[2004] HCA 52
Warman International Limited v Dwyer (1995) 182 CLR 544
Judgment (25 paragraphs)
[1]
57] 1 All ER 125
Magill v Magill (2006) 226 CLR 551; [2006] HCA 51
Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987
Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556; [1968] HCA 74
Nottingham University v Fishel [2000] IRC 1462; [2000] IRLR 471
R v Byrnes (1995) 183 CLR 501; [1995] HCA 1
Tepko Pty Limited v Water Board (2001) 206 CLR 1; [2001] HCA 19
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Warman International Limited v Dwyer (1995) 182 CLR 544; [1995] HCA 18
Category: Principal judgment
Parties: Blue Visions Management Pty Limited (Plaintiff)
Sam Chidiac (First Defendant)
Arun Gunasegaram (Second Defendant)
Aspire Corporation Pty Limited (Third Defendant)
Representation: Counsel:
JC Giles SC with A Byrne (Plaintiff)
MR Hall SC with S Gray (Defendants)
[2]
Solicitors:
Somerville Legal (Plaintiff)
Fox & Staniland (First and Third Defendants)
Clayton Utz (Second Defendant)
File Number(s): 2014/192899
Publication restriction: None
[3]
Introduction
The plaintiff, Blue Visions, carries on a business of providing project management and specialised project planning services to clients in the construction, mining, civil engineering and infrastructure, defence, communications and health industries. It was established in 2001 by Mr Adel Khreich, who is its managing director. It now has approximately 70 employees in Australia. The business has also expanded to provide similar services in other parts of the world, including the United Arab Emirates and Indonesia.
The first defendant, Mr Sam Chidiac, was employed by Blue Visions or an associated company from 26 March 2001 until 15 April 2014, the date on which the four weeks' notice he gave of his resignation expired. Mr Chidiac held various positions with Blue Visions. At the time of his resignation, he held the position of "Group Manager Planning". Although Mr Chidiac remained based in Sydney during the time he was employed by Blue Visions, from about 2008 he spent a substantial proportion of his time in Perth and he was responsible for managing a number of Blue Visions' jobs there, including the Perth Children's Hospital project, which was one of Blue Visions' largest projects. The hospital is being built by the Western Australian government and is the responsibility of an emanation of the State of Western Australia known as The Department of Treasury and Finance - Office of Strategic Projects (Strategic Projects). The principal Project Director of Strategic Projects, and the person at Strategic Projects in charge of the Perth Children's Hospital project, is Mr John Hamilton, about whom more will be said shortly.
Although there is a dispute concerning the precise scope of Mr Chidiac's responsibilities, it is common ground that he held a senior position with Blue Visions at the time of his resignation; and the evidence suggests that he was the third most senior employee after Mr Khreich and Mr Arun Gunasegaram, the second defendant.
Mr Gunasegaram was engaged by Blue Visions in August 2010, originally as its Regional Manager in Western Australia. He resigned from Blue Visions on 20 March 2014, the day after Mr Chidiac, although there is some uncertainty about when his resignation took effect.
On 1 May 2012, Mr Gunesagaram was promoted to the position of Executive General Manager and he became responsible nationally for Blue Visions' project and services area. Again, there is a dispute concerning the precise scope of his role and authority within Blue Visions. However, it is apparent that he occupied a senior position with the company. According to Mr Chidiac, he was at the time of his resignation second in charge after Mr Khreich.
Mr Gunasegaram was involved in extensive work on a number of proposals to obtain major consulting work for Blue Visions. The prospective clients included Woolworths in connection with the roll out of its Masters chain of hardware stores, Roy Hill Pty Ltd in connection with the development of an iron ore mine owned by it in Western Australia and Bulletin Resources in connection with the Nicholson's Gold Mine project at Hills Creek in Western Australia. As I will explain, Blue Visions and Mr Khreich claim that they were misled by Mr Gunasegaram about those proposals.
[4]
The terms on which Mr Chidiac was employed
Mr Chidiac was originally employed by Blue Visions under a written contract dated 26 March 2001. The contract contained a clause imposing on Mr Chidiac an obligation to keep confidential information relating to Blue Visions' business. It contained no post contractual restraint. Under the terms of the contract, either party could terminate it on at least "one half month's notice".
On 1 July 2002, Mr Chidiac signed a new contract with "Earth Corporation Pty Ltd ATF Axis Development Trust", another company controlled by Mr Khreich. The new contract was in similar terms to the previous one. It is common ground that following the execution of the new contract Mr Chidiac continued to perform services for Blue Visions.
Earth Corporation stopped trading on 30 June 2009 and at that time arrangements were made to close its bank accounts and to transfer the employees who were at that time paid by it to Blue Visions, although no formal agreement was entered into between the relevant employees and Blue Visions to that effect.
In late 2009 or early 2010, Blue Visions instructed HWL Ebsworth to draft a new employment contract in response to changes in the law that came into effect on 1 January 2010.
In May 2010, Mr Khreich asked Mr Tony El-Hasrouny, who at that time was employed by Blue Visions, to administer the distribution and signing of the new employment contracts. Mr Khreich asked Mr El-Hasrouny to create a folder of contracts for senior employees and one for junior employees with a list of the names of each employee at the front of each folder. Mr Khreich also asked Mr El-Hasrouny to print out two copies of each contract, send them to the relevant employee, follow up each employee for signed copies, place a signed copy of each contract in the appropriate folder and place a tick next to the employee's name when that had been done.
An employment contract was prepared for Mr Chidiac. Clause 14 of the contract imposed obligations on Mr Chidiac not to disclose, and not to use for the benefit of any person other than Blue Visions, any "Confidential Information" (which was broadly defined).
Clause 16.2 provided:
Subject to clauses 16.3, 16.4 and 16.5, the Employee undertakes to the Employer that he will not, whether directly or indirectly, alone or with any other person, in any other capacity, for a period of 6 months following the Termination Date:
(a) solicit, canvass, approach or accept an approach from any person who is, at the Termination Date, or was at any time during the 12 month period prior to the Termination Date a client or customer of the Employer for the purposes of obtaining that person as a client or customer for services of the type provided by the Employer;
(b) interfere or seek to interfere with the relationship between the Employer, and its employees, contractors, representatives or clients;
(c) solicit or induce, or endeavour to solicit or induce, away from the Employer or any of the Employer's related entities, an Employee employed by the Employer or any of the Employer's related entities; or
(d) accept an offer of employment from, or act as a consultant, contractor or advisor (for reward or not) for any person who is, at the Termination Date, or was at any time during the 12 month period prior to the Termination Date, a client or customer of the Employer for whom the Employee performed work.
[5]
The terms on which Mr Gunasegaram was engaged
In July 2010, Mr Gunasegaram, who at that time worked for Worley Parsons, approached Mr Khreich about managing Blue Visions' Western Australian office. Following discussions and correspondence between them, on 8 August 2010 Mr Khreich made an offer of employment to Mr Gunasegaram. The offer was expressed to be "subject to you signing our standard employment agreement" and was for the role of Western Australian Regional Manager.
The offer provided that Mr Gunasegaram's remuneration was tied to the achievement of a number of financial goals which were set out in an attached business plan that Mr Gunasegaram had prepared. In an earlier email (dated 28 July 2010), Mr Khreich described the role and responsibilities of the role of a Regional Manager as including the following:
5. The regional manager will have a great deal of autonomy to achieve the business, financial and strategic plans, but must observe the overall corporate culture and maintain the non‑financial standards (like ethics, quality, etc …) that the corporate sets.
…
8. The regional manager needs to work with the marketing director (Jill) on anything to do with external communications like advertising, industry sponsorships, etc to ensure consistency in format, use of brand and corporate images.
…
10. The regional manager is responsible for the region and should expect no interference from anyone else in the group, except that reporting is required in a timely manner.
11. The regional manager is totally responsible for hiring / firing to suit the work demands and for training etc.. within agreed business plan budgets.
Mr Gunasegaram responded to the offer by email on 9 August 2010. In that email he accepted the offer and typed "Confirmed" against each of the numbered points made by Mr Khreich. However, for reasons not explained in the evidence, Mr Gunasegaram did not sign the standard form employment contract and from a tax point of view he was not treated as an employee. Instead, each month, he issued an invoice for one-twelfth of his total remuneration plus GST. He was responsible for making his own superannuation contributions as well as paying his own payroll tax. However, according to an email dated 27 October 2010 that Mr Khreich had sent to him, he was "entitled to normal leave (annual and sick, etc.. same as any other employee)".
Although Mr Gunasegaram was paid as if he were a consultant, neither side seriously contended that he should not be treated as an employee for the purposes of the proceedings. The original offer made to him was the offer of employment as a Regional Manager. Mr Gunasegaram accepted that offer. It was anticipated at the time that he would sign Blue Visions' standard employment contract. The conditions of his engagement - such as an entitlement to annual leave and sick leave - were typical of those of an employee. The same is true of the nature of his role with the company. He was engaged on a full time basis to fill a specific and senior role in the company.
[6]
The Perth Children's Hospital project
On 3 March 2010, Strategic Projects put out to tender the provision of programming services in respect of the development of the Perth Children's Hospital. The request for tender contemplated that the successful tenderer would provide the services of a director, senior time programmer and time programmer over a five year period.
On 9 April 2010, Blue Visions submitted an offer to provide those services. The offer nominated Mr Chidiac as the director of the project, Mr Gavin White as senior consultant and Mr Gaspar Indaya as a consultant. The offer contained what was described as a "Contingency Plan for Replacement of Personnel" in the "unforseen event that [a nominated] person has to be replaced". The person nominated to replace Mr Chidiac was Mr Khreich.
On 20 May 2010, Strategic Projects accepted Blue Visions' tender. The acceptance purported to accept the services of the three people nominated by Blue Visions and stated that the contract was for a period of three years with two options for Strategic Projects to renew the contract for a further year. The terms of the resulting contract are contained in a number of documents including the request for tender, the offer, the acceptance and standard terms and conditions published by the Department of Treasury and Finance.
It is not necessary to set out the terms of the contract in any detail. It appears that the contract was not performed strictly in accordance with its terms. Although it contemplated that Blue Visions would provide the services of three people, in fact approximately 26 employees or consultants of Blue Visions worked on the project, although no more than six at any one time.
There is some suggestion in the evidence that Strategic Projects had a right to terminate the contract following Mr Chidiac's resignation. Contrary to the evidence given by Mr Hamilton, the contract does not contain a right to terminate for convenience. In addition, it is doubtful that the contract requires Blue Visions to make available the services of Mr Chidiac. Rather, it required Blue Visions to provide services of a particular description and specifically contemplated that Mr Chidiac, for example, could be replaced by Mr Khreich. Strategic Projects was only entitled to terminate the contract following Mr Chidiac's resignation if, as a consequence of his resignation, Blue Visions was no longer able to provide the contracted-for services.
[7]
Mr Chidiac and Mr Gunasegaram's resignations
Mr Chidiac says that by January 2014 he had decided that he wanted to leave Blue Visions. He says that, at that time, he was considering setting up a residential construction company with his brother, who is a builder. They established a company, Premier Construction Solutions Pty Ltd, for that purpose and, on 3 March 2014, that company was issued with a Contractor Licence. Mr Chidiac mentioned his intentions to Mr Gunasegaram, who also said that he was contemplating leaving Blue Visions. Following their initial discussions, in February 2014, Mr Chidiac and Mr Gunasegaram talked about the possibility of doing something together. Mr Chidiac accepts that one of the possibilities they talked about was setting up a consulting firm together.
On 27 February 2014, Mr Gunasegaram asked Mr James Clarke, who was an employee of Blue Visions at the time, to look up the availability of a number of domain names including "aspire.com" and "endpoint.com". Subsequently, Mr Clarke registered the domain name "endpointconsulting.com" for Mr Gunasegaram. Mr Chidiac accepted in cross-examination that he was aware of what Mr Gunasegaram was doing.
On 19 March 2014, Mr Chidiac sent an email to Mr Khreich and Mr Gunasegaram attaching a letter of resignation giving four weeks' notice. Mr Khreich, who was overseas at the time, made a number of attempts to speak to Mr Chidiac, but was not able to do so until 21 March 2014. At that time, Mr Chidiac said that he was tired of travelling to Perth, that he wanted to spend more time with his family and to work with his brother in Sydney in the building industry. Mr Khreich asked Mr Chidiac to extend his notice period by two weeks. Mr Chidiac replied that he would get back to Mr Khreich on that. He did so in an email dated 25 March 2014. In that email, he said:
In reference to the Children's Hospital:
Prior to my last working day I will provide thorough induction and transitioning to the nominated staff member who will take over. All our projects files are comprehensively saved into Toolbox, some files in WA Folders and programmes are within Primavera.
Post my last working day I can also support during the week if the team has questions or requires guidance via email or phone.
Unfortunately I am unable to allocate more time due to other commitments.
In the meantime, on 20 March 2014, Mr Gunasegaram sent an email to Mr Khreich attaching a resignation letter. In the letter he said that the resignation was "with immediate effect" and that the decision to resign was taken "with advice from both my family and doctors over the course of today, after receiving news of further serious complications arising from my severe episode of pneumonia and asthma of December 2013". In the covering email, Mr Gunasegaram said that while the letter said that his resignation was with immediate effect he would "ensure that any ongoing work is appropriately handed over to the right people and I will do my best to mitigate any fallout with customers whom I know personally, for past, present and future work over the coming weeks".
[8]
The Nicholson's Gold Mine project
From early 2011, Mr Gunasegaram had several conversations with Mr Khreich in which he said that he was about to obtain work in relation to a number of large mining projects. One of those projects was the re-opening of the Nicholson's Gold Mine in Halls Creek. The evidence is that Mr Gunasegaram first mentioned that project to Mr Khreich in about January 2012. At that time, he said that he was in negotiations with Bulletin Resources and that having regard to that project and a number of other large mining projects that Blue Visions was about to win, it needed to employ a senior procurement manager. As a result, Mr Khreich says that Blue Visions employed Mr Damon Dewey as a procurement manager on 30 January 2012.
On 28 February 2012, Mr Gunasegaram sent Mr Khreich an email in which he said that he had made a presentation to the Bulletin Resources board that day and that he had just received confirmation that Blue Visions was the preferred consultant. In an email dated 2 March 2012 with the subject "Bulletin Resources Project - Winning Bid", Mr Gunasegaram gave Mr Khreich further information in relation to the project and attached a copy of the proposal that he said Blue Visions had submitted to Bulletin Resources. In the email, Mr Gunasegaram said that "The project goes for 2 years in various stages and involves a 80m-100m CAPEX giving us a turnover of approximately 15% of this value".
On 23 April 2012, Mr Gunasegaram submitted a proposed financial plan for the financial year ending 30 June 2012, which showed the fees he expected Blue Visions would earn from the Nicholson's Gold Mine project. He submitted a revised plan on 13 June 2012 for the period January 2012 to June 2013. That plan showed that during that period Blue Visions would receive $839,376 from the project.
On 22 September 2012, Mr Gunasegaram sent Mr Khreich an email in which he said:
I was informed yesterday that Bulletin have finally achieved their PER [presumably, private equity raising] for the project after numerous hurdles and want to commence site inspections and setup for Pre construction. …
In fact, nothing came of the project. Mr Martin Philips, who was the Managing Director of Bulletin Resources at the time, says that he had a number of conversations with Mr Gunasegaram about the services that Blue Visions could provide, that at the time of those discussions Bulletin Resources had not put any consulting work out to tender and that, although Blue Visions was a preferred consultant, Bulletin Resources never reached a concluded arrangement with it because it did not have financing for the mine's development and eventually the existing board was removed and the new board exercised the company's rights under a farm-in agreement, the result of which was that Bulletin Resources lost control of the project. Mr Philips' evidence was that the total cost of the Nicholson's Gold Mine project was between $10 million and $20 million.
[9]
The Roy Hill project
Another mining project referred to by Mr Gunasegaram was the Roy Hill iron ore mining project. Mr Gunasegaram first mentioned that project to Mr Khreich on or about 12 September 2012, at which time Mr Gunasegaram said that he had just been told by a friend of his who worked for Worley Parsons that Worley Parsons had been "kicked off" the project. The friend had asked whether Blue Visions would be interested in entering into a joint venture with Worley Parsons to re-apply for the work in Blue Visions' name.
On 25 September 2012, Mr Gunasegaram sent Mr Khreich an email saying that he had "finalised the next two people I want to hire in the next 2 weeks". One of those was Mr David Parkhouse, who was "To be hired as Project Services Manager Roy Hill project".
There is little evidence of what happened on the Roy Hill project between September 2012 and August 2013. However, it appears that during part of that time at least Mr Gunasegaram was working on a formal proposal to Roy Hill which he apparently completed and signed on 29 August 2013. There is no evidence that that proposal was sent.
On 28 August 2013, Mr Gunasegaram sent Mr Khreich an email attaching projected billings on the Roy Hill project. In the covering email Mr Gunasegaram asked whether Mr Khreich was "ok with these numbers for Roy Hill?". The attachment projected total billings of $6,418,800.
On 30 August 2013, Mr Gunasegaram sent Mr Khreich two emails. The first set out the proposed rates to be charged for a number of employees who it was anticipated would work on the Roy Hill project. Those rates were reflected in the proposal that Mr Gunasegaram had prepared. The second email set out a proposed organisational chart and other information concerning the project and, in particular, the scope of the work that it was expected Blue Visions would perform. Again, the material was taken from the proposal. The email contained the following note:
Note: Once more of the scope is known, the deliverables will be finalised within the first 6 weeks of the program. Additional resources are not anticipated at this stage.
On 6 September 2013, Mr Khreich sent an email to Mr Gunasegaram asking "About the progress on the BD [business development] with Roy Hill, Masters, etc….?". Mr Gunasegaram replied the same day. In relation to Roy Hill he said "We are the "Operational Readiness" provider" and went on to provide some details of what he expected to happen.
[10]
The Masters project
The Masters project was first raised with Mr Khreich in late 2011 or early 2012. At that time, Mr Khreich had a conversation with Mr Gunasegaram in which Mr Gunasegaram said that Woolworths was planning to roll out a chain of stores under the brand name "Masters" to compete with Bunnings and that he wanted Blue Visions to do the project management consulting work. He said that Blue Visions would not need to lodge a tender because he had connections with key people on the board and he would be able to negotiate the terms of Blue Visions' engagement directly. Mr Gunasegaram also said that the project was very large and that Blue Visions would need to think about a strategy to put the project together.
Mr Gunasegaram and Mr Khreich had a number of conversations to the same effect during the first part of 2012 and extensive discussions and correspondence relating to the project up until the time Mr Gunasegaram resigned. Indeed, it may be inferred that one of the things that prompted Mr Gunasegaram to resign was that it was becoming increasingly apparent that much of what he had been saying about the Masters project was fabricated.
Following Mr Gunasegaram's initial discussions with Mr Khreich, Mr Gunasegaram included a reference to the Masters project in the draft financial plan which he sent to Mr Khreich on 23 April 2012 and the updated financial plan for the 18 month period up to 30 June 2012, which he sent to Mr Khreich on 13 June 2012. Those plans showed Masters as a pending project which was forecast to earn $41,800 per month starting in November 2012 and increasing to $83,600 per month from February 2013.
On 8 October 2012, Mr Gunasegaram sent an email to Mr Khreich stating that he had had spoken to Mr Peter Horton, the General Counsel of Woolworths, privately that morning, that he was sending Mr Horton a copy of Mr Sujit Dutt's CV and that he would "lock him in as the PM [project manager] for the whole rollout rather than just WA". Mr Gunasegaram added:
I have not detailed additional supporting resources for either project [the email dealt with another project as well], as they are both happy with the PM [project manager] deciding on that once they commence. (Those are the joys of working with your friends.)
On 7 February 2013, Mr Gunasegaram sent Mr Khreich an email saying that he had met with "my friend from Woolworths" who had provided him with information concerning the project. Mr Khreich gave evidence that during 2013 he asked Mr Gunasegaram if he could meet with Woolworths' staff, but Mr Gunasegaram replied that they were only comfortable meeting with him because he knew Mr Horton.
[11]
Western Australian Museum project
There is little information concerning the museum project in the evidence. However, at the time that Mr Chidiac and Mr Gunasegaram resigned, Blue Visions had been engaged by and was doing work for Strategic Projects in connection with the development of a new museum in Perth.
On 8 May 2014, Ms Kirsten Bruce, the Project Manager - Design on that project wrote to Mr Chidiac asking for assistance in relation to some programming issues. Mr Chidiac provided that assistance and charged $3,982.39 for doing so.
In cross-examination, Mr Chidiac admitted that he had used some of the material he had taken with him from Blue Visions (and later returned) for the purposes of undertaking that work. It is not entirely clear what material he used. He gave the following evidence on the matter:
Q. Access any of that material after you left Blue Visions employment?
A. No, sir, the only thing that would've been accessed before we returned all the material was, if I can just think, there were two instances when the WA museum people contacted me, so Civil was Gita. Gita, essentially she posed some questions for, or when she contacted me I told her I'd left Blue Visions and advised her that they still were operating in Perth but she advised me not to, I think essentially her requirements was putting forward, I think, some questions that she wanted me just to review and while I was with Blue Visions we did all the master programming so I reviewed those questions and it ended up being about five and a half hours but..(not transcribable)..Kirsten Bruce, I think that's her name, yep, she contacted me about, I think about mid May, I think it was and she was just chasing up an email that she had sent.
She said she had sent about a week earlier and that email, I believe, went to the Blue Visions email address and what had happened with the heritage work which Kirsten was in charge of, there was just a slight change of some scope information and she asked if I could update the, just review that scope information and update the program and it resulted in about 10 hours work.
Q. And you used the information that you'd taken?
A. On that, yeah, on that, something like that.
That evidence is very unclear. However, it appears that Mr Chidiac used the master program for the project, which was included in the material he had taken, to update the program to address the issues that had been raised by Ms Bruce.
[12]
The claims arising from work on the Perth Children's Hospital project
Blue Visions puts its case against Mr Chidiac and Mr Gunasegaram in relation to the work Aspire did on the Perth Children's Hospital project in various ways. First, it alleges that Mr Chidiac breached the restraint clause contained in his contract of employment. On the findings I have made, that case fails because that clause did not form part of the terms on which he was employed. That aspect of the case, therefore, can be put to one side.
Second, Blue Visions claims that Mr Chidiac and Mr Gunasegaram breached the duties imposed on them by ss 182 and 183 of the Corporations Act 2001 (Cth). Section 182(1) provides:
A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
Section 183(1) of the Act provides:
A person who obtains information because they are, or have been a director or other officer or employee of a corporation must not improperly use the information to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
Third, Blue Visions contends that Mr Chidiac and Mr Gunasegaram breached their fiduciary obligations as employees of Blue Visions by establishing Aspire and through it providing services in connection with the Perth Children's Hospital project that had previously been supplied by Blue Visions.
Lastly, Blue Visions contends that Mr Chidiac and Mr Gunasegaram breached implied terms of their employment contracts to act diligently in the interests of Blue Visions and to keep Blue Visions' confidential information confidential.
It was common ground, at least at a general level, that Mr Chidiac and Mr Gunasegaram owed duties of the types alleged. The real issue was whether their conduct amounted to a breach of those duties and, if it did, whether those breaches were cured by the novation agreement.
In answering that question, it is convenient to begin with the allegation that Mr Chidiac's and Mr Gunasegaram's conduct amounted to a breach of their respective fiduciary duties. The submissions of both parties concentrated on that question; and neither seriously suggested that if a claim for breach of fiduciary duties failed, one of the other claims could nonetheless succeed.
[13]
Breach of fiduciary duties
Both parties accepted that Mr Chidiac and Mr Gunasegaram owed Blue Visions fiduciary duties and that an aspect of those duties was not to pursue their personal interests in conflict with those of Blue Visions: see Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36 at 198 per Deane J; Warman International Limited v Dwyer (1995) 182 CLR 544; [1995] HCA 18 at 557-8 per Mason CJ, Brennan, Deane, Dawson and Gaudron JJ; Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [33] per French CJ and Keane J. As Payne JA put it in Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37 at [105]:
A fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is a conflict, or a real or substantial possibility of a conflict, between the personal interest of the fiduciary and those to whom the duty is owed: Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; 180 ALR 249; 38 ACSR 122; [2001] HCA 31 at [78] (Pilmer) per McHugh, Gummow, Hayne and Callinan JJ. A conflict arises if there is a real and sensible possibility that the personal interests of the fiduciary divide the loyalty of the fiduciary with the result that he or she could not properly discharge their duties to the beneficiary: Maguire v Makaronis (1997) 188 CLR 449 at 465; 144 ALR 729 at 738 (Maguire).
Both parties also accepted that the precise scope of their duties was, to use the words of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64 at 102, to be "moulded according to the nature of the relationship and the facts of the case": see also Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [34]; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [179] per Finn, Stone and Perram JJ. In the employment context, it is necessary to have regard to the precise responsibilities of the employee and the nature of the task the employee is undertaking which is said to attract the fiduciary duty: see Nottingham University v Fishel [2000] ICR 1462; [2000] IRLR 471 at [86]ff. In particular, an employee has a right to resign his or her employment and to take steps in preparation for that possibility. So, for example, an employee does not breach his or her fiduciary duties merely by interviewing for another job or establishing a corporate structure through which to carry on business, or even taking preliminary steps to compete with the employer after the employee's employment comes to an end: see Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1; [2011] FCAFC 24 at [102] per Besanko J (with whom Finkelstein and Jacobson JJ agreed); Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987 at [77]ff per McDougall J.
[14]
Defences to a claim based on breach of fiduciary duties
The defendants submit that, even if Mr Chidiac and Mr Gunasegaram were in breach of their fiduciary duties, the effect of the novation agreement was to release the defendants from the consequences of those breaches. That submission is put in three ways. The first is that the agreement operates as a release of any liability the defendants had. The second is that it operates as fully informed consent. The third is that it gives rise to an estoppel. Having regard to the conclusions I have reached, it is not strictly necessary to deal with these defences. However, I should say something about them.
The defendants contend that the release is to be found in the following words of acceptance in the novation agreement signed by Mr Khreich:
BlueVisions Management Pty Ltd will not have any rights, obligations or liabilities relating to any strategic programming services provided by End Point Consultants once all parties have agreed to the partial novation.
In my opinion, those words do not operate as a release. Rather, read in context, they are stating the effect of the agreement - namely, that to the extent that End Point Consultants provides the services previously provided by Blue Visions, Blue Visions will not have any right or obligation to provide those services or any liability in respect of them. The words do not provide a release of any accrued liability of Aspire to Blue Visions. Moreover, on their face, they do not provide a release in favour of Mr Chidiac or Mr Gunasegaram.
There is a question whether the fully informed consent defence was pleaded and, if it was not, whether Blue Visions would be unfairly prejudiced if the defendants were permitted to raise it now.
I accept Blue Visions' submissions that the defence was not properly pleaded and that it is too late for the defendants to raise it now.
In each of the defendants' defences there is a pleading as part of the estoppel case that Blue Visions, by its conduct, represented to Mr Chidiac that (to quote from Mr Chidiac's defence):
i. [Mr Chidiac] was to perform the obligations required in order to give effect to the Novation Agreement;
ii. [Mr Chidiac] was to perform those obligations for the financial benefit of himself and/or [Aspire];
Blue Visions gives a number of particulars of those allegations. Those particulars include the following:
(c) [Blue Visions] signed the Novation Agreement at a time of [Blue Visions] and [Mr Chidiac] [sic] were aware by reason of discussions with [Mr Chidiac] and receiving [Mr Chidiac's] letter of resignation, that:
a. [Mr Chidiac] no longer intended to perform work of the kind required under the Novation Agreement;
b. Strategic Projects wished for [Mr Chidiac] to perform work of the kind required under the Novation Agreement;
c. [Blue Visions] would not be paying [Mr Chidiac] wages or providing any other benefit to [Mr Chidiac] for the period after the date of signing by [Blue Visions] and had no obligation to so provide;
d. [Blue Visions] would have no legal obligation to Strategic Projects should the work performed under the Novation Agreement by [Mr Chidiac] be insufficient for some reason so as to give rise to liabilities to Strategic Projects.
[15]
The alternative causes of action
As I have said, it was not seriously contended that Blue Visions could succeed on one of the alternative causes of action if it failed in its claim based on breach of fiduciary duties and it is not necessary to deal with those causes of action separately in any detail.
Two points, however, should be made about the causes of action based on the Corporations Act.
First, although Blue Visions relies on ss 182 and 183, the focus of the claim was s 182(1)(a). In order to establish a contravention of that provision, Blue Visions had to establish that Mr Chidiac improperly used his position as an employee of Blue Visions to gain an advantage relevantly for himself or Aspire. "Improperly used" is a composite expression which imposes an objective standard of proper conduct on relevant employees. It is not a term of art but refers to conduct which is inconsistent with the 'proper' discharge of the duties, obligations and responsibilities of the officer concerned: see Forkserve Pty Ltd v Jack (2000) ACLC 299; [2000] NSWSC 1064 at [116] per Santow J. What is proper is to be determined by reference to what "would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, power and authority of the position and the circumstances of the case": R v Byrnes (1995) 183 CLR 501; [1995] HCA 1 at 514-5 per Brennan, Deane, Toohey and Gaudron JJ.
For the reasons I have already given, I do not think that Mr Chidiac improperly used his position with Blue Visions to obtain work from Strategic Projects for Aspire. He simply indicated a willingness to continue to work for Strategic Projects which caused Mr Hamilton to do what he did.
Second, the defence of fully informed consent does not specifically apply to a claim based on s 182 of the Corporations Act, although consent may be relevant to the question whether an employee or other officer acts improperly. Consequently, even if the defendants had been entitled to raise the defence, it would not have assisted them in a claim based on s 182.
[16]
Remedies
Having regard to the conclusions I have reached, it is not strictly necessary to deal with the question of remedies. However, I should say something about that topic in the event that I am wrong on the question of liability.
If Blue Visions had succeeded in its claim for breach of fiduciary duties it would have been entitled, at its election, to either equitable compensation or an account of profits. Similarly, under s 1317H of the Corporations Act, a person who contravenes ss 182 or 183 is liable to pay compensation to the corporation for damage resulting from the contravention. Under s 1317H(2), the order for compensation may "include profits made by any person resulting from the contravention". On the other hand, the remedy for breach of contract is confined to damages suffered by Blue Visions as a consequence of the relevant breach.
Blue Visions' primary submission was that, in the circumstances of this case, there was not a significant difference between an account of profits and equitable compensation or damages and it focussed on a claim for compensatory damages. Blue Visions calculated that amount by taking the profit margin Aspire earned on each of its employees who worked on the Perth Children's Hospital project and by multiplying the margin earned in respect of each employee by the number of hours that employee worked on the project during three periods. The first is the period between 15 April 2014, the date Aspire commenced work on the project, until 10 July 2015, the approximate date on which Aspire performed work following its successful tender. The second is the period between 11 July 2015 and 31 August 2016, which is the date on which Blue Visions ceased performing work on the project. The third is the period between 1 September 2016 and the estimated date on which the project will be completed. It assumed that a similar number of hours would have been worked and similar profit margins would have been earned if Blue Visions had retained the work. The calculations were performed by Mr Wynand Mullins, an expert accountant retained by Blue Visions.
Blue Visions did not pursue its claim in respect of the third period. Consequently, that aspect of the claim can be put to one side.
In performing his calculations, Mr Mullins used actual Aspire invoices in the first period. He divided his calculations into three components. The first was work done by Mr Chidiac. Mr Mullins assumed that Mr Chidiac would have done the same work at the same profit margin whether or not he worked for Aspire or Blue Visions. The second component was work performed by Mr Michael Vertenten. Mr Vertenten replaced Ms Sadaf Sharikian of Blue Visions on the project. He was more senior than Ms Sharikian and his charge-out rate was higher than Ms Sharikian's. Nonetheless, Mr Mullins assumed that the profit margin Aspire earned on work done by Mr Vertenten was the profit margin Blue Visions earned on the work done by Ms Sharikian. The third component related to work done by other employees of Aspire. Mr Mullins assumed that that work could have been done by existing employees of Blue Visions. Consequently, he calculated the profits that would have been earned by Blue Visions by reference to the charge-out rates (rather than the profit margins earned in respect of) the relevant Aspire employees. Using those assumptions, Mr Mullins concluded that Blue Visions' lost profit in respect of the first period was $872,397.
[17]
The liability of Aspire
Aspire is clearly the alter ego of Mr Chidiac and Mr Gunasegaram. If they breached their fiduciary duties by bringing about the circumstances in which Aspire provided the services of Mr Chidiac in respect of the Perth Children's Hospital project, Aspire itself would be liable to account for any profits it earned, or any losses caused, as a consequence of those breaches of duty: see Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [243] per Finn, Stone and Perram JJ.
[18]
The claims arising from Mr Gunasegaram's representations
[19]
Introduction
The representations case against Mr Gunasegaram has three aspects. The principal case is that Mr Gunasegaram made misrepresentations in relation to the Masters project which caused Blue Visions to hire and to retain staff that it did not need. Blue Visions claims as damages the costs it incurred in paying surplus staff. Originally it also claimed what were said to be wasted costs falling within a number of other categories. Those claims, however, were abandoned at trial.
The second misrepresentation case relates to the Nicholson's Gold Mine project. It is alleged that Mr Gunasegaram represented that he had entered into negotiations on behalf of Blue Visions to project manage the Nicholson's Gold Mine project and later that he had succeeded in negotiating a contract for that work. Relying on those representations, it is alleged that Blue Visions hired Mr Dewey. The representations are said to have been false and Blue Visions claims the salary it paid Mr Dewey as damages.
The third misrepresentation case related to the Roy Hill project. Again, it is alleged that Mr Gunasegaram represented that he had entered into negotiations on behalf of Blue Visions with Roy Hill for Blue Visions to provide Roy Hill with project management services and later that he had succeeded in negotiating a contract for that work. The representations are said to have been false and, in the case of Roy Hill, Blue Visions claims as damages the salary it paid to Mr Parkhouse.
In each case, Blue Visions puts its misrepresentation case in various ways. First, it submits that Mr Gunasegaram's conduct was misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law. Second, it submits that the conduct contravened ss 181 and 182 of the Corporations Act. Section 182 is quoted above. Section 181 relevantly requires an "officer" of a corporation to exercise their powers and discharge their duties (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. Third, Blue Visions relies on negligence and, in the case of the Masters project, deceit.
[20]
The Nicholson's Gold Mine and Roy Hill projects
It is not necessary to analyse the claim for damages in relation to the Nicholson's Gold Mine and Roy Hill projects in detail. It is apparent that Mr Gunasegaram made false statements in relation to each project, although not necessarily of the types pleaded. In the case of the Nicholson's Gold Mine project, Mr Gunasegaram falsely represented the nature of his negotiations with Bulletin Resources. It is apparent, for example, that the proposal to engage Blue Visions never went to the Bulletin Resources board. He also falsely represented the value of the project. Finally, he falsely represented that Bulletin Resources had achieved its private equity raising.
The difficulty with the claim, however, is that, however it is put, Blue Visions has failed to establish that it suffered any loss as a consequence of the representations that were false. The only loss claimed by Blue Visions is the costs of hiring Mr Dewey. It appears that Mr Dewey was hired because Mr Gunasegaram told Mr Khreich that he needed a senior procurement manager having regard to his negotiations with Bulletin Resources and to the fact that there was a number of other large projects that Blue Visions was about to win. It is not alleged that that representation was false or misleading or deceptive. Moreover, Mr Gunasegaram was in negotiations with Bulletin Resources at the time. Consequently, to the extent that the representation concerning the hiring of Mr Dewey related to the Nicholson's Gold Mine project, it was true. The result is that no loss flowed from any of the representations made by Mr Gunasegaram in relation to the Nicholson's Gold Mine project.
The position is even clearer in the case of the Roy Hill project. Once again it is plain that Mr Gunasegaram made false statements to Mr Khreich concerning that project. He represented that he had been in negotiations with Roy Hill and that Blue Visions was "Starting Roy Hill in days", which could only mean that the negotiations had been successful. Mr Gunasegaram submitted that Blue Visions failed to establish that the representation concerning negotiations was false because Mr Michael Khoury, the computer expert retained by Blue Visions, had recovered some 340 emails between Mr Gunasegaram and people with a "@royhill.com.au" email address. Those emails could have been tendered by Blue Visions in the proceedings but were not. It is submitted that the court should infer from that fact that the emails do not assist Blue Visions and are evidence of negotiations. I do not accept that submission. It is to be inferred from Mr Kapsalos's email dated 22 October 2013 that there had been no negotiations between Mr Gunasegaram and Roy Hill. If there had been, Mr Kapsalos would not have written the email he did. Mr Gunasegaram was in a position to rebut that inference by giving evidence or by tendering documents evidencing the negotiations he had. He did not do so.
[21]
The Masters project
As with the other claims against Mr Gunasegaram, the claim in respect of the Masters project is put in various ways. It is convenient to begin with the claim in deceit.
In order to succeed in a claim in deceit a plaintiff must prove (1) that a false representation was made by the defendant; (2) that the defendant knew that the representation was false or was reckless or careless as to its truth or falsity; (3) that the defendant intended the plaintiff to rely on the information being conveyed; (4) that the plaintiff did in fact rely on the representation; and (5) that reliance on the false representation caused the plaintiff loss: Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 at [114] per Gummow, Kirby and Crennan JJ.
In the present case, Blue Visions pleads that Mr Gunasegaram made a large number of representations, many of them corresponding to the statements made to Mr Khreich by Mr Gunasegaram by email over the period from early 2012 to early 2014. Those representations are said to be false because (to quote from para 72 of the Second Further Amended Statement of Claim):
a. [Mr Gunasegaram] did not at any time enter into any negotiations with Woolworths or its nominee Hydrox on behalf of [Blue Visions] or in relation to [Blue Visions] being engaged by Woolworths as the project management consultant for the Masters Project;
b. [Mr Gunasegaram] did not ever send any emails or have any other communication with Peter Horton or any employee of Woolworths or Hydrox in relation to [Blue Visions] being engaged by Woolworths as the project management consultant for the Masters Project;
c. [Mr Gunasegaram] never submitted, on behalf of [Blue Visions], the Formal Instrument of Agreement and the Project Management Contractor Agreement to Woolworths;
d. The board of Woolworths never approved [Blue Visions] as the project management consultant for the Masters Project, nor did Woolworths otherwise engage [Blue Visions] or ask [Blue Visions] to perform any functions in relation to the Masters Project;
e. None of matters [sic] which were represented to be the fact by [Mr Gunasegaram], by way of the communications pleaded in paragraphs 53 to 70 [which set out the representations relied on by Blue Visions], were the fact.
In reliance on those representations, Blue Visions is alleged to have hired Mr Alex Poh (incorrectly referred to as "Plow" in the pleading) as a recruiter solely to recruit staff for the Masters project and Ms Eva Moore and Ms Jenny McCormack in the role of human resources managers solely for the Masters project and to have retained senior staff in anticipation of the Masters project when Blue Visions did not have any other projects for those staff members to work on.
[22]
Western Australian Museum project
Blue Visions contends that Mr Chidiac breached his duty of confidence by using confidential information belonging to Blue Visions in performing work in connection with the Western Australian Museum project. Mr Mullins calculates the loss suffered by Blue Visions as a consequence of Mr Chidiac using that confidential information as being $1,317.50. That amount is calculated by taking the total number of hours worked by Mr Chidiac on the project (5.5 hours) and multiplying that number by the profit margin earned by Blue Visions on work performed by Mr Chidiac (which is said to be $85 per hour).
There is a question whether that is the correct method of calculating the loss suffered by Blue Visions as opposed to the profit earned by Aspire. However, no issue was taken with the calculation, presumably because of the small amount involved and the possibility that Blue Visions would be entitled to recover that amount as an account of profits if it succeeded in its case.
However, in my opinion, the claim based on a breach of confidence must fail. Although the evidence indicates that Mr Chidiac used material he took with him in performing the work that he did, there is no evidence from which it could be concluded that the relevant material was confidential information belonging to Blue Visions rather than information that the Western Australian Museum was entitled to use for its own purposes. The evidence is that the material was the master program for the project. It is not obvious that that information was confidential information belonging to Blue Visions and Blue Visions led no evidence relating to the preparation and use of the master program that provided a basis for concluding that it was confidential information belonging to it. It appears to have thought that it was sufficient to prove that the material was among the material taken by Mr Chidiac. In my opinion, that was not sufficient.
[23]
Mr Gunasegaram's cross-claim
The only issue in relation to the cross-claim is whether Mr Gunasegaram has proved his entitlement to the amount claimed. Mr Gunasegaram gave no evidence that he was entitled to an amount in respect of accumulated annual leave. However, in his affidavit evidence, Mr Khreich says that "[Blue Visions'] calculations of [Mr Gunasegaram's] entitlements is as follows". Mr Khreich then sets out a calculation which includes an amount of $47,867.20 which is said to be "Assumed Entitlement based on 305.96 hours leave owing calculated through timesheets". From that amount, Mr Khreich deducts $16,270.72 for 104 hours leave (that is, 13 days at 8 hours a day) that were taken without explanation. Mr Khreich also deducts amounts owing by Mr Gunasegaram for use of a car space.
In my opinion, Mr Khreich's affidavit amounts to an admission that Mr Gunasegaram is owed $31,596.48 (that is, $47,867.20 less $16,270.72) in respect of his leave entitlements. I accept that under s 324 of the Fair Work Act 2009 (Cth), Blue Visions is not entitled to deduct from that amount other amounts owed by Mr Gunasegaram. It follows that Mr Gunasegaram should be entitled to judgment in the sum of $31,596.48 plus GST on his cross-claim.
[24]
Conclusions and orders
On the conclusions I have reached, the case against Mr Chidiac and Aspire must fail. On the other hand, Blue Visions is entitled to recover damages from Mr Gunasegaram in respect of the Masters project but not the Nicholson's Gold Mine project nor the Roy Hill project. Those damages are to be calculated by taking the figure arrived at by Mr Mullins (that is, $2,772,296.58) and making the following adjustments:
1. Determining the costs of employing the unrequired staff for the period 1 July 2012 to 31 March 2014 rather than the period used by Mr Mullins;
2. Not including a living away from home allowance in the amount claimed in respect of Mr Dewey;
3. Using the correct commencement and termination dates for Mr O'Brien, Mr Latifi, and Mr Sheikh;
4. Reducing the resulting amount by 12.5 percent to allow for extra staff to cover staff on holidays;
5. Reducing the resulting amount by an additional 30 percent to allow for the fact that the unrequired staff were also engaged or retained in the expectation that Blue Visions would acquire other work that it did not.
There should be judgment on Mr Gunasegaram's cross-claim in the sum of $31,596.48 plus GST.
The parties should bring in short minutes of order to give effect to these conclusions. If there are any remaining disputes, the matter should be relisted by contacting my Associate to deal with those matters.
I will hear the parties on costs at a time to be fixed with my Associate if costs cannot be agreed.
[25]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 17 March 2017
On 3 April 2014, a company known as Aspire Corporation Pty Limited was incorporated. Its shareholders are Mr Chidiac and Mr Gunasegaram. Both were also appointed directors, although on 2 June 2014 Mr Gunasegaram was replaced by his wife, who, in turn, was replaced on 27 October 2015. Aspire, which trades under the name "Endpoint Consultants", is the trustee of a unit trust, the units of which are held by entities associated with Mr Chidiac and Mr Gunasegaram. Aspire is the entity through which Mr Chidiac and Mr Gunasegaram provide their services to clients.
Following discussions between Mr Hamilton, Mr Khreich and Mr Chidiac, Aspire, Strategic Projects and Blue Visions entered into a partial novation agreement in the form of a letter dated 8 April 2014 from Strategic Projects to Mr Khreich. The effect of the novation agreement was to remove part of the work that Blue Visions was doing on the Perth Children's Hospital project and give it to Aspire. Aspire has also tendered for and been awarded a number of other contracts for which Blue Visions also tendered.
In these proceedings, which were commenced on 30 June 2014, Blue Visions makes a number of complaints against Mr Chidiac and Mr Gunasegaram. Those complaints fall into three broad categories.
First, Blue Visions alleges that Mr Chidiac and Mr Gunasegaram in breach of their duties improperly directed business opportunities from Blue Visions to Aspire. As pleaded, Blue Visions' complaint was that Mr Chidiac and Mr Gunasegaram diverted a number of projects to Aspire. However, in final submissions, Blue Visions confined its complaint largely to the work done on the Perth Children's Hospital project by Aspire. It claims as damages the loss of profit it says that it has suffered as a consequence of having part of the work removed from it as a result of the novation agreement. In the alternative, it claims an account of the profits that Aspire earned on the project. Blue Visions also claims damages in respect of a small amount of work Aspire did for the Western Australian Museum project, another project for which Strategic Projects was responsible. Blue Visions contends that Aspire has derivative liability for Mr Chidiac's and Mr Gunasegaram's breaches of duty.
Second, it is alleged that Mr Gunasegaram made a number of misrepresentations to Blue Visions during the time he was engaged by it concerning the prospects of Blue Visions obtaining work in connection with the Endeavour Mines, Roy Hill and Masters projects which caused Blue Visions to engage or to retain an excessive number of staff, which in turn caused it loss. Blue Visions claims that loss from Mr Gunasegaram.
Third, it is alleged that shortly before Mr Chidiac and Mr Gunasegaram left Blue Visions they improperly took confidential information belonging to Blue Visions. The material in question has been returned. The only remaining issue is whether before its return Mr Chidiac used confidential information belonging to Blue Visions in connection with the work that Aspire did for the Western Australian Museum project.
In addition to those claims, Mr Gunasegaram has filed a cross claim against Blue Visions claiming unpaid leave entitlements totalling $53,926.40.
The contract contained the following job description:
Manage the Business Unit assigned to you in accordance with the annual strategic and financial plans and the overall company business plans. To provide consulting services in the areas of planning & controls and any other project related services as required by the Employer from time to time. To contribute to company overall direction and strategy. To take overall responsibility for the technical quality of the company planning & controls services
Under cl 13.3, Mr Chidiac was entitled to terminate the contract on notice. The period of notice varied depending on his length of service. It was at least four weeks where his period of service was more than five years (which it was at the time he signed the contract).
There is a question whether Mr Chidiac signed and returned a copy of his contract and whether he is bound by the terms of the new contract even if he did not sign it.
It is common ground that Mr Chidiac was given two copies of the new contract by Mr El-Hasrouny.
On 16 September 2010, Mr Khreich sent an email to a number of employees including Mr Chidiac in which he said:
We are facing an audit later this month and we must ensure that every employee has an up to date employment contract.
These were circulated to you approximately 1 month ago.
Please return signed originals by close of business tomorrow.
Mr Chidiac replied to that email on 17 September 2010 saying that he had not had a chance to read the contract and that he would read it over the weekend "and issue on Monday".
Mr El-Hasrouny sent a further email to a number of employees including Mr Chidiac on 30 September 2010. In that email he said:
I have received 8 employment contract agreement [sic] back out of 42!
COB by the end of Today! If you can't return both of copies [sic] by the end of today could you please email me and tell me when you would be able to return them back. Audit due tomorrow.
Mr Chidiac responded later that day saying "I will not be in the office until next week and have a query with Adel before I sign my contract."
Mr Chidiac says that nothing further happened in relation to the contract. In cross-examination he conceded that one of the concerns he had was whether accrued entitlements were carried over to the new contract. He said, however, that he had other concerns, although they were not identified. On the other hand, Mr Khreich gave evidence that on or about 1 October 2010, he spoke to Mr Chidiac who said that he had read the contract, but that before signing it he wanted to make sure that all the entitlements that had accrued to date would carry over to the new contract. Mr Khreich said that they would.
I prefer Mr Khreich's evidence on this point. Mr Chidiac accepts that at least one of his concerns was whether he would lose his existing entitlements if he signed the new contract. Mr Khreich knew at the time he swore his original affidavit that that was one of Mr Chidiac's concerns. He could only have known that at that time if Mr Chidiac had raised the concern with him.
There is no evidence that anything further happened. Mr El-Hasrouny cannot recall the contract being returned to him. However, he gave evidence to the effect that it was his practice when a contract was returned to him to place a tick next to that person's name on the list kept at the front of each folder. Mr El-Hasrouny says that when he had received all the signed contracts he met with Mr Khreich and that Mr Khreich went through both folders to check that each employment contract had been returned and signed. At that time, Mr Khreich countersigned each contract on behalf of Blue Visions. Mr Khreich has no specific recollection of seeing or signing Mr Chidiac's contract.
Blue Visions has been unable to locate a copy of Mr Chidiac's signed contract. The folder containing the signed contracts for senior employees was tendered in evidence. Several contracts are missing from the folder, including Mr Chidiac's. However, having regard to the passage of time, little can be inferred from that fact. As Mr Khreich explained, some contracts were removed when employees resigned or when there were other reasons for looking at an employee's contract.
The original list of employees remained in the front of the folder. On the right‑hand side of all but one of the names on the list (including Mr Chidiac's) were ticks. On the left-hand side were ticks and other marks against a number, but not all, of the names. The likelihood is that some of the ticks and marks on the right-hand side were made at different times because they were made with different pens. It appears that the list of names included in the folder was a photocopy of an earlier list which had included the ticks on the right hand side of the page, but not the other ticks and marks. That earlier list was photocopied in a way which obscured some of the ticks on the right hand side of the page. The remaining ticks and marks were then added to the photocopied list.
Mr El-Hasrouny gave evidence that he made the ticks on the right-hand side of the page when he received the signed contracts. He could not give an explanation for the other ticks and marks.
Mr Chidiac says that he still has the two copies of his contract which were given to him by Mr El-Hasrouny together with the envelope containing them. Those documents were not put into evidence. Blue Visions' position is that the copies retained by Mr Chidiac could simply be photocopies of the ones originally provided to him.
I am not satisfied that Mr Chidiac signed and returned the contract to Mr El‑Hasrouny. There is no reason to doubt Mr Chidiac's evidence that he still has two copies of the contract that were provided to him together with the original envelope. Nor is there any reason why Mr Chidiac would make two additional copies of the contract before signing it and returning it to Mr El‑Hasrouny. Neither Mr Khreich nor Mr El-Hasrouny has any recollection of seeing the signed contract. Their evidence that the contract was signed depends on evidence of the practice they followed to ensure that all the contracts were signed. However, it is unclear precisely how Mr El-Hasrouny implemented that practice and there is little evidence to suggest that it was followed in the case of Mr Chidiac.
Mr El-Hasrouny gave evidence that as he received signed contracts he placed a tick on the right-hand side of the relevant person's name on the list he had. However, the likelihood is that he was mistaken when he gave that evidence. He originally gave the evidence on the basis of a very poor photocopy of the list. As I have said, it is plain that the actual list that was retained in the front of the folder was a photocopy of an earlier list on which ticks had been placed on the right-hand side of each name. Additional ticks and marks were then added on the left-hand side of the copied list. Mr El-Hasrouny could give no explanation for the additional ticks and marks. There was no tick or other mark on the left-hand side of Mr Chidiac's name. In the absence of any other evidence, I accept the defendants' submission that the most likely explanation is that the original ticks were made when the contracts were sent out and the additional ticks and marks were made as contracts were followed-up or received. There would be no reason for making them once the signed contracts had been received and placed in the folder. I do not think that these conclusions are undermined by the fact that there is no tick on the left-hand side against Mr Rommel Licong's name, although his employment contract is included in the folder. At most that demonstrates that the practice followed by Mr El-Hasrouny was not followed consistently.
Mr Khreich went through the contracts and signed them in a batch. There were a large number of them. He could easily have overlooked the fact that there was no contract for Mr Chidiac.
The question remains whether Mr Chidiac was still bound by the terms of the contract that had been sent to him. In my opinion, he was not.
The answer to this question turns on whether a reasonable person in the position of the parties would have understood from the parties' conduct that they intended to be bound by the terms of the contract notwithstanding that neither had signed it: see, eg, Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52.
Often where parties intend to sign a contract but fail to do so, it can be inferred from their conduct that they nonetheless intended to be bound by the terms of the contract because their conduct cannot be explained in any other way. Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, which is a case relied on by Blue Visions, falls into that category. That, however, is not this case. Mr Chidiac was already employed by Blue Visions and, at least up until the time he resigned, the parties' conduct was equally consistent with a continuation of his employment under his existing contract.
Blue Visions submits that Mr Chidiac knew that it was important to Blue Visions that each employee sign a new contract and that each do so before Blue Visions was audited. Mr Chidiac had raised concerns about the new contract which had been addressed by Mr Khreich. It must follow that, looked at objectively, once Mr Chidiac's concerns were addressed, each intended to be bound by the terms of the new contract. In making that submission, Blue Visions relies on the following statement of principle in Downe v Sydney West Area Health Service (No 2) (2008) 71 NSWLR 633; [2008] NSWSC 159 at [341] per Rothman J:
The employee does not consent to a variation of a contract (leaving aside issues of consideration and whether consideration other than the continuation of work is necessary) simply by not objecting to a document promulgated by an employer. The employee must either take some positive step or decline to take an objection in circumstances where objection would be necessary or at least expected.
Here, it is to be expected that Mr Chidiac would have taken objection to the new contract following his discussion with Mr Khreich if he was still not prepared to accept the proposed new terms.
Blue Visions also points to the fact that Mr Chidiac gave four weeks' notice of his resignation. That period of notice was consistent with the terms of the new contract, but was longer than was necessary under the terms of the earlier written contracts.
I do not accept those submissions. It was plain that the parties were proceeding on the basis that an essential step by which Mr Chidiac (and other employees) would become bound by the new contract was that he sign it. No doubt, that is why Mr El-Hasrouny and Mr Khreich continued to chase Mr Chidiac for a signed contract. They stopped doing so because it appears that they mistakenly believed that they had received the signed contract, not because they were satisfied that Mr Chidiac had agreed to its terms. There is no evidence that Mr Khreich (or Mr El-Hasrouny) said anything to Mr Chidiac that could have led him to believe that anything less than a signed contract was sufficient. And having regard to Mr Khreich's insistence on a signed contract, I do not think that Mr Chidiac was required to take an objection to the contract in order not to be bound by its terms. All that he needed to do was not sign it.
The fact that Mr Chidiac gave four weeks' notice of his resignation does not alter the position. The notice was given so long after the contract is said to have come into existence that it sheds little light on the intention of the parties at the relevant time. Moreover, the contracts set out the minimum notice required. It was open to Mr Chidiac to give more than the minimum notice required by the earlier contracts. The fact that he did so does not demonstrate that he had agreed to a different period of notice. In addition, it is not entirely clear that the notice period of the earlier contracts continued to apply. No new contract was signed when Mr Chidiac was re-employed by Blue Visions. It was at least arguable that the period of notice was no longer governed by the earlier contracts and that Mr Chidiac's obligation was to give reasonable notice. Having regard to his length of service at the time he gave notice, the period of notice he gave was equally consistent with the adoption of a prudent approach to his contractual obligations or the adoption of an approach that he thought was reasonable having regard to the length of his service.
The defendants also suggested that under the terms of the contract, Strategic Projects had a discretion concerning what, if any, services it took from Blue Visions that fell within the scope of the contract. However, that suggestion did not involve a detailed analysis of the contract and was based on the general terms and conditions that were incorporated into the contract. Those general terms and conditions are drafted to deal with a wide variety of circumstances. It is doubtful that the terms relied on by the defendants have any application where, as here, Blue Visions tendered to provide the services of a specific type over an agreed period of time and that tender was accepted.
On 19 December 2013, the scope of Blue Visions' role was varied to include "integrated programming, reporting and monitoring". The additional work was performed by Ms Rosalee Jensen, who had been identified by Strategic Projects but who was employed by Blue Visions. The terms of the variation were negotiated, and the decision to enter into the variation was made, by Mr Chidiac in consultation with Mr Gunasegaram.
Whether anything in Mr Gunasegaram's email and letter can be believed is doubtful. Despite swearing and serving a lengthy affidavit, Mr Gunasegaram did not give evidence. It appears that he suffered from a serious attack of asthma in December 2013. However, it is doubtful that he suffered any further complications or other illnesses as he claimed or that he was in hospital when he said he was as a result of those illnesses. His mobile telephone records indicate that he was not confined to hospital. Over the following days, the description of the state of his health and the treatment that he required became more and more fanciful.
Although Mr Gunasegaram said that his resignation took effect immediately, that is not correct. Mr Gunasegaram was required to give reasonable notice of termination of the contract and, in fact, he continued to do some work for Blue Visions at least until the end of March 2014, while at the same time claiming that he was pre-occupied with his health and with making plans to travel to Switzerland to have what he claimed was experimental treatment there.
Shortly after Mr Chidiac and Mr Gunasegaram resigned, they sought advice from an accountant, Mr Stewart Rodrigues, about setting up a new business venture and its structure. In an email to both of them dated 26 March 2014, Mr Rodrigues recommended a unit trust with a corporate trustee. In making that recommendation, he said:
As you aware, if a search is done on this business (i.e. trust), it will not show who the trustee is (and therefore its directors) or who the unit holders are. This will give you the discretion that you want.
In cross-examination, Mr Chidiac could not give an explanation for why "discretion" concerning who owned the business was important.
Although there is conflicting evidence on the matter, it appears that Mr Chidiac was the first person to tell Mr Hamilton that he had resigned. It is not clear precisely when that happened. In his affidavit, Mr Chidiac put the conversation sometime after 30 March 2014. However, in cross-examination, he accepted that it was before he and Mr Gunasegaram sought advice from Mr Rodrigues. Mr Chidiac says that during the course of their conversation Mr Hamilton asked him whether he was interested in continuing to assist with the project. Mr Chidiac replied in effect that he was and Mr Hamilton said that "I'll go and look into it". I accept that evidence. It is consistent with evidence given by Mr Hamilton, who says that he cannot recall the conversation but that he expects he would have said to Mr Chidiac that he wanted Mr Chidiac to continue to work on the project. Mr Hamilton regarded Mr Chidiac as an outstanding strategic programmer and thought that he was more or less irreplaceable on the job. It would have been natural in those circumstances for Mr Hamilton to ask whether Mr Chidiac was prepared to continue to be involved with the project.
It is unclear what happened then. On 28 March 2014, Mr Gunasegaram sent Mr Khreich an email in which he said:
I received a call from a very irate John Hamilton today. He told me that he had met with Punit, who told him he was returning to the US. After telling me the critical stage that the project is at, he proceeded to ask me for a guarantee that [Mr Chidiac], Rosalee, Mimoune and I are committed to Bluevisions until the end of the project. I had to answer him honestly as I have known John a while, and had to inform him of Sam and my resignations. After expressing some unhappiness about the situation, he proceeded to tell me that as I have resigned, he wants you to contact him directly and to discuss the three options he gives Bluevisions.
1. Immediately produce a strategic programmer equal to or better than Sam.
2. He immediately terminates Bluevisions engagement at NCH for breach.
3. Bluevisions agrees to novate the existing contract to remove strategic programming which he will give to another company and Bluevisions keeps the technical planning, design management and transition management roles.
Looking at the options, we know that Sam is definitely not easily replaced so item 1 would be difficult unless you have a friend who is just as good or better. Item 2 is not something the business needs at present. Item 3 would lose one role from the current engagement of 4 people.
Please remember to give him a call. He wants to speak with you as he feels that I am not in a position to make decisions such as this on behalf of the company due to my resignation.
This email is inconsistent with Mr Chidiac and Mr Hamilton's evidence that Mr Chidiac told Mr Hamilton that he had resigned. In addition, Mr Hamilton has no recollection of speaking to Mr Gunasegaram, although he does not deny that he did. Moreover, it is difficult to believe that Mr Hamilton would have put the three options he did to Mr Gunasegaram as soon as he heard that Mr Chidiac had resigned. On the other hand, the three options put to Mr Gunasegaram are consistent with what Mr Hamilton later said to Mr Khreich; and it is difficult to know how Mr Gunasegaram became aware of them other than as a result of a call from Mr Hamilton. The likelihood is that Mr Hamilton formulated the three options after speaking to Mr Chidiac and put those three options to Mr Gunasegaram, as the most senior executive in Perth, only to be told that Mr Gunasegaram had resigned. It was then that Mr Hamilton said that he wanted to speak to Mr Khreich.
Mr Hamilton and Mr Khreich spoke on 31 March 2014. They give somewhat different accounts of the conversation. However, both agree that Mr Hamilton made it clear that he wanted Mr Chidiac to continue to work on the project and that he thought that Mr Chidiac's departure would cause significant problems for the project. Both agree that Mr Hamilton put forward a proposal in which the strategic planning aspect of the contract would be novated to a company associated with Mr Chidiac. Mr Hamilton says that he said "unless you have any resources that I am not aware of, I can't see any other way forward". Mr Khreich denies that part of the conversation. However, it is likely that Mr Hamilton said words to that effect. That was the tenor of the conversation and is consistent with what he had said to Mr Gunasegaram and with what Mr Gunasegaram had reported to Mr Khreich. Both agree that Mr Khreich said "If you can get '[Mr Chidiac] to agree I will do it". Mr Hamilton says that the conversation was an amicable one in which Mr Khreich could see the sense of what was proposed. On the other hand, Mr Khreich says that the conversation was one in which he was being told what would happen, rather than one in which he was being asked. At the time, he says that he did not believe that Mr Chidiac would accept what was proposed and he said so to Mr Hamilton. Mr Khreich accepts that he did not put forward any alternatives. That was because he was not asked to do so. He says that he could have put forward Mr David Parkhouse or Ms Tasia Hutama, although Mr Hamilton says neither of those would have been acceptable to him.
On the day of the conversation between Mr Khreich and Mr Hamilton, probably in anticipation of the conversation, Mr Parkhouse sent Mr Khreich an email in which he said:
[Mr Gunasegaram] just called in and I managed to have a few words with him.
He strongly advises against putting me forward for the hospital role, believing that it is more of a technical position and requires more government & hospital experience. He suggested that BV [Blue Visions] would not benefit by putting me forward, indeed that this would be inadvisable.
On 3 April 2014, Strategic Projects sent Mr Khreich a draft novation agreement which was in the form of a letter from Strategic Projects to Blue Visions. On 8 April 2014, Strategic Projects sent a final agreement in substantially the same terms. The letter said:
The Department of Treasury awarded a contract to BlueVisions Management Pty Ltd (ABN 93 095 779 972) 20 May 2010 for the provision of Programming Services for the Perth Children's Hospital Project. This contract includes provision of strategic programming services which have been undertaken by Mr Sam Chidiac to date.
On 31 March 2014 BlueVisions notified John Hamilton, Principal Project Director, that Mr Chidiac had resigned from BlueVisions effective 16 April 2014. Mr Chidiac's resignation has resulted in a gap in the service provision BlueVisions is able to deliver the Project.
Discussions have been had with John Hamilton, Adel Khreich and Sam Chidiac to resolve this issue. All parties have verbally agreed that partial novation of the abovementioned contract would be an appropriate solution. This would have the effect of partially novating the strategic programming services component of contract D10011 to Aspire Corporation Pty Ltd ATF End Point Unit Trust trading as End Point Consultants.
This partial novation shall be deemed accepted on the date all parties have signed and returned this letter to the undersigned. If you have any queries please contact Ms Valencia De Costa.
Mr Khreich signed an acceptance at the end of the letter on 15 April 2014. The acceptance was in the following terms:
BlueVisions Management Pty Ltd hereby agrees to partially novate the strategic programming services component of contract D10011 to Aspire Corporation Pty Ltd ATF End Point Unit Trust trading as End Point Consultants. BlueVisions Management Pty Ltd will not have any rights, obligations or liabilities relating to any strategic programming services provided by End Point Consultants once all parties have agreed to the partial novation.
On 8 April 2014, Mr Chidiac also signed an acceptance at the end of the letter on behalf of Aspire, which was in the following terms:
Aspire Corporation Pty Ltd ATF End Point Unit Trust trading as End Point Consultants hereby agrees to provide strategic programming services to the Perth Children's Hospital in accordance with contract D10011 and all subsequent variations to date.
Following execution of the agreement, Aspire supplied the services of Mr Chidiac to the Perth Children's Hospital project. Following correspondence between Mr Chidiac and Mr Hamilton on 21 May 2014, Aspire agreed to provide additional resources on the project. Blue Visions also continued to supply services in respect of the project.
As I have said, the original contract for the supply of programming services was for a three year period. Strategic Projects exercised both options to extend the contract for a further year, with the result that it was due to expire on 20 May 2015. It was extended for a further two months. Work on the hospital was still not complete by that time. As a result, Strategic Projects put out the remaining work for tender. Both Blue Visions and Aspire tendered for that work. Aspire was successful. At the time of the new tender, Ms Valencia De Costa, Senior Project Manager Risk & Governance with Strategic Projects, prepared a file note setting out the history of the matter. Attached to the file note was the following explanation, which also appears to have been prepared by Ms De Costa, for the partial novation:
Purpose: to transfer the contractual rights and obligations from BlueVisions to EndPoint for the strategic programming component of the programming services contract only.
Justification: In early April 2014 the General Manager of BlueVisions raised concerns with the project about his ability to retain strategic programming resources. He scanned the market for this skill set and was unable to identify any potential replacement resources of a similar calibre. He supported the strategic programming resource leaving BlueVisions and setting up his own company, EndPoint Consultants. All terms and conditions under the original contract (D10011 with BlueVisions) were novated to EndPoint Consultants. …
Blue Visions submits that this explanation provides evidence that Mr Gunasegaram told Strategic Projects that he had scanned the market and was unable to identify a suitable alternative to Mr Chidiac. I do not accept that submission. Ms De Costa did not have firsthand knowledge of what had happened. Her account of the facts is inconsistent with the one given by Mr Hamilton and, for that matter, Mr Khreich. In my opinion, it sheds no light on what actually happened at the time.
On 8 October 2013, Mr Gunasegaram, in response to an email from Mr Khreich saying that he needed cash badly, sent an email saying:
Starting Roy Hill in days. Steve Tucker is first to start as soon as he arrives from the US which he may have already done.
In fact, on 22 October 2013, Mr Arthur Kapsalos, an employee of Blue Visions, sent Mr Steve Koblenz, an employee of Roy Hill, an email following up an earlier email he had sent on 25 July 2013. In that earlier email, Mr Kapsalos had sent Roy Hill a Blue Visions capability brochure, which was clearly intended to provide Roy Hill with a general introduction to the services that Blue Visions could provide. In the earlier email Mr Kapsalos said:
If Roy Hill's current internal structure and capacity has no current requirement please do consider BlueVisions if circumstances do change.
If you have no objections will maintain regular contact with you every couple of months on matters outlined.
Mr Parkhouse was eventually employed by Blue Visions in October 2013. He worked almost exclusively on the Perth Stadium project. He also worked on a number of tenders. He resigned in June 2014 because, he says, he "was having a hard time dealing with some of the characters at the Perth Stadium Project and did not feel that I was in a position to provide the services that the project required in the time allotted to me to do that work by the client". There is no reason not to accept that evidence.
On 3 December 2013, Mr Gunasegaram sent Mr Khreich an email naming two people that he said he needed to hire for Roy Hill. He said that he could get both to give notice with a view to starting in January 2014.
On 19 December 2013, Mr Gunasegaram sent Mr Khreich an email attaching the proposal he had prepared in August 2013. The email said:
Roy Hill proposal and people who are starting early next year attached for your information.
Again, nothing came of the Roy Hill project.
On 21 February 2013, Mr Gunasegaram sent Mr Khreich an email attaching a draft paper for the Woolworths board. Attached to that draft was a "Masters Project Staffing Plan", which showed the expected staffing of the project for the first three months. The plan indicated a staff of eight in the first month, rising to 46 in the third month. Other iterations of the staffing plan were sent to Mr Khreich. The last one was sent on 27 January 2014. It still indicated a staff of eight in the first month, rising to 46 in the third month.
On 26 February 2013, Mr Gunasegaram wrote to Mr Khreich saying that he had "unofficial news after the audit & risk committee meeting at Woolworths". In an email later that day, Mr Gunasegaram said that the news was that "instead of allowing us to trial on 1 state which I suggested, the recommendation to the board is going to be for us to manage the rollout as currently defined in the business plan for 24 months and to do an audit of progress after 21 months to decide on awarding the balance of works".
By about this stage, Blue Visions was facing financial difficulties. In response to Mr Gunasegaram's emails, Mr Khreich said that:
We need the work urgently and we have senior people with capability
I am at the stage of sacking people in 2 days time. Current status is very serious from my point [of] view
On the same day, Mr Khreich wrote to his bank manager saying that "I need the cash and I need it now". The email set out various alternatives to obtain that cash. Mr Khreich explained that since 14 January 2013 "I have had 9 people on my books with nothing to do" awaiting a number of opportunities Blue Visions had to come to fruition. He identified four opportunities, although not by name. I accept Blue Visions' submission that one of those was the Masters project (described as "A large rollout of a property portfolio") and another was the Roy Hill project (described as "A large mining project").
The following day, Mr Khreich asked Mr Gunasegaram to put two employees in Brisbane on leave, in one case without pay until work became available and in another case on annual leave of 2-3 days per week "until Masters kicks in". Mr Gunasegaram then sent an email to a number of employees saying that "[i]n the last few weeks we have been able to get some real long term commitment from clients, but the paperwork has not arrived" and asking the employees to take leave without pay.
On 24 April 2013, Mr Gunasegaram sent Mr Khreich an extensive draft of an engagement letter in relation to the Masters project.
On 28 April 2013, there was further email correspondence between Mr Khreich and Mr Gunasegaram in relation to the Masters project. Mr Khreich asked "When do we start the masters handover?". Mr Gunasegaram responded "Just waiting until you are happy with the agreement and I will confirm it with Peter [Horton]. They need to send a letter to ASIC for stock market announcement." Mr Khreich replied "I am starting to think this is taking too long and we will not have a meaningful start this year". He also asked whether there were "any more documents", to which Mr Gunasegaram replied "Just the scope of works but I have agreed with them that this has to be a work in progress as we will not be held to it until after 3 months of engagement." Mr Khreich took offence to other statements made in Mr Gunasegaram's email and wrote a long response back in which he praised Mr Gunasegaram's ability "to bring these large projects in" but complained, among other things, about the fact that Mr Gunasegaram "[refused] to ask for help from me until the work is final (like you did with Masters)."
On 30 April 2013 and 6 May 2013, Mr Khreich sent Mr Gunasegaram comments (in mark-up) on the draft Masters contract. Mr Gunasegaram responded on 9 May 2013, saying:
I have sent the Masters PMC document in draft yesterday without scope (as to be defined within 3 months) and hope to hear back by Monday next week.
On 17 May 2013, Mr Khreich wrote to Mr Gunasegaram saying "Need to find a way to kick start Masters. We lost a lot of money in April again", to which Mr Gunasegaram responded "Almost There."
On the same day, Mr Gunasegaram sent Mr Khreich a "Masters Project Staffing Plan" which showed that Blue Visions would earn $485,233.10 in the first month of the Masters project, $1,676,245.35 in the second month and $2,271,991.24 in the third month. The document indicated that a large number of people would be employed on the project.
On 7 June 2013, Mr Gunasegaram sent an email to Mr Khreich saying that "Our customer will need to make an announcement to market (ASX) in the near future regarding any engagement and we have the opportunity to shape a up to four line statement such as the one below as an introduction". Mr Khreich responded by asking on the same day whether Blue Visions ever got a marked-up contract from Woolworths to which Mr Gunasegaram responded:
Not yet, they have some of their own performa [sic] to add and he is circumventing some areas we don't meet due to size and turnover, so Peter is trying to get us on and agree the contract during the engagement if it can't be done before. We may have to work under an LOI [presumably, letter of intent] in the initial phase under the same conditions. Big company, just like a government department.
On 4 July 2013, Mr Gunasegaram provided Mr Khreich with some information about potential employees, including Mr Tom Usia. Mr Khreich replied by asking:
Is Masters slowness because of Tom taking so long or something else? Because we need that job to start soon to save us as a company to be honest about it. There are many Toms out there
Mr Gunasegaram replied:
Tom is a big part of it, as once we lock him or someone else in, I want get [sic] them into the client's office as soon as possible.
On 17 October 2013, Mr Gunasegaram sent Mr Khreich an email saying:
I spoke with Peter Horton from Woolworths this afternoon and he wants me to start attending the steering committee meeting for the Masters Program Store Rollout starting from next week. It occurs every Wednesday …
…
I don't mind attending every second one in person if they let me do some of them on the phone, but would also like to introduce you after the first couple of meetings as an alternate for myself if I can't attend if that's ok.
On 28 October 2013, there was an email discussion between Mr Khreich and Mr Gunasegaram concerning staffing. The email chain started with Mr Khreich saying:
Awaiting your plan for Masters startup and ramp up with realistic figures. and how are we going to avoid another disaster like September please?
I need to cut overheads please. It simply is not sustainable. Think of reducing at least 3 salaries on your team who are either pure overhead or regularly under billed.
Any Ideas please?
Mr Gunasegaram responded with the names of three people he thought could be terminated. There was then further correspondence about terminating an HR person, which ended with Mr Gunasegaram saying:
My view is that we cannot engage on large projects without a defined organisation structure which needs to encompass most importantly for these organisations, a good HR and Recruitment system in place with qualified people managing these. It gives them confidence that we are not a backyard operation with low level systems and policies. …
On 29 October 2013, Mr Gunasegaram sent Mr Khreich an email saying that he had been to his first Woolworths Project Steering Committee meeting on 23 October 2013 and purporting to give an account of what happened at the meeting. Later emails referred to subsequent committee meetings.
There was further correspondence between Mr Khreich and Mr Gunasegaram in November 2013 concerning a ramp-up plan for the Masters project. In an email dated 15 November 2013, Mr Khreich reminded Mr Gunasegaram that he had asked for a plan and expressed concern about "people still sitting around not fully utilised". In an email dated 17 November 2013, Mr Khreich said in relation to the plan that he was looking for "accuracy not fantasy please" and that there were "Many things on hold in the business because of concern about future profitability".
On 29 November 2013, Mr Gunasegaram sent Mr Khreich a final draft of the engagement letter asking him to sign it. The covering email said "Once I get the letter back from you, I will go through getting it signed by Woolworths. I believe that Peter is signing it, but it might be Grant."
Mr Gunasegaram was unwell in December 2013 and was admitted to hospital for a few days with asthma.
On 8 January 2014, Mr Gunasegaram sent Mr Khreich an email saying that "[w]e can start Masters as of next week" and on 23 January 2014 he sent an email saying:
- Handover of the office at 3 City View Road, Pennant Hills is forecast during week of 3 Feb 2014. People are moving out between now and then.
- I am doing some pre start work and will charge for my time.
…
- I will be doing a forecast for February in our invoice and will include as many people … as possible.
On 4 February 2014, Mr Gunasegaram sent Mr Khreich a revised draft invoice (he had sent an earlier version on 30 January 2014) addressed to Hydrox Nominees, the entity through which Woolworths was carrying out the Masters project. The invoice suggested that Blue Visions had carried out $28,891.80 worth of work in January 2014 and was forecast to carry out $425,769.62 worth of work in February 2014. On the same day, Mr Gunasegaram sent Mr Khreich a draft letter he proposed to send to Mr Horton saying that Blue Visions was able to commence work on 10 February 2014 at the Masters project office at Pennant Hills.
On 7 February 2014, Mr Gunasegaram sent an email to "Everyone in BV" saying:
I am pleased to advise that we commenced our role on the Masters rollout in January this year. As most of you know this will be a highly challenging yet exciting role for our team at blueVisions and will involve the rollout of new property assets nationally for several years.
We have client approval to announce this internally but not approved for an external announcement yet. Over the next few weeks, some of you will start joining this project and we will be hiring externally as well.
There was further correspondence between Mr Khreich and Mr Gunasegaram in February and March 2014 concerning the start date of the Masters project and the fact that Blue Visions had extra staff that should have been terminated if the Masters project was not going ahead. A feature of the correspondence is that Mr Gunasegaram offered explanations for the delay in the start date while at the same time insisting that the project was going ahead. As late as 20 March 2014, Mr Khreich asked if Masters was "dead because you resigned" to which Mr Gunasegaram replied "No it's not".
Following Mr Gunasegaram's resignation, on 13 May 2014, Mr Ron Turner of Blue Visions sent an email to Woolworths including a copy of the engagement letter dated 28 November 2013, the letter dated 4 February 2014 to Mr Horton regarding commencement and a copy of its invoice dated 30 January 2014. Woolworths' internal communications following receipt of that email and subsequent correspondence between Blue Visions and Woolworths demonstrate that prior to 4 February 2014, there had been no communications between Blue Visions and Woolworths concerning the Masters Project.
The defendants objected to the tender of the correspondence between Blue Visions and Woolworths and Woolworths' internal documents as proof of the representations they contained concerning Blue Visions' involvement in the Masters project on the ground that the representations that they contained were "prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding" and consequently were not admissible as business records under s 69 of the Evidence Act 1995 (NSW): see s 69(3)(a). In the light of that objection, I reserved the question of the admissibility of those documents to be dealt with in this judgment.
In my opinion, it is not necessary to resolve the question of admissibility of all the documents in issue. I say that for two reasons.
First, I accept that Woolworths' internal documents are admissible to prove the representations they contain. The question is whether those representations were prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, court proceedings. The representations were prepared by Woolworths. They were not "obtained" by Blue Visions in the relevant sense. Blue Visions did not seek or procure that the representations contained in Woolworths' internal documents be made: see Australian Competition and Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) (2005) 147 FCR 235; [2005] FCA 1357 at [26] per Lindgren J. The relevant purpose is that of Woolworths: ibid at [23]. Woolworths did not prepare the documents for the purpose of conducting, or for or in contemplation of or in connection with, court proceedings. It did not contemplate court proceedings. The internal documents were prepared in order to provide a response to an enquiry it had received from Blue Visions. It is plain from those internal documents that Mr Gunasegaram had had no contact with Woolworths. So, for example, on 8 September 2014, Somerville Legal, acting for Blue Visions, sent a letter to Mr Horton setting out Blue Visions understanding of the negotiations between Mr Gunasegaram and Woolworths. They asked Mr Horton to confirm various matters including whether the Woolworths board approved Blue Visions to be the project management consultants for the Masters project and whether Mr Horton had had any negotiations with Mr Gunasegaram in relation to the Masters Project. Mr Horton forwarded a copy of that letter on the day he received it to Mr John Frangi, the Group Legal Manager - Property at Woolworths saying:
This just arrived. It is totally bizarre. Clearly this Mr Gunasegaram has no idea how Woolworths works or he would not have come up with such a story. It should be easy to refute by checking my diary for the dates we allegedly met and also Grant, Melinda, Jillian and Ian's diaries to confirm the so called "Steering Committee meeting" did not occur.
I wonder whether we should refer it to the police to the fraud or extortion group?
Second, even ignoring the correspondence in question, in my view it is plain that Mr Gunasegaram had had no contact with Woolworths and that at most the preparation done by Blue Visions in relation to the Masters project was done with a view to putting an uninvited proposal to Woolworths which was never put. That was the basis on which Mr Khreich was cross-examined. If Blue Visions had really reached an agreement to supply services to Woolworths as Mr Gunasegaram claimed, or indeed if there had been serious discussions between Blue Visions and Woolworths concerning that possibility, then it is to be expected that as soon as Mr Gunasegaram resigned Woolworths would have been in contact with Blue Visions to find out what was happening. However, that did not occur. The defendants have not produced any correspondence from Woolworths that is consistent with what Mr Gunasegaram said in his emails. If Mr Gunasegaram's emails concerning the state of the negotiations and the contract with Woolworths in relation to the Masters project were accurate, it is to be expected that he would have given evidence to that effect and would have been able to produce some documents from Woolworths which corroborated that evidence. He did not do so, despite the fact that he swore a lengthy affidavit in the proceedings and was present in court during the first week of the hearing.
The evidence is insufficient to establish that Mr Chidiac and Mr Gunasegaram pursued their personal interests in conflict with those of Blue Visions before they resigned. They did some preparatory work in anticipation that they would or might resign, but that is not sufficient to establish that they breached their fiduciary duties. Mr Gunasegaram improperly asked Mr Clarke to search domain names and register the domain name "endpointconsulting.com". However, those breaches were minor and it is not suggested that any loss flowed from them or that Mr Gunasegaram or Mr Chidiac obtained any real benefit from them.
Nor is the evidence sufficient to establish that Mr Chidiac and Mr Gunasegaram resigned so as to be able to pursue an opportunity to obtain work from Strategic Projects that properly belonged to Blue Visions: cf Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371; [1974] SCR 592 at 382 per Laskin J. The evidence suggests that Mr Chidiac resigned because he genuinely wanted a change and that he was considering going into business with his brother. As I have said, the likelihood is that Mr Gunasegaram resigned because, among other things, it was becoming increasingly difficult to maintain the fiction that Blue Visions had secured the Masters project from Woolworths. The evidence is that they contemplated that, following their departure from Blue Visions, they would engage in some business activity together. However, there is no evidence of what that activity was.
Blue Visions points to the fact that on 22 February 2014, Mr Hamilton sent an email to Mr Chidiac asking "Can you urgently get someone in front of us who has some level of strategic programming capability to augment yourself and Punit" and Mr Chidiac's inconclusive evidence about what he did in response to that email as evidence that Mr Chidiac preferred his own interests over those of Blue Visions. Blue Visions submits that, instead of responding to Mr Hamilton's request, Mr Chidiac took advantage of the absence of alternatives in Mr Hamilton's mind to obtain work for himself and Aspire. However, the evidence does not establish that, at the time of the request, Mr Chidiac was considering resigning with a view to obtaining part of the work Blue Visions was doing on the Perth Children's Hospital project for himself or a company with which he was associated. Nor does it establish that Mr Chidiac failed to do anything in response to the request.
Blue Visions' principal case is that Mr Chidiac breached his fiduciary duties in three ways. The first was by telling Mr Hamilton that he was interested in continuing to work on the Perth Children's Hospital project after his contract with Blue Visions came to an end. The second was by failing to tell Mr Khreich of that conversation. The third was by signing the novation agreement. In my opinion, none of these matters amounted to a breach by Mr Chidiac of his fiduciary duties.
The evidence is that Mr Chidiac only indicated that he was interested in continuing to work on the Perth Children's Hospital project in response to a question from Mr Hamilton and that he had not seriously considered that as an option before Mr Hamilton raised the possibility with him. As between Mr Chidiac and Blue Visions, Mr Chidiac was free to work on the Perth Children's Hospital project as soon as his employment with Blue Visions came to an end. It is difficult to see how Mr Chidiac breached his fiduciary duties to Blue Visions by telling Mr Hamilton that that was something that he was interested in doing. There is a degree of unreality in the submission that Mr Chidiac's fiduciary duties required him to mislead Mr Hamilton or answer the question he was asked evasively or to refuse to answer it at all.
It is possible that if Mr Chidiac had not told Mr Hamilton that he was willing to work on the project following the termination of his contract with Blue Visions, Mr Hamilton would not have sought to re-negotiate the contract with Blue Visions. I say "possible" because it was always open to Mr Chidiac to approach Mr Hamilton once his contract with Blue Visions had terminated and tell Mr Hamilton that he was interested in continuing to work on the project. That point aside, in a sense, then, it can be said that in answering Mr Hamilton's question in the way that he did, Mr Chidiac preferred his interests to those of Blue Visions. However, the interest he had was a legitimate interest concerning what he would do after his contract with Blue Visions terminated, and it does not seem to me to be an illegitimate pursuit of those interests to answer honestly a question asked of him about what he was interested in doing once his contract terminated. The position would have been different if Mr Chidiac had sought to persuade Mr Hamilton to become a client of his new business while still an employee of Blue Visions. But that is not what happened.
In my opinion, Mr Chidiac was not obliged to tell Mr Khreich of his conversation with Mr Hamilton. It is generally accepted that fiduciary duties are proscriptive, not prescriptive: Breen v Williams (1996) 186 CLR 71; [1996] HCA 57 at 113 per Gaudron and McHugh J; Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1; [2011] FCAFC 24 at [105] per Besanko J; Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37; (2016) 333 ALR 524 at [121]-[122] per Payne JA (with whom Gleeson and Leeming JJA agreed). Mr Chidiac's fiduciary duties did not oblige him to disclose to Mr Khreich his conversation with Mr Hamilton. A duty of disclosure only arose to the extent that Mr Chidiac relies on a defence of fully informed consent. However, the failure to disclose was not itself a breach of fiduciary duty; and if there was no other breach of fiduciary duty, the question of fully informed consent does not arise.
It is also difficult to understand how it could be said that Mr Chidiac breached his fiduciary duties by signing the novation agreement. The novation agreement was proposed by Mr Hamilton. It was signed by Mr Khreich and could not have proceeded without Mr Khreich's agreement. It was open to Mr Khreich to refuse to sign the agreement and to propose alternatives to replace Mr Chidiac. He did not do so. Mr Khreich gave evidence that he felt pressured to sign the agreement. I accept that evidence. But all the pressure came from Mr Hamilton. It was the natural consequence of Mr Hamilton's desire to retain the services of Mr Chidiac, the fact, as was apparent from the evidence that he gave, that Mr Hamilton was a person used to getting his way and the fact that Mr Chidiac indicated that he was willing to continue to work on the project. How Mr Chidiac breached his fiduciary duties by agreeing to a proposal that was acceptable to Mr Khreich and Blue Visions is unclear.
There is also a suggestion in Blue Visions' submissions that Mr Chidiac knew that Mr Hamilton regarded him as more or less irreplaceable on the project and that Mr Chidiac breached his fiduciary duties by failing to take steps to address what he knew to be a significant key person risk on the project. Again, however, that assumes that Mr Chidiac's fiduciary duties had a prescriptive element. They did not. Nor is it clear what Mr Chidiac could have done. Mr Hamilton believed that Mr Chidiac was an outstanding strategic programmer. Mr Hamilton gave evidence that he did not think other programmers from Blue Visions were as good. It is doubtful that if Mr Chidiac had introduced Mr Hamilton to other programmers, Mr Hamilton would have changed his mind.
On 31 March 2014, Mr Gunasegaram told Mr Parkhouse that he strongly advised against putting Mr Parkhouse's name forward as an alternative to Mr Chidiac's and Mr Parkhouse passed that on to Mr Khreich. In my opinion, Mr Gunasegaram's conduct was in breach of his fiduciary duties. The only explanation of his conduct is that he was seeking to dissuade Blue Visions from putting Mr Parkhouse forward as an alternative to Mr Chidiac to increase the likelihood that the work would be given to a company in which Mr Gunasegaram had an interest (that is, Aspire). The conduct is not specifically pleaded as a breach by Mr Gunasegaram of his fiduciary duties. That point aside, there is no evidence that Mr Gunasegaram's advice had any effect on Mr Khreich's conduct. Consequently, I am not satisfied that any loss flowed to Blue Visions as a consequence of the breach or the defendants made any gain as a consequence of the breach. It follows that a claim based on that conduct must fail.
The defendants claim that those particulars are sufficient to raise the defence of fully informed consent. I do not accept that submission. The particulars contain an allegation that Blue Visions and Mr Chidiac were aware of certain things at the time they signed the novation agreement. However, nowhere is it asserted that knowledge of those matters was sufficient to provide a defence of fully informed consent; and I do not think it could reasonably be inferred from those allegations that the defendants were intending to plead a defence of that type. I also accept Blue Visions' submission that it would be unfairly prejudiced if the defendants were permitted to raise that defence because it may have conducted the case differently had it appreciated that the defendants were relying on that defence. The defence raises factual questions concerning what was known by Blue Visions and what was disclosed by the defendants. They are matters on which Blue Visions might have led additional evidence or cross-examined Mr Chidiac.
The estoppel defence is not easy to follow. The representations on which it is based are set out above. In substance, the allegation appears to be that Blue Visions, by signing the novation agreement in the circumstances that it did, represented that the defendants were entitled to take the benefits of the novation agreement and that the defendants acted to their detriment by taking those benefits and as a result exposing themselves to court proceedings, with the consequence that Blue Visions should not now be permitted to resile from that representation. However, it is very difficult to see how that follows. Implicit in the defence is the contention that Blue Visions represented that if Aspire entered into the novation agreement, the defendants would be relieved of the consequences of any breach by them of their fiduciary duties. How that representation can arise from anything Blue Visions did is not clear.
Mr Mullins adopted a similar approach in respect of the second period. However, his calculations in respect of that period were based on an assumption that the profit margins would be comparable to the earlier period because the actual figures were not available to him. Based on that assumption, he concluded that Blue Visions loss in respect of the second period was $890,623.
Subject to some adjustments that Blue Visions concedes may be appropriate, I think that the approach taken by Mr Mullins was a proper approach to the assessment of the profits that Aspire earned and for which the defendants would have to account.
On the assumption that Mr Chidiac and Mr Gunasegaram breached their fiduciary duties by obtaining the work from Strategic Projects that had previously been performed by Blue Visions, they would have to account for all of the profit earned by them as a consequence of obtaining that work in accordance with the principles stated in Boardman v Phipps [1967] 2 AC 46 and accepted by the High Court in Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36. It seems to me that that includes all the profit that Aspire earned from the project.
However, in order to calculate that profit, it would be necessary to use the actual or projected profit earned by Aspire (not the loss suffered by Blue Visions). That would require making adjustments to take account of the actual or projected salary costs incurred by Aspire for Mr Vertenten and the other employees it engaged, rather than the costs incurred by Blue Visions. In my opinion, it would also be appropriate to reduce the profit by a further 15 percent to allow for recruitment fees. On that basis, I would have accepted Blue Visions' submission that it was entitled to recover $657,636.71 in respect of the first period and $583,275.67 in respect of the second, making a total of $1,240,912.38.
The parties accepted during the course of final submissions that in calculating damages or equitable compensation, Blue Visions' loss should be seen as the loss of an opportunity to continue to supply services to Strategic Projects following Mr Chidiac's departure. Analysed in that way, it is necessary to take account of the likelihood that Mr Chidiac would have offered his services after his employment contract came to an end and the likelihood that Strategic Projects would and could have accepted that offer if it had been made. In my opinion, it is not possible to determine that question without knowing precisely how Mr Chidiac and Mr Gunasegaram breached their fiduciary duties. Without knowing that it is not possible to formulate a counterfactual in which they do not breach their duties by reference to which likely outcomes can be determined. I am inclined to think, however, that Mr Hamilton may well have been able to engineer a situation in which he could retain Mr Chidiac's services irrespective of any breach of fiduciary duty and that therefore any discount to take account of that eventuality would need to be substantial.
However, it is equally plain that no loss resulted from the representations. The only loss claimed by Blue Visions is the cost of employing Mr Parkhouse. But it is plain from the evidence that Mr Parkhouse was employed to work on the Museum project, which is what he did.
The resultant loss is calculated in two stages. First, Mr Khreich gave evidence of the Blue Visions staff "kept on by the plaintiff for the Masters Project and the fictitious mining projects", who he refers to as the "unrequired team", and determines the billable and non-billable hours generated by those persons during the period January 2012 to March 2014. Mr Khreich also identifies the staff who were not kept on specifically for those projects, who he refers to as the "required team", and determines the billable and not billable hours generated by those persons. He concludes that the "unrequired team" averaged 561 billable hours per month for the period and the "required team" averaged 1210 non-billable hours per month for the period. On that basis, he concludes that the required team members had the capacity to undertake all of the billable work undertaken by the unrequired team members. From that, he concluded that the unrequired team members were not required to be kept on by Blue Visions. It is noteworthy that Mr Khreich included in the list of required staff Mr Parkhouse and Mr Dewey for the whole period each of them was employed by Blue Visions and Mr Gunasegaram for the period January 2012 to March 2014.
Second, Mr Mullins calculates the cost of employing the unrequired staff during the period for which Mr Khreich says that they were not required. Mr Mullins' calculations are divided into two parts. The first part calculates the costs associated with staff who Mr Khreich says were not required for the whole of their period of employment. That amount includes the total payments made to the staff member from the payroll summaries, payroll tax for the applicable period and the implied cost of funding the payments to that staff member. The second part calculates the costs associated with staff who Mr Khreich says were not required for part of the period of their employment. The calculation is performed in the same way but includes an amount for any additional costs of terminating the staff member. Mr Mullins concludes that the total costs associated with both categories are $2,772,296.58.
It is not seriously disputed, nor could it be, that Mr Gunasegaram made a number of false statements to Mr Khreich (and therefore Blue Visions) concerning the Masters project and that Mr Gunasegaram must have known that those representations were false. In addition, it is not seriously disputed that Mr Gunasegaram intended Blue Visions to rely on those representations by engaging or retaining additional staff. However, Mr Gunasegaram takes issue with the claim in deceit in a number of ways.
First, he submits that the claim is not properly pleaded. The pleading alleges that Mr Gunasegaram made a substantial number of representations concerning the Masters project. Some of those were true and others were not obviously false. Examples of the former category include the representations that Mr Horton was Woolworths' general counsel, representations concerning Woolworths' targets and progress in rolling out Masters stores and a representation that Mr Gunasegaram was drafting a Formal Instrument of Agreement and a Project Management Contractor Agreement. Examples of the latter category are various forecasts that Mr Gunasegaram had given Mr Khreich. In addition, Blue Visions simply pleads that, in reliance on all of the representations, it hired and retained certain staff, even though some acts of reliance pre-dated a number of the representations and even though some of the representations relied on were not false. According to Mr Gunasegaram, Blue Visions should not be entitled to succeed on such a pleading. An allegation of deceit is a serious one and it was for Blue Visions to plead precisely which representations were false and why and which acts of reliance arose from which representations. That it has not done.
Second, Mr Gunasegaram submits that the evidence of reliance is inadequate. That is partly because there is no pleading or evidence that Blue Visions relied on a subset of the representations and reliance cannot be inferred when many of the representations post-dated the acts of reliance. It is also partly because the reliance and damages cases in relation to the Masters project are not properly separated from the reliance and damages cases in relation to the Nicholson's Gold Mine and Roy Hill projects. The staff that Blue Visions is alleged to have retained unnecessarily were said by Mr Khreich to have been kept on by Blue Visions for the Masters project and the mining projects. Yet no claim in deceit is made in respect of the mining projects.
Third, Mr Gunasegaram also submits that Blue Visions has not made out its case on reliance and damages because it has not proved that the persons on the unrequired list were retained for the Masters project. This contention appears to have two limbs. The first is that Blue Visions has failed to prove that particular persons were hired or retained as a result of the representations in relation to the Masters project. The second is that it has failed to prove that it would have dispensed with the services of all of the people on the unrequired list if the representations had not been made. Mr Gunasegaram points to various matters that are said to support these contentions. One is Mr Khreich's general evidence to the effect that Blue Visions would not have retained the unrequired staff is inconsistent with other evidence that he gave in a number of respects. In particular, Mr Khreich said that when a project finished the staff working on that project were normally retained for four weeks and asked to take leave while waiting to be placed on a new project. If there was no new project on which they could work within that time Blue Visions would "offload" them. However, before doing so Blue Visions would consider what internal projects required attention. In addition, Blue Visions maintained some additional staff on its books to take on a new project at short notice, but generally it was not difficult to find suitably qualified staff on short notice. All of this is said to be inconsistent with a claim that Blue Visions retained a large number of staff for a period of two or more years because of Mr Gunasegaram's representations.
Another matter Mr Gunasegaram points to is the fact that Mr Amir Roudbari, who is identified as part of the unrequired team between 1 August 2012 to 31 August 2013 was asked to take leave without pay from 1 March 2013 "until further notice", although the significance of this is unclear. There is no evidence that Mr Roudbari actually took extended leave without pay, and Mr Mullins's calculations are based on the payroll and PAYG records, which are likely to be more reliable than an email requesting Mr Roudbari to take extended leave.
A third matter that Mr Gunasegaram points to is the fact that the Masters Project Staffing Plan which was given to Blue Visions in February 2013 named 28 candidates for the project, only eight of whom were required for the first month of the project and only one of whom was on the unrequired list and two of whom were on the required list. These matters are said to indicate that no more than about eight staff were retained for a very limited period of time in anticipation of the Masters project.
Fourth, Mr Gunasegaram submits that Blue Visions' damages calculation is flawed in any event. First, it is said that there was no evidence of what level of staffing was needed. Second, there is no evidence that the unrequired staff could not have worked on some other project. Third, no allowance is made for the fact that some non-billable work, such as tender writing, systems development, office administration and business development, was essential and that non-billable work included annual leave. Fourth, no evidence is given that the required staff had the suitable qualifications and experience to do the billable work performed by the unrequired staff. Fifth, the calculation of Blue Visions' loss takes no account of the benefits obtained by Blue Visions from the work that the unrequired staff did.
Fifth, Mr Gunasegaram submits that, even if Blue Visions relied on representations made by him, the earliest it could have done so was 7 June 2013, which is when Blue Visions believed that the final agreement had been sent and there was to be an announcement on the ASX to that effect. The staffing plans provided to Mr Khreich indicated that only eight staff would be required in the first month. On that basis, Blue Visions should be entitled to recover for no more than eight staff from 7 June 2013.
Sixth, Mr Gunasegaram points to a number of errors in Mr Mullins calculations. First, in respect of Mr Dewey, Mr Mullins included an amount for living away from home allowance despite the fact that the payroll summary and PAYG payment summary for the year ending 2013 made no reference to that amount. That is said to have increased the claim in respect of Mr Dewey by $42,760 (and the percentage increases applied to that amount). Second, Mr Mullins assumes that staff salaries were funded by business borrowings and calculates the loss referable to that by multiplying overdraft rates of 8 percent to 9.7 percent on the borrowed money by the period of time that it was assumed that the money was borrowed, commencing in February 2013. In fact, according to Mr Gunasegaram, the money was not borrowed until 28 October 2013 and the rate was 4.99 percent. Third, in cross-examination, Mr Mullins conceded that in the case of three employees - Mr Alan O'Brien, Mr Behrouz Latifi and Mr Ali Sheikh - Mr Mullins used incorrect commencement or termination dates, with the consequence that the claim in respect of them was overstated. It was submitted that the amount of the overstatement was approximately $23,000.
Lastly, Mr Gunasegaram submits that a more appropriate way to calculate Blue Visions' loss is by reference to the work actually performed as a consequence of the representations and to assume that the staff who did that work could have performed billable work if they had not done so. Applying that approach, it is submitted that senior staff did 361.5 hours of work at a charge-out rate of $235 per hour and junior staff did 80 hours of work at a charge-out rate of $135 per hour, making a total loss of $95,752.50.
Although the pleading of the deceit case could have been better, I do not think that it was so defective that it should fail altogether.
It is plain from the pleading that what is alleged is that, over an extended period of time commencing on or about 23 April 2012 and ending on 28 February 2014, Mr Gunasegaram made a substantial number of representations to the effect that (1) he had a close relationship with one or more key people at Woolworths; (2) as a result of that close relationship, Blue Visions had good prospects of being retained by Woolworths (or its relevant subsidiary) to project manage the rollout of Masters stores throughout Australia; (3) and later, that Blue Visions had been retained by Woolworths to do that work. It is alleged that those representations, to Mr Gunasegaram's knowledge, were false. It is also alleged that, as a consequence of those representations, Blue Visions hired and retained staff that it would not otherwise have hired or retained. The pleading gives particulars of the precise representations on which Blue Visions relies. In my opinion, that was an adequate pleading of a claim in deceit.
It is not specifically pleaded that Mr Gunasegaram intended Blue Visions to rely on the representations. However, the case was clearly conducted on that basis and it is not alleged that the pleading was defective for that reason.
The pleading was not defective because it alleged that certain specific representations were false when they were true. The mere fact that each representation relied on was not false does not make the pleading defective. Nor was the pleading defective because it failed to plead specific acts of reliance on each representation. In my opinion, Blue Visions was not required to put its case in that way, and there would have been a degree of unreality in the case had it done so. The substance of the case is not that each statement made by Mr Gunasegaram caused Mr Khreich to do a particular thing, but rather that the specific representations conveyed the representations set out above and those representations caused Mr Khreich to agree to employ staff and to retain staff who otherwise would not have been employed or retained. It is true that nowhere is the case pleaded in precisely that way. However, that was the way the case was run and in my opinion that case fell within the scope of the pleading, since the relevant representations and acts of reliance were pleaded. Moreover, the purpose of the pleading was to identify precisely the conduct engaged in by Mr Gunasegaram which is said to have been deceitful so that Mr Gunasegaram was given an opportunity to answer those allegations. By pleading each representation on which Blue Visions relied on its claim, the pleading did that.
Nor do I accept that Blue Visions has failed to prove that it relied on the representations made by Mr Gunasegaram. As I have said, it is Blue Visions' case that if the representations had not been made, Mr Khreich would not have agreed to the employment of particular staff and would not have agreed to continue to keep as many staff on as Blue Visions did. That case is supported by the evidence and, in particular, the correspondence between Mr Khreich and Mr Gunasegaram at the time. Mr Khreich gives evidence that relying on what Mr Gunasegaram had said to him in the first part of 2012, he agreed for Mr Gunasegaram "to put together a team of specialists within the plaintiff's organisation to strategise and develop detailed planning for the Masters Project". I accept that evidence. It is plain from the correspondence between Mr Khreich and Mr Gunasegaram that by February 2013 Blue Visions was facing significant financial difficulties and Mr Khreich was looking at terminating staff. It is also plain that he was reluctant to do so because he was being told, in effect, that Blue Visions had good prospects of getting the Masters project and, later, that it had been successful in doing so. The evidence is that Mr Khreich was led to believe that within about three months of the project starting, approximately 46 staff would be working on it. It is natural that Mr Khreich would be reluctant to terminate staff in those circumstances.
In my opinion, the reliance case is not undermined by the fact that it is also pleaded that Blue Visions relied on representations in relation to the other projects to hire and retain staff. The fact that Mr Khreich's conduct was the result of representations in relation to a number of different projects does not mean that Mr Khreich did not rely on the representations in relation to the Masters project, although it may be relevant to the question of damages.
For similar reasons, the other points that Mr Gunasegaram makes in relation to the reliance case should be rejected. On the way in which Blue Visions puts its case, it is not necessary to prove that it hired or retained particular staff as a result of representations in relation to the Masters project or that it would have dispensed with the services of all of the people on the unrequired list. The points that Mr Gunasegaram makes in relation to those matters may be relevant to the assessment of damages, but they do not establish the absence of reliance.
The same is true of the specific matters that Mr Gunasegaram points to. The substance of those submissions appears to be that, applying Blue Visions' normal policies, Blue Visions only needed to retain at most eight additional staff to work on the Masters project, since that is all that was required in the first month. Moreover, the suggestion appears to be that those staff only needed to be employed shortly before work started on the project, with the result that Blue Visions' damages claim should be limited to the cost of employing eight additional staff for a limited period of time.
I do not accept that submission. There is a question of how many additional staff were employed and how many were retained and over what period of time as a consequence of the representations made by Mr Gunasegaram and what other adjustments should be made to Blue Visions' damages claim to take account of the points made by Mr Gunasegaram. However, from at least April 2012, Mr Gunasegaram made statements to Mr Khreich to the effect that there was a real prospect that Blue Visions would get the Masters project based on his relationship with people at Woolworths. Those statements were false and they undoubtedly led Mr Khreich to accept statements from Mr Gunasegaram concerning staffing requirements for the project that he would not have accepted if he knew that Mr Gunasegaram had no connection with Woolworths and no reason to believe that Woolworths was looking for a consultant to project manage the roll-out of Masters stores. As I have said, the representations continued over an extended period of time and, as a result of those representations, Mr Khreich permitted the staffing levels to remain as high as they were in the expectation that the staff were necessary to prepare for the Woolworths project and to work on the project once it started. That conclusion is not inconsistent with other evidence that Mr Khreich gave. That evidence concerned Blue Visions' practice when staff members finished on a project and there was no other project or work that they could usefully do. There is no reason to think that Blue Visions would have applied that practice where it was anticipated that the staff would work on a project as large as the Masters project and it was thought that there were good prospects of that occurring in the near future. The near future, of course, kept getting extended and with the benefit of hindsight it may seem surprising that Mr Khreich kept accepting what he was told by Mr Gunasegaram for such an extended period of time. However, Mr Gunasegaram's deception became more and more elaborate and, in my opinion, it is not open to him to submit that Blue Visions' damages should be reduced because it ought to have realised sooner than it did that it was being misled by him.
In my opinion, Blue Visions was entitled to approach the assessment of its damages in the general way that it did. Necessarily, the assessment of damages involves a degree of estimation and approximation because it depends on a hypothetical - that is, a determination of what Blue Visions would have done if Mr Gunasegaram had not made the representations in relation to the Masters project that he did. However, in my opinion, the approach taken by Blue Visions provides a reasonable starting point. Blue Visions was overstaffed because it believed that it had good prospects of obtaining and later believed that it had obtained a major project that would have solved the financial difficulties it was in. Particularly having regard to those financial difficulties, it is reasonable to believe that had it not been misled, Blue Visions, and Mr Khreich in particular, would have sought to work out which staff it needed to retain and which staff it could lose in order to be able to do the work that it had. In effect, that is what Mr Khreich sought to do in the evidence he gave concerning required and unrequired staff. Mr Khreich came across as an honest and reasonable witness. In the absence of any reason not to accept his assessment of which staff were required and which were not, in my opinion his evidence should be accepted. Some adjustment needs to be made to that assessment to take account of the fact that the additional staff was engaged or retained not just in anticipation of the Masters project but in anticipation of obtaining other work including the Nicholson's Gold Mine project and the Roy Hill project. I return to that question below.
As I have said, Mr Gunasegaram advances a number of other reasons why the approach taken by Mr Khreich was not appropriate.
The first was that there was no evidence of what level of staffing was needed. However, that evidence is given by Mr Khreich; and Mr Khreich explains how he determined what level of staffing was needed by comparing the available hours of the required staff (determined by reference to non-billable recorded time) with the billable time worked by unrequired staff. Subject to what I say below, that was a reasonable approach to take.
The second was that there was no evidence that the unrequired staff could not have done other work. It is difficult to understand this submission. The available work is reflected in the recorded billable time. There is no reason to suppose that there is other billable work that could have been done and was not.
I accept that some non-billable work was necessary. I also accept that it was not appropriate to include leave as part of non-billable work for the purposes of determining the number of additional billable hours that could have been worked by the required staff, since leave was part of their employment entitlements. However, the unrequired team averaged 561 billable hours per month for the relevant period whereas the "required team" averaged 1210 non-billable hours per month for that period. Consequently, even if the required employees reduced their non-billable hours to do the additional billable work, that would still leave a substantial number of non-billable hours each month to cater for essential non-billable work.
On the other hand, I accept that Mr Khreich's calculations may be overly conservative concerning the number of staff who were required because of the failure to allow for leave entitlements. There is no evidence of who might have been retained to perform the work that would otherwise have been performed by required staff who were on leave. However, as Blue Visions points out in its written submissions, leave entitlements represent approximately 6 weeks per year, which is less than 12.5 percent of the total time employees were available to work. In my opinion, it is reasonable to reduce the damages otherwise payable by Mr Gunasegaram to make an allowance for the additional staff who would have had to have been employed to cover leave taken by required staff. In my opinion, a reduction of 12.5 percent would be appropriate.
The fourth point made by Mr Gunasegaram was that there was no evidence that the required staff had the necessary qualifications and experience to do the billable work performed by the unrequired staff. It is true that there is no evidence specifically to that effect. However, Mr Khreich gives evidence that the required staff could have performed the work that had been undertaken by the unrequired staff. There is no reason not to accept that evidence.
Lastly, Mr Gunasegaram submits that credit should be given for the benefits received by Blue Visions for the work done by unrequired staff. I do not accept that submission. To the extent that the unrequired staff did billable work, that work could have been done by required staff, with the result that Blue Visions would have got the benefit of that work without any of the cost. To the extent that the unrequired staff did non-billable work, that work should only be taken into account to the extent that it produced a financial benefit for Blue Visions. It was for Mr Gunasegaram to identify how Blue Visions obtained a financial benefit from non-billable work. He did not do so.
The date range used by Blue Visions to calculate its damages is January 2012 to March 2014. In my opinion, a more appropriate starting point would be 1 July 2012. There is evidence that Mr Gunasegaram told Mr Khreich about the Masters project as early as late 2011. However, the evidence of early conversations between Mr Gunasegaram and Mr Khreich concerning the project is vague and Mr Khreich says in his affidavit evidence that it was after his conversations with Mr Gunasegaram and the receipt of the financial forecasts that he agreed to Mr Gunasegaram putting together a team of specialists within Blue Visions to pursue the Masters project. Mr Khreich received the revised financial forecasts on 13 June 2012. On Mr Khreich's evidence, it was shortly after that time that he agreed to Blue Visions devoting resources to the Masters project, no doubt in the expectation that Blue Visions had good prospects of obtaining the work in light of what he had been told by Mr Gunasegaram. From that time, it was natural for Blue Visions (through Mr Khreich) to agree to or to permit the investment of substantial time and money into attempting to obtain that work and, later, in anticipation that the work would commence shortly. The position would have been quite different if Mr Gunasegaram had said nothing about the prospects of obtaining the Masters project.
In my opinion, it is appropriate that the end date be 31 March 2014. As I have said, right up until the time Mr Gunasegaram resigned, he maintained the charade that work on the Masters project was about to start. Consequently, it is to be expected that right up until that time, Blue Visions would have continued to retain more staff than it needed. Blue Visions should be entitled to recover damages by reference to what it actually did, not by reference to the minimum it might have been able to get away with consistently with the possibility of obtaining the Masters work.
Generally, I accept that the approach taken by Mr Mullins to the calculation of Blue Visions' loss on the basis of the evidence given by Mr Khreich was reasonable. No evidence was produced by Mr Gunasegaram to suggest that it was not.
In relation to the specific adjustments that Mr Gunasegaram submits should be made, I accept that no allowance should be made for a living away from home allowance in respect of Mr Dewey. In my opinion, it was reasonable for Mr Mullins to rely on payroll and PAYG payment summaries in determining the cost of unrequired staff. Those documents do not record the payment of a living away from home allowance for Mr Dewey. I also accept that an adjustment needs to be made for the three employees (Mr O'Brien, Mr Latifi, and Mr Sheikh) in respect of whom incorrect commencement or termination dates were used.
On the other hand, I do not think any adjustment should be made for interest rates. Mr Gunasegaram submits that the money used to fund salaries was not borrowed until 28 October 2013, when Mr Khreich took out a mortgage over his home, and that the interest rate was 4.99 percent, not the rates used by Mr Mullins. That, however, is incorrect. On 28 October 2013, Mr Khreich took out a new portfolio loan of $1,632,000 which was secured over his home. $1 million of that was used to repay a commercial overdraft. At the same time an existing commercial bill facility was increased to $1 million. It appears that Mr Mullins assumed that the bill facility was used to fund the payment of salaries and that he has used the interest rate on that facility. That was a reasonable approach to take.
I do not accept Mr Gunasegaram's alternative method of calculating damages, which is to assume that the time spent working on the Masters project could have been spent on billable work. There is no basis for that assumption. Blue Visions is entitled to be put in the position it would have been in if the relevant representations had not been made: Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75 at 220-1 per Gibbs CJ. The position it would have been in is that it would not have employed or continued to employ unnecessary staff. The approach taken by Blue Visions to the calculation of damages seeks to quantify the loss it suffered on that basis. The approach proposed by Mr Gunasegaram does not.
That leaves the question of what should be done about the fact that, on Mr Khreich's evidence, the additional staff were employed and retained not just in the expectation that they would work on the Masters project but that they would work on other projects that also did not come to fruition. Two of those projects (the Nicholson's Gold Mine project and the Roy Hill project) were identified, but others were not.
Again, in my opinion, the court should do the best it can to take account of that fact. It is still apparent that Blue Visions retained additional staff in anticipation of the Masters project; and I accept that there is necessarily a degree of guesswork in determining which staff were engaged or retained for which project. The reality is that Mr Gunasegaram led Mr Khreich to believe that Blue Visions was likely to obtain a large amount of additional work and it was on the basis of that belief that Mr Khreich largely did nothing about the fact that Blue Visions was substantially over-staffed for the work it had.
On the other hand, of the potential work that Mr Khreich was led to believe Blue Visions was likely to obtain, the largest project by a substantial margin was the Masters project and that was also the one which, judging by what Mr Gunasegaram told Mr Khreich, was the closest to fruition. It is reasonable to assume that the majority of staff who fell within the unrequired category were retained because of the representations in relation to the Masters project. On that basis, I think that it is appropriate to discount Blue Visions' damages claim by 30 percent to take account of the other projects. Taking that approach, it is not necessary separately to consider whether particular staff, such as Mr Gunasegaram, Mr Dewey or Mr Parkhouse, were properly included in the unrequired category.
Having regard to the conclusions I have reached, it is not necessary to deal with the other causes of action relied on by Blue Visions in any detail. I should, however, make three points in relation to them.
First, I accept Mr Gunasegaram's submission that the claim based on a contravention of s 18 of the Australian Consumer Law must fail because the representations made by Mr Gunasegaram were not made in trade or commerce: see Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; [1990] HCA 17.
Second, I accept Blue Visions' submission that Mr Gunasegaram is also liable under s 181(1) of the Corporations Act. Mr Gunasegaram occupied a senior position with Blue Visions. He effectively ran the Perth office and was largely unsupervised by Mr Khreich. He played a substantial role in determining the staffing levels of the company and in doing so participated in making decisions that affected a substantial part of the business and had the capacity to affect significantly Blue Visions' financial standing. His conduct in misleading Mr Khreich in relation to the prospects of obtaining work from Woolworths could not be said to have been conduct undertaken in good faith in the interests of the corporation.
Third, there was considerable debate between the parties on whether, as an employee, Mr Gunasegaram owed Blue Visions a duty of care. In my opinion, Mr Gunasegaram did owe Blue Visions a duty of care. There is no principle that an employee does not owe an employer a duty of care: see, eg, Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555; [1957] 1 All ER 125. In the present case, Mr Gunasegaram was a senior employee who had a considerable degree of autonomy. To Mr Gunasegaram's knowledge, Mr Khreich and Blue Visions relied on him to run the Perth office and to develop Blue Visions project management business. In my opinion, that was sufficient to mean that Mr Gunasegaram owed Blue Visions a duty of care in providing information to Mr Khreich in relation to the business for which he was responsible: see Tepko Pty Limited v Water Board (2001) 206 CLR 1; [2001] HCA 19 at [47] per Gleeson CJ, Gummow and Hayne JJ citing Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556 at 571; [1968] HCA 74 per Barwick CJ.