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

Introduction

1. 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.
2. 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.

The ERA group

1. 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.
2. 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).
3. 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".

Mr Armstrong and his companies

1. Mr Armstrong has extensive experience in the insurance industry. From 1974 to 1978 he was the Chief Executive Officer and a Director of Sentry Insurances Australasia Limited. Between 1978 and 1994, he was the Managing Director of AFL Insurance, in which he had a 50 percent shareholding. In that position he built up extensive contacts with people in the insurance industry. In 1994, Mr Armstrong sold his shares in AFL Insurance and from then until 2003 he worked outside the industry. ASMM and AC are companies owned by Mr Armstrong's family. In his affidavit, he described them as the companies "through which I conduct business activities including providing consulting services".

AC becomes an ERA franchisee

1. 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.
2. 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.
3. 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.

Establishment of ERAIS

1. 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.
2. 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.
3. 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.
4. 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"".
5. 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.

Expansion of the insurance business and the establishment of ERAGICS

1. 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.
2. 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.
3. 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.

Commencement of business in the US; Mr Sellwood joins ERAIS

1. 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.
2. 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.
3. 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".

Agreements continue; breakdown of the relationship

1. 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.
2. 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.
3. 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.

Termination of the Agreements

1. 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.
2. AC did not send the letter and on 22 October 2009 Truman Hoyle sent a notice to AC terminating the Licence Agreement.
3. 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.
4. 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.
5. 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.

Misleading and deceptive conduct inducing Cooperation Deed

1. 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;
2. 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).
3. 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.
4. 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.
5. 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.

Claim in respect of retained earnings

1. It is alleged that Mr Michael, at or about the time the terms of the Cooperation Deed were agreed, agreed on behalf of ERAIS or ERAG to pay ASMM 49.9 percent of ERAIS's retained earnings for the year ending 31 December 2007 (totalling $235,070) and that those companies have breached that agreement by refusing to pay the amount agreed in accordance with a payment schedule agreed between Mr Clucas and Mr Armstrong. The same claim is pleaded in terms of an estoppel.

Claim in respect of ERAGICS shares

1. It is alleged that ERAI or ERAGICS breached the terms of the Cooperation Deed by failing to issue the ERAGICS shares to ASMM. The same conduct is said to amount to a breach of fiduciary duties owed by ERAI and ERAGICS to Mr Armstrong and ASMM in which Mr Michael, Mr Marfleet, Mr Clucas and Mr Chapman participated.

Claims arising from termination of the Consultancy Agreement and Cooperation Deed

1. The claims arising from termination of the Consultancy Agreement and Cooperation Deed are put in various ways.
2. First, it is alleged that ERAGICS breached the Consultancy Agreement and Cooperation Deed by wrongfully purporting to terminate the Consultancy Agreement and that Mr Clucas and Mr Chapman induced that breach by voting in favour of the termination at the Board meeting of ERAGICS held on 18 November 2009. It is also alleged that Mr Michael and Mr Marfleet induced that breach because they knew or ought to have known that the termination was wrongful and they intended to procure ERAGICS to breach the Consultancy Agreement and Cooperation Deed.
3. Second, it is alleged that ERAI and ERAGICS engaged in unconscionable conduct in contravention of s 51AC of the TPA by seeking improperly to bring about circumstances in which Mr Armstrong would resign or the Consultancy Agreement might be terminated, with the intention of depriving him of his rights under that agreement and the Cooperation Deed.
4. Third, for the same reasons, it is alleged that the same conduct was misleading or deceptive in contravention of s 52 of the TPA, because it involved falsely representing that there was a valid basis for terminating the Consultancy Agreement.
5. The same conduct is also said to involve a breach of fiduciary duties.
6. Again, each of Mr Michael, Mr Marfleet, Mr Clucas and Mr Chapman are said to have accessorial liability for the breaches of ss 51AC and 52 and liability in respect of the breaches of fiduciary duty.

Claims in relation to the Licence Agreement

1. The plaintiffs allege that ERAG breached the Licence Agreement by wrongfully purporting to terminate it. Mr Marfleet, Mr Clucas, Mr Dormer and Mr Michael are alleged to have induced that breach. That allegation mirrors the allegation in relation to the other agreements. It is alleged that Mr Marfleet, Mr Clucas and Mr Dormer knew or ought to have known that the purported termination amounted to a repudiation of the Licence Agreement and that they intended to procure that ERAG breach the Licence Agreement.
2. The plaintiffs also allege that the same conduct was unconscionable conduct in contravention of s 51AC of the TPA and misleading and deceptive conduct in contravention of s 52 of the TPA because ERAI and ERAG falsely represented that there was a valid basis for terminating the Licence Agreement when there was not.
3. Again, Mr Michael, Mr Marfleet, Mr Clucas, Mr Chapman and Mr Dormer are said to have accessorial liability for the breaches of ss 51AC and 52.

Relevant legal principles relating to misleading and deceptive conduct

1. 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.
2. Section 52 of the TPA provided: A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive.
3. 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).
4. 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.

Some general observations

1. Before addressing the specific representations on which the plaintiffs rely, it is necessary to make two general comments.
2. 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.
3. 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.

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

1. 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.
2. 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.
3. 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.
4. 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.

Access to the accounts of the LOCs

1. 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.
2. The first matter can be put to one side, since I do not accept that the representation was made.
3. 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.
4. 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.
5. 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.
6. 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.

The funding representations

1. 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.
2. Two points need to be made about this and similar statements on which the plaintiffs rely.
3. 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.
4. 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.

Damages

1. 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.
2. I should, however, say something about the plaintiffs' damages claim.
3. 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.
4. 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.
5. 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.

Relevant legal principles

1. 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.
2. 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.

No fiduciary relationship in this case

1. 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.
2. 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.
3. 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.
4. 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 claim

1. The claim for retained earnings is put in two ways.
2. First, it is alleged that in consideration for ASMM and Mr Armstrong entering into the Cooperation Deed, Mr Michael agreed on behalf of ERAIS or ERAG to pay ASMM an amount equal to its share of the retained earnings. Second, it is alleged that on or around 9 February 2009, Mr Marfleet on behalf of ERAG and/or ERAA represented to ASMM that they would procure payment of ASMM's share of the retained earnings and on or around 26 February 2009 Mr Clucas on behalf of ERAG and/or ERAA agreed to procure payment of the retained earnings in three instalment - one of $40,000 on 30 September 2009, the second of $40,000 on 31 December 2010 and the balance by 31 March 2010. In reliance on those representations, it is said that ASMM transferred its shares in ERAIS, did not call a meeting to declare a dividend prior to the share transfer and did not commence an oppression suit. As a result, it is said that ERAG is estopped from denying that it had agreed either itself to pay ASMM the retained earnings or procure ERAIS to declare a dividend equal to the amount of the retained earnings. For the same reasons, it is said that ERAA is estopped from denying that it had agreed to procure that ERAIS declare a dividend while ASMM was still a shareholder of ERAIS.

Factual background

1. 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.
2. 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.
3. 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
4. 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].
5. 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.

The claim based on an agreement

1. 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.
2. 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.
3. 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.
4. 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.

The claim based on estoppel

1. 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.
2. 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.
3. 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.

Claim in respect of ERAGICS shares

1. 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.
2. 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.
3. 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.
4. 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.

Termination of the Cooperation Deed and Consultancy Agreement

Relevant legal principles relating to termination

1. 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].
2. 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.
3. 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.
4. 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.

The plaintiffs' case on termination

1. 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.
2. 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.
3. 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.

Termination of the Consultancy Agreement by ERAGICS

1. 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.
2. 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.
3. 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.

Mr Armstrong's statements to licensees

1. 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".
2. 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.
3. 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 comments to Mr Newstadt

1. Mr Avron Newstadt was (and is) an ERA licensee. He called Mr Armstrong on 10 August 2009 after he had heard that Mr Sellwood and Mr Tobin had resigned asking for information in relation to progress of a report that was being drafted by Mr Sellwood and Mr Tobin for The Institute of Chartered Accountants following an insurance review for that organisation. According to Mr Newstadt, during the course of the conversation, Mr Armstrong accused Mr Newstadt of taking ERA's side and suggested that Mr Newstadt had called him at Mr Marfleet's or Mr Michael's request. After making some offensive remarks about them, Mr Armstrong continued "and Avron you know what the worst thing is, is that Hitler …". At that point, Mr Newstadt hung up. Subsequently, Mr Newstadt sent an email to Mr Marfleet setting out his recollection of the conversation.
2. I accept Mr Newstadt's account of the conversation. Mr Armstrong does not seriously dispute it. Mr Armstrong frequently used intemperate language, and it is not surprising that he would have done so at the time of the conversation. However, the difficulty with this ground of termination is that it is not clear what Mr Armstrong was going to say. Mr Newstadt expected, perhaps with some justification, that Mr Armstrong was about to make an anti-Semitic remark because of the reference to Hitler. But the reference to Hitler alone could not be regarded as anti-Semitic and nothing more was said before the conversation ended. In my opinion, that is not sufficient to provide a ground of termination of the Consultancy Agreement.

Mr Armstrong's refusal to relocate to the United States

1. 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.
2. 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.

Mr Armstrong's involvement with The Lion Partnership

1. 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;
2. 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.

Tasracing

1. 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.
2. 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.
3. 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.

Mr Armstrong's repudiation of the Consultancy Agreement

1. 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.
2. 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.
3. 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.

Representations made to Clubs NSW

1. 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.
2. 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).
3. There is a question of how profitable the Clubs NSW agreement was, to which it will be necessary to return.
4. 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.
5. 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.

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

1. 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.
2. In my opinion, none of this conduct amounted to repudiatory conduct by ERAI or ERAGICS.
3. 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.
4. 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.
5. I have already found that the ERAGICS shares were issued to Mr Armstrong.
6. 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.

Unconscionable conduct and breach of fiduciary duties

1. 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.
2. 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].

Misleading and deceptive conduct

1. The plaintiffs allege that by engaging in the conduct said to amount to unconscionable conduct, ERAI and ERAGICS engaged in misleading and deceptive conduct because they falsely represented that there was a valid basis for terminating the Consultancy Agreement.
2. It is not entirely clear how that representation arises from the conduct about which complaint is made. Nor is it entirely clear how it is said that Mr Armstrong suffered loss as a consequence of the alleged misleading and deceptive conduct. Those points aside, I have concluded that ERAGICS was entitled to terminate the Consultancy Agreement. Consequently, there can be no basis for alleging that ERAI and ERAGICS engaged in misleading and deceptive conduct.

Accessorial liability

1. It follows from the conclusions that I have reached that none of Messrs Michael, Marfleet, Clucas and Chapman can have accessorial liability for the alleged breaches by ERAI and ERAGICS.

Damages

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

Termination of the Licence Agreement

1. The plaintiffs' case in relation to the Licence Agreement largely mirrors their case in relation to the Consultancy Agreement and both parties to a substantial extent simply repeat the submissions they make in relation to the Consultancy Agreement in relation to the Licence Agreement. In those circumstances, it is only necessary to focus on the issues raised by the two agreements to the extent that they are different.

Specific grounds of termination

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

Other grounds for termination

1. The defendants rely on a broad range of conduct in support of an allegation that ERAG was otherwise entitled to terminate the Licence Agreement either for breach or repudiation by AC. That conduct includes the following: 1. Mr Armstrong's involvement with The Lion Partnership; 2. Mr Armstrong's assertions that the Cooperation Deed was unworkable and that ERAI had terminated or repudiated its obligations under that agreement; 3. Mr Armstrong's failure to continue to develop the global insurance business; 4. Mr Armstrong making disparaging comments about ERA's senior management; 5. Mr Armstrong's statements about the solvency of ERAIS; 6. Mr Armstrong's conduct in procuring or inducing employees of ERAIS to resign; 7. Mr Armstrong's threats to terminate the lease of premises to ERAIS.
2. The defendants also rely on two matters that are specific to AC. The first is the conduct in relation to Tasracing. The second is the assertion that ERA had purchased the licence issued to AC, the denial that there was a licence between AC and ERA after 1 July 2009 and the failure to pay licence fees. It is convenient to deal with those two allegations first.

Tasracing

1. So far as Tasracing is concerned, I have found that AC sought to obtain the benefit of a contract that had been entered into between ERAIS and Tasracing. For that purpose, it made misrepresentations to Tasracing concerning the relationship between ERAIS and AC. In particular, in his email dated 18 September 2009, Mr Tobin misrepresented to Tasracing that its contract was with "Armstrong Consulting Pty Ltd, previously trading as Expense Reduction Analysts and ERA Insurance Services". The email was plainly written on behalf of AC. Subsequently, AC charged Tasracing the fees that were due to ERAIS.
2. Under cl 19.3(b), ERAG was entitled to terminate the Licence Agreement immediately by giving written notice if: v) you provide us with false or misleading information or make any misrepresentation in connection with obtaining this Agreement or at any time during the continuance of this Agreement in connection with your Business.
3. In my opinion, ERAG was entitled to terminate the Licence Agreement under this clause as a result of the misrepresentation made by Mr Tobin.

Denial of AC's licence

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

Other grounds

1. 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.
2. 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.
3. 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.

Other claims

1. The plaintiffs make alternative claims under s 51AC of the TPA and s 52 of the TPA. Neither the plaintiffs nor the defendants suggest that different issues arise in relation to the claims based on a breach of those provisions. For the reasons I have already given, those claims and the accessorial claims against individual directors must fail.

Damages

1. In the event that my conclusions are wrong, I should say something about AC's damages claim.
2. 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.
3. 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.
4. 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.

Orders

1. The proceedings must be dismissed. I will hear the parties on costs if costs cannot be agreed.

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