Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : ABLE TOURS PTY LTD -v- MANN [2009] WASC 192

Fiduciary duty - Conflict of interest - Senior employee - Diversion of corporate opportunity - Breach of fiduciary duty separate from claim for misuse of confidential information

Canadian Aero Service Ltd v O'Malley [1974] SCR 592

Faccenda Chicken Ltd v Fowler [1987] Ch 117

Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1

Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317

3 This is an appeal against a decision in which the learned trial judge ordered that the appellants account to the respondent for benefits received from a contract entered into between the second appellant and another company, TJK Pty Ltd.

4 In essence, the first appellant (who I will refer to as the 'former employee') worked for the respondent (the company) for a number of years. The company's business involved the manufacture and sale of passenger buses to, amongst others, tour operators. TJK Pty Ltd (the customer) contacted the company with a view to placing an order for the purchase of a number of buses. The former employee, having become aware of this commercial opportunity through his employment, resigned from the company in order to take advantage of the opportunity himself. Prior to his resignation becoming effective, during the period of his employment with the company, he pursued the opportunity and helped form another company, being the second appellant (the rival entity), of which he became a director and shareholder. The former employee subsequently arranged for the rival entity to enter into a contract for the supply of buses to the customer, and the rival entity built and delivered eight buses to the customer between November 2007 and November 2008.

5 It was admitted on the pleadings that as an employee of the company, the former employee owed fiduciary duties to the company not to permit his interests to conflict with his duties to the company and, in the event of a conflict between his interests and his duties to the company, not to give preference to his interests.

6 His Honour cited extensively from, and adopted the principles in, Green & Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1 (Green's case). The principles in that case, relevantly, appear from the following extracts from the head-note:

(1) While the first appellant was manager of the respondent's business ... a fiduciary relationship existed between him and the respondent; accordingly he was under an obligation not to place himself in a situation where his duty to the respondent and his own interest may possibly conflict. By

preparing and submitting a tender ... he had entered into direct competition with the respondent and had done so knowingly. He was therefore in breach of his fiduciary duty to the respondent in attempting to acquire for himself a business opportunity which he knew would be sought by his employer.

(2) Because of his breach of duty the [first] appellant was liable to account to the respondent for the benefit of the contract. The liability to account arose once it was established that the first appellant had, during the course of a fiduciary relationship, placed himself in a situation where his duty and his interest might possibly conflict and had, within that fiduciary relationship, obtained a benefit ... It was enough to show that the fiduciary had obtained within the fiduciary relationship the opportunity to make the profit or the knowledge that the profit was there to be made.

...

(3) The obligation to account survived the termination of the relationship out of which it arose and it was irrelevant that the benefits of the contract would not be derived by the appellants until after the first appellant had left the employment of the respondent.

7 The Full Court in Green's case approved Canadian Aero Service Ltd v O'Malley [1974] SCR 592. In Canadian Aero Service, the court allowed an appeal from the Court of Appeal in Ontario in a matter in which officers of a company had breached their fiduciary duty to the company by diverting from the company, for their own benefit, a commercial opportunity available to the company. Laskin J said, relevantly, for present purposes (615 - 616):

The view taken by the trial judge, and affirmed by the Court of Appeal (which quoted the same passage from the reasons of Lord Russell of Killowen in Regal (Hastings) Ltd v Gulliver), tended to obscure the difference between the survival of fiduciary duty after resignation and the right to use non-confidential information acquired in the course of employment and as a result of experience. I do not see that either the question of the confidentiality of the information acquired by [the officers] in the course of their work ... or the question of the copyright is relevant to the enforcement against them of a fiduciary duty. The fact that breach of confidence or violation of copyright may itself afford a ground of relief does not make either one a necessary ingredient of a successful claim for breach of fiduciary duty.

8 The learned trial judge made, in effect, the following findings of fact, which are uncontested in this appeal (references are to his Honour's reasons for judgment):

(a) the former employee was a member of 'top management' within the company's business, in the sense used in Green's case: [98];

(b) at all material times the company was actively pursuing the opportunity to supply buses to the customer and the opportunity was 'ripe, specific and substantial': [119], [123];

(c) the former employee was consulted by the company about the prices in the company's quotes to the customer: [128];

(d) the former employee's resignation was done with a view to taking advantage, for himself, of the opportunity presented: [155]; and

(e) the former employee pursued, for personal gain, the opportunity to supply buses to the customer whilst he was still in the employ of the company: [129], [132], [137], [146], [155], [158] - [159], [176] - [177], [179].

9 His Honour found that the former employee permitted his interests as a director and shareholder of the rival entity to conflict with his duties to the company, that the former employee breached his fiduciary duty to the company, that the breach was dishonest and fraudulent, and that the rival entity knowingly assisted in the breach: [115], [158] - [159], [172], [174], [187].

10 His Honour also found, although he considered it to be unnecessary to do so having regard to the principles in Green's case, that the former employee had 'used' confidential information. In so doing, his Honour considered whether, on the facts, there was information which was 'confidential' for the purposes of the law relating to breaches of confidence and misuse of confidential information by an employee: [106] - [114], [159] - [164]. In that regard, his Honour referred to Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317; Faccenda Chicken Ltd v Fowler [1987] Ch 117.

11 In relation to the matter of 'confidential' information, the focus of this aspect of his Honour's judgment was on the company's pleading that the former employee was apprised of information as to the timetable by which the company could supply buses to the customer having regard to its existing commitments: [53] - [54]. In this context, his Honour found that the former employee was aware that, because of existing orders, the company was not in a position to supply buses before September 2008, and that the customer had discussed the importance of delivery prior to then with the former employee: [32], [129].

12 His Honour, at [159], said, in effect, that he understood the company's case as necessarily entailing an allegation that confidential information had been 'used' by the former employee. On the other hand, his Honour had recorded at [60] that the company had contended that it did not need to prove that the former employee had used confidential information, although, his Honour said, in making that contention the company did not rely on Green's case. His Honour, nevertheless, said that 'counsel for both parties made extensive reference to that case': [57]. He also indicated that he would consider the company's case in terms of both the principles in Green's case, as well as whether or not the company had established that the former employee had used confidential information: [61].

13 Although his Honour had characterised information regarding the company's timetable for the supply of buses as 'confidential' in the sense used in the law relating to actions for breach of confidence, his Honour, in effect, recognised and held that 'the pursuit of the opportunity to supply buses to [the customer] while [the former employee] was in the employ of [the company], even if the resultant contracts were not concluded until after [the former employee] left the [company's] employ', constituted a breach of fiduciary duty in accordance with the principles in Green's case: [159], [172].

14 In this appeal, the former employee and the rival entity have fastened upon the judge's findings regarding 'confidential' information and its use. They contend that those findings are erroneous and that, in consequence, the orders below should be discharged.

15 The grounds of appeal are, in effect, that, having determined 'confidentiality' as a principal issue in the case, the judge erred in finding that:

(a) the pleaded information as to the timetable for supplying buses to the customer was confidential, when that information was in substance no different from information as to when the company expected to be able to deliver buses, which was held not to be confidential (grounds 1 and 3);

(b) the former employee's assessment of the company's capacity to supply the buses to the customer was the relevant information for the purposes of considering whether the information was confidential, when that was not the information which the company had pleaded as being confidential (ground 2);

(c) a statement about the company's production capability to supply buses was confidential information in the sense used in Wright v Gasweld (ground 4);

(d) the former employee had used confidential information when, having regard to the preceding grounds, the information the subject of that finding could not properly be regarded as confidential (ground 5); and

(e) the former employee was in breach of duty and the rival entity liable to account when, having regard to the preceding grounds, there was no confidential information and the company had thus not established its case (grounds 6 and 7).

16 The company, in its notice of contention, contends, in effect, that:

(a) it was not necessary for the judge to consider whether the information was 'confidential' having regard to his findings concerning the former employee's pursuit of the commercial opportunity whilst in the employ of the company;

(b) the judge erred insofar as he held that he was required to find that the former employee had used confidential information, in light of the principle in Green's case, the way in which the company had pleaded and put forward its case at trial, and the finding in [60] of the reasons concerning it not being necessary for the company to prove the use of confidential information; and

(c) the judge erred insofar as he found that assistance would be derived from the authorities on misuse of confidential information by an employee, having regard to his findings that, while still an employee, the former employee set out to pursue the commercial opportunity with the customer.

17 In their reply to the notice of contention, the former employee and the rival entity contend, in effect, that:

(a) the company should be held strictly to the way in which it pleaded and put forward its case, and it is too late for the company to rely upon what is described as the 'singular discrete application' of the principle in Green's case;

(b) the company should be bound by its case as pleaded and put forward, particularly insofar as it did not rely on the principles in Green's case [60], and having regard to its written closing submissions to the effect that the essential elements of its cause of action were:

(i) that the former employee owed a fiduciary duty by reason of the relationship of employer and employee, and by reason of information provided to or available to him in the course of such employment;

(ii) that information 'should be' [sic] confidential; and

(iii) that there had been a breach of that fiduciary duty by proof that the former employee had placed himself in a position where his duty and his interest conflicted or where there was a real and sensible possibility of conflict; and

(c) the judge recorded [108] that there appeared to be no contest that he could derive assistance from the cases with respect to breaches of confidence by a former employee, that he adopted the proposition that in determining what is confidential involves a decision on a question of fact, and that the question of whether a person is a current or former employee is irrelevant to whether the information has the quality of confidence.

18 The written submissions in the appeal and on the notice of contention were relatively brief and largely served to emphasise the points noted above.

19 At the hearing of the appeal senior counsel for the former employee and the rival entity contended that the company, by its closing submissions and pleadings, had made its case dependent upon a claim that confidential information had been misused. He said that the former employee and the rival entity would have conducted their defence differently had a claim been made on the basis of the principles in Green's case. In response to questions from the bench as to how the defence would have been different, senior counsel gave two answers. First, he said that further evidence would have been called on whether the former employee was in a position of 'top management', as the judge had found [98]. Secondly, he said that other evidence would have been called on the question of the corporate opportunity to supply buses to the customer.

20 Senior counsel for the former employee and the rival entity accepted that if the company's success in the court below was not dependent upon proof that there was a misuse of confidential information, the appeal must fail.

21 In relation to the notice of contention, senior counsel for the company acknowledged, in effect, that it was unconventional, if not irregular, in that it alleged errors on the part of the judge. He asked the court to construe it as contending that the judge's orders could be supported on the principles in Green's case if the court were of the view that his Honour had found for the company on the basis, only, of a claim for misuse of confidential information.

22 I would dismiss the appeal for the following reasons. First, even if it is correct to contend that the judge identified the use of confidential information as a primary issue in the case (and there is perhaps some ambiguity in the reasons in that regard), it is apparent, in my view, that the judge's findings referred to earlier in [8] - [9] of these reasons did not depend upon a finding of use of confidential information in the sense used in the cases on breach of confidence. Secondly, properly construed, his Honour's reasons indicate that he found that the findings referred to earlier were sufficient to establish the company's claim for relief. Thirdly, it is not suggested in this appeal that those findings were not, in themselves, sufficient to ground relief. Nor was the correctness of the principles in Green's case disputed. Fourthly, those findings were not challenged, either as being contrary to the evidence, or as being findings impermissibly made because they travelled outside of the case run by the company at trial. Fifthly, it is plain, in my view, that the company had pleaded a case with which those findings were consistent. As noted earlier, the existence of the duty was admitted on the pleadings. Also, the company had pleaded, in effect, that the former employee acquired knowledge of the business opportunity in the course of his employment (amended statement of claim pars 12 and 13.1, 13.2, 13.4 and 17), and, on one of its alternative claims, had alleged that the former employee had pursued that opportunity for his own benefit whilst still employed by the company (amended statement of claim pars 18 and 19).

23 Sixthly, I am unable to accept the submissions on behalf of the former employee and the rival entity that they were deflected in their defence by the issues on which the company fought the case at trial. The suggestion that different evidence would have been called as to the position of the former employee within the company's business lacks cogency when it is noted that the nature of the position was expressly the subject of pleadings on both sides, it was the subject of evidentiary contest at trial, and its legal significance was in relation to the existence and scope of any fiduciary duty owed to the company - which were admitted on the pleadings.

24 The suggestion that other evidence would have been called on the question of the corporate opportunity also, in my view, lacks any force. It was coupled with a submission, in effect, that the corporate opportunity had not been pleaded by the company. However, the corporate opportunity had been expressly pleaded in par 17 of the amended statement of claim. Moreover, it was pleaded without reference to any plea that the information in that regard had a character of confidence for the purposes of the law relating to breach of confidence. The matter was also the subject of considerable evidence at trial, and there was no elaboration in the submissions on how the evidence might conceivably have been different. There was no suggestion that cross-examination may have been different.

25 Whatever emphasis trial counsel for the company gave in closing on the question of confidential information, the company's success in the court below was not dependent upon proof that there was a misuse of confidential information.