1 The Company shall provide a suitable office for the use of the Consultant at the Company's premises at ERA US Offices in San Diego California and the Consultant shall carry out his duties there and in such other places as the Board considers reasonably appropriate from time to time. The Company may require the Consultant to work at any place within the United Kingdom. The Consultant will be required to travel internationally on the business of the Company and in particular to the United States of America and throughout Europe.
The plaintiffs advance various grounds for why Mr Armstrong was not in breach of the Consultancy Agreement by refusing to move to the United States. First, they contend that he was not provided with a suitable office in San Diego. The direction was that he move to Carlsbad, not San Diego. Second, they contend that cls 3.1 and 6.1 together anticipate that Mr Armstrong would work around the world, which is what he had done. Third, Mr Armstrong never received an instruction from the Board of ERAGICS. The only instruction came from ERAI. Fourth, Mr Armstrong never refused to move to the United States. Rather, he said in an email in response to the 9 July 2009 letter that he would consider the change once ERAI confirmed that it would comply with its obligations with respect to funding. Lastly, the requirement that Mr Armstrong move to the United States was not one made in good faith for genuine reasons. It appears from the plaintiffs' final written submissions that they no longer maintain that Mr Armstrong could not do so in any event because of visa restrictions.
I am not satisfied that Mr Armstrong's conduct amounted to a breach of the Consultancy Agreement. I accept that until Mr Armstrong was given an instruction by the ERAGICS Board, he was not obliged to move to Carlsbad. Clause 6.1 of the Consultancy Agreement contemplated that Mr Armstrong would be based in San Diego and would travel to other places consistently with reasonable instructions given to him by the Board. However, that is not in fact what happened. To the knowledge of the Board, Mr Armstrong was based in Melbourne and he spent considerable time travelling to the United States and other places. In my opinion, it was not open to ERAGICS to maintain that Mr Armstrong was in breach of the Consultancy Agreement because he had not relocated to the United States before he was given an instruction to do so. Up until that time, the Board must be taken at least tacitly to have agreed to Mr Armstrong continuing to be based in Melbourne.
In my opinion, it would have been reasonable for the Board to instruct Mr Armstrong to spend 40 weeks a year in the United States. United States was a critical market for the global insurance business. The business there was performing badly; and it would have been natural for the Board to want Mr Armstrong to relocate there to try to fix the problem. Clause 6.1 contemplated that Mr Armstrong would be based in the United States. Moreover, it seems plain that Mr Armstrong was not prepared to relocate to the United States. It is not correct to say that he was prepared to consider doing so once the question of funding was resolved. What Mr Armstrong said in his email was this: If and when current the breaches [sic] of contract are fully satisfied, including payment of interest and legal costs then perhaps ERAGICS could consider approaching the ASMM Board and ask them to kindly consider reasonable changes to the Consultancy Agreement but it would be pointless to attempt this under the current circumstances. The "current … breaches" that Mr Armstrong was talking about was the failure of ERAI to pay amounts he thought were due to him. They had nothing to do with funding ERAGICS.
However, the Board of ERAGICS never gave Mr Armstrong an instruction to relocate to the United States; and, in my opinion, an instruction from ERAI is not the same thing. The defendants submit that the instruction given to Mr Armstrong was equivalent to a contractual notice, and the court should give effect to the notice provided a reasonable recipient would have understood it as a notice to relocate to the United States: see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. I do not accept that submission. Mr Armstrong was entitled to have the Board of ERAGICS consider the question and, as a Board member, to participate in that consideration. That did not happen.

[35]

Mr Armstrong's involvement with The Lion Partnership

The defendants rely on Mr Armstrong's involvement with The Lion Partnership and The Lion Global Partnership as both a breach of the Consultancy Agreement and a repudiation of that agreement. The Lion Partnership was established to provide insurance consulting services to clients. The Lion Global Partnership was established with the intention that it would provide insurance broking services to clients. Although it appears that Mr Armstrong did considerable work on The Lion Global Partnership from October 2009 to late 2012 nothing came of it. Mr Armstrong's involvement with both entities is said to amount to a breach of cls 3.3, 3.4 and 12. I have already set out the terms of cls 3.3 and 3.4. Clause 12 imposes restrictions on the use by Mr Armstrong of ERAGICS's Confidential Information. Clause 1.1 defined "Confidential Information" as: any and all information that relates to: (a) trade secrets, know-how, customer lists, trading details, secret or confidential operations, processes, dealings or any information concerning the Group, prospective business, business methods, systems, affairs, finances, transactions of any company in the Group or other information of a confidential nature relating to any company in the Group or any supplier to, customer or potential customer of any company in the Group; (b) any other information designated by any company in the Group as confidential or which may reasonably be regarded as being confidential; and (c) any information in relation to which any company in the Group owes a duty of confidentiality to any third party;
The plaintiffs advance various reasons for why Mr Armstrong's involvement with The Lion Partnership and The Lion Global Partnership did not involve a breach of the Consultancy Agreement: 1. All Mr Armstrong did was assist others to develop The Lion Partnership; 2. The defendants have not produced any evidence that Mr Armstrong revealed any Confidential Information belonging to ERAGICS; 3. The evidence is that The Lion Partnership LLC engaged in risk management, which was not being offered by ERA; 4. The Lion Global Partnership was not registered in Australia until 25 October 2011 and in the USA in November 2011. It never traded in either country; 5. Clause 16 of the Consultancy Agreement governs the conduct of the parties in respect of their non-competition obligations. Clause 16.11 provides that the clause does not apply if the termination of the Cooperation Deed or the Consultancy Agreement is as a consequence of any deliberate and material breach of either of those agreements or an SLA by ERAGICS, ERAG, ERAI or any Group or associated company. Each of the three named companies was in breach of the Cooperation Deed or Consultancy Agreement.
It is doubtful that anything follows from Mr Armstrong's involvement in The Lion Global Partnership, since there is no evidence that that entity did anything.
However, in my opinion, Mr Armstrong both breached the Consultancy Agreement and repudiated it by his involvement with The Lion Partnership.
Following the letter dated 9 July 2009 to ERAGICS, the resignation of Mr Sellwood and the termination of Mr Tobin and Mr Armstrong Jnr's employment, the relationship between Mr Armstrong and ERAI had completely broken down. Mr Armstrong accepted that by that time he was not applying himself to ERAGICS' business and said in cross-examination that it was impossible to do so. Mr Armstrong must have foreseen that at some point the Consultancy Agreement would come to an end and that he would need to find alternative employment. It appears that he harboured considerable resentment towards ERA and that he was not adverse to causing damage to its business. It is the plaintiffs' case that The Lion Partnership was established by Mr Tobin and Mr Armstrong Jnr. However, the intention was that The Lion Partnership was to provide insurance consulting services, and it is fanciful to suppose that that business could be established successfully by them without Mr Armstrong's expertise and reputation. At that time, Mr Tobin was 27 and Mr Armstrong Jnr was 22. Both had limited insurance experience. "The Lion" was a name that Mr Armstrong said he had wanted to use for a long time. The evidence is that approximately 50 percent of The Lion Partnership's profits are distributed to ASMM in exchange for it providing Mr Armstrong's services. Sans Regis Pty Ltd owns 30 percent of the shares in The Lion Partnership. Since at least November 2009 Mr Armstrong has been described as Managing Partner or Non-Executive Chairman of The Lion Partnership. In the context of the applications for security for costs in this case, Mr Armstrong was not frank about his involvement with The Lion Partnership. Against that background, it is not plausible that Mr Armstrong only became involved in The Lion Partnership after the Consultancy Agreement was terminated on 18 November 2009.
There is other evidence that points to Mr Armstrong's involvement with The Lion Partnership prior to termination of the Consultancy Agreement. The registration for The Lion Partnership domain name, which was created on 17 September 2009, records Mr Armstrong as the administrative contact and a computing consultant billed Mr Armstrong on 8 October 2009 for the costs of setting up the domain name. Mr Armstrong was involved in approving the form of client engagement letters. In addition, as I have already found, it is apparent that in early October 2009 Mr Armstrong, when he was in the United States, attended meetings with potential clients with Ms Brandel with the intention of persuading them to use the services of The Lion Partnership LLC.
In my opinion, Mr Armstrong's involvement with The Lion Partnership was a breach of his obligations under cl 3.3 of the Consultancy Agreement. By establishing and promoting The Lion Partnership, Mr Armstrong was promoting a business that competed directly with the business carried on by ERAGICS and the LOCs, contrary to his obligation to use reasonable endeavours to promote the business and interests of ERAGICS and its associated companies. That conclusion is not affected by the fact that the business of The Lion Partnership LLC included risk management services. Whether it did or not, the business of The Lion Partnership in both Australia and the United States involved providing consulting services designed to assist clients to reduce the costs of their insurance. That was the business carried on by ERAGICS and the LOCs. Moreover, by setting up a rival business in which it is clear that Mr Armstrong would be heavily involved, Mr Armstrong repudiated the Consultancy Agreement.
There is also evidence that Mr Armstrong used intellectual property belonging to ERA in connection with The Lion Partnership. That intellectual property included presentational material that was rebranded for use by The Lion Partnership, a template prepared for the National Association of Retailers and the ERA engagement letter. Whether the material used by Mr Armstrong could properly be regarded as Confidential Information (as defined in the Consultancy Agreement) is doubtful. For the most part, the information was information distributed to clients, not information that was confidential to ERA. However, the information was information that belonged to ERA and was used by Mr Armstrong for the benefit of a rival business. In my opinion, that conduct is not consistent with Mr Armstrong's obligations under cls 3.3 and 3.4 of the Consultancy Agreement.
I do not accept the plaintiffs' contention that cl 16 governed the non-compete obligations of the parties. Clause 16 imposed non-compete obligations on the parties after the Consultancy Agreement was terminated. I deal below with the question whether ERAGICS, ERAI or ERAG were in breach of any relevant agreement. But even assuming they were, cl 16.11 relieves ASMM and Mr Armstrong of their non-complete obligations after the Consultancy Agreement was terminated. It does not relieve them of their obligations under the Consultancy Agreement while that agreement remained on foot.

[36]

Tasracing

Tasracing is responsible for the regulation, facilities and management of the racing industry in Tasmania and was formed by the Tasmanian government during 2008. It was a potential client of ERAIS. On or about 20 May 2009, Mr Sellwood and Mr Tobin made a presentation to it in relation to the services that could be provided by ERAIS and two days later Mr Sellwood sent Mr Marshall of Tasracing an "insurance tender proposal" prepared by ERAIS. Tasracing signed a letter of engagement with ERAIS on 28 June 2009. However, from late August 2009, Mr Tobin began to deal with Tasracing purportedly on behalf of AC. On 18 September 2009, he wrote to Tasracing in the following terms: The purpose of this e-mail is to confirm with Tasracing in writing that both myself and Peter Sellwood will be working with Armstrong Consulting Pty Ltd over the full 24 month contract period as per your agreement with Armstrong Consulting Pty Ltd, previously trading as Expense Reduction Analysts and ERA Insurance Services. Ultimately, AC charged Tasracing for fees due under the engagement letter that Tasracing had signed with ERAIS.
It is not seriously disputed that Mr Armstrong was involved in the Tasracing contract. He corresponded with Mr Sellwood in relation to it. AC was the company through which he conducted business. Mr Tobin says that in late August or early September 2009, Mr Armstrong asked him to work "on two existing AC clients", one of which was Tasracing. Moreover, on 26 November 2009, Mr Armstrong sent an email to Mr Matthew Bone, the CEO of Tasracing, in which he said: Armstrong Consulting Pty Ltd ceased trading as Expense Reduction Analysts and ERA Insurance Services on 30 June 2009. Clients of Armstrong Consulting P/L continue by agreement with ERA Group P/L to belong to Armstrong Consulting. Tasracing was an Armstrong Consulting account before 30 June 2009. … All ERA Consultants sign insurance contracts in the name of ERA Insurance Services Pty Ltd and contracts for other categories of expense are signed in the name of Expense Reduction Analysts. This is done for professional indemnity and licensing reasons and not related to client ownership which Mr Michael clearly understands but has a tendency to forget occasionally.
The plaintiffs attempt to justify Mr Armstrong's conduct by saying that ERAIS was not entitled to enter into any contracts with clients because it was not an ERA licensee and, in breach of an agreement it is said to have reached with AC, it did not pay the amount due to AC to acquire AC's licence.
I do not accept that justification. Clause 7.1 of the Shareholders Agreement specifically provides: The Company herein established [that is, ERAIS], shall conduct its business in accordance with the terms and conditions of an ERAG license agreement. It is plain from the terms of the agreement with Tasracing that the contract was with ERAIS. Mr Armstrong's explanation to Mr Bone cannot be accepted. His explanation is an attempt to justify what amounts to a deliberate attempt by Mr Armstrong, following the breakdown in the relationship between him and ERAI, to take for the benefit of AC a client that he knew was a client of ERAIS. In my opinion, that amounts to a breach of cls 3.3 and 3.4 of the Consultancy Agreement.

[37]

Mr Armstrong's repudiation of the Consultancy Agreement

The defendants rely on a variety of conduct that is said to amount to a repudiation of the Consultancy Agreement by Mr Armstrong. In my opinion, it is not particularly helpful to isolate each particular action said to have been taken by Mr Armstrong and to ask whether that action is sufficient to amount to repudiatory conduct. Rather, it is preferable to look at Mr Armstrong's conduct as a whole.
It is plain that following the meetings in England in June 2009 and the ERAI Board meeting on 3 July 2009 that Mr Armstrong was no longer prepared to provide services to ERAGICS in accordance with the terms of the Consultancy Agreement. From that time, he took no steps to promote the global insurance business. Instead, on the findings I have made, he started to develop a rival business. He resigned as a "key person" appointed by ERAIS under the conditions of its AFSL and threatened to make statements to ASIC and the Trade Practices Commission that ERAIS was insolvent. He told Ms Brandel that the ERAI companies did not have the funds to honour their contractual commitments to him and that ERA management had fabricated breaches of contract against him. However, there is no reason to believe that those statements were true. ERAI had funded ERAGICS in accordance with the business plan. It was plain that ERAI was not prepared to provide further funding until a new business plan was prepared and approved. But there is no evidence that at the time ERAI was unable or unwilling to fund ERAGICS in accordance with a new approved business plan. However, Mr Armstrong took no steps to prepare a new business plan.
The defendants contend that Mr Armstrong repudiated the Consultancy Agreement by causing ERAIS staff to resign and causing Ms Brandel to resign her employment with ERA Inc and as Responsible Manager of ERAGICS USA. However, I am not satisfied that that in itself amounts to repudiatory conduct. Mr Armstrong was close to Mr Sellwood and Ms Brandel and it is clear that their attitude to ERA was affected by the breakdown of the relationship between Mr Armstrong and ERAI. Mr Armstrong made statements to them concerning the solvency of ERAIS and ERAGICS USA and those statements are likely to have contributed to Mr Sellwood and Ms Brandel's attitude to ERA. But I do not think that the evidence demonstrates that Mr Armstrong caused them to resign. Rather, their resignations were symptoms of the breakdown of the relationship between Mr Armstrong and ERAI. At most, Mr Armstrong's failure to take any steps to persuade them not to resign, or to assist in putting into place interim arrangements following their resignations, is further evidence that Mr Armstrong was no longer willing to discharge any of his obligations under the Consultancy Agreement.
Similarly, the defendants contend that Mr Armstrong engaged in repudiatory conduct by threatening to terminate the lease for the offices occupied by ERAIS. However, the provision of office space for ERAIS was not one of Mr Armstrong's obligations under the Consultancy Agreement. Again, the termination of the lease was simply evidence of the breakdown of the relationship between ERAI and Mr Armstrong.
However, in my opinion, the other matters I have referred to demonstrate that Mr Armstrong had repudiated the Consultancy Agreement because he was no longer prepared to provide consultancy services to ERAGICS.

[38]

Representations made to Clubs NSW

On or about 27 May 2008, Clubs NSW (or, more accurately, CLUBSNSW Insurance Services Pty Ltd, one of its subsidiaries) entered into an "affinity scheme" agreement with AC, ERAIS and Mr Armstrong. AC and ERAIS were responsible for managing the scheme and for providing ancillary services to Club NSW. Mr Armstrong guaranteed AC and ERAIS's obligations under the agreement.
Under the terms of the agreement, Clubs NSW was entitled to terminate the agreement if ERAIS was presumed to be insolvent within the meaning of s 459C(2) of the Corporations Act 2001 (Cth).
There is a question of how profitable the Clubs NSW agreement was, to which it will be necessary to return.
The defendants contend that at a meeting held on 25 September 2009 Mr Armstrong told Mr Costello, then the CEO of Clubs NSW, that ERAIS was insolvent. In support of that contention, it relies on evidence given by Mr Costello in cross-examination to the effect that Mr Armstrong told him that ERAIS was insolvent. I accept Mr Costello's evidence. Although Mr Costello conceded that he had a poor recollection of the meeting, his evidence is consistent with a file note of a meeting he had several weeks later with Mr Dormer which records that during the earlier meeting Mr Armstrong told Mr Costello "that ERAIS was insolvent". The purpose of the meeting was for Mr Armstrong to tell Mr Costello that he was no longer prepared to give a personal guarantee. Mr Armstrong's position at that time was that ERAIS was insolvent, and he had told a number of other people that that was the case. It is likely that he would have offered the same explanation when explaining why he was not prepared to continue his guarantee.
However, in my opinion, Mr Armstrong's statement does not of itself provide a ground for terminating the Consultancy Agreement. Mr Armstrong was not obliged to give a guarantee of ERAIS and AC's obligations. So far as the Consultancy Agreement is concerned, he was entitled to withdraw any guarantee he had given. The fact that he offered as an explanation his belief that ERAIS was insolvent does not in itself amount to a breach of the Consultancy Agreement. His obligation to use his reasonable endeavours to promote the business and interests of ERAGICS and its associated companies did not require him to offer a different explanation for why he was withdrawing his guarantee. The position may have been different if Mr Armstrong did not genuinely believe that ERAIS was insolvent at the time. But I am not satisfied that Mr Armstrong did not genuinely hold that view at the time that he made the statement.

[39]

Did ERAI or ERAGICS repudiate the Cooperation Deed or Consultancy Agreement?

The plaintiffs contend that ERAI and ERAGICS repudiated the Cooperation Deed and Consultancy Agreement in various ways: 1. By failing to provide adequate funding of ERAGICS and the LOCs including payment of the $30,000 shareholder loan to ASMM; 2. By failing to provide Mr Armstrong with access to the accounts of the LOCs; 3. By failing to issue the shares in ERAGICS; 4. By seeking to bring about circumstances in which Mr Armstrong would resign or the Consultancy Agreement would be terminated.
In my opinion, none of this conduct amounted to repudiatory conduct by ERAI or ERAGICS.
For the reasons I have already given, I do not accept that ERAI failed to provide ERAGICS or the LOCs with adequate funding. ERAI's obligation was to provide funding in accordance with the relevant business plans. There is no evidence that ERAI breached that obligation; and the plaintiffs have not sought to establish that it did. Rather, the complaint is that certain amounts that Mr Armstrong claimed were due to him were not paid. However, for the reasons I have given, I do not accept that the retained earnings were payable to ASMM. Although ERAIS delayed in repaying the shareholder loan of $30,000, that amount was ultimately repaid; and the failure to pay that amount earlier could hardly be regarded as a repudiation of the Consultancy Agreement or Cooperation Deed and had no effect on Mr Armstrong's ability to perform his obligations under the Consultancy Agreement. It is plain that ERAGICS and the LOCs were facing financial difficulties. However, those financial difficulties arose because the approved business plans were not achieved.
I have already dealt with the allegation that Mr Armstrong was denied access to the accounts of the LOCs. Mr Armstrong had access to information relating to the financial performance of ERAGICS and the LOCs. For reasons which make little sense, he was denied access to the audited accounts of the ERA USA Inc Group. However, that was not a breach of the Consultancy Agreement or Cooperation Deed, and it did not prevent Mr Armstrong from discharging his obligations under the Consultancy Agreement.
I have already found that the ERAGICS shares were issued to Mr Armstrong.
The conclusions I have reached are also inconsistent with the plaintiffs' case that ERAI or ERAGICS repudiated the agreements by seeking to bring about circumstances in which Mr Armstrong would resign or the Cooperation Deed would be terminated. Up until the ERAI Board meeting on 3 July 2009, Mr Armstrong sought to renegotiate the terms of the Cooperation Deed. Much of the tension arose between him and ERAI because ERAI was not willing to agree to Mr Armstrong's new terms and because it was not willing to pay amounts that Mr Armstrong claimed were due to him outside the terms of the Consultancy Agreement. As the relationship between the parties deteriorated, ERAI prepared for the possibility that it would want to terminate the arrangements with Mr Armstrong. However, on the findings I have made, ERAI's position was that, even after the Board meeting on 3 July 2009, it wanted the relationship to continue provided Mr Armstrong prepared a new business plan which was agreed and provided he spent most of his time in the United States with a view to improving the performance of the business there. It was those demands that caused Mr Armstrong to repudiate his obligations under the agreements by in effect abandoning the business and seeking to establish a rival business. On 22 August 2009, Mr Armstrong was told that his services were no longer required in Australia for the time being and on 2 September 2009 he was told that his services were no longer required in the United States. Taken alone, those two letters could be regarded as repudiatory conduct by ERAGICS or ERAI. However, those directions were given in a context where it was clear that Mr Armstrong was not willing to perform his obligations under the Consultancy Agreement and where he was engaging in activities that were contrary to the interests of ERAGICS. The directions were a reasonable response to Mr Armstrong's conduct.
Two points follow from what I have said.
First, I do not accept that ERAI or ERAGICS engaged in repudiatory conduct.
Second, even if I am wrong in that conclusion, the conduct that was repudiatory arose from Mr Armstrong's own repudiatory conduct or, at the very least, Mr Armstrong was himself guilty of repudiatory conduct which did not arise from repudiatory conduct on the part of ERAI and ERAGICS. Consequently, whatever rights Mr Armstrong and ASMM had, they did not include a right to claim damages for breach of contract or repudiation by ERAI or ERAGICS.

[40]

Unconscionable conduct and breach of fiduciary duties

The plaintiffs claim that ERAI and ERAGICS engaged in unconscionable conduct in contravention of s 51AC of the TPA. At the relevant time, that section provided: (1) A corporation must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable. (2) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a corporation (other than a listed public company); or (b) the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company); engage in conduct that is, in all the circumstances, unconscionable.
Subsection (3) of s 51AC set out various matters the Court may have regard to in determining a contravention of subsection (1) or (2), including: 1. the relative strengths of the bargaining positions of the supplier and the business consumer; 2. whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; 3. whether the business consumer was able to understand any documents relating to the supply or possible supply of the goods or services; 4. whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the business consumer or a person acting on behalf of the business consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; 5. the requirements of any applicable industry code; 6. the requirements of any other industry code, if the business consumer acted on the reasonable belief that the supplier would comply with that code; 7. the extent to which the supplier unreasonably failed to disclose to the business consumer: 1. any intended conduct of the supplier that might affect the interests of the business consumer; and 2. any risks to the business consumer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); and 1. the extent to which the supplier and the business consumer acted in good faith. The matters set out in s 51AC(3) are factors the Court may have regard to in determining whether conduct is unconscionable. However, the existence of one or more of those factors does not automatically lead to a finding of unconscionable conduct: ACCC v Oceana Commercial Pty Ltd [2004] FCAFC 174 at [181].
The word "unconscionable" is to be given its ordinary meaning: ACCC v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; (2009) 253 ALR 324 at [113]. It was explained in these terms by Allsop P (with whom Bathurst CJ and Campbell JA agreed) in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 29,699 at [291]: Aspects of the content of the word "unconscionable" include the following: the conduct must demonstrate a high level of moral obloquy on the part of the person said to have acted unconscionably: Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; [2005] NSWCA 261, at [121]; the conduct must be irreconcilable with what is right or reasonable: Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226, at [30]; Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301; [2002] FCA 62, at [44]; Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262; factors similar to those that are relevant to the [Contracts Review Act 1980] are relevant: Spina v Permanent Custodians Ltd(2009) 14 BPR 26,923; [2009] NSWCA 206, at [124]; the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity: National Exchange at [30]; the statutory provisions focus on the conduct of the person said to have acted unconscionably: National Exchange at [44]. It is neither possible nor desirable to provide a comprehensive definition. The range of conduct is wide and can include bullying and thuggish behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of understanding, trickery or misleading conduct. A finding requires an examination of all the circumstances.
In contending that ERAI and ERAGICS engaged in unconscionable conduct, or breached their fiduciary duties, the plaintiffs rely on largely the same conduct as the conduct that is said to amount to a repudiation of the Consultancy Agreement and Cooperation Deed. In particular, they rely on the following: 1. the direction that Mr Armstrong relocate to the United States; 2. the denial of any obligation to pay ASMM its share of retained earnings; 3. the refusal to give Mr Armstrong access to the audited accounts of the USA LOC; 4. the treatment of Mr Sellwood and the termination of Mr Armstrong Jnr and Ms Reinehr; 5. the direction to Mr Sellwood not to provide confidential information to Mr Armstrong; 6. ERAI and ERAGICS causing Truman Hoyle to send their letters dated 14 August 2009 and 17 August 2009 to Mr Armstrong and ERAGICS respectively; 7. the directions to Mr Armstrong that his services were no longer required in Australia or the United States.
On the conclusions that I have reached, none of this conduct was unconscionable conduct on the part of ERAI or ERAGICS. None of it involved undue pressure or bullying of Mr Armstrong on the part of ERAI or ERAGICS. The direction that Mr Armstrong spend most of his time in the United States was a reasonable response to the poor performance of the business there. On the conclusions I have reached, ASMM was not entitled to be paid retained earnings. The refusal to provide Mr Armstrong with the audited accounts was trivial in a context where he was provided with financial information relating to the companies that were of concern to him. It is difficult to see how the treatment of Mr Sellwood and Mr Armstrong Jnr and Ms Reinehr could involve unconscionable conduct towards Mr Armstrong. The balance of the conduct about which complaint is made was an understandable reaction to Mr Armstrong's own wrongful repudiation of his obligations under the Consultancy Agreement.
For similar reasons, even assuming that ERAI or ERAGICS owed Mr Armstrong fiduciary duties under the Consultancy Agreement, it did not breach those duties in the way alleged.

[43]

Damages

On the conclusions that I have reached, Mr Armstrong is not entitled to any damages for wrongful termination of the Consultancy Agreement and Cooperation Deed. However, in the event that I am wrong in that conclusion, I should say something about Mr Armstrong's damages claim.
The Consultancy Agreement was for an initial term of 3 years and from that time was terminable on 12 months' notice. Under cl 2 of the Consultancy Agreement, ERAGICS engaged ASMM and ASMM agreed to make available Mr Armstrong "to act as a consultant to [ERAGICS]". However, under cl 7, the fee of $360,000 per annum payable under the agreement was payable to Mr Armstrong, not ASMM. Consequently, any claim for the fees is a claim by Mr Armstrong.
Mr Temple-Cole calculates the value of the fees payable from the time ERAGICS stopped paying them until the expiration of a four year period after the agreement was entered into - that is, from 1 December 2009 until 25 February 2012. He calculates the loss as at 25 February 2008. He applies a discount rate of 6 percent for income earned after that date. On that basis he concludes that Mr Armstrong's loss was $477,026 before a gross-up for tax and court interest, or $859,720 after allowing for those amounts. He takes no account of the fact that ERAGICS went into administration on 25 January 2011. Nor does he take any account of income earned by ASMM from The Lion Partnership.
Mr Gower, on the other hand, uses a discount rate of 23 percent. He also takes into account the fact that ERAGICS went into administration on 25 January 2011 and concludes that, as a consequence. ERAGICS (which he incorrectly refers to as ERAIS), would not have been able to pay any part of the amount claimed, with the result that Mr Armstrong is not entitled to any damages.
I prefer the approach taken by Mr Temple-Cole. In my opinion, a discount rate of 6 percent is appropriate. The amount payable under the Consultancy Agreement was not dependent on the performance of ERAGICS. Consequently, it is not appropriate to discount the amount payable by reference to the risks associated with the business. The Consultancy Agreement did not by its terms terminate in the event that ERAGICS went into administration. The fact that ERAGICS may be unable to pay the damages does not mean that they have not been suffered. It follows that, if I had found that ERAGICS wrongfully repudiated the Consultancy Agreement, I would have concluded that Mr Armstrong was entitled to recover the amount calculated by Mr Temple-Cole.
The plaintiffs also claim as damages the value of Mr Armstrong's interest in ERAGICS on the assumption that ERAI had not breached the terms of the Consultancy Agreement and Cooperation Deed. The underlying basis of the claim is the assertion that, if ERAI had not breached the terms of those agreements, the business of the LOCs in the United States, Europe and Australia would have been successful. As a result, ERAGICS would have had an income stream equal to 90 percent of the EBITDA of those businesses, Mr Armstrong would have been entitled to an additional 10 percent of the capital of the company and the shares to which he would have been entitled would have been valuable.
In support of their claim for damages, the plaintiffs rely on evidence given by Mr Temple-Cole who values a 35 percent interest in ERAGICS as at 25 February 2008 using a discounted cash flow methodology at between $1,636,529 and $1,931,567.
I do not accept Mr Temple-Cole's valuation. The difficulty with it is that there is no evidence from which it can be concluded that the cash flows on which he relies were reasonable. Mr Temple-Cole relies on three year cash flow forecasts for the United States business prepared by Mr Armstrong. He assumes that the European business would have earned the same income per licensee as the United States business and consequently calculates the projected cash flows of the European business by dividing the cash flows of the United States business by the number of licensees in the United States and multiplying that amount by the number of licensees in Europe. However, Mr Temple-Cole says that he does not have the expertise to assess whether the cash flows on which his calculations depend were reasonable and there is no other evidence from which it can be concluded that they were. There is no evidence from which it can be concluded that the businesses in the United States, Europe and Australia would have done better than they actually did if the alleged breaches about which the plaintiffs complain had not occurred and, if so, how much better. As a result, the cash flow forecasts on which Mr Temple-Cole rely involve nothing more than speculation.
The plaintiffs rely on the principle that the difficulty of assessing damages is not a bar to recovery: see Howe v Teefy (1927) 27 SR (NSW) 301 at 306; Fink v Fink [1946] HCA 54; (1946) 74 CLR 127 at 143. But that principle does not relieve a plaintiff of the burden of proving that it suffered damage: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1992) 174 CLR 64 at [4] per Deane J. In my opinion, the plaintiffs have not discharged that onus in relation to the losses said to arise from breaches of the Cooperation Deed.

[45]

Specific grounds of termination

In the case of the Licence Agreement, ERAG served a breach notice on 7 October 2009. The breach notice identified the same conduct relied on for termination of the Consultancy Agreement - that is, the emails sent by Mr Armstrong and Mr Armstrong's remarks to Mr Newstadt. In addition, it is alleged that Mr Armstrong permitted or assisted in the unlawful removal from ERAIS's offices of a computer server containing confidential and proprietary information of ERAG and ERAIS on or about 11 or 12 August 2009 and the wrongful detention of confidential and proprietary information belonging to ERAG and ERAIS.
The defendants contend that the conduct about which complaint is made breached a number of provisions of the Licence Agreement. In particular, they rely on cls 10.15, 10.20 and 19.3(c)(iii)(b). I have already set out the substance of cl 10.20, which prevented AC from doing anything that may prejudicially affect the reputation of ERAG or the ERA System. Clause 10.15 required AC to protect ERAG's Intellectual Property. Clause 19.3(c)(iii)(b) prevented AC from making any unauthorised use of the Trade Marks and Business Name (as defined) or otherwise in ERAG's opinion materially impairing its goodwill.
I have already dealt with the allegations in relation to Mr Newstadt. I am not satisfied that Mr Armstrong's conduct in relation to Mr Newstadt amounted to a breach of cl 10.20 of the Licence Agreement.
The evidence is that on 7 August 2009 Mr Armstrong did remove a server from ERAIS's premises that included a file that contained insurance records for ERAIS clients including clients of AC. However, according to Mr Armstrong, he provided that file to ERAIS on or about 21 August 2009. The conduct in removing the server may have amounted to a breach of cl 10.15 of the Licence Agreement. However, it appears to be a breach capable of being remedied, and was in fact remedied. Consequently, I am not satisfied that ERAG was entitled to terminate the Licence Agreement by reason of that breach.
That leaves the emails sent by Mr Armstrong. The plaintiffs claim that those emails were not sent by AC, and consequently there could be no breach by AC of cl 10.20 of the Licence Agreement. I do not accept that submission. Mr Armstrong was the directing mind and will of AC and performed the role of its Chief Executive Officer. Although Mr Armstrong was not a director or shareholder of AC, AC was, in substance, the entity through which Mr Armstrong carried on business as an ERA licensee. He signed the Licence Agreement on behalf of AC and was a party to it. It is unrealistic in those circumstances to say that conduct engaged in by Mr Armstrong in connection with ERA's business generally was not conduct engaged in by AC. Or to put the point another way, it is hard to say that AC was not a party to the conduct when the conduct was carried out by the person who conducted the business of an ERA licensee through AC. For reasons I have already given, in my opinion, the effect of the emails was to affect prejudicially the ERA business and therefore the ERA system. AC was given an opportunity to remedy the breach but did not do so. It follows that ERAG was entitled to terminate the Licence Agreement.

[48]

Denial of AC's licence

The possibility of ERAIS acquiring AC's licence was first discussed at a meeting on or about 24 October 2008 between Messrs Marfleet, Clucas, Michael, Hagerstrom and Armstrong. It appears that at that stage Mr Marfleet was willing to agree to ERAIS buying the licence from AC and to pay for it out of ERAIS's cash flows, which were expected to be sufficient to make the payment as well as to fund the payment of retained earnings. Subsequently, Mr Armstrong proposed the purchase of the licence for $79,500 as part of the completion requirements of the Cooperation Deed. The $79,500 was the total initial licence fees paid by AC.
On 29 June 2009 Mr Armstrong sent an email to Mr Clucas and others enclosing an invoice from AC for $79,500 for the transfer of the licence. However, in an email dated 12 July 2009, Mr Clucas replied that ERAIS did not now wish to acquire the licence.
Mr Armstrong replied on 13 July 2009 saying: The Court can decide this one. There is little doubt as to what was agreed and the written communication will be sufficient for a judge to decide in favour of Armstrong Consulting. This will also give Stuart [Michael] a chance to talk about why it was a conflict for Ken Armstrong to own this licence and how I was using it to rip off the company. Again Fred I will also enjoy your performance under cross examination re this lie.
From that time, Mr Armstrong maintained that "Armstrong Consulting Pty Ltd does not hold an ERA Licence any more as it was acquired by ERAIS as at July 1 2009" (to quote from an email dated 3 August 2009 from Mr Armstrong to Ms Sally Lipman). Mr Armstrong maintained that position in subsequent correspondence he sent both before and after the date on which ERAG purported to terminate the licence. AC did not pay any licence fees under the agreement at least after 1 July 2009.
In my opinion, this conduct amounts to a repudiation of the Licence Agreement. It was Mr Armstrong's position that AC was no longer a licensee of ERAG and not bound to comply with any of the obligations the agreement imposed on AC. It is difficult to see how that conduct did not amount to a repudiation of the agreement.

[49]

Other grounds

In response to the grounds on which the defendants rely, the plaintiffs repeat what they say in relation to similar allegations made in the context of the Consultancy Agreement. They also contend that the Licence Agreement imposed no obligations on Mr Armstrong.
It is not necessary to go through each of the matters relied on by the defendants. The question is not whether the Licence Agreement placed obligations on Mr Armstrong. Rather, the question is whether Mr Armstrong's conduct can be attributed to AC. In my opinion, it would not be appropriate to attribute all of Mr Armstrong's conduct to AC. Mr Armstrong's assertions about the Cooperation Deed or his conduct in relation to the termination of the lease are examples. However, on the findings I have made, following ERA's refusal to restructure the global insurance business and to pay Mr Armstrong amounts that he claimed were due to him, Mr Armstrong was unwilling to continue to develop the global insurance business and instead set about developing an alternative business that was to trade under the name of The Lion Partnership. The question is whether that conduct amounted to a repudiation of the Licence Agreement as well as the Consultancy Agreement and Cooperation Deed. In my opinion, it did. Under the terms of the Licence Agreement, AC was not to be involved in any business that would affect its ability to fulfil its obligations under the Licence Agreement. It was required actively to promote ERA's business in the Territory. It was required not to be a party to any act which would prejudicially affect ERA's reputation. The business that Mr Armstrong was involved in establishing was a rival business to the one conducted by AC under the Expense Reduction Analysts name. AC was the entity through which Mr Armstrong conducted that business. Consequently, when Mr Armstrong became involved in establishing a rival business to that carried on by ERA and when he ceased to be involved in promoting ERA's business, his conduct must be regarded as conduct on the part of AC as well as on his own part and on the part of ASMM. By that conduct, AC repudiated its obligations under the Licence Agreement.
I have already rejected the plaintiffs' alternative contention that ERAI and ERAGICS themselves repudiated the Consultancy Agreement and the Cooperation Deed. For similar reasons, I do not think it could be said that ERAG repudiated the Licence Agreement. Even if I am wrong in that conclusion, I do not think that that repudiation would entitle AC to claim damages, given that AC had itself repudiated the agreement.

[51]

Damages

In the event that my conclusions are wrong, I should say something about AC's damages claim.
AC claims damages on the basis that it would have continued to earn income (from 22 October 2009) under the Licence Agreement if that agreement had not been wrongfully terminated. It claims that that income would have consisted of income earned from the FCAIS Agreement together with income it would have earned from agreements entered into with Clubs WA and Clubs Queensland (it does not rely on income from the other affinity schemes). Relying on reports prepared by Mr Temple-Cole, it submits that the loss it suffered from the loss of the FCAIS Agreement income was in the range of $83,280 and $280,903. In reaching the conclusion that AC's loss in respect of the ERAIS Agreement fell within that range, Mr Temple-Cole calculates the value of the cash flows that it was expected AC would have earned from the FCAIS Agreement as at 22 October 2009 (the date on which ERAG is said wrongfully to have terminated the Licence Agreement). The high figure is arrived at by discounting the income projected to be earned by Mr Armstrong from the FCAIS Agreement (including income projected to be earned from the agreement following its renewal after the initial five year term) at 45 percent. The low figure is arrived at by using that actual income earned from the agreement and applying a discount rate of 15 percent. Mr Temple-Cole then grosses up those figures to take account of interest and tax to arrive at figures of $137,042 and $462,240.
In relation to the other affinity schemes, Mr Temple-Cole relies on projected cash flows from those schemes. He assumes a members service fee of 10 percent and applies a discount rate of 55 percent to arrive at a low figure of $138,144. To arrive at a high figure of $334,763, he assumes a members service fee of 20 percent and a discount rate of 45 percent. Again, those figures are grossed up for tax and court interest to arrive at figures of $227,324 and $550,869 respectively.
I do not accept Mr Temple-Cole's conclusions. Critical to Mr Temple-Cole's analysis is the income that it was projected AC would earn under the FCAIS Agreement and under other affinity schemes. In my opinion, the figures used by Mr Temple-Cole, which result from assumptions given to him, are exaggerated. There are a number of reasons for that.
First, I accept Mr Gower's evidence that the starting point is the actual amount received by FCAIS under the scheme. There is no reason why that amount would have been affected by the termination of the Licence Agreement. The evidence is that FCAIS received $83,639 in the year ended 30 June 2010, $75,179 in the year ended 30 June 2011 and $37,697 in the year ended 30 June 2012. The amount earned in the year ended 30 June 2010 needs to be apportioned between the pre and post termination periods. ERAIS was entitled to retain 30 percent of the amounts paid to it by the broker. AC was entitled to 50 percent of the balance. However, it was also obliged to pay a minimum royalty to ERAG. After making an allowance for that, Mr Gower concludes that AC would have earned no profits during the remainder of the initial term of the FCAIS Agreement. I accept that conclusion.
Second, the FCAIS Agreement was not in fact renewed. It is apparent that the FCAIS affinity scheme was not successful. In my opinion, there was no real prospect that it would have been renewed if the Licence Agreement had not been terminated. Consequently, I do not consider that it is appropriate to allow any amount in respect of the renewal of the agreement. Moreover, even if it had been renewed, there is no reason to think that it would have generated profits for AC after allowance is made for the royalty payable by AC to ERAG under the Licence Agreement.
Third, there is no evidence that AC would have been able to enter into affinity schemes with Clubs WA and Clubs Queensland. Moreover, the scheme put in place by Clubs NSW was only attractive to small clubs from which limited revenue could be earned. In 2008, Clubs NSW was projected to earn $20,790 in endorsement fees. In 2009, it earned $10,843 in endorsement fees. In 2010, the amount was $6,548. AC was only entitled to a proportion of those fees. ERAIS's management of the scheme was terminated on 28 July 2010. The performance of the scheme did not improve after that time. Mr Costello, who was the CEO of Clubs NSW, gave evidence that the scheme was a failure because of the low participation rate. There is no reason to think that schemes with Clubs WA and Clubs Queensland would have been any more successful.
It follows that if I had found that ERAG's termination of the Licence Agreement was wrongful, I would have concluded that AC suffered no loss as a consequence of the termination.

Parties

Applicant/Plaintiff:

Armstrong Strategic Management and Marketing Pty Limited

Respondent/Defendant:

Expense Reduction Analysts Group Pty Ltd

Legislation Cited (7)

Fair Trading Act 1985(Vic)

Trade Practices Act 1974(Cth)

Trade Practices Amendment (Cartel Conduct and Other Measures) Act 2009(Cth)

(FTA) and Fair Trading Act 1985(Vic)

Corporations Act 2001(Cth)

Fair Trading Act 1987(NSW)

Judiciary Act 1903(Cth)

Cases Cited (59)

[2007] HCA 61; (2007) 233 CLR 115 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Limited [2003] NSWCA 74 McCrohon v Harith [2010] NSWCA 67 Mad Dogs Pty Ltd (in liq) v Gilligan's Backpackers Hotel & Resort Pty Ltd (No 3) [2015] QSC 319 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60; (2010) 269 ALR 262 Ridgeway Maritime Inc v Beulah Wings Limited (The Leon) [1991] 2 Lloyd's Rep 611 Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (Rec and Mgr apptd) (1997) 42 NSWLR 462 Shevill v Builders' Licensing Board [1982] HCA 47; (1982) 149 CLR 620 State Trading Corporation of India Ltd v Golodetz Ltd [1989] 2 Lloyd's Rep 279 Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2; (2013) 295 ALR 760 Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 Sykes v Reserve Bank of Australia (1998) 88 FCR 511; (1998) 158 ALR 710 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 29,699 Tsaprazis v Goldcrest Properties Pty Ltd [2000] NSWSC 206; (2000) 18 ACLC 285 Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 Texts Cited: N C Seddon and M P Ellinghaus, Chesire & Fifoot's Law of Contract (8th ed, 2002) Category: Principal judgment Parties: Armstrong Strategic Management and Marketing Pty Limited (ACN 005 709 928) (First Plaintiff) Armstrong Consulting Pty Ltd (ACN 073 762 940) (Second Plaintiff) Kenneth Alan Armstrong (Third Plaintiff) Expense Reduction Analysts Group Pty Ltd (ACN 008 852 926) (First Defendant) ERA Insurance Services Pty Ltd (ACN 109 873 010) (Second Defendant) Expense Reduction Analysts Australasia Pty Ltd (ACN 095 591 665) (Third Defendant) Stuart Roy Michael (Fourth Defendant) Ronald Clucas (Fifth Defendant) Charles Frederick Marfleet (Sixth Defendant) ERAGICS Limited (Seventh Defendant) Expense Reduction Analysts International Limited (Eighth Defendant) Keith John Chapman (Ninth Defendant) Anthony Frederick Dormer (Tenth Defendant) Representation: Counsel:

[2006] VSC 283

[2007] VSCA 108

[2005] QCA 357

[2015] QSC 319

[1988] HCA 11

[2002] FCA 62

(2009) 253 ALR 324

(1977) 180 CLR 266

(2004) 218 CLR 592

(2009) 238 CLR 304

(1981) 146 CLR 336

(1992) 174 CLR 64