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[2026] NSWSC 129
General information, not legal advice.
Supreme Court of NSW
2026-02-26
Richmond J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: CH Real Estate Pty Ltd v Shatford [2026] NSWSC 129
Hearing dates: 17-20, 21, 24-25 March 2025
Date of orders: 26 February 2026
Decision date: 26 February 2026
Jurisdiction: Equity
Before: Richmond J
Decision: (1) Direct the parties to bring in agreed short minutes to give effect to this judgment and a timetable to resolve the issue as to costs within 14 days or, if there is no agreement, their respective short minutes of order and short submissions in support not exceeding 3 pages.
Catchwords: EQUITY — Fiduciary duties — Fiduciary relationships — Employee and employer — Whether unauthorised profit made in the course of employment — Consideration of whether profit ‘unauthorised’ made by reference to scope of fiduciary duty
EQUITY — Fiduciary duties — Conflict of interest and duty — Informed consent — Whether plaintiff company has provided fully informed consented to putative breaches of duty — Principles to be applied
EMPLOYMENT AND INDUSTRIAL LAW — Nature of employment relationship — Whether defendant can be characterised as an employee of the plaintiff so as to be entitled to long service leave under the Long Service Leave Act 1955 (NSW) — Multifactorial approach not applied
Legislation Cited: Corporations Act 2001 (Cth)
Long Service Leave Act 1955 (NSW)
Cases Cited: Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43
Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294
Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507; [2005] HCA 23
ASIC v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35; [2007] FCA 963
BLB Corporation of Australia Establishment v Jacobsen (1974) 48 ALJR 372
Blue Visions Management Pty Ltd v Chidiac [2017] NSWSC 255
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Bristol and West Building Society v Mothew [1998] Ch 1
Carter v Orix Australia Corporation Ltd [2022] FCA 784
Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) 275 CLR 165; [2022] HCA 1
Crouch v Hooper (1852) 16 Beav 182; 51 ER 747
Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15
Et-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24
Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179; (2018) 129 ACSR 265
Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659; [2016] NSWCA 307
Hartnell v Birketu Pty Ltd (2022) 105 NSWLR 541; [2021] NSWCA 201
Hollis v Vabu Pty Ltd (2001) 207 CLR 21; [2001] HCA 44
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Jeffreys v Sheer [2025] NSWCA 31
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23
Murdoch v Mudgee Dolomite & Lime Pty Ltd [2022] NSWCA 12; (2022) 398 ALR 658
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723
Neufeld v Secretary of State for Business, Enterprise and Regulatory Reform [2009] EWCA Civ 280
Onassis v Vergottis [1968] 2 Lloyd’s Rep 403
R v Byrnes (1995) 183 CLR 501; [1995] HCA 1
Recovery Partners GP Ltd v Rukhadze [2025] 2 WLR 529; [2025] UKSC 10
Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (1997) 37 ATR 528
Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16; [1986] HCA 1
The Parkdale [1897] P 53
Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544
Watson v Foxman (1995) 49 NSWLR 315
Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666
Woolworths v Kelly (1991) 22 NSWLR 189
Texts Cited: JD Heydon, Heydon on Contract (Lawbook Co, 2019)
LCB Gower and PL Davies, Gower and Davies’ Principles of Modern Company Law (7th ed, Sweet & Maxwell, 2003)
Category: Principal judgment
Parties: CH Real Estate Pty Ltd t/as Raine & Horne Penrith Commercial (Plaintiff)
Gavin Russell Shatford (First Defendant)
Shatford Commercial Pty Ltd (Second Defendant)
Representation: Counsel:
E T Finnane (Plaintiff)
J Gatland (Defendant)
Solicitors:
Jemmeson Fisher (Plaintiff)
Adams Hatton & Associates (Defendant)
File Number(s): 2021/365827
Publication restriction: Nil
The plaintiff in these proceedings, CH Real Estate Pty Ltd (CH****RE), brings a claim against its former employee Gavin Russell Shatford (Mr Shatford), the first defendant, and Shatford Commercial Pty Ltd (Shatford Commercial), the second defendant, a company of which he is the sole director and shareholder.
CHRE alleges that during the period from February 2015 to May 2021, Mr Shatford breached various contractual and fiduciary obligations owed to CHRE by diverting profits from CHRE to himself. Accordingly, CHRE brings its claims in equity, under the employment contract between it and Mr Shatford entered into in 2011, and under ss 182 of the Corporations Act 2001 (Cth). While CHRE initially brought additional claims, including for injunctive relief to restrain misuse of confidential information, these were abandoned at trial. The first defendant also brings a claim by way of set-off for his unpaid long service leave entitlement. He argues that to the extent he is found liable to account for profits diverted from CHRE, the amount should be set off against the unpaid amount he is owed.
Mr Finnane of counsel appeared for the plaintiff and Ms Gatland of counsel appeared for the defendants.
The plaintiff relied on the evidence of the following witnesses: (a) Mr Colin Henry, the managing director of the plaintiff, who made four affidavits; (b) Ms Georgina Archer, an employee of the plaintiff with responsibility for the bookkeeping functions of the company, who made two affidavits: (c) Ms Elizabeth Prasad, a sales and leasing executive employed by the plaintiff, who made two affidavits; (d) Ms Lindy Johnson, an asset manager employed by the plaintiff who provided secretarial services to Mr Shatford during his employment with the plaintiff, who made one affidavit; and (e) Mr Luke Smith, a real estate agent with another Raine & Horne Commercial franchisee who made one affidavit regarding the Rozelle transaction. Each of them was cross-examined.
The defendants relied on the evidence of: (a) Mr Shatford, who made two affidavits: (b) Mr Marcel Elias, who was employed by LJ Hooker Commercial Silverwater (LJHC Silverwater) during the period in issue in these proceedings and worked with Mr Shatford as the selling agent on some of the transactions in issue, who made two affidavits (the second merely correcting a drafting error in the first); and (c) Mr Heath Adams, a solicitor who acted in some of the transactions in which Mr Shatford was the listing agent. Each was cross-examined except for Mr Adams who was not required for cross-examination.
The key witness for the plaintiff was Mr Henry and for the defendants was Mr Shatford, each of whom was cross-examined over several days. The key area of dispute in their evidence was as to their recollection of conversations occurring in January and February 2015, September 2016 and May 2018. It was not suggested that either of them was deliberately dishonest, although the plaintiff submitted that the assessment of Mr Shatford’s evidence should take into account that he had engaged in conduct falling below normal standards of honesty. It was not suggested that any of the other witnesses who were cross-examined were other than reliable and honest witnesses.
Given the lengthy passage of time between when the disputed conversations between Mr Henry and Mr Shatford occurred and the time when they both prepared their affidavits and gave oral evidence, I have borne in mind the well-known observations of McLelland CJ in Eq regarding the fallibility of human memory in Watson v Foxman (1995) 49 NSWLR 315 at 318:
… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
It is matter of frequent observation that persons dwelling for a long time on facts, which they believe must have occurred, and trying to remember whether they did so or not, come at last to persuade themselves that they do actually recollect the occurrence of circumstances of which, at first, they only begin by believing must have happened. What was originally the result of imagination becomes in time the result of recollection…
“Credibility” involves wider problems than mere “demeanour” which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person, telling something less than the truth on this issue, or, though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so, has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by overmuch discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist.
It is for these reasons that it is accepted that reliable contemporaneous documents generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 at [15]-[16]; Et-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [25]-[29] (and cases there cited).
Bearing these principles in mind, where there was a dispute in the lay evidence as to conversations I have placed primary reliance on the extent to which the evidence is corroborated by contemporaneous documents, the objective surrounding facts and the apparent logic of events: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [31].
In certain cases, as explained below, I have not accepted the evidence of Mr Henry or Mr Shatford as to important disputed conversations. I did so not on the basis that they were dishonest in their evidence but rather because I consider that their recollections of events were distorted by the passage of time or perhaps altered by what Lord Pearce referred to as ‘unconscious bias, wishful thinking or by over much discussion of it with others’.
I note also that when the law requires the proof of any fact the Court must feel an actual persuasion of its occurrence or existence before it can be found, and ‘it cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality’: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361; [1938] HCA 34 per Dixon J.
In the ASOC the plaintiff brings claims against the first defendant, Mr Shatford, based on alleged breaches by him of his contract of employment, his equitable duty of confidence to the plaintiff, his fiduciary obligations to the plaintiff and the statutory obligations imposed on him by ss 182 and 183 of the Corporations Act. In addition, the ASOC includes a claim for a debt of $32,000 allegedly owing by Mr Shatford to the plaintiff. Not all of those claims were ultimately pressed.
First, there is a claim for an alleged breach by Mr Shatford of his contractual obligations and the equitable duty of confidence in relation to the plaintiff’s confidential information: ASOC [30]-[35]. The ASOC alleges that during his employment with the plaintiff Mr Shatford deleted from the plaintiff’s computer devices and database a total of 916 contacts in March 2021, and thereafter used and continues to use that confidential information in connection with his conduct of real estate activities for his own benefit or the benefit of Shatford Commercial, the second defendant (ASOC [30]-[31]). It is also alleged that Mr Shatford deleted records on his work mobile phone prior to returning it to the plaintiff (ASOC [33]) and that he has not returned all confidential information taken by him or ceased to misuse it (ASOC [34]).
The relief claimed in the ASOC includes an injunction to restrain the defendants from directly or indirectly using and/or copying the confidential information of the plaintiff and damages or in the alternative equitable compensation for misuse of the confidential information.
In the plaintiff’s closing written submissions, the claim for an injunction was not pressed. The allegation that Mr Shatford had misused the plaintiff’s confidential information was mentioned in the plaintiff’s opening written submissions but was not pursued at the hearing.
Secondly, there is a claim that during his employment with the plaintiff Mr Shatford diverted business and income of the plaintiff to himself or to Shatford Property Pty Ltd (Shatford Property), a company he controlled: ASOC [36]-[46E].
This claim relates to the conduct of Mr Shatford in two separate periods. The first is from February 2015 to around August 2016 when Shatford Property conducted a business known as ‘Raine & Horne Special Projects’ while Mr Shatford was still employed by the plaintiff, and was devoting his time to working for both the plaintiff and Shatford Property. The ASOC alleges that while the plaintiff gave its consent to Mr Shatford conducting this activity through Shatford Property, it was operated by him in breach of the conditions of the consent which were that no services would be offered or provided: (a) in competition with the plaintiff, (b) in relation to properties or clients in the Penrith Local Government Area (Penrith LGA) or (c) in relation to clients or contacts of the plaintiff: ASOC [37].
At all material times until 31 May 2021, Shatford was a former director and a senior employee of CH and owed CH a fiduciary duty requiring him to:
(a) Act in the exclusive interest of CH;
(b) not act, whether as agent, employee or otherwise, for any employer or principal with interest that could conflict with those of CH without the informed consent of CH;
(c) act honestly in the service of CH;
(d) not act contrary to CH’s interests;
(e) not allow a conflict of interest (including a real or substantial possibility of a conflict of interest) to arise between his own interests and CH’s interests;
(f) not misuse his position as an employee to obtain a personal benefit;
(g) not take for his own benefit an opportunity to profit that he became aware of by reason of his employment with CH;
(h) not misuse knowledge gained by him by reason of his employment with CH;
…
(k) not induce or otherwise entice CH’s clients or customers away from CH;
(l) not to exploit a business opportunity that was suitable for CH;
(m) not to breach the double employment rule;
(n) not to take secret commissions;
(o) to seek informed consent from CH for any conduct that conflicted with his fiduciary obligations.
In the AD at [26(c)], the defendants admit (b)-(h) and (k) but not the remainder of these paragraphs.
There is a further allegation that during his employment with the plaintiff Mr Shatford obtained confidential information of the plaintiff in circumstances of confidentiality and misused it by the conduct referred to above in breach of the equitable duty of confidence, cl 13 of the employment contract and s 183 of the Corporations Act: ASOC [46]. At the hearing, no submissions were made regarding this claim apparently on the basis that it overlapped the claim for breach of fiduciary duty, and I proceed on the basis that it was not separately pressed.
Shatford Property is alleged to be accountable to the plaintiff for the moneys received by respect of the relevant conduct of Mr Shatford because it was controlled by, and was the alter ego of, Mr Shatford: ASOC [46A]-[46E]. Mr Shatford accepted in his submissions at trial that Shatford Property was his alter ego.
Thirdly, there is a claim that Mr Shatford breached the terms of the post-employment restraint in his contract of employment: ASOC [47]-[48]. The claim in respect of the breach of the post-employment restraint was limited in the plaintiff’s closing submissions to an amount of $440 paid to Shatford Commercial by a client of the plaintiff in December 2021.
Fourthly, there is a claim that Mr Shatford breached clause 4 of his employment contract by failing to enter into the plaintiff’s database details of all clients and customers he dealt with, deleting customer and client contact information from the database, failing to deal with confidential information for the sole benefit of the plaintiff and failing to return to the plaintiff following his resignation confidential information he had taken from the plaintiff’s business premises: ASOC [49]-[50].
The plaintiff did not raise this claim in its written or oral submissions and it appears not to have been pressed.
Fifthly, there is a claim that Mr Shatford owes a debt of $32,000 based on the allegation of a loan by the plaintiff to Mr Shatford of $50,000 less payments of $18,000 made by him before termination of his employment. This debt claim was dropped by counsel for the plaintiff in opening (T14.18).
It follows that the only claim pressed by the plaintiff is that during his employment Mr Shatford diverted business and income of the plaintiff to himself and Shatford Property in breach of the contractual, equitable and statutory duties referred to above. The amount of the plaintiff’s loss in respect of both periods is particularised in Annexure A to the ASOC. At the hearing the plaintiff relied on a revised version of Annexure A, comprising two tables called ‘Revised Table 1’ (dealing with market appraisals invoiced by Shatford Property) and ‘Revised Table 2’ (dealing with other services invoiced by Shatford Property). The total amount of the receipts of Shatford Property identified by these tables is $246,995.31, comprising $24,588 under Revised Table 1 and $222,407.31 under Revised Table 2.
In closing submissions, the plaintiff elected that its remedy for the alleged breaches in both periods is that Mr Shatford should account to the plaintiff for the receipt of monies by Shatford Property in respect of the alleged breaches. The amount claimed on this basis is $271,297.49 (before interest and GST), calculated as set out in the following table in the plaintiff’s reply submissions dated 11 April 2025 at [135]:
| Description | Amount | | | Market appraisals as set out in Revised Table 1 | $24,588.00 | | 90 Ashford Ave Milperra / Tsolon | $30,000.00 | | 74 Murphy Street Blaxland (Inv 1017) | $30,360.00 | | 2 Clay Place, Eastern Creek (Inv 1026) | $56,718.75 | | Unit 17, 29 Coombes Drive Penrith (Inv 1061) | $9,000.00 | Admitted by Defendants | | 6/171 Power Street Glendenning / Hurst (Inv 1072) | $8,250.00 | Admitted by Defendants | | Shop 2, 602-604 Darling Road Rozelle / Darling St Holdings (Inv 1028) | $8,250.00 | | | North Mulgrave / NGP Investments (Inv 1032) | $23,100.00 | | | 148 Macquarie Street, Springwood / (Inv 1039) | $3,300.00 | | | 148 Macquarie Street, Springwood / Ostaday (Inv 1047) | $11,000.00 | | | 38 Somerset Street, Kingswood / Somerset St PH (Inv 1065, 1068, 1069, 1073, 1074, 1080) | $8,341.62 | Partially admitted by Defendants | | 10, 19 Chifley Street Smithfield / Dutchman Enterprises (Inv 1045) | $20,900.00 | | | 1/61-65 Regentville Road Jamisontown / Troy Brown / Metro Super (Inv 1075) | $5,720.00 | Admitted by Defendants | | 20-22 Grose Street Leura, (Inv 1042) | $5,500.00 | | | Barwon Property Fund payment (no invoice) | $4,400.00 | Admitted by Defendants | | Dr Coffey's payment in December 2021 | $440.00 | Admitted by Defendants | | "Gratuity": 561 Great Western Hwy Werrington/ Ostaday / Inv 1064 | $14,575.00 | Admitted by Defendants | | Gratuity: Lam Family (no invoice) | $7,851.00 | Admitted by Defendants | | Gratuity: Lister & Cole (Inv 1029) | $5,500.00 | | | Total principal claim | $277,794.37 | | | Less amounts already paid following email of 28 May 2018 | $6,496.88 | | | Net principal claim | $271,297.49 | |
I note that there is a calculation error in the tenth entry in the table for 38 Somerset Street, Kingswood, in that the total of the six invoices listed there is $7,149.96, but the correct amount is that shown of $8,341.62 and hence I treat this item as admitted by the defendants (see [34] below).
In closing submissions, the defendants conceded that Mr Shatford is liable to account to the plaintiff for amounts received by Shatford Property in breach of his contractual or fiduciary duties to the plaintiff, reflecting the fact that he was its alter ego: Grimaldi v Chameleon Mining NL *(*No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [556]. The defendants also accepted a liability to account on this basis for the following amounts received by Shatford Property (Defendants’ Closing Submissions dated 8 April 2025 (DCS) at [131]):
| Description and invoice details of conceded amounts: | Amount | | Payment from Mr Neild, Invoice 1061 | $9,000.00 | | Payment from Mr Brown (no invoice) | $5,720.00 | | Lam Family payment (no invoice) | $7,851.00 | | Payment from re Werrington sale gratuity, Invoice 1064 | $14,575.00 | | Payment from Messrs Hurst, Glendenning sale, Invoice 1072 | $8,250.00 | | Sommerset Street Private Hospital: Invoices 1065, 1068, 1069, 1073, 1074 and 1080 | $7,149.96 | | Barwon Property Fund payment (no invoice) | $4,400.00 | | Dr Coffey's payment in December 2021 | $440.00 | | Subtotal of conceded claim, inclusive of GST | $57,385.96 | | GST (already remitted to the ATO) | $5,738.60 | | Net subtotal of the conceded claim, before application of any offset amount | $51,647.36 |
The AD denies the alleged breaches by the defendants. In relation to the alleged diversion of income to Shatford Property:
In respect of the period during which the Special Projects franchise was in operation, the defendants deny that the conditions of the consent with those set out in (a)-(c) and allege that the plaintiff and Mr Shatford agreed in early February 2015 that Shatford property would not ‘operate’ within the Penrith LGA which Mr Shatford understood to mean would not sell properties located within Penrith LGA: AD [37(d)]. The agreement pleaded at [37(d)] is as follows:
…it was agreed between the first defendant and the plaintiff in about early February 2015 that Shatford Property would not ‘operate’ within the Penrith Local Government Area by which the first defendant understood to mean would not sell properties located within the Penrith Local Government Area.
In respect of the period following termination of the Special Projects franchise, the defendants say that all the identified activities, and the receipts by Shatford Property in respect of them, were authorised or made with the consent of the plaintiff and says that the services for which Shatford Property received the various payments were not performed in competition with the plaintiff as the plaintiff did not provide the relevant service or were provided with the express agreement of the plaintiff made in February 2015 as pleaded in the AD at [37(d)] : AD [41]-[55].
At AD [78] Mr Shatford brings a claim for unpaid long service leave in the amount of $36,652.55 by way of set-off against the plaintiff’s claim.
The main issue for determination is whether Mr Shatford is liable to account to the plaintiff for the benefits identified in the plaintiff’s table at [31] above. It is convenient to deal with this issue by reference to the two separate periods to which the claim relates: (a) the period from 16 February 2015 to 15 August 2016 (First Period) when the Special Projects franchise was in operation, and (b) the period from 16 August 2016 until 24 May 2021 (Second Period) when Mr Shatford’s employment with the plaintiff came to an end. In relation to the First Period, it is necessary to determine the extent of the approval given by Mr Henry to Mr Shatford to conduct the Special Projects franchise.
A further issue is whether Mr Shatford is entitled to a set-off for unpaid long service leave entitlements and commission against any account of profits.
CHRE is a licensed real estate agency based in Penrith which has traded under the business name ‘Raine & Horne Commercial Penrith’ (RHC Penrith) as a franchisee of the Australian real estate franchise group Raine & Horne since 1991. It was established by Mr Colin Henry who had been an employee of Raine and Horne Penrith since 1988 and had decided in 1991 to establish his own stand-alone agency, RHC Penrith, when the opportunity arose to take over the commercial clients of the Raine and Horne Penrith office.
Mr Henry has been a director of CHRE since the company was registered and has been the sole director since July 2011 and since that time has controlled the sole shareholder (the trustee of his family trust). He has been at all relevant times the managing director of the company.
RHC Penrith specialised in the commercial and retail sectors of the real estate market (and not the residential market). It provided real estate services of selling, leasing and managing commercial, industrial and retail property, acting for past and present landlords and property owners.
RHC Penrith also provided market appraisals and valuations to clients throughout the relevant period, in accordance with the common practice in the real estate industry. Mr Henry’s evidence regarding these services, which I accept, can be summarised as follows:
A ‘market appraisal’ involves estimating either the market rental or market sale price of a property based on various factors such as location, comparable sales or rents, comparable properties on the market for sale or rent, and market demand.
A market appraisal is different from a valuation which deals with the market value of the property and may only be undertaken by a registered valuer. During the period that Mr Shatford was employed by CHRE, the only registered valuers were to Henry, Mr Shatford and two other employees.
Both market appraisals and valuations carry an element of risk for the real estate agent providing that service because inaccuracies in the valuation process may impact decisions made by buyers and sellers in the real estate market. In light of this Mr Henry regularly communicated to RHC Penrith staff the importance of implementing safeguards around this process, including that all market appraisals be recorded and must be justified as reasonable when given.
It was Mr Henry’s practice to tell RHC Penrith staff that they have the discretion to charge for market appraisals, and from time to time RHC Penrith did charge for this service but in many cases (such as an existing landlord or client who is considering going to market) the cost of the market appraisal would be absorbed by RHC Penrith. His evidence was that he had never given permission for an employee of RHC Penrith to provide a market appraisal and then invoice the client for their own benefit.
Mr Shatford began working for CHRE part-time on 2 December 1996 while a university student. On 1 January 1999 he commenced working on a full-time basis on a salary of $50,000 pa (including car allowance) as a salesperson at the Penrith office of CHRE following completion of his studies for a Bachelor of Applied Science in Land Economy at UTS at the end of 1998. He graduated with that degree in May 1999. The commencement date of his part-time employment is confirmed by CHRE’s employment records (Ex 13) and the commencement date and salary for his full-time employment confirmed by a letter dated 4 November 1998 signed by him and Mr Henry.
In around May 2000, CHRE opened a branch office in Campbelltown which traded as ‘Raine & Horne Commercial Campbelltown’. Both Mr Henry and Mr Shatford were involved in the establishment of that office. Arising out of this expansion of CHRE’s business, Mr Henry and Mr Shatford agreed that Mr Shatford would acquire shares in CHRE and become a director.
On 24 October 2002 Mr Shatford became a director of CHRE and in April or May 2003 the trustee of his family trust purchased 97 ordinary shares in CHRE (representing a one third shareholding in the company) from Mrs Andrea Henry (Mr Henry’s wife) for a total price of $863,800. This is established by the share transfer form, which is in evidence, although it is undated except for the inclusion of the year ‘2003’. There are no documentary records in evidence regarding his appointment as director apart from the ASIC search for CHRE. Mr Shatford deposed in his first affidavit that he paid the purchase price of $863,000 gradually over the period from July to April 2003 prior to execution of the transfer.
From May 2000 until July 2011, Mr Shatford worked in both the Campbelltown office and the Penrith office with the title of ‘Director, Sales and Leasing’. As Mr Henry said in cross examination, there was no significant change in Mr Shatford’s role once he became a director: he continued to be a ‘salesman’ (T46.5). Ultimately, the Campbelltown office was sold in October 2014.
In 2003, Mr Bruce Kinley became a director of CHRE and (through his family trust) acquired 97 ordinary shares in CHRE and managed the retail services side of the business (including the management of a number of shopping centres). From this time the directors of CHRE were Mr Henry, Mr Shatford and Mr Kinley, and each controlled one third of the company’s shares.
In 2009, Mr Kinley resigned as a director and sold his shares in CHRE to the trustee of Mr Henry’s family trust.
In May 2011, Mr Shatford told Mr Henry that he wished to resign as a director and sell his shares in CHRE due to problems with his health. Mr Shatford has suffered from lupus, an auto-immune disease, throughout his adult life and at various times, both before and after this discussion with Mr Henry, he has experienced periods of significant ill health. His evidence, which I accept, is that he wanted to step back from the business as the stress involved in working in both the Penrith and Campbelltown offices was causing his condition to worsen. There is a dispute as to what precisely was said in the discussions between the two men about the terms on which Mr Shatford would cease to be a director (and shareholder) of CHRE, which it is not necessary to resolve. Ultimately it is sufficient to record that what was agreed between them was that Mr Shatford would retire as a director of CHRE, sell the shares in the company held by his family trust and continue to work for CHRE as an employee.
On 16 February 2015, Shatford Property entered into a franchise agreement with Raine & Horne Pty Ltd, for a franchise called ‘Raine & Horne Commercial Special Projects’ (Special Projects) to be operated from at premises at 55 Harrington Street, Sydney which is in the Sydney CBD (S****P Franchise Agreement). The term was five years commencing on 16 February 2015. This agreement was ultimately terminated by Mr Shatford on 15 August 2016.
It is not in dispute that during the period from 16 February 2015 to 15 August 2016 when the Special Projects Franchise Agreement was in operation, Mr Shatford was permitted with Mr Henry’s agreement, to work for both Shatford Property under the Special Projects franchise and for CHRE as its employee, but there is a dispute as to the extent to which Mr Shatford was permitted to compete with RHC Penrith in the conduct of this new business which turns on which version of the conversations between the two men in January 2015 is correct.
The plaintiff contends that Mr Henry gave approval to Mr Shatford to operate Special Projects on the basis that Mr Shatford would only deal with property located outside the Penrith LGA and would not involve clients of RHC Penrith. Mr Shatford contends that he was permitted to undertake activities outside the Penrith LGA including with clients of RHC Penrith. The scope of the approval given by Mr Henry is the first issue dealt with below.
During the operation of Special Projects, Mr Shatford says he worked three days per week at the Penrith office, carrying out his duties for CHRE, and two days per week at the office in the Sydney CBD, working for Special Projects.
Following the termination of the Special Projects franchise on 15 August 2016, Mr Shatford returned to working full-time for CHRE and continued to do so until the termination of his employment on 24 May 2021. His evidence, which I accept, is that around the time the Special Projects franchise came to an end he entered a number of contacts and data relating to the Special Projects franchise into the RHC Penrith database and from this time he worked in the office of RHC Penrith and utilised the secretarial services of another employee of the plaintiff, Lindy Johnson.
Although not all of Mr Shatford’s commission statements for the period after the termination of the Special Projects franchise are in evidence, it is clear that Mr Shatford continued to fail to meet his quarterly commission targets. The commission statement for the June 2018 quarter shows that the deficit carried forward from the previous quarter was $221,575.97 and that there was a further deficit in the June 2018 quarter of $49,020, bringing up a total deficit of $270,595.97.
Mr Henry deposed that he had a conversation with Mr Shatford in May 2018 in which Mr Shatford said that he was having financial difficulties and it was agreed that Mr Henry would lend him $50,000, and that the loan would be repaid from commissions. Mr Henry corrected this in his oral evidence in chief when he stated that ‘the conversation that took place at that time was about $50,000 being advanced, but it wasn’t done in cash’ (T36.35).
The upshot of the discussions was that Mr Henry agreed on 28 May 2018 to vary the terms of the Employment Contract by way of a letter from CHRE to Mr Shatford dated 28 May 2018 which he signed on 30 May 2018. This letter stated that (a) Mr Shatford’s existing employment package, totalling $100,208.71 plus a fully maintained company car, would remain unchanged; (b) that from 1 July 2018 his quarterly target would reduce to $45,000 per quarter; (c) that he would receive 45% of the employer’s commission in excess of that target; (d) that at the end of each financial year any shortfall in reaching the target amount would be repaid to CHRE; and (e) that his current shortfall was to be written off. These changes regarding the quarterly target and shortfall are reflected in his September 2018 quarter commission statement.
In the commission statements for the March and December 2019 quarters, Mr Shatford reached his target and had a commission entitlement. The March statement shows an entry described as ‘debt repayment as agreed’ in the sum of $12,500, and the December statement shows an entry described as ‘debt repayment as agreed’ in the sum of $5,500. Both ‘repayments’ were made by way of deduction from commission payments to Mr Shatford.
In early 2021 Mr Shatford deposed that with the assistance of another employee of CHRE, Ms Amy Eishauer, went through a process of systematically going through the hardcopy folders he had kept containing information about various properties in the local area and scanning the relevant information into the RHC Penrith database and also removing contacts in the database which he regarded as ‘unused, unhelpful or unsolicited contacts’. He deposed that he did so following a conversation with Mr Henry in December 2020, in the presence of Ms Eishauer, in which Mr Henry told him that he wanted to computerise everything in the folders kept in the office and for everyone to ‘update their database’. There was originally a complaint about whether this activity had been authorised by Mr Henry but ultimately was not pressed by the plaintiff in final submissions.
Following the termination Mr Shatford’s employment there was an exchange of hostile correspondence between solicitors on both sides, in which CHRE sought the return of a number of physical files and folders as well as deleted emails, deleted mobile telephone contacts and full details of 732 contacts that had been deleted on 2 March 2021 and a further 184 contacts deleted on 15 March 2021. Also CHRE alleged that the defendants were commencing a business contrary to a contractual restraint in the Employment Contract and had used CHRE’s confidential information to do so.
By letter dated 10 June 2021, Mr Shatford’s solicitors gave to CHRE the following undertakings on his behalf:
Mr Gavin Shatford will not, in his personal capacity, or as the controlling mind of Shatford Property Pty Limited (A.C.N. 603 880 548) and Shatford Commercial Pty Limited (A.C.N. 650 228 109) or any other entity providing real estate agency services for the Restraint Period stipulated in the Employment Contract and within the Restraint Distance, being the Penrith Local Government Area only.
Mr Gavin Shatford will not solicit, attempt to solicit, or accept any instructions to perform work from any client (as defined in the Employment Contract) for the Restraint Period (as stipulated in the Employment Contract).
Mr Shatford will maintain confident, all Confidential Information of CH Real Estate Pty Ltd trading as Raine and Horne Commercial Penrith as required by, and in accordance with Clause 13 of the Employment Contract.
Mr Gavin Shatford will wind up Shatford Property Pty Limited (A.C.N. 603 880 548).
Mr Gavin Shatford will cause the Registered Business Address of Shatford Commercial Pty Limited (A.C.N. 650 228 109) to be amended to reflect the correct business operations and locality of these being outside of the Restraint Distance.
Consistently with these undertakings, Shatford Property was deregistered on 18 August 2021.
Six months later, on 24 December 2021, these proceedings were commenced alleging that the defendants used confidential information of, and diverted business from, CHRE while Mr Shatford was an employee of CHRE.
Mr Shatford’s evidence is that neither he or Shatford Commercial traded or provided real estate agency services within the ‘restraint area’ under the Employment Contract within 12 months following the termination of his employment, save for one exception being a market appraisal he provided to Dr Coffey on 23 December 2021 for $440 which was conceded at the commencement of the hearing. He also deposed that he had not accessed or used any confidential information of RHC Penrith since termination of his employment. He was not cross-examined on this evidence and I accept it.
An early, perhaps the first, transaction entered into by Shatford Property under the Special Projects franchise was as a conjunction agent with Mr Elias (who worked for LJHC Silverwater) on the sale of 90 Ashford Avenue, Milperra (90 Ashford Avenue). That property is located outside the Penrith LGA. This is one of the transactions which the plaintiff alleges Mr Shatford entered into in breach of his contractual, fiduciary and statutory duties to the plaintiff.
The following facts in relation to the sale of 90 Ashford Avenue are established by the evidence:
In February 2015 Tsolon Investments Pty Ltd (Tsolon), the owner of 90 Ashford Avenue, appointed LJHC Silverwater and Shatford Property (operating under the Special Projects franchise) as agents for the sale of the property under a conjunction agency arrangement. The conjunction agency arrangement is undated but, based on email correspondence in evidence, I infer it was executed after the commencement of the SP Franchise Agreement on 16 February 2015.
LJHC Silverwater and Shatford Property succeeded in effecting a sale under a contract entered into on 8 April 2015 for a purchase price of $11,000,000. Shatford Property ultimately received $30,000 as its share of the commission from the sale following settlement of the contract for sale in May 2015.
90 Ashford Avenue had been purchased by Tsolon in 2008, at which time the agent for the vendor was the plaintiff, represented by Mr Shatford.
Following the 2008 sale, Mr Shatford had maintained close contact with the directors of Tsolon, whom he regarded as personal friends and their details were entered into the CHRE client data base.
At some time in the period from 2008 to 25 August 2014, Mr Shatford had, in his role as employee of RHC Penrith, acted for Tsolon in connection with the leasing of 90 Ashford Avenue to Hitech Asia Pacific (T348.26).
A media release was issued on 17 February 2015 by the head office of Raine & Horne Commercial and published on its website to advertise the launch of Special Projects (Media Release). There is no evidence to suggest any involvement of CHRE in creating or publishing the Media Release. The Media Release included the following statements regarding Shatford Property’s role as agent on the proposed sale 90 Ashford Avenue (emphasis added):
Raine & Horne Commercial Special Projects has also listed 90 Ashford Avenue, Milperra, a quality modern industrial facility which features high-clearance warehouse accommodation, ample roller shutter doors, large awnings and an air-conditioned office.
‘This is an asset we sold on behalf of Mirvac a few years ago to private investors, who have been my clients for almost 20 years. They now want to resell the property and have appointed Raine & Horne Special Projects to manage the transaction’ said Mr Shatford.
We are now looking to firm up a co-agency agreement with a commercial specialist in the Milperra area to ensure our client enjoys the best possible result.
The ‘we’ referred to in this press release must be a reference to CHRE because Mr Shatford was acting on behalf of CHRE when the sale by Mirvac of 90 Ashford Avenue occurred. The press release states that the property was sold to ‘private investors’ which I infer is a reference to the two directors of Tsolon who he regarded as personal friends, and that they ‘have been my clients for almost 20 years’. However, as the connection between Mr Shatford and Tsolon arose in the course of Mr Shatford’s employment with CHRE, Tsolon was not his client. Rather it was a client of CHRE. That Tsolon was a ‘long-term client’ of CHRE is accepted in the DCS at [87].
Mr Shatford accepted in cross examination that he did not seek Mr Henry’s permission to act as selling agent on the transaction but made the assumption that he was aware of the transaction for two reasons: first, he believed that Mr Henry would have become aware of it through the Media Release; and second, that Ms Johnson had assisted Mr Shatford with the marketing of the property including communicating with Mr Elias and the receipt of the commission, and he assumed that she had communicated this information to Mr Henry (T350-351).
Ms Johnson was an employee of CHRE and she deposed that her role from 2014 included assisting Mr Shatford in ‘secretarial matters’ for Special Projects, and that this included secretarial assistance for him in relation to the conjunction agency for the sale of 90 Ashford Avenue in the period February to April 2015. She was on this transaction and deposed to a conversation with Mr Shatford about this to the following effect:
Johnson: Are you working with Hookers?
Shatford: Yes, I am working in conjunction with my mate Marcel.
Johnson: Does Colin know?
Shatford: Colin is letting me do this [through] Special Projects.
I accept Ms Johnson’s evidence of this conversation, noting that Mr Shatford did not dispute her evidence of the conversation and she was not cross-examined on it. I have added the word ‘through’ into her statement of the conversation as it better reflects the substance of what was being communicated by Mr Shatford.
Ms Johnson’s evidence, which I accept, is that she had no involvement in preparing the Media Release and could not recall ever telling Mr Henry about documents she had received concerning the transaction. That she did not tell Mr Henry about the transaction is consistent with the assurance she received from Mr Shatford that ‘Colin is letting me do this [through] Special Projects’.
During the First Period Mr Shatford also provided market appraisals to the owners of properties both within and outside the Penrith LGA, and those for properties in the Penrith LGA were on RHC Penrith letterhead (T297.22). He said in cross-examination that during the Special Projects franchise he did prepare some market appraisals on Shatford Property or Special Projects letterhead although none were in evidence (T292.47), and that these were for properties outside the Penrith LGA (T297.26).
The evidence discloses that there were seven market appraisals during the First Period for properties in the Penrith LGA and in the case of three of these, invoices were issued by Shatford Property for which payment was received by it: see the plaintiff’s Revised Table 1. The relevant invoices are 1007, 1009 and 1011. There is no evidence that Mr Shatford or Shatford Property charged the clients for the remaining four appraisals and I infer that no charge was made.
These invoices are:
$770.00 for Invoice 1007 dated 18 April 2016 for a market appraisal of 1/83 Cox Avenue, Kingswood.
$440.00 for Invoice 1009 dated 17 May 2016 for a market appraisal of 243 High Street, Penrith.
$363.00 for Invoice 1011 dated 23 June 2016 for a market appraisal of 15 Peachtree Road, Penrith.
The plaintiff’s Revised Table 1 identifies each of these invoices and the corresponding market appraisal (which was not disputed by the defendants). From this it is apparent that each appraisal was issued on the letterhead of RHC Penrith for a property in the Penrith LGA with no reference to Shatford Property or Special Projects. The invoices were issued by Shatford Property using the business name ‘Raine & Horne Commercial Special Projects’ with payment made to Shatford Property’s bank account. One of the appraisals was signed by Mr Shatford on behalf of RHC Penrith using the title ‘Manager, Sales & Investments’ and the other two appraisals were signed by another employee of RHC Penrith (Keiran McGarity). Mr Shatford accepted in cross-examination that he did not have the consent of Mr Henry to charge the client through Shatford Property for the first of these market appraisals and should not have done so (T307).
The disputed transactions in the Second Period for which the plaintiff claims an account of profits fall into three categories:
fees received by Shatford Property for market appraisals issued by Mr Shatford on RHC Penrith letterhead;
commissions on sales of commercial property received by Shatford Property rather than RHC Penrith;
sums received by Shatford Property by way of a gratuity from property owners who were clients of RHC Penrith.
This section summarises the relevant facts regarding each category after addressing the evidence of the discussions between Mr Henry and Mr Shatford about the activities he could undertake for his own benefit following the termination of Special Projects.
Shatford: I've been doing market appraisals through Special Projects. The volume has increased. I have been charging for the service and clients have had no issues paying. This is something I want to Shatford Property to continue to do.
Henry: Keep doing what you're doing. Just keep the clients happy. But make sure that if there is ever a sale that we get it.
Shatford: I'll just carry on as I have been then. Great.
Q. And is it the case that he - I’m sorry. I won’t say “and”. Is it the case that he told you in September 2016 that he wanted to continue with Shatford Property charging for those appraisals?
A. No.
Q. In relation to that, is it the case that you told him to keep what he was doing and just keep the clients happy?
A. Definitely not.
Q. Is saying, “Keep the clients happy,” something that you would say in other contexts?
A. Yes.
Q. In relation to this, was it the case that the condition that you placed upon his continuing to charge for appraisals through Shatford Property - and I accept you don’t agree with that proposition, but did you place a condition that he was able to continue charging for appraisals if he made sure that the plaintiff got the sale of the property?
A. No.
Q. Is it the case that Mr Shatford told you that he would then carry on?
A. No.
Mr Henry gave evidence in re-examination of a different conversation in which three salespeople, of which Mr Shatford was one, raise with Mr Henry the that they were doing a lot of work on market appraisals and should be able to charge for them with the amount charged been put into a pool and used for marketing purposes (T212). Mr Shatford in cross-examination denied that he was involved in such a discussion (T284.32).
Mr Shatford did not dispute that the only evidence he relied on for his contention that Mr Henry consented to Shatford Property charging for market appraisals after the termination of Special Projects was the conversation referred to in paragraph 12 of his second affidavit set out above. However, the difficulty with his reliance on that conversation, even if I accept his evidence that it occurred, is that he was asking for consent for Shatford Property to continue doing market appraisals whereas it is clear on the evidence that all the market appraisals for which Shatford Property issued an invoice after this conversation were performed by Mr Shatford as an employee of CHRE using RHC Penrith letterhead (T292 and T296). The position was the same in the earlier period: T297.1. Consequently, even if his evidence of the conversation is accepted, he did not act in accordance with the consent in charging for market appraisals after that time.
Shatford: I want to continue to sell properties outside the Penrith LGA and get paid hundred percent of those commissions.
Henry: You need to tell me what properties you have sold using Shatford Properties and where those properties have been sold using RHC clients. I expect a half-share of the commissions.
Shatford: I can’t agree to that. I am agreeable to paying you 10%. There have only been two properties so far, both sold in conjunction arrangements. 2 Clay Place for Basil and a property at Rozelle. You can have 10% of the commissions I have received.
Henry: Ok. But none of those sales will go toward your commission target.
Shatford: You will see on the commission a fee for a sale on Darling Street Rozelle. It was a listing by Luke Smith, and he got me involved in some discussions with the owner to try and get it together for him.
Henry: Obviously, it’s outside Penrith, but who was the owner? If we know them, you should pay me something.
Shatford: Do you remember Eddie Guerinoni?
Henry: Sort of. I will get Georgina to invoice you for 10% of that, as well as Clay Place. Send her an email to confirm the details.
Hi, as discussed earlier
1. Shop 2, 602-604 darling street rozelle. Fee incl gst $8,250 @10% $825
2. 2 clay place eastern creek. Fee $56,718.75 incl gst @ 10% $5,678.75
Invoice total to Shatford Property $6,496.88 incl gst
Let me know any questions.
As set out below, the evidence establishes that CHRE (trading as RHC Penrith) issued an invoice for the 2 amounts specified in the email to Shatford Property and they were paid by Shatford Property on 8 June 2018.
Mr Shatford also deposed that paragraph 75 of his second affidavit that as a result of the first of these conversations, he understood the following arrangements to be in place: (a) he could continue to sell properties outside the Penrith LGA and, where he did so, retain 100% of those commissions; (b) when he sold a property outside the Penrith LGA and that property belonged to a client of RHC Penrith, he was required to pay RHC Penrith 10% of the commission that he had earnt.
Mr Henry said in his affidavit evidence that he had no recollection of these conversations but in cross-examination he gave the following evidence about a discussion with Mr Shatford before the email of 28 May 2018 (T91):
Q. In relation to that, it was the case, was it not, that he had told you that he’d sold Eastern Creek under a conjunction arrangement that he’d arranged on the plaintiff’s behalf, and that consistent - I’ll ask you that first.
A. I can’t recall if he told me that it was under a conjunction arrangement, but he told me how much commission he got from it.
Q. He told you how much commission in the conversation that you had with him?
A. Yes.
Q. He said, didn’t he, “Well, it’s outside of the Penrith LGA, so I should be able to keep all of that,” didn’t he?
A. No.
Q. What did he say?
A. I would - am I allowed to paraphrase? Obviously, I can’t remember exactly.
Q. Doing the best you can.
A. Yep. Basically, he said that he thought he could bring in business outside the Penrith LGA with clients that he still had after - you know, as a result of what he’d done in the city, some of the connections that he’d made. Was I comfortable of him earning more from those sales rather than his normal commission rate? And once again, having sympathy, I said, “Speak to me on - about each one on an individual basis,” and I was happy to consider it. He then proceeded to tell me about that sale, and we agreed that he would pay me 10% of it. I had no idea who owned it.
In evidence are 37 invoices issued by Shatford Property for market appraisals prepared by Mr Shatford after the termination of the Special Projects franchise and there is evidence that 34 of these were paid. The claim made under the plaintiff’s Revised Table 1 is only for those 34 invoices where payment was received by Shatford Property.
Most, but not all, of these market appraisals were for properties in the Penrith LGA.
Mr Shatford accepted in cross-examination that all market appraisals in the period after the end of the Special Projects franchise were done through RHC Penrith and on RHC Penrith letterhead, and not on Shatford Property or Special Projects letterhead (T292.15-41) and involved him making significant use of the resources of RHC Penrith (T296.31).
In January 2017 Mr Shatford negotiated a sale, acting in his role as ‘Manager, Sales and Investments’ of RHC Penrith, of 74 Murphy Street Blaxland on behalf of the vendor, Karown Pty Ltd, for a price of $1.4 million. The sales advice notice he sent to Karown Pty Ltd on 25 January 2017 states that RHC Penrith’s commission on the sale is $30,800 (including GST). Following exchange of contracts on around 19 March 2017, Mr Shatford sent a letter to Karown Pty Ltd enclosing an invoice on RHC Penrith letterhead for the commission of $38,640 (including GST), which was subsequently paid by Karown Pty Ltd on settlement of the sale.
On 18 April 2017 Mr Shatford sent to Ms Prasad an invoice issued by Shatford Property to RHC Penrith for $30,360 (Invoice 1017) expressed to be ‘Commission as agreed for sale of 74 Murphy Street, Blaxland’, and this was paid by Ms Prasad by transfer of that amount to the bank account of Shatford Property on 24 April 2017. This amount was paid out of the commission of the same amount received by CHRE on settlement of the sale.
Ms Prasad gave evidence in her second affidavit of a conversation with Mr Shatford around the time this property was listed for sale in which Mr Shatford said to her that ‘this is one of mine’ or ‘this one is mine not a CH one’ and in response to Ms Prasad’s query as to why she was adding it to the system responded ‘vendors need it on real-commercial, and I don’t have an account set up yet, so it will need to run through the Penrith account for all the advertising. Don’t worry, I will work it out with Colin; it’s outside the LGA, so it’s mine’. She deposed to a further conversation with Mr Shatford around the time of the issue of Invoice 1017 and the dispersal of funds:
Shatford: 74 Murphy has settled so we need to settle the sale, my commission is $27,600 plus GST and the balance to the vendor, here is the EFT details.
Prasad: So is this going to Georgie?
Shatford: No.
Prasad: And the marketing how much are we deducting or do I just leave a balance in the ledger?
Shatford: You don’t need to worry about that, just disperse it as I have directed, pay the vendor and pay me.
I infer that the reference to ‘Georgie’ is to Ms Archer whose role included preparing the quarterly commission statements for all staff. Ms Prasad deposed after this conversation she took the necessary steps to disburse the funds from CHRE’s trust account being the commission payable to CHRE (which was paid to Shatford Property on the basis of Invoice 1017) and the balance to the vendor which she was authorised to do under her delegated authority from Mr Henry. Her evidence, which I accept, is that she did not speak to Mr Henry about the matter at any time prior to the hearing.
It is not in dispute that Mr Shatford did not seek the consent of Mr Henry to Shatford Property receiving this commission and Mr Henry’s evidence, which I accept, is that he had no knowledge of this transaction until the hearing.
In September 2017, LJHC Silverwater was appointed as the sales agent to settle 2 Clay Place, Eastern Creek (2 Clay Place) by the owner, Ostaday Pty Ltd whose principal was Mr Basil Feros. Shortly afterwards, Mr Elias, who was the agent at LJHC Silverwater who acted on the sale, told Mr Shatford that LJHC Silverwater had been appointed and Mr Shatford then contacted Mr Feros and sought his agreement to the appointment of RHC Penrith as a conjunction agent on the sale with LJHC Silverwater. Mr Feros agreed. The agency agreement with Ostaday Pty Ltd is not in evidence but is not in dispute that it was RHC Penrith which was appointed as a listing agent on the sale in conjunction with LJHC Silverwater (T370.32) with an agreement that the commission on the sale would be split equally between LJHC Silverwater and RHC Penrith.
Ostaday Pty Ltd sold 2 Clay Place for $6,875,000 in December 2017 and on 20 December 2017 Shatford Property issued an invoice to LJHC Silverwater for a conjunction fee of $56,718.75 (Invoice 1026). This was paid to Shatford Property on 20 December 2017 following settlement of the sale on 19 December 2017.
On 30 May 2018, CHRE issued an invoice to Shatford Property for $5,671.88 being 10% of the commission received by Shatford Property on this transaction reflecting Mr Shatford’s email of 28 May 2018, which was paid on 8 June 2018.
There is no evidence of any conversation between Mr Shatford and Mr Henry regarding the receipt by Shatford Property of the commission for the sale of 2 Clay Place before the transaction occurred, and it is not in dispute that no consent was given by Mr Henry to the receipt of this commission before the transaction occurred (T370.48). However, there was a discussion between them regarding the sale in May 2018 which is dealt with earlier in these reasons.
In around October 2017, R&H Inner West/South Sydney Commercial was appointed as the exclusive agent for the sale of shop 2, 602-604 Darling Street, Rozelle (2/602**-604** Darling Street). Mr Luke Smith, who was a friend of Mr Shatford, was a director of the company which conducted this Raine & Horne Commercial franchise and was the agent on the sale. The property was owned by Darling Street Holdings Pty Ltd, which was also a client of RHC Penrith. Mr Smith told Mr Shatford about his appointment as the selling agent and Mr Shatford told him that he knew the principal of the company, Mr Guerinoni, and was happy to help Mr Smith with the transaction. Following this call Mr Shatford began receiving calls from both Guerinoni and Mr Smith for advice on the sale and provided that advice. The property was sold in April 2018 and Mr Smith agreed with Mr Shatford to share his commission on the sale with Mr Shatford to reflect the assistance the latter had provided.
On 16 April 2018, Mr Shatford raised an invoice from Shatford Property addressed to ‘Raine & Horne Commercial South Sydney/ Marrickville’ for $8,250 (being $7,500 plus GST) (Invoice 1028), and Shatford Property received that amount on 30 April 2918. It is not in dispute that the invoice was issued and paid by R&H Inner West/South Sydney Commercial.
Mr Shatford and Mr Smith gave conflicting evidence about Mr Shatford’s role in this transaction. Mr Shatford’s recollection was that he became aware of the transaction after Mr Smith had listed the property for sale and telephoned Mr Smith to tell him that he knew the vendor, and that he assisted Mr Smith with the transaction by liaising and discussing the sale, offers process with the vendor.
Mr Smith’s evidence, which I accept, was that this is not how the transaction came about. Rather (a) he was appointed as the exclusive agent for the sale of 2/602-604 Darling Street because Mr Shatford referred the vendor to Mr Smith and after Mr Shatford provided Mr Smith with the vendors details, he listed the property through R&H Inner West/South Sydney Commercial and (b) while he knew that Mr Shatford was working for RHC Penrith at the time, Mr Smith paid the invoice issued by Shatford Property, because he understood from a conversation with Mr Shatford that Mr Henry knew and approved of the transaction. He deposed to a conversation with Mr Shatford (which Mr Shatford did not dispute) to the following effect:
Smith: Why you running this through the Penrith Office?
Shatford: I’ve started in office in the city and Colin is happy for me to operate it.
Smith: So Colin is okay with it, I don’t need to call him? I’m not going to get blowback on this am I?
Shatford: No need to call. It is okay.
On 6 September 2019, an amount of $20,900 was credited to the account of Shatford Property giving as the reference ‘Inv 1045’. In the AD at [79(n)] it is stated that ‘Shatford Property received this payment in respect of the sale of a property located outside the Penrith LGA’. Invoice 1045 is not in evidence but related to the sale of unit 10, 19 Chifley Street Smithfield, a property owned by Dutchman Enterprises Pty Ltd. Mr Shatford deposed in his second affidavit that in around June 2019 his accountant referred Mr Chris Holland, the director of the owner of the property, to Mr Shatford to assist Mr Holland with the sale of the property. Mr Shatford then referred Mr Holland to Mr Elias at LJHC Silverwater who acted as the listing agent on the sale. Mr Shatford said in cross-examination that he was not the listing agent and the amount charged by Shatford Property was a ‘referral fee’. It is not in dispute that the owner and Mr Chris Holland were not existing clients of Penrith RHC.
I infer that the amount of $20,900 was of the received by Shatford Property as a fee for Mr Shatford having referred the vendor to LJHC Silverwater. It is not in dispute that Mr Shatford did not disclose this transaction to Mr Henry and seek his consent for Shatford Property receiving this fee. Mr Shatford’s position is that as the services provided in connection with the sale were for a property outside the Penrith LGA, it was within the express agreement of the plaintiff pleaded in paragraph [37(d)] of the AD.
As indicated in the tables at [31] and [33] above, the following further amounts received by Shatford Property in the Second Period are not in dispute (generally because the relevant property is in the Penrith LGA):
$9,000.00 for Invoice 1061 dated 7 September 2020 concerning the sale of Unit 17, 29 Coombes Drive, Penrith.
$8.250.00 for Invoice 1072 dated 22 January 2021 for 50% of the commission on the sale of 6/171 Power Street, Glendenning under a conjunction agency between RHC Penrith and LJHC Silverwater for a client of RHC Penrith.
$8,341.62 for invoices in relation to 38 Somerset Street, Kingswood issued to Somerset Street Private Hospital Pty Ltd expressed to be for ‘Somerset Specialist Centre – Project Management’. There are six invoices in evidence (Invoices 1065, 1068, 1069, 1073, 1074 and 1080) each for $1,191.66 (including GST) expressed to be for consecutive monthly periods commencing with November 2020 and ending with May 2021. The invoice for April 2021 is missing, but Shatford Property’s bank statements (Ex 16) show the total amount paid to Shatford Property by this client in this period was $8,341.62 which is consistent with there having been seven invoices rather than six, and the final payment on 24 May 2021 is for $2,383.32 which suggests that it was for the months of April and May 2021 together.
$5,720.00 for Invoice 1075 dated 28 February 2021 issued to Mr T Brown in relation to a lease negotiation regarding Unit 1, 61-65 Regentville Road, Jamisontown.
$4,400.00 paid to Shatford Property Pty Ltd on 14 April 2021 from “Barwon Bihpf” which is a fee related to the services referred to in item (3) above (T414).
The last three amounts in the plaintiff’s Revised Table 2 are for amounts received by Mr Shatford which are described by him as ‘gratuities’. Mr Shatford accepts that he is accountable to the plaintiff for the first two items, but disputes the third which is an amount of $5,500 paid to Shatford Property on 4 June 2018 in respect of an invoice issued by Shatford Property on 21 May 2018 to Lister & Cole Real Estate, expressed to be for ‘Consulting services - commercial rent roll sale’ (Invoice 1029).
The background to this payment is that on around 14 December 2017 Mr Brad Cole of Lister & Cole rang Mr Shatford and they had the following conversation:
Mr Cole: We are going to sell off the commercial part of art rent roll, would it be of interest to you guys?
Mr Shatford: Possibly, I am not involved in that stuff anymore. I can talk to Colin for you, you can talk with him directly about it is I don’t need to know the details.
Mr Cole: Thanks, can you mention it to him and give him my number. Get him to call me if he is interested.
Mr Shatford: Colin, Brad Cole is going to sell their commercial rent roll. Is this of interest to you to expand your portfolio in the lower mountains.
Mr Henry: Definitely, what are the numbers on properties and monthly income?
Mr Shatford: No idea, I didn’t ask. You can call him and work it out you are interested. I will send you his number.
Ultimately on 7 February 2018 Lister & Cole Pty Ltd and CHRE entered into an agreement for the former to sell the rent roll to the latter for a purchase price of $162,488. Mr Shatford had no involvement in the transaction beyond telling Mr Henry about the opportunity to purchase the rent roll. He did not seek Mr Henry’s permission to receive or retain the payment of $5,500 from Lister and Cole under Invoice 1029.
In February 2018, around the same time as these discussions regarding the sale of the rent roll occurred, Mr Shatford worked with Lister & Cole in putting together a sales and marketing submission to the owner of a property at Lawson on the basis that they would act as conjunction agents on the sale of the property.
During the Second Period there were occasions when Shatford Property issued invoices to CHRE for commissions on sales of properties outside the Penrith LGA in which Mr Shatford acted using his skills as a real estate agent. The relevant invoices are Invoices 1013, 1014, 1015, 1016 and 1017. Ms Gatland submitted that these invoices evidenced a course of dealing between Mr Shatford and Mr Henry after the conclusion of the Special Projects franchise which established that Mr Shatford had CHRE’s implied consent to carry out and receive commission income through Shatford Property where the sale involved a property outside the Penrith LGA: DCS [106].
Invoice 1013 was issued by Shatford Property to CHRE on 14 July 2016 in the amount of $45,015.70, comprising a fee of $40,923.37 plus GST of $4,092.33 (Ex 5). It is expressed to be for ‘conjunctions’ for three properties, each of which was in the Penrith LGA. The same three properties were included in Mr Shatford’s commission statement for the June 2016 quarter along with a number of other properties for which there was ‘employer commission’ attributable to Mr Shatford (Ex D, page 48). Mr Shatford’s commission entitlement under that commission statement was $40,923.78 which matches the fee charged in Invoice 1013 before GST (subject to a difference of 41 cents which is de minimis). Shatford Property received payment of Invoice 1013 on 15 July 2016 and there is no evidence to suggest that Mr Shatford received his commission entitlement for the June 2016 quarter. I infer that Mr Shatford agreed with Mr Henry that the former’s commission entitlement for the June 2016 quarter would be satisfied by the issuance of an invoice by Shatford Property for the same amount. The fact that GST was charged had no impact CHRE as it would be entitled to claim an input tax credit for that amount, and the receipt of the amount through Shatford Property was clearly of benefit to Mr Shatford.
Invoice 1014 was issued by Shatford Property to CHRE on 7 August 2016 in the amount of $4,810 plus GST and expressed to be for ‘Balance of consulting year ended 30.06.16). A second version of the same invoice was subsequently sent by Mr Shatford to Ms Archer showing an issue date of 24 October 2016 in the amount of $4,190 plus GST expressed to be for ‘Conjunctions 1-5/119-127 Batt Street, Penrith’. That property is in the Penrith LGA. The amount in the first version of the invoice was paid on 14 October 2016, and it appears that the second invoice was not paid. It is not clear why the second invoice was sent but Ms Archer’s evidence was that it probably related to a sale arising from the former Campbelltown office and I infer that the invoice was reissued to better reflect what the payment was for (although the amount was incorrectly stated for reasons which are unexplained).
Invoice 1015 was issued by Shatford Property to CHRE on 24 October 2016 in the amount of $4,190 plus GST and expressed to be for ‘Property consulting quarter ending 30.09.16’. A second version of the same invoice bearing the same date and amount was subsequently sent by Mr Shatford to Ms Archer with the description of the work changed to ‘Conjunction 15-17 David Road, Emu Plains’. This is a property in the Penrith LGA. Shatford Property received the amount charged under Invoice 1015 on 2 November 2016. Ms Archer could not recall why there were two versions of this invoice issued to CHRE although the property at Emu Plains referred to in the second version appeared in Mr Shatford’s commission statement for the December 2016 quarter as a property taken into account in calculating his commission entitlement for that quarter (which was nil because he did not meet his target amount for that quarter). I infer that the invoice was issued to enable Mr Shatford to receive small amount of commission income for the sale of that property despite the fact that his commission entitlement for the December 2016 quarter was nil.
As noted earlier, not all the commission statements in the period following the end of the Special Projects franchise are in evidence. It is clear that generally there were discussions between Mr Henry and Mr Shatford about a number of these commission statements and in some cases a ‘negotiation’ appears to have occurred in which there was a ‘sharing’ of the commission for the sale of a particular property outside the Penrith LGA between CHRE and Mr Shatford. I have considered the evidence on this carefully and do not regard it as establishing any general agreement or practice that Mr Shatford could receive all or part of such commissions; rather, the matter was addressed on an ad hoc basis during the discussions between the two of them shortly after a draft of the relevant quarterly commission statement had been issued by Ms Archer.
To the extent that any of the commission statements assists with the determination of the issues in dispute I have dealt with it in these reasons.
4.1 You must:
(a) perform the duties as defined by the Employer in a professional, competent and diligent manner that does not endanger your own health and safety or that of others;
(b) devote the whole of your time to the performance of the duties at such place or places as may be nominated by the Employer from time to time;
(c) use your best endeavours to promote the business, goodwill, development and reputation of the Employer;
(d) comply with all lawful orders and instructions given by the Employer;
(e) comply with all management practices and procedures adopted by the Employer;
(f) comply with all laws and regulations in the performance of the duties;
(g) indemnify the Employer for any costs or expenses incurred as a result of any unlawful conduct of You in the performance of the duties;
(h) not partake in any conduct prejudicial to the goodwill, commercial reputation, or overall public image of the Employer;
(i) strictly comply with the requirements of the Real Estate Law that applies to You;
(j) generally perform such duties in the Position as are customarily performed by an employee holding a like position in other companies or businesses of the same or similar nature to the Employer, and to render such other and unrelated services and duties as may be reasonably assigned to You from time to time;
(k) do all other things reasonable or necessary to provide the duties in accordance with this Agreement; and
(l) perform other duties as assigned to you from time to time.
5.1 You agree during your employment with the Employer to:
(a) not during the Term, be engaged, concerned or interested in any business that competes with the Employer's business without the prior written consent of the Employer;
(b) not accept any payment or any other benefit in money or in kind from any person as an inducement or reward for any act without the prior written approval of the Employer;
(c) keep current at all times your registration or licence as a real estate agent in your Position under the provisions of the Real Estate Law that applies to You and, in this regard, satisfy all continuing professional development, further education and training requirements of your registration or licence at your expense;
(d) perform your Duties as directed by the Employer in a diligent, professional and ethical manner and refrain from doing anything that may adversely affect or reflect upon the Employer;
(e) not purchase or lease any properties listed by or through the Employer or become beneficially interested in any property listed by or through the Employer without the prior written consent of the Employer;
(f) not withhold any listing or prospective listing from the Employer, nor offer for sale any property that has not been listed by or through the Employer;
(g) report to the Employer as soon as possible any complaints made by any of the Employer's clients or customers of which you become aware;
(h) notify the Employer promptly of any accident, illness or injury (and anticipated recovery period) preventing You, temporarily or permanently, from performing your Duties under this Agreement;
(i) attend such training seminars, programs or conferences relevant to your vocational development as the Employer may direct at the Employer’s expense;
(j) not incur expenses on the Employer's behalf or pledge credit against the Employer without the Employer’s prior approval; and
(k) not enter into or sign any agreement or contract on the Employer's behalf or make any promise or representation on the Employer's behalf without the Employer's prior approval.
(a) render faithful and loyal service to CH, and would avoid conduct incompatible with a continuing relationship of confidence;
(b) act honestly;
(c) not, whilst an employee, engage in any activity in competition with CH, with the exception of the express agreement not to compete or divert business away from CH by the operation of the Special Projects franchise by Shatford;
(d) not breach the double employment rule by seeking from CH fully informed consent for activities competing with CH;
(e) act in the best interests of CH;
(f) not act against the interests of CH;
(g) disclose to CH any business opportunities that he became aware of that fell within the scope of CH's business;
(h) not divert away from CH any business opportunities that he became aware of and which fell within the scope of CH' s business;
(i) not retain, without CH's approval, any profit, property (including confidential information) or business opportunity, the opportunity for the acquisition of which was furnished to him as a result of his employment;
(j) not induce, encourage, solicit or accept any client or customer of CH (whether such clients or customers were under any contractual obligation to CH or not) for the purpose of him or any other body corporate providing those clients or customers with real estate services, or products, services or matters associated or connected with real estate services; and
(k) treat confidential information as such and not disclose it to competitors including Shatford Properties and Shatford Comm.
Other provisions of the Employment Contract may be noted as follows.
Under cl 3, the agreement was expressed to be for a term commencing on 1 July 2011 and ending on the date of retirement, termination or expiration Mr Shatford’s employment with CHRE.
By cl 7.1, CHRE agreed to pay Mr Shatford, in consideration for him performing the duties out in cl 4, the base salary set out in item 7 of the Reference schedule, being $90,623.90 per annum (plus superannuation). By cl 7.2, CHRE also agreed that he was entitled to a commission calculated as set out in the annexure to the agreement. The provisions of the annexure have been summarised earlier.
By cl 13 Mr Shatford was required to maintain the confidentiality of the ‘confidential information’, and to use it for the sole purpose of performing his duties with the CHRE (with the expression ‘confidential information’ being defined broadly to mean all information, except to the extent that it is in the public domain, of which Mr Shatford became aware or generated in the course of, or in connection with, employment with CHRE, of a commercial, operational, technical or financial nature, relating to CHRE and any customer or client of CHRE).
By cl 15.1 Mr Shatford was permitted to terminate his employment by one week’s notice in writing to CHRE.
By cl 15.4 upon termination of his employment, Mr Shatford was required to return to CHRE or property and information belonging to CHRE including past, current or prospective customer or client lists, property listings and files.
Clause 18 contained a restraint on his post-employment activities for a period of up to 12 months limited to the Penrith LGA. The limitation to the Penrith LGA comes about because item 12 of the reference schedule states that ‘Except where the box below has been checked, the postemployment restrictions set out in [cl 18] forms part of your Agreement with the Employer’. The box below, which has been checked, has the following words beside it: ‘This postemployment restriction shall not form part of your contract of employment’. There then appears beneath those words two handwritten amendments: the first is ’12 months if/after leaving CHRE’ and the second is ‘apply to Penrith LGA only ‘.
It is clear from Mr Henry’s evidence that he and Mr Shatford had a discussion about the post-employment restraint before the Employment Contract was signed in which Mr Shatford said to Mr Henry that it ‘is a bit much don’t you think’ and Mr Henry agreed. The handwritten amendments were the outcome of this discussion and their ordinary and natural meaning is that, despite the box having been checked which would result in cl 18 being inapplicable, the intention was that the post-employment restraint would apply for 12 months after cessation of his employment but to competition in the Penrith LGA only.
The Employment Contract contains extensive obligations on Mr Shatford against diverting business or income for his own benefit during his employment (eg cl 4.1(c), cl 5.1(a) and cl 5.1(b)). Notwithstanding this, the plaintiff’s submissions focused on the claim based on breach of his fiduciary obligations to CHRE, no doubt because an account of profits is an available equitable remedy for breach of fiduciary duties but not for breach of contract: Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151; [2023] NSWCA 294 at [166].
It was common ground that the relationship between CHRE and Mr Shatford, as one of employer-employee, fell within a recognised category of fiduciary relationship and consequently he was subject to fiduciary obligations to CHRE: Anderson at [109], [125]-[126], [129]-[151]. However, in order to determine whether the conduct of the employee is in breach of his or her fiduciary obligations it is necessary to determine the scope (or subject matter) of the fiduciary relationship, i.e. the scope of the area within which the employee is not entitled to act self-interestedly: Anderson at [126], [152]-[166].
The scope of fiduciary obligations must be moulded according to the nature of the particular relationship and the facts of the case, including the course of dealing between the parties: see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 102; [1984] HCA 64 per Mason J; Chan v Zacharia (1984) 154 CLR 178 at 196; [1984] HCA 36; Anderson at [153]-[166].
As Gleeson JA observed in Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179; (2018) 129 ACSR 265 at [152]:
[I]t is necessary to focus on the actual functions or responsibilities assumed by the fiduciary to determine the subject matter over which his or her obligations extend, at least for the purposes of deciding whether there is a conflict of interest and duty or a conflict between duties: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 (Grimaldi) at [179].
In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.
An example of a particular activity falling outside the scope of the fiduciary relationship of an employee is Murdoch v Mudgee Dolomite & Lime Pty Ltd [2022] NSWCA 12; (2022) 398 ALR 658 at [142]-[150] where it was concluded that the acquisition by a director and an employee of a quarry in Victoria fell outside the scope of the fiduciary duties owed by them to the plaintiff, in particular because the geographical scope of the plaintiff’s business did not extend to Victoria: Anderson at [165].
Within the scope of the fiduciary relationship, the fiduciary has a duty of ‘absolute and disinterested loyalty’ to the principal which is reflected in two overlapping but independent proscriptive obligations:
the ‘conflict rule’ which is an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the principal; and
the ‘profit rule’ which is an obligation not to make a profit or gain by reason of or by use of his position as a fiduciary without the informed consent of the principal: Chan v Zacharia at 198-199 per Deane J; Hospital Products at 103-4 per Mason J; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [67]-[69] per Gageler J.
In Recovery Partners GP Ltd v Rukhadze [2025] 2 WLR 529; [2025] UKSC 10 at [25] Lord Briggs JSC expressed the necessary link for the ‘profit rule’ as being that the profit is ‘made from, out of, or otherwise sufficiently connected with, the fiduciary relationship’.
The significance of the fiduciary’s duty of loyalty as the foundation of both of these ‘rules’ was emphasised Gageler J in Ancient Order at [67] referring with approval to the following observations of Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 at 18*:*
A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.
The essential purpose of the rule that a fiduciary must not without his principal’s consent keep for himself a profit from his position as such, and the related rule that a fiduciary must avoid placing himself in a position where his interest and his duty may conflict (usually called the conflict rule), is to protect or deter those who have undertaken an obligation of single-minded loyalty to someone else from being tempted by human frailty to fall short of that obligation.
A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves “at a level higher than that trodden by the crowd”. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage.
Thus, it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken or that the fiduciary acted honestly and reasonably. So, in Regal (Hastings) Ltd v Gulliver, although the directors acted in good faith and in the interests of the company of which they were directors in taking up shares in a subsidiary which the company could not afford to take up, they were held accountable for the profit made on the sale of the shares. And, in Phipps v Boardman, the solicitor was held accountable for the profit he made, notwithstanding that he acted bona fide and in the interests of the trust and that the opportunity would not have been availed of but for his skill and knowledge.
Informed consent is a defence. There is no duty on a fiduciary to obtain the informed consent of the principal, “[r]ather, the existence of an informed consent [will go] to negate what otherwise was a breach of duty”: Maguire v Makaronis (1997) 188 CLR 449 at 467; [1997] HCA 23.
Ratification of a breach of fiduciary duty operates on the principle that ‘those to whom [fiduciary] duties are owed may release those who owe the duties from their legal obligations and may do so either prospectively or retrospectively, provided that full disclosure of the relevant facts is made to them in advance of the decision’: Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507; [2005] HCA 23 at [32] per Gleeson CJ and Heydon J, citing with approval a statement in LCB Gower and PL Davies, Gower and Davies’ Principles of Modern Company Law (7th ed, Sweet & Maxwell, 2003) at 437.
For this defence to be established, the fiduciary must establish that the principal can be regarded ‘as having authorised a breach of duty, or as having waived its consequences’: see Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 at 684 per Samuels JA; Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574 at [390]-[393]. The fiduciary must disclose all material information that they are aware of or any information that they have deliberately refrained from acquiring but this does not extend to matters of which the fiduciary was unaware notwithstanding that prudent enquiry revealed the existence: see BLB Corporation of Australia Establishment v Jacobsen (1974) 48 ALJR 372 at 378; Gunasegaram at [154]. The fiduciary’s disclosure must be ‘full and frank’ and include ‘all material facts’: Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1; [2011] FCAFC 24 at [110] per Besanko J (Finkelstein and Jacobson JJ agreeing).
The assessment of whether fully informed consent is established turns on the particular facts of the case. In Maguire v Makaronis (1997) 188 CLR 449 at 466–7; [1997] HCA 23, Brennan CJ, Gaudron, McHugh and Gummow JJ held (emphasis added) (citations omitted):
Thirdly, in the circumstances disclosed above, if the appellants were to escape the stigma of an adverse finding of breach of fiduciary duty, with consequent remedies, it was for them to show, by way of defence, informed consent by the respondents to the appellants' acting, in relation to the Mortgage, with a divided loyalty. What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party.
There is no requirement for consent to be expressly given; it may be implied in all the circumstances: Woolworths v Kelly (1991) 22 NSWLR 189 at 212 per Samuels JA and 234 per Mahoney JA; ASIC v Citigroup Global Markets Australia Pty Ltd *(*No 4) (2007) 160 FCR 35; [2007] FCA 963 at [295]. I will address this further below.
As a separate matter, there is a class of cases where, even though ‘fully informed consent’ has not been given (and therefore a breach has occurred), there has nonetheless been sufficient information disclosed such that the principal’s decision to do nothing (ie ‘stand by’) in respect of those breaches would disentitle the latter from receiving some part of the profits on an account. This is on the basis that the equitable remedy of account is discretionary and the conduct of the principal in standing by may be such as to make it inequitable to order an account: Murdoch at [195]-[204]. This is underpinned by the ‘cardinal’ principle in equity that ‘the remedy must be fashioned to fit the nature of the case and the particular facts’: Warman International at 559.
The onus lies on the fiduciary to make out a case for a partial curtailment of an account on this basis, and it must establish that the principal had sufficient information for it to become inequitable thereafter for the principal to obtain an accounting for profits while he stood by: Murdoch at [204].
182 Use of position—civil obligations
Use of position—directors, other officers and employees
(1) 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.
(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.
In order to make out a breach of s 182 by an employee it must be established that the employee “used” the position he or she held as an employee, such use was improper and such conduct was for the purpose of gaining an advantage or to cause a detriment to the company: Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659; [2016] NSWCA 307 at [85]. Whether the conduct was improper is to be determined objectively by reference to the standards of conduct that would be expected of a person in the position by reasonable persons with knowledge of the duties, power and authority of the position, and the circumstances of the case, including the commercial context: Gunasegaram at [158].
In Blue Visions Management Pty Ltd v Chidiac [2017] NSWSC 255 at [157] Ball J observed that ‘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’. This was referred to with approval on appeal: Gunasegaram at [133], see also Angas Law Services at [32].
The plaintiff submitted that Mr Shatford as an employee of the plaintiff was within one of the accepted fiduciary relationships; that in determining the scope of his fiduciary obligation it was relevant to have regard to the express contractual terms in the Employment Contract (in particular cl 4.1 and cl 5.1) as well as his responsibilities and functions as a senior employee of the company; and the real issue in the case is not whether the relevant conduct during the Special Projects franchise was outside the scope of his fiduciary obligation but rather whether it fell within an agreed carve-out permitting him to act self-interestedly, i.e. whether the defence of informed consent applies.
In relation to the First Period, the plaintiff submitted that the consent of Mr Henry to the conduct by Mr Shatford of the Special Projects franchise was limited by Mr Henry’s statement ‘so just outside of Penrith, none of our business, clients or property’. The impugned transactions in the First Period fell outside the scope of that consent and accordingly he breached his fiduciary duty to the plaintiff.
In relation to the Second Period, the plaintiff submitted that following the termination of the Special Projects franchise, there was no general arrangement or agreement by which Mr Shatford was permitted through Shatford Property to earn fees or commissions for his own benefit for conducting market appraisals, receive sales of properties (within or outside of the Penrith LGA) or receive gratuities.
Insofar as market appraisals in the Second Period are concerned, the only evidence relevant to the question of fully informed consent of the conversation on or around 11 September 2016. Even if that conversation occurred (which the plaintiff disputes) it could not constitute the giving of fully informed consent because Mr Henry was not provided with all material information; rather, it involved Mr Henry being provided with misleading information as Mr Shatford does not, it in his account, told Mr Henry that market appraisals have been done in the name of the plaintiff (rather now said to have been done through special projects with the anything that was done through special projects was invoicing). Further, what Mr Shatford (on his account) sought permission for was Shatford Property continuing to conduct market appraisals but this is not what in fact occurred, which was that Shatford Property merely charged for market appraisals provided by Mr Shatford on RHC Penrith letterhead. In each instance, the invoice issued by Shatford Property was for a market appraisal performed by the plaintiff through Mr Shatford as the plaintiff’s employee and the issuing of the invoices and receiving and not remitting to the plaintiff the payments under them was a breach by the plaintiff of his fiduciary duty (as well as the Employment Contract and s182(1) of the Corporations Act).
In relation to the other disputed transactions in the Second Period, in the May 2018 conversation the plaintiff did not give Mr Shatford permission to earn fees directly for himself or Shatford property, but rather indicated that he was prepared to consider, on a case-by-case basis, giving Mr Shatford an increased commission payment in the case of sales arising from new connections that had been made by Mr Shatford through the operation of Special Projects. The defence of fully informed consent is not made out. In the conversation and email sent on 28 May 2018 Mr Shatford did not reveal the identity of the vendor for either of the two transactions mentioned, or that they were clients of the plaintiff, and that was not sufficient to constitute fully informed consent to those transactions.
The defendants accepted that the employer-employee relationship is a fiduciary category, but they say that what is relevant in this particular case, for both the First Period and Second Period, is the scope rather than the nature of Mr Shatford’s fiduciary obligation and whether the plaintiff gave its fully informed consent to Mr Shatford to carry out appraisals, receive commissions for sales outside of the Penrith LGA and receive gratuities. Relevant to both of those questions, it was submitted that Mr Shatford’s Employment Contract, which is what informs his fiduciary and statutory obligations, varied repeatedly by oral express agreement and impliedly by conduct with the consequence that the written agreement does not fully reflect the agreed rights and obligations of the parties.
More specifically in relation to the First Period, the defendants submitted that when Mr Shatford was conducting the Special Projects franchise the only restriction to which he was subject was that he could not conduct sales activities for properties in the Penrith LGA, and there was no limitation preventing him from dealing with the plaintiff’s clients. That conclusion should be reached based on the evidence regarding the discussions between Mr Henry and Mr Shatford in January 2015. It was submitted that the impugned transactions in the First Period were therefore permitted (90 Ashford Avenue being outside the Penrith LGA and the market appraisals not involving a sales activity).
The defendants submitted that the evidence established that the plaintiff permitted Mr Shatford to conduct market appraisals and have Shatford Property charge for them, subject only to the condition that the plaintiff would be engaged by those clients and retain all sales commissions when the property was sold.
In so far as the other disputed transactions in the Second Period are concerned, the defendants submitted that the evidence established that the plaintiff permitted Mr Shatford to continue to receive commissions on the sale of properties outside the Penrith LGA. In particular, the evidence shows that Mr Shatford had the plaintiff’s implied consent to carry out and receive commissions on sales of such properties, including the course of dealing involving Shatford Property issuing invoices to the plaintiff and the plaintiff issuing invoices to Shatford Property for the purpose of sharing commissions on sales. I do not accept this submission for the reasons given at [137]-[144] above.
In relation to the gratuity which Mr Shatford received from Lister & Cole (Invoice 1029), it was submitted that this was in a different category to the gratuities he received in the course of his employment and in respect of which he concedes he is liable to account to the plaintiff. It was Mr Shatford’s unchallenged evidence that he had received the payment for referring Mr Henry to Lister & Cole, in order for Mr Henry to purchase that agency’s rent roll. This was a transaction that concerned the structure of the business, rather than its day-to-day operation. Mr Shatford’s role in this referral was unrelated to his role as a salesperson of the plaintiff, was not dependent on his status as an employee and is not in the nature of a secret commission since he was not involved in the negotiation of the rent roll purchase. Accordingly, it was not a payment for which he had any obligation to account to the plaintiff.
In order for Mr Shatford to conduct the Special Projects franchise it was necessary for his Employment Contract to be varied because cl 4.1 (b) required him to work full-time for CHRE and cl 5.1(a) precluded him from being concerned or interested in a competing business without CHRE’s prior written consent (and no written consent was provided). Mr Henry accepted this in cross-examination (T65.29). CHRE’s obligation to pay Mr Shatford the base salary set out in item 6 of the Reference Schedule would also need to be reconsidered if he was moving to part-time employment. A contract in writing may be varied orally if the variation is supported by consideration and the contract is not required by law to be made in writing.
The variation to the Employment Contract was made orally in discussions between Mr Henry and Mr Shatford in January and February 2015. Mr Henry and Mr Shatford gave conflicting evidence as to the content of the discussions. There was no witness to the discussions and there is no written record of what was agreed. While it is not in dispute that in those discussions Mr Henry gave approval to Mr Shatford for him to conduct the Special Projects franchise and to work part-time for CHRE, there is a dispute as to the scope of the approval given.
Two aspects of the context in which these discussions occurred are relevant. First, Mr Shatford’s evidence (which Mr Henry did not dispute) is that he told Mr Henry in early January 2015 that he had received offers to work for other real estate agencies and he was considering resigning from CHRE. The second, which not unrelated to the first, is that Mr Shatford’s commission statement for the December 2014 quarter showed a $250,787.87 debit at the end of the quarter which would make it very difficult for him to earn commission income going forward. It is not in dispute that as part of these discussions Mr Henry agreed to ‘write off’ the $250,787.87 debit, to reduce his quarterly ‘target amount’ to $57,500 and increase his commission percentage from 30% to 45%. The evidence does not indicate clearly what, if any, adjustment was made to Mr Shatford’s base salary to reflect the fact that he worked part time for CHRE during the conduct of the Special Projects franchise, but ultimately nothing turns on this.
Mr Henry deposed in paragraph 75 of his first affidavit affirmed on 10 May 2022 that in early January 2015 he had a conversation with Mr Shatford beginning with a discussion about the how the debit of $250,787.87 in Mr Shatford’s commission statement for the December 2014 quarter should be addressed. He deposed that the conversation then continued as follows:
Shatford: Well I could resign right now and walk away leaving a debit, I don’t want to do that, in fact I have been seriously thinking about launching a Special Projects office in the city.
Henry: What do you mean?
Shatford: It would only deal with non Penrith property, nothing from here, none of our clients, it will be exclusively new clients outside Penrith. I have great contacts and could make it work”. It is a huge untapped market.
Henry: So you do want to leave here?
Shatford: No I can do both if you agree. Of course, initially, the new office would start from scratch, so there is not much to do. I will start pitching for new business, clients or property.
Henry: So just outside Penrith, none of our business, clients or property.
Shatford: Absolutely no business from here; this is totally separate; it is non Penrith LGA property only, in fact, I propose to call it “special projects”. I give you my you will see, there is plenty of business outside Penrith.
Henry: In principle, I don’t have an issue with you operating a City office if you do not deal with our clients, customers or in my territory.
- On or about January 2015 I gave my approval for Mr Shatford to set up the Raine & Horn Sydney Projects franchise. I told Angus Raine of the Franchisor and Mr Shatford:
Me: on the basis that Gavin must not compete in any way with Commercial Penrith and or deal with any of our clients or contacts, then I do not take an issue with Gavin operating outside Penrith LGA, it is not a market that we are engaging in, but there must be a clear understanding about who Gavin can deal with.
Mr Shatford: yes, I understand, I will just be doing deals outside Penrith LGA, nothing to do with Penrith, that is your territory
- On or about February 2015, I had the following conversation with Mr Shatford in the R&H office:
Mr Shatford: I am signing the Raine & Horne Commercial Special Projects Franchise Agreement any day now
Me: you know everyone here thinks I am mad letting you do this, don’t make me look like a fool Gavin
Mr Shatford: absolutely, everything will be separate, separate database, separate email and internet site
Henry: I don’t agree to you operating in the Penrith LGA.
Shatford: That’s fine.
Mr Shatford was not cross-examined directly on this evidence. Mr Shatford’s evidence (at paragraph 73 of his second affidavit) was that he relied on this conversation for his understanding that there was no restriction on the operation of the Special Projects franchise provided that it did not sell properties within the Penrith LGA.
Mr Henry was cross-examined on paragraph 78 of his first affidavit at length. He said that the conversation with Mr Raine referred to in paragraph 78 was most likely a telephone discussion which Mr Shatford was not part of (which is consistent with Mr Shatford’s evidence that he was not) and he then gave the following evidence:
Q. So just to clarify your evidence here. When you say at paragraph 78 that you told both Angus Raine and Mr Shatford that your permission was given on the basis that Mr Stratford must not compete in any way with commercial Penrith, or deal with any of our clients or contacts, precisely who did you say that to?
A. To Gavin and Angus.
Q. At different times.
A. Yes.
Q. And so Mr Shatford wasn’t present when you were speaking to Mr Raine.
A. I don’t think so.
Q. And it was a phone call to Mr Raine.
A. I believe - I believe it was a phone call. It was probably discussed on other occasions as well, but I’m doing my best.
Q. And when you said it to Mr Shatford, was anyone present?
A. No. I - I received a lot of criticism from the staff members for letting him do it.
Q. Well, the answer is that no one was present, is it?
A. Correct.
When Mr Henry was asked why he rang Mr Raine rather than leaving that to Mr Shatford, he replied: ‘I thought it was prudent. May be Angus rang me. I just remember having the discussion vaguely. That’s all.’ Mr Henry was then asked why he did not seek written confirmation from Mr Raine that the terms of the Special Projects franchise would ensure CHRE’s business was protected, and the following exchange occurred:
Q. So why did you not seek written confirmation from Mr Raine, as the franchisor, that this new franchisee wouldn’t be in direct competition with you?
A. It never occurred to me that Gavin would do the wrong thing.
Q. When you say it never occurred to you, it must have occurred to you in circumstances where you felt it was worthwhile speaking to Mr Raine about the arrangement on the telephone.
A. I was merely informing him of what we’d agreed.
Q. That’s not what your evidence says. If you look at paragraph 78, you say, “I gave my approval, and I told both Angus Raine and Mr Shatford, on the basis that Gavin must not compete in any way.”
A. Yes.
Q. That’s not simply informing Mr Raine of what had been agreed between yourself and Mr Shatford, is it?
A. Yeah, I - all I was doing was saying to him I’d had the discussion with Gavin that he wasn’t going to compete, and Gavin had agreed.
Q. That’s not in your evidence.
A. Well, you know, it’s - you’re asking me about something that happened many years ago. My evidence could have a word or two wrong. What I’ve just told you may have a word or two wrong. But I think I’m doing my best to give you the - what I believe happened. My recollection.
Q. So to recap, you sought Mr Shatford’s assurance that he wouldn’t compete with the plaintiff?
A. Assurance might even be too strong a term. We might have just had a - a very lazy discussion that - you know, “You won’t use our clients and won’t operate in the Penrith area.” He may have offered it to me. I believe that - that was the best I said here. I believe I said it to him, but it may have been the other way. All I can confirm now is the result of it, but I’m doing my best to recollect something that happened a long time ago.
It is clear from Mr Henry’s evidence that it was open to the plaintiff to have called Mr Raine as a witness but chose not to do so (T66.21-23). Ms Gatland submitted that in light of the unexplained failure of the plaintiff to call Mr Raine as a witness, the court should infer that his evidence would not have assisted the plaintiff’s case: Jones v Dunkel (1959) 101 CLR 298 at 308, 312 and 320-321; [1959] HCA 8. I accept that submission.
As a result of Mr Henry’s evidence in cross-examination, his evidence now is that he said the words attributed to himself in paragraph 78 of his first affidavit on separate occasions to each of Mr Raine and Mr Shatford, but accepts that he only has a vague recollection of the conversation with Mr Raine and that the separate conversation with Mr Shatford was a ‘very lazy discussion’ and he cannot now recall whether it was he or Mr Shatford who said the words ‘you won’t use our clients and won’t operate in the Penrith area’. I conclude on the basis of Mr Henry’s cross-examination that he had no clear recollection when he gave his evidence of the particular discussion to which he deposed in paragraph 78 and that paragraph 78 itself is unreliable. Further, I regard his evidence in cross-examination as to the outcome of the ‘very lazy discussion’ as unreliable as to what was actually said by him to Mr Shatford, or vice versa.
In his first affidavit Mr Shatford deposed that he had several discussions with Mr Henry regarding the establishment of Special Projects but did not specifically address in his affidavits, one way or the other, Mr Henry’s evidence in paragraph 75 of his first affidavit. The only evidence which Mr Shatford gave in his affidavits of conversations with Mr Henry on the topic of what Special Projects was permitted to do was in paragraph 71 of his first affidavit set out above. It is not in dispute that the context of the discussions in January 2015 was that Mr Shatford was considering resigning from CHRE.
In cross-examination each of the key elements of Mr Henry’s version of the conversation in paragraph 75 of his first affidavit were put to Mr Shatford in the following exchange (T345-346) (emphasis added):
Q. I’ll put it the way it’s put by Mr Henry. He says that you said, “It would only deal with non-Penrith property. Nothing from here. None of our clients. It will be exclusively new clients outside Penrith. “Did you say that to him?
A. I don’t remember.
Q. But you could have said that, though.
A. I could have said that. Yeah. Any discussions we have were just oral. I don’t remember.
Q. You could have said, “I have great contacts and could make it work. It’s a huge untapped market.” Did you say that?
A. I did.
Q. Did Mr Henry say, “So do you want to leave here?” And did you say, “No. I can do both if you agree. Of course, initially, the new office would start from scratch. There’s not much to do. I’ll start pitching for new business.”
A. I did say that. Yes.
Q. Mr Henry said, didn’t he, “So just outside of Penrith, none of our business, clients or property.” He said that. Didn’t he?
A. I recall that. Yes.
Q. Then you said, “Absolutely. No business from here. This is totally separate. It’s non Penrith LGA property. Only, in fact, I propose to call it Special Projects.”
A. I’m not sure.
Q. I suggest he would have said, “You’ll see there’s plenty of business outside of Penrith.”
A. I didn’t suggest or propose it or be called Special Projects, that was an existing franchise.
Q. You didn’t have the name for it.
A. No. Head office - Raine & Horne corporate had the name already.
Q. Did Mr Henry say, “In principle, I don’t have an issue with you operating a city office if you do not deal with our clients, customers or my territory.” Did he say that?
A. I don’t recall.
Q. Do you accept he may well have said that?
A. Possibly. Yeah. I don’t remember.
In re-examination Mr Shatford was asked a series of questions about this evidence. The effect of his evidence in cross-examination and re-examination may be summarised as follows:
Mr Shatford did not remember, without disputing, some aspects of Mr Henry’s account. He disputed that Special Projects was his own suggestion.
Mr Shatford did not recall, but conceded that he could have said, “It would only deal with non-Penrith property. Nothing from here. None of our clients. It will be exclusively new clients outside Penrith.” In re-examination, Mr Shatford said that he did not believe he said part of the words attributed to him, being “none of our clients” and “it will be exclusively new clients outside Penrith”.
Mr Shatford accepted recalled Mr Henry saying “So just outside of Penrith, none of our business, clients or property.” He was not re-examined about this.
Mr Shatford did not recall, but conceded that Mr Henry might have said, “In principle, I don’t have an issue with you operating a city office if you do not deal with our clients, customers or my territory”. He was not re-examined about this
It follows that there is no dispute that, in early January 2015 in the first discussion about the possibility of Mr Shatford establishing the Special Projects franchise, Mr Henry said ‘So just outside of Penrith, none of our business, clients or property’. However, it does not follow that this was the extent of the approval given by Mr Henry for the Special Projects franchise. First, Mr Henry’s version of the conversation has Mr Shatford saying in response to those words ‘absolutely no business from here; this is totally separate; it is non-Penrith LGA property only’. That is not an acceptance that he could not deal with a client of RHC Penrith in respect of property outside the Penrith LGA. Secondly, the discussion in early January 2015 was at an early stage and before Mr Shatford had established that Raine & Horne Pty Ltd was prepared to grant him the franchise. Thirdly, there were further discussions between Mr Henry and Mr Shatford about what the Special Projects franchise could do and Mr Henry’s evidence is that paragraph 78 of his first affidavit sets out the approval he gave following a discussion with Mr Raine. For the reasons given above, I am not satisfied that paragraph 78 is reliable.
The only contemporaneous documents relevant to the issue of what approval was given to Mr Shatford to conduct the Special Projects franchise are the SP Franchise Agreement and the Media Release. The former makes no mention of any restriction on the operations of Shatford Property under the agreement, in particular it does not restrict Shatford Property from operating in the Penrith LGA or acting for clients of RHC Penrith or any other franchisee of Raine & Horne Pty Ltd. This is of limited significance given that CHRE is not a party to it and there is no evidence to suggest that CHRE was consulted about its terms.
Q. Yes. A media release prepared by Raine & Horne Commercial head office. Did you ever receive media releases from them?
A. I think, on occasions, I would’ve. Yeah, not so much recently. Yeah. But I think I would’ve in the past, I seem to recall. Yes.
Q. You’re aware that, are you not, that it’s likely that Raine & Horne Commercial would put up press releases on their own website from time to time?
A. Yes.
Q. Did you ever access the Raine & Horne Commercial website?
A. I would say that I’ve probably looked at it about 20 times in the whole time I’ve been with them.
Q. Is it something that your staff might do?
A. Yes.
Q. If they saw something that was of interest to the plaintiff’s business, would you think it likely that they would bring it to your attention?
A. Extremely.
Q. You’ll see there, Mr Henry, that this is a media release sent by Raine & Horne Commercial.
A. Yes.
Q. It’s been drawn from the raineandhornecommercial.com.au website. This is a media release dated 17 February 2015 that announces the launch of Special Projects or a Special Projects office led by Gavin Shatford.
A. I agree.
Q. Do you recall ever seeing this document?
A. No.
Q. Is it the case that had you seen this document, you would have read it?
A. Yes. But I may have seen it. I’m just saying it’s so long ago.
Q. Certainly, certainly. Do you recall in fact seeing this press release in about‑‑
A. I don’t.
Q. --February 2015?
A. I don’t, but I may have.
Q. Having regard to your earlier evidence, it’s probable that if this was drawn to your attention, one of your staff would have given it to you. Is that right?
A. Most likely. Yes.
Q. Because that would have been of interest if it was about Gavin Shatford.
A. Definitely.
Mr Henry was then taken to the passage from the Media Release regarding 90 Ashford Avenue quoted earlier and said that if he had seen the statement that the owners ‘have been my clients for almost 20 years’ he would have ‘confronted’ Mr Shatford about it (T73.19). That is a recognition by him that the statement in the Media Release identified the vendor, although not named, as a client of RHC Penrith.
In my view, it is likely that Mr Henry did see and read the Media Release shortly after it was published on 17 February 2015. His evidence (both in his first affidavit and in cross-examination) was that ‘everyone’ in the RHC Penrith office thought he was ‘mad’ to let Mr Shatford operate the Special Projects franchise while still working on a part-time basis for CHRE. This indicates that the launch of the Special Projects franchise was a matter of significance in the RHC Penrith office generally as well as to Mr Henry. It was significant to Mr Henry because he regarded Mr Shatford as a senior member of the team (referring to him as ‘a human face of our business’ in his first affidavit) whose financial performance to this time had been poor but nevertheless wanted to support him and see him succeed. It is likely that a member of the staff in the RHC Penrith office drew Mr Henry’s attention to the Media Release around the time it was published and while he has no specific recollection of seeing it at the time he accepts that he may have seen it.
The significance of the Media Release, as Ms Gatland submitted, is that it is consistent with the defendants’ submission as to the scope of the consent provided by Mr Henry for the operation of Special Projects: first, Mr Shatford made clear in the Media Release that he was dealing with an established client of RHC Penrith and if he had been engaging in any form of wrongdoing or dishonest conduct regarding the sale of 90 Ashford Avenue, he would hardly have made his conduct so public; secondly, the fact that Mr Henry raised no objection to what was said in the Media Release at the time is consistent with Mr Shatford’s understanding of the consent which had been provided to him to conduct the Special Projects franchise.
While the Media Release does not say anything about the identity of the vendor of 90 Ashford Avenue, the statement that the vendor had been ‘my clients for almost 20 years’ was sufficient to put Mr Henry on notice that the vendor was a long established (albeit not exclusive) client of RHC Penrith as the relevant connection could only have arisen in the course of Mr Shatford’s employment with CHRE.
I regard the Media Release as an important piece of contemporaneous evidence which is more reliable in determining the outcome of the discussions between Mr Henry and Mr Shatford in January and early February 2015 than Mr Henry’s recollection of those discussions in his affidavit and oral evidence. First, his evidence in his affidavit and cross-examination was 7 years and 10 years respectively after the events in question and given in the context of an acrimonious dispute. Hence it is inherently unreliable and to be treated with caution and to be carefully assessed in light of the other evidence.
It is not in dispute that Mr Shatford was in a fiduciary relationship with CHRE throughout the First Period and the Second Period; rather the issue is the scope (or subject matter) of that fiduciary relationship which is to be moulded according to the particular relationship and the facts of the case.
The matters of importance in defining the scope of the fiduciary relationship are that Mr Shatford was a senior employee of CHRE with significant responsibilities. In his role as a sales representative, he represented CHRE in sales agency transactions and market appraisals for clients of the company. He had complete access to the plaintiff’s confidential information for this purpose and had an obligation (recognised in cl 13 of the Employment Contract) to keep it confidential. Reflecting his seniority within the business having formerly been a director, he was permitted to act independently of any direct supervision by Mr Henry, as shown by the instructions he gave Ms Prasad in relation to Invoice 1017 and her acceptance of them without reference to Mr Henry. This reflected the high degree of trust and confidence reposed in him by Mr Henry. Also relevant is that under his employment contract he was subject to extensive obligations to promote the business and goodwill of CHRE, including an obligation to act in the best interests of CHRE in his role.
For these reasons, I am satisfied that the scope, or subject matter, of Mr Shatford’s fiduciary obligations extended to all activities performed by him in his role as a sales representative of CHRE and required him to comply with the conflict rule and the profit rule, subject to one qualification. The qualification is that during the First Period, the Employment Contract following the oral variation made in January or early February 2015 permitted Mr Shatford to conduct the Special Projects franchise provided that in doing so Shatford Property dealt only with properties outside the Penrith LGA. During the First Period he was permitted to act self-interestedly in respect of sales and market appraisals made by Shatford Property under the Special Projects franchise for properties outside the Penrith LGA because the scope of his fiduciary relationship did not extend to such activities. When the Special Projects franchise was terminated in August 2016 this qualification ceased to apply.
I will deal first with the disputed transactions in the First Period, being the sale of 90 Ashford Avenue and the three market appraisals for which Invoices 1007, 1009 and 1011 were issued.
In light of the variation to the Employment Contract, the transaction in which Shatford Property acted as a conjunction agent on the sale of 90 Ashford Avenue and received a commission on the sale fell outside the scope of Mr Shatford’s fiduciary relationship with CHRE. Also, given the variation to the Employment Contract I do not regard this conduct as ‘improper’ within the meaning of s 182 of the Corporations Act.
However, the three market appraisals were for properties within the Penrith LGA and were within the scope of his fiduciary relationship. Consequently, the receipt of fees for those market appraisals breached the profit rule. Accordingly, the plaintiff’s claim succeeds in relation to the fees charged by Invoices 1007, 1009 and 1011, but not the sales commission for 90 Ashford Avenue.
The plaintiff’s submission that Mr Shatford has failed to establish that Mr Henry gave fully informed consent to Shatford Property acting on the sale of 90 Ashford Avenue does not arise because as the transaction was outside the fiduciary relationship, no requirement for fully informed consent arises.
Each of the market appraisals for which the plaintiff’s claim is made (see [99] above) were issued by Mr Shatford on the letterhead of RHC Penrith and in the course of his employment with CHRE using its resources, following which Shatford Property issued an invoice to the client. This conduct was clearly a breach by Mr Shatford of the profit rule unless Mr Henry provided his fully informed consent. I am satisfied that Mr Henry did not give his fully informed consent to Mr Shatford engaging these transactions. At its highest Mr Shatford’s evidence is that he sought approval for Shatford Property to continue to conduct market appraisals. None of the market appraisals in dispute involved any activity of Shatford Property beyond simply the issuance of the invoice to the client.
This conduct was also a breach his contractual obligations (in particular, cl 5.1(a) of the Employment Contract and his implied duty to act honestly) to CHRE.
The transactions in dispute relate to invoices 1017, 1026, 1028, 1032, 1039, 1042, 1045 and 1047 and the relevant facts for each transaction are set out above. Each concerns an activity performed by Mr Shatford in his role as an employee of CHRE, albeit in respect of a property outside the Penrith LGA. The fact that the property was outside the Penrith LGA is not relevant to the application of the profit rule as the conduct of transactions of this kind whether in or outside of the Penrith LGA fell within the scope of his fiduciary obligation.
Each transaction would only fall outside the profit rule if Mr Henry gave his fully informed consent to Mr Shatford undertaking those transactions. Mr Shatford accepted in cross-examination that his discussions with Mr Henry in May 2018 were one-off arrangements for Invoices 1026 and 1028 only. In so far as those invoices are concerned, in my view Mr Shatford did not disclose all the material information of which he was aware relating to the sale of either 2 Clay Place or 2/602-604 Darling Street.
In the case of 2 Clay Place, it was material for Mr Henry to know that RHC Penrith had been appointed as a conjunction agent on the sale rather than Shatford Property, so that Mr Shatford was acting throughout as an employee of CHRE and that CHRE was contractually entitled to the commission for which Shatford Property issued Invoice 1026. He was not told this.
In the case of 2/602-604 Darling Street, it was material for Mr Henry to know that the fee for which Invoice 1028 was issued came about because Mr Shatford had referred the owner of 2/602-604 Darling Street, a client of RHC Penrith, to another Raine & Horne Commercial franchisee (Mr Smith) to list that property for sale rather than the RHC Penrith office listing the property, and that in doing so he was acting in the course of his employment with CHRE, and the fee was essentially for the referral. He did not do so; rather what he told Mr Henry was that ‘it was a listing by Luke Smith, and he got me involved in some discussions with the owner to try and get it together for him’.
There is nothing in the evidence to suggest that Mr Shatford sought consent from Mr Henry in respect of any of the remaining invoices.
While Mr Shatford may have genuinely thought that he had Mr Henry’s consent to these transactions due to the conversation on 28 May 2018, it is well established that merely because a fiduciary acted in good faith provides no defence to a breach of duty: Regal *(*Hastings) Ltd v Gulliver [1967] 2 AC 134 at 144 per Lord Russell of Killowen; Warman at 558; Boardman v Phipps [1967] 2 AC 46.
The only disputed transaction in this category is the amount of $5,500 received by Shatford Property under Invoice 1029 from Lister & Cole expressed to be for consulting services relating to the sale of Lister & Cole’s rent roll to CHRE. The relevant facts regarding this receipt are set out earlier. Essentially, Mr Cole rang Mr Shatford to see if CHRE was interested in buying the rent roll; Mr Shatford said he would refer it to Mr Henry which he did, and the transaction went ahead without any further involvement of Mr Shatford. He later received a ‘gift’ of $5,500 from Mr Cole and did not disclose that gift to CHRE.
It is clear that Mr Shatford received this gift by reason of or from his fiduciary position and accordingly he did so in breach of his fiduciary obligation on a straight forward application of the no profit rule.
It is accepted that if a fiduciary receives a ‘little present’ from a third party in the scope of the fiduciary relationship with the consent, express or implied, of the principal, the fiduciary may retain it: The Parkdale [1897] P 53, cited in P Finn, Fiduciary Obligations (Federation Press, 2016), [494]. Tips received by waiters and waitresses are an example. However, this amount cannot be so categorised.
It follows that the plaintiff has succeeded in its claim to an account of profits for each of the amounts in the table at [31] above except for 90 Ashford Avenue on the basis of breach by Mr Shatford of his fiduciary obligations to the plaintiff. The same conduct was also a contravention of s 182 of the Corporations Act: R v Byrnes (1995) 183 CLR 501; [1995] HCA 1 at 517.
There is no dispute that the remedy of an account of profits is available against Mr Shatford notwithstanding that the relevant amounts were paid to Shatford Property. While the order for an account can be subject to ‘just allowances’, no claim for allowances was made reflecting the fact that there is no evidence to suggest that Mr Shatford incurred any amount which should be taken into account as a just allowance.
The final issue to consider is Mr Shatford’s argument that he is entitled by way of set-off against the amount he otherwise owes the plaintiff to an amount of $36,662.55 for unpaid long service leave and a further $11,241.61 in respect of underpaid commission owed to him.
I note at the outset that Mr Finnane did not dispute that Mr Shatford could bring his claim for long service leave in his defence in these proceedings by way of a set-off against the plaintiff’s claim for an account of profits (see T573.2). It follows that I do not need to address the question, presently unresolved, as to whether such a claim may be brought by way of set-off: see eg Carter v Orix Australia Corporation Ltd [2022] FCA 784 at [24]-[50].
The issue in this claim is whether Mr Shatford remained an employee during the period from 2000 to July 2011, when he was a director and controlled (through his family trust) a one third shareholding in CHRE.
Section 4 of the Long Service Leave Act 1955 (NSW) provides, relevantly:
(1) Except as otherwise provided in this Act, every worker shall be entitled to long service leave on ordinary pay in respect of the service of the worker with an employer. Service with the employer before the commencement of this Act as well as service with the employer after such commencement shall be taken into account for the purposes of this section.
(2)
(a) … the amount of long service leave to which a worker shall be so entitled shall—
(i) in the case of a worker who has completed at least 10 years service with an employer be—
…
(C) on the termination of the worker’s services after the completion of 15 years service, in respect of the number of years service with the employer completed since the worker last became entitled to an amount of long service leave, a proportionate amount on the basis of 2 months for 10 years service…
…
(5)
(a) Where the services of a worker are terminated otherwise than by the worker’s death and any long service leave—
(i) to which the worker was entitled has not been taken, or
(ii) accrues to the worker upon such termination and has not been taken,
the worker shall … be deemed to have entered upon the leave from the date of such termination and the employer shall forthwith pay to the worker in full the worker’s ordinary pay for the leave less any amount already paid to the worker in respect of that leave.
Any worker may apply to the Local Court, or to the Industrial Relations Commission in Court Session, for an order directing the employer to pay to the worker the full amount of any payment which has become due to the worker under this Act at any time during the period of 6 years immediately preceding the date of the application but not earlier than 2 years before the date of assent to the Long Service Leave (Amendment) Act 1980.
The Local Court or Industrial Relations Commission in Court Session may make any order it thinks just in the matter and may award costs to either party, and assess the amount of such costs.
person employed, whether on salary or wages or piecework rates, or as a member of a buttygang, and the fact that a person is working under a contract for labour only, or substantially for labour only, or as lessee of any tools or other implements of production, or as an outworker, or is working as a salesman, canvasser, collector, commercial traveller, insurance agent, or in any other capacity in which the person is paid wholly or partly by commission shall not in itself prevent such person being held to be a worker but does not include a person who is a worker within the meaning of the Long Service Leave (Metalliferous Mining Industry) Act 1963.
It follows that a person who is an employee is a ‘worker’ and therefore entitled to long service leave under s 4 of the Long Service Leave Act, and contracting out of this entitlement is prohibited (s 7(2)). The issue here is the period during which Mr Shatford was an employee of CHRE given that from 2000 to 2011 he was a director of CHRE without a written contract of employment.
In Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) 275 CLR 165; [2022] HCA 1 the High Court (by majority) rejected the use of a multifactorial test or checklist approach in determining whether an employment relationship exists. The relevant principles may be summarised as follows by reference to the joint judgment of Kiefel CJ, Keane and Edelman JJ and the separate concurring judgment of Gordon J (with whom Steward J agreed as to the expression of the test to determine whether a person is an employee):
Where the relationship between the parties is governed by their written contract, the characterisation of their relationship as one of employment or otherwise proceeds by reference to the rights and obligations under that contract: [59]-[60], [173]. Subsequent conduct is not relevant to the process of construction which this involves: [43]-[45], [59]-[61], [177]. Subsequent conduct may be relevant for purposes other than construction, such as whether the contract has been varied or discharged: [46], [177].
Where the relationship is governed by a contract which is oral or partly oral and partly in writing, it is necessary first to determine the contractual terms that were agreed and then to determine the character of the relationship by construction of the contract: [56]-[61]; [183]-[190]. In the first stage, in accordance with ordinary principle, reference may be had to subsequent conduct to identify the point at which the contract was formed and the contractual terms that were agreed: [190]. Again, on ordinary principle, subsequent conduct is not relevant to the second stage of construction, but may be relevant for other purposes such as whether the contract has been varied or discharged: [46], [56]-[57], [61], [183].
Whether the contract is wholly in writing, or oral or partly oral and partly in writing it is appropriate in the characterisation of the relationship by construction of the contract to have regard to the totality of the relationship between the parties, by reference to the various indicia of employment that have been identified in the authorities: [61], [172], [174].
In assessing the indicia of employment the focus is on the way in which the contractual terms address each of them, but they will not to be approached as a checklist, because they are not of equal weight in the characterisation of the relationship: [34].
A useful question to ask in order to give focus to the enquiry (though not necessarily determinative) is whether the putative employee is contracted to work in the business of the putative employer, or carries on an independent enterprise: [37]-[39]; [183].
Mr Shatford submitted that he was employed by CHRE continuously from 2 December 1996 until 24 May 2021 and the fact that he was a director between 2000 and 2011 did not alter his employer/employee relationship with CHRE. The plaintiff had employed him continuously for 24.5 years accordingly he would have been entitled to should have been paid long service leave equivalent to nearly 6 months of his ordinary pay under s 4.
Aside from Mr Henry’s self-serving affidavits there is no evidence from the plaintiff to demonstrate that Mr Shatford’s employment was actually terminated when he acquired shares and became entitled to be a director of the plaintiff in 2000. Nor has the plaintiff demonstrated that Mr Shatford ceased to have an entitlement to salary, commission, taken a crew leave, or be paid superannuation. Mr Shatford’s evidence is that he was working excessively and every day in the business of the plaintiff for the benefit of the business. Applying a multifactorial approach to determine whether he was an employee, it should be concluded that he was working as an employee in the business of the plaintiff throughout the period he was also a director. Reliance was placed on a number of authorities including Stevens, Hollis v Vabu Pty Ltd (2001) 207 CLR 21; [2001] HCA 44 and Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue (Vic) (1997) 37 ATR 528. In the event that Mr Shatford is found liable to account to the plaintiff, he should be entitled to an offset of $36,662.55 in respect of unpaid long service leave*.*
The plaintiff submitted that the issue in dispute, on which Mr Shatford bears the onus, is whether he was an employee of the plaintiff during the period when he was a shareholder and a director of the plaintiff, it being common ground that he was an employee (and a worker) during the initial period of employment and also in the period from July 2011 to 24 May 2021.
The plaintiff accepted that the mere fact that a person is a shareholder/director would not preclude the person from being an employee. In determining whether Mr Shatford was an employee in the period that he was also a director the appropriate approach is not the multifactorial approach discussed in Stevens and Hollis v Vabu, but rather the approach taken by the majority of the High Court in Personnel Contracting. The crucial question is control and specifically, the right or the authority of the putative employer to exercise control over the putative employee as distinct from the practical exercise of control: Personnel Contracting at [88].
Reliance was placed on four matters for the conclusion that Mr Shatford ceased to be an employee during this period:
There is no evidence of the plaintiff imposing its work practices on Mr Shatford during the period 2000 to July 2011 so as to manifest its right of control over him nor of Mr Shatford accepting the plaintiff’s exercise of power: cf Personnel Contracting at [42]. Indeed, on Mr Shatford’s own account of arrangements when he was a director of the plaintiff, there was a broad division of roles with Mr Henry as the public face of the business and Mr Shatford as the person responsible for both the Penrith and Campbelltown offices and it is not suggested that Mr Henry in any way directed Mr Shatford in his role.
In 2000, when Mr Shatford purchased shares in the plaintiff, Mr Henry says that it was Mr Shatford’s proposal at the outset to ‘roll in any money owing to him’, and following this his employment entitlements were worked out and used as part of the purchase price for the shares, and his employment terminated.
The Employment Contract was entered into in July 2011 around the time Mr Shatford transferred his shares in the plaintiff to Mr Henry and if he was already an employee, and staying on in that capacity, there was no reason for this to happen.
The plaintiff’s employee records for Mr Shatford are equivocal.
It is common ground, correctly in my view, that Mr Shatford was an employee of CHRE immediately prior to his appointment as a director of the company on 24 October 2002. His contract of employment up to that time was partly oral and partly in writing. It is also common ground that he was an employee from 1 July 2011 to 24 May 2021. The issue therefore is whether he ceased to be an employee in the period when he was a director and also held, through his family trust, control of a one third shareholding in the company.
Two preliminary points are relevant to the determination of that issue. First, the mere fact that a person is a director of a company does not preclude an employment relationship from arising and this is so whether or not the person is also a shareholder in the company given the separate legal personality of the company: Lee v Lee’s Air Farming Ltd [1961] AC 12 at 26; Hamilton v Whitehead (1988) 166 CLR 121 at 128. Further, it is not uncommon in small companies for the employee relationship to be dealt with informally and without a written contract: Neufeld v Secretary of State for Business, Enterprise and Regulatory Reform [2009] EWCA Civ 280 at [85].
Secondly, a contract of employment like any other contract under which there are obligations on both sides which remain to be performed can be discharged by agreement of the parties, express or implied. There is no evidence of an express agreement (oral or in writing), and hence the question becomes whether such an agreement is to be implied from the conduct of the parties. The various ways in which an agreement to terminate the contract may be implied from conduct are: (a) where one party has acted so as to justify a reasonable person in the position of the other in thinking that the form intended to terminate, the latter agrees; (b) where, viewed objectively, the parties’ conduct manifests an intention of one of them to abandon the contract and concurrence in that course by the other; and (c) the parties enter into an inconsistent contract, such as where they substitute a new party for an original party (ie a novation): JD Heydon, Heydon on Contract (Lawbook Co, 2019) at [22.130]-[22.170].
In my view, there is no evidence to support a conclusion that any of these alternatives apply. It is sufficient to refer to three matters. First, the employee records maintained by CHRE for Mr Shatford (Ex 13) show that he continued to receive amounts described as ‘salary’ for each of the financial years in the period from 19 October 1998 to 24 May 2021, including those in which he was a director. Secondly, his employee record card for the period up to 1 July 2011 states beside ‘terms of employment’ – ‘Director 1/5/00 – 30/6/11’ and ‘drawings including wages and super $12,000 per month’. Thirdly, his employee record card states beside the words ‘date terminated’ – 24 May 2021; no earlier date of termination is specified. The continued payment of salary to Mr Shatford’s contract despite his appointment as a director is a factor indicating the there was a continuing employment relationship.
In the DCS at [50], Mr Shatford made a claim that he is entitled to a further offset of $11,241.81 relating to the underpayment of commission due to him for the June 2020 quarter. This is not pleaded in the AD and arose from the cross-examination of Mr Henry.
The plaintiff opposed the raising of this claim because it is unpleaded and submitted that in any event, it should be rejected because it is not made out. I accept that submission for the following reasons.
The commission statement for the March 2020 quarter shows that amount of commission owing to him in respect of that quarter was $11,241.61. His ‘employer’s commission’ for that quarter in excess of the target amount of $45,000 was $39,425.79. His commission entitlement was 45% of that amount being $17,741.61 of which $6,500 was paid leaving a balance of $11,241.61 (equivalent to 45% of ‘employer’s commission’ of $24,981.35). There is email correspondence between Mr Shatford and Mr Henry on 8 and 9 April 2020 indicating that they had reached an agreement that the amount of $11,241.61 would not be paid to him, and would instead be ‘carried forward’ to the June 2020 quarter. The dispute, as it emerged in cross-examination, was whether the manner in which this amount had been carried forward reflected Mr Shatford’s entitlement under the Employment Contract, and if it did not whether this was the result of an agreement reached between Mr Shatford and Mr Henry in discussions in 2020 regarding the commission statements for those two quarters.
The commission statement for the June 2020 quarter indicates that the commission was carried forward by adding the amount of $24,981.35 (on the basis that $11,241.61 is equal to 45% of $24,981.35) to his commission income for the June 2020 quarter but because his actual commission income for that quarter was less than the target amount of $45,000, his ‘employer’s commission’ was only $5,360.35, and his commission entitlement was only $2,412.16. It is not in dispute that he was paid that lower amount in July 2020.
While, on the face of it, the manner in which the amount of commission of $11,241.61 was carried forward to the June 2020 quarter does not reflect the terms of the Employment Contract, it is apparent from Mr Henry’s email of 9 April 2020, and also his evidence in cross-examination, that there were discussions between Mr Henry and Mr Shatford about how this amount would be treated in the June 2020 quarter which leave an ambiguity as to what was in fact their agreement. Not surprisingly, given that the claim now attempted to be brought was not pleaded, the plaintiff has not had a proper opportunity to put on evidence addressing the discussions in April 2020 or the discussions in July 2020 regarding these commission statements. In these circumstances, it would be procedurally unfair to permit this unpleaded claim to be advanced now and therefore it is rejected.
For the above reasons, the plaintiff is entitled to an account of profits in the amount of $241,297.49 subject to a set-off for the long service leave entitlement of Mr Shatford in the amount of $36,652.55.
A question was raised by the plaintiff in its closing submissions in reply at [136] as to whether GST was properly accounted for by Shatford Property in relation to the invoices the subject of the account which may affect the terms of the account and require further submissions if the parties cannot agree.
The parties were in agreement that the question of costs should be dealt with after delivery of these reasons.
I direct the parties to bring in agreed short minutes to give effect to this judgment and a timetable to resolve the issue as to costs within 14 days or, if there is no agreement, their respective short minutes of order and short submissions in support not exceeding 3 pages.
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CH Real Estate Pty Ltd
Shatford [2026] NSWSC 129
(2018) 265 CLR 1
(2023) 113 NSWLR 151
(2005) 226 CLR 507
(2007) 160 FCR 35
(1974) 48 ALJR 372
(1938) 60 CLR 336
(1984) 154 CLR 178
(2022) 275 CLR 165
(1999) 161 ALR 599
(2021) 388 ALR 128
(2004) 213 ALR 574
(2003) 214 CLR 118
(2012) 200 FCR 296
(2016) 339 ALR 659
(2022) 105 NSWLR 541
(2001) 207 CLR 21
(1984) 156 CLR 41
(1959) 101 CLR 298
(1997) 188 CLR 449
(2022) 398 ALR 658
(1994) 34 NSWLR 723
(1995) 183 CLR 501
(1986) 160 CLR 16
(1995) 182 CLR 544
(1995) 49 NSWLR 315
(1991) 22 NSWLR 189
(2011) 191 FCR 1
(1988) 166 CLR 121
The second period is from the termination of the Special Projects franchise in August 2016 to the termination of his employment with the plaintiff in May 2021 during which Mr Shatford was working again full-time for the plaintiff. It is alleged that in this period, without the consent of the plaintiff, Mr Shatford caused Shatford Property to engage in the provision of real estate services, in competition with the plaintiff, in relation to properties or clients in the Penrith LGA or in relation to clients or contacts of the plaintiff: ASOC [39].
The ASOC alleges that Shatford Property received fees for real estate services in both periods and that this involved a breach by Mr Shatford of cl 4 and cl 5 of his employment contract, his duty of fidelity, his fiduciary obligations to the plaintiff and of s 182 of the Corporations Act: ASOC [40]-[45].
In relation to the allegation of breach of Mr Shatford’s fiduciary obligations to the plaintiff, the ASOC pleads at [26] the nature of his fiduciary duty to the plaintiff as follows:
Although the activities of RHC Penrith from its establishment until the time Mr Shatford resigned from his employment were focused on properties in the Penrith local government area (Penrith LGA), it acted for clients on the sale and leasing of properties outside the Penrith LGA. A table prepared by Mr Henry for the financial years from 2015 to 2021, and admitted without objection, indicated that approximately 17% of RHC Penrith’s income from the sale and leasing of properties in that period came from properties located outside the Penrith LGA. Also, in the period from May 2000 to October 2014, CHRE had a branch office in Campbelltown and from late 2006 to March 2016 CHRE had a retail services office in Carrington Street, Sydney.
On 1 July 2011, Mr Henry and Mr Shatford each signed a share transfer form for the transfer of the 97 ordinary shares CHRE held by the trustee of the Shatford Family Trust to the trustee of the Henry Family Trust for a purchase price of $900,000, and on 12 July 2011 Mr Shatford ceased to be a director of CHRE. The purchase price of $900,000 was paid by instalments over a number of years after the transfer was signed. While Mr Henry and Mr Shatford disagreed as to when it was finally paid, nothing ultimately turns on this.
Following Mr Shatford’s resignation as a director and the sale of the shares held by his family trust, Mr Henry became and continued at all relevant times to be the sole director of CHRE and to control, though his family trust, all of the shares in the company.
On 11 July 2011, Mr Shatford entered into an employment agreement with CHRE (Employment Contract) to work for it as a property sales representative with effect from 1 July 2011. Relevant provisions of the Employment Contract are set out later in these reasons. As he accepted in cross examination, he was a senior employee (the most senior salesperson in the RHC Penrith office apart from Mr Henry) with managerial responsibilities. The title he generally adopted in correspondence to clients from this time was ‘Manager, Sales and Leasing’ or ‘Manager, Sales and Investments’. However, there is no evidence to suggest there was a significant change in his role compared to the period when he was a director.
The Employment Contract required Mr Shatford to work on a full-time basis, which meant up to 5.5 days per week. His starting base salary was $90,623.90 per annum (plus superannuation), in addition to which he was entitled, on a quarterly basis, to a share of the commissions and/or fees received by CHRE with respect to settled sales effected by him (referred to as the ‘employer’s commission’). The terms on which this commission entitlement arose were set out in the annexure to the Employment Contract. In summary:
By cl 3.6. he was entitled to receive 40% of the employer’s commission in excess of the ‘target amount’ for the quarter which was stated to be $75,000 (cl 3.6);
By cl 3.7 any shortfall in meeting the quarterly target of $75,000 would be carried forward and added to the target amount for the following quarter, shortfalls would accumulate from quarter to quarter and if ‘the debt’ reached $100,000 or more then the salary would be halved and the target would be reduced to $37,500 per quarter. Although cl 3.7 referred to the ‘debt’ reaching $100,000 or more, it is not in dispute that no debt actually arose where there was a shortfall in meeting the quarterly target.
By cl 3.8, the target amount was subject to review by CHRE from time to time, as it was set having regard to a number of financial variables including the direct and indirect costs of employing the employee and CHRE’s overheads.
While cl 3.6 of the annexure to the Employment Contract provided that Mr Shatford would receive 40% of the employer’s commission above the target amount, the commission statement for the June 2012 quarter shows that by this time the percentage had reduced from 40% to 30%.
The manner in which the commission system operated in practice was that if there was a shortfall in one quarter, this would be carried forward to the next quarter as a debit against the commission revenue for that quarter before determining whether the target of $75,000 for that quarter had been reached. Consequently, it was only if the commission revenue attributed to Mr Shatford after deducting the shortfall, exceeded $75,000 would any commission become payable to Mr Shatford for the quarter. While Mr Shatford’s quarterly target was initially $75,000, it had reduced to $57,500 by the March 2015 quarter and then to $45,000 by the September 2018 quarter.
The operation of the commission system is illustrated by the commission statements for Mr Shatford for the June and September 2012 quarters. The practice was for Georgina Archer to prepare commission statements for all employees shortly after the end of each quarter which Mr Henry would then discuss with the relevant employee before agreeing with the employee that employee’s commission entitlement. In the case of Mr Shatford, a number (although not all) of his commission statements for the period from June 2012 to March 2021 are in evidence, many of which are signed by him including those for the June and September 2012 quarters.
For the June 2012 quarter, the shortfall was $195,404.55, which would have entitled CHRE to reduce his salary by 50%. Whilst there is dispute about what was discussed or agreed between Mr Shatford and Mr Henry in response to Mr Shatford’s shortfall, the copy of the commission statement for that quarter signed by Mr Shatford shows that he agreed to the reduction of his shortfall by approximately $100,000 to $95,267. For the following quarter, ending 30 September 2012, Mr Shatford exceeded his quarterly target of $75,000 by $28,191.48 and the commission statement records his deficit carried forward as $67,075.52. He needed to achieve commission income in the December 2012 quarter of $142,075.52 before he would be entitled to a share of commission income for the quarter.
The next commission statement in evidence is that for the December 2014 quarter (also signed by Mr Shatford). This shows that Mr Shatford had brought in commissions of $130,675.55 which exceeded his quarterly target of $75,000, but his shortfall had grown again since September 2012, such that the excess in this quarter simply reduced his carried-over shortfall from $306,461.42 to $250,785.87.
Against this background, there were some discussions between Mr Shatford and Mr Henry in January 2015 which are dealt with later in these reasons. It is common ground that an outcome of the discussions was that:
Mr Henry agreed that CHRE would ‘write off’ a further $250,000 from Mr Shatford’s shortfall in his commission statement for the December 2014 quarter, would reduce Mr Shatford’s quarterly target to $57,500 and would increase his commission percentage to 45% (up from 30% as shown in previous commission statements); and
while Mr Shatford was still employed by CHRE, he was permitted to conduct a separate real estate business under the name ‘Raine & Horne Commercial Special Projects’ through a new company called Shatford Property Pty Ltd (Shatford Property).
Mr Shatford registered Shatford Property on 27 January 2015. He was the sole director and he and his wife were the sole shareholders.
On 23 April 2021, Mr Henry says he was approached by Mr Shatford with further concerns about his financial position and Mr Henry agreed to give him a $5,000 bonus.
On 17 May 2021, Mr Shatford gave notice of his resignation of his employment with CHRE, stating that he had been advised to remove himself ‘from any stress environs of working in an office’.
The following day, Mr Shatford registered a new company, Shatford Commercial Pty Ltd, which is the second defendant. On 18 May 2021, Mr Shatford registered Shatford Commercial and it obtained a corporate real estate agent’s licence in January 2022.
During Mr Shatford’s notice period, Mr Henry discovered that information in CHRE’s customer database had been deleted and that this was connected with Mr Shatford. It is common ground that Mr Henry raised his concern about the deletion of files in a conversation with Mr Shatford on 24 May 2021 and that Mr Henry then terminated Mr Shatford’s employment.
Invoice 1016 was issued by Shatford Property to CHRE on 19 January 2017 in the amount of $15,000 plus GST and expressed to be for ‘Consulting 9 Blaxland Road, Campbelltown’. This is a property outside the Penrith LGA. The amount of the invoice was paid to Shatford Property on 19 January 2017. There is a second version of this invoice in evidence which is the same as the first except that the word ‘consulting’ was changed by Ms Archer on instruction from Mr Henry to ‘conjunction’. The explanation for this invoice is that the property at 9 Blaxland Road Campbelltown was sold, generating a commission for CHRE. The opportunity to earn that commission had arisen from a client of CHRE in the days when Mr Shatford (through his family trust) was a shareholder of CHRE, and it had an office in Campbelltown. Because of the history, Mr Henry thought it fair to give Mr Shatford part of the commission, and asked him to raise a tax invoice. Mr Shatford did so in the name of Shatford Property because, in Mr Henry’s words ‘he asked to be paid that way, which I thought was fair’ (T 207.26-208.5).
Invoice 1017 has been dealt with above as it is one of the disputed transactions. It was issued by Shatford Property to CHRE on 18 April 2017 for an amount equal to 100% of the commission to which RHC Penrith was entitled as the listing agent on the sale of 74 Murphy Street, Blaxland (a property outside the Penrith LGA). Mr Shatford was the listing agent for the property. It was a transaction for which Mr Shatford did not obtain consent from Mr Henry to receive the commission. His commission statement for the June 2017 quarter did not include this transaction as part of the ‘employer’s commission‘ attributable to Mr Shatford. That commission statement disclosed that he had a deficit for the quarter of $79,787.68 and hence was not entitled to any commission for that quarter. It is clear that had the commission on this property been included in the commission statement rather than being billed separately, Mr Shatford would still not have received any commission for that quarter.
In addition, there is evidence that occasionally CHRE issued an invoice to Shatford Property (eg Ex 11 for $2,472.12 plus GST expressed to be ‘Campbelltown office adjustments 2017 year’). However, these were isolated transactions and I am not satisfied that they have any significance for the issues in these proceedings.
In my view, none of these transactions disclose a course of dealing evidencing express or implied consent of CHRE for Mr Shatford to receive commissions on the sale of properties outside the Penrith LGA personally or through Shatford Property the Second Period. At most, the transactions involving invoices issued by Shatford Property to CHRE or vice versa merely indicate that Shatford Property was, after the termination of the Special Projects franchise, a convenient vehicle for Mr Shatford to receive from or pay to CHRE certain amounts on an ad hoc basis.
The parties did not in closing submissions address the scope of the post-employment restraint, which is no doubt because the claim that it had been breached was not pressed at the hearing. However, in my view it has some significance, as background context, to the discussions in early 2015 regarding the scope of the work Mr Shatford was permitted to do under the Special Projects franchise, in that it suggests that Mr Henry’s focus when the Employment Contract was entered into was on preventing competition from Mr Shatford in the Penrith LGA only. There is no evidence to suggest that his focus had changed by early 2015.
The Media Release is important because if it was seen by Mr Henry it would have put him on notice very shortly after the establishment of the Special Projects franchise, that Mr Shatford was acting for a long-standing client of Mr Shatford, and hence of CHRE.
The Media Release was published on the Raine & Horne Commercial website on 17 February 2015 and was still appearing on the website of the time of the hearing. The website is maintained by Raine and Horne Pty Ltd and not CHRE.
Mr Henry deposed in his second affidavit that: ‘I do not recall seeing the media release at the time, I am not on Facebook. Mr Shatford had not disclosed to me that the client was in fact a [RHC Penrith] client. I can recall, I had no reason to suspect that the vendor of 90 Ashford Avenue, Milperra was in fact one of our [RHC Penrith] clients’. However, as noted below, he recognised in cross-examination that it is apparent from the Media Release that the vendor was a client of RHC Penrith, even though it is not named.
In cross-examination Mr Henry gave the following evidence about his awareness of the media releases on the website:
Secondly, in cross-examination Mr Henry changed his evidence as to the approval he gave set out in paragraph 78 of his first affidavit and said that he said the same words to Mr Raine and Mr Shatford in separate conversations, I do not accept this evidence and consider that it reflects his poor recollection of the conversations in question.
Thirdly, Mr Henry had no file note of these conversations from which to refresh his memory, and I do not regard his recollection of the conversations in January and February 2015 as reliable given the lengthy passage of time, between when the conversations occurred and when he made his affidavits and gave oral evidence.
Fourthly, Mr Shatford’s evidence about the discussions was given in a straightforward manner with appropriate concessions and his version of the conversation after Mr Henry’s discussion with Mr Raine at paragraph 71 of his first affidavit was not tested in cross-examination. It is entirely consistent with the Media Release.
For these reasons, I find that the Employment Contract was varied in January or early February 2015 to permit Mr Shatford to conduct the Special Projects franchise provided that he did not conduct transactions for properties within the Penrith LGA. The variation also included the changes to Mr Shatford’s commission structure referred to at [192] above, and provided the practical benefit to CHRE that Mr Shatford continued to work, albeit part-time, for CHRE rather than resigning his position. This was a practical benefit to CHRE sufficient to constitute consideration for the benefits provided by CHRE to Mr Shatford of permitting him to conduct the Special Projects franchise and changing his commission structure: Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 746–8.
In making this finding I have taken into account Mr Finnane’s submission that Mr Henry’s version of the approval he gave is inherently more reliable. It is sufficient to deal with three matters raised in support of this submission.
First, reliance was placed on Mr Shatford’s acceptance that Mr Henry told him ‘so just outside of Penrith, none of our business, clients or property’. As explained above, these words were said at an early stage of the discussions and in my view do not reflect the outcome of those discussions. Further, there is a degree of ambiguity due to the opening words ‘so just outside of Penrith,’ which suggests that the focus is on preventing competition within the Penrith LGA and that is what is picked up by Mr Shatford’s response when he says ‘absolutely no business from here… it is non-Penrith LGA property only’. Further, there is ambiguity in the words ‘none of our business, clients or property’ which, read together, suggest that what is being referred to is current ‘business, clients and properties’ with which RHC Penrith is presently engaged rather than ‘business, clients and properties’ of previous transactions (such as those entered into many years previously).
Secondly, it was submitted that it is unlikely that Mr Henry, as a real estate agent with around 40 years’ experience as at February 2015, would consent to Mr Shatford operating the Special Projects business in a way which permitted him to effectively poach the plaintiff’s clients. In my view, that submission does not take into account that the post-employment restraint in cl 18 of the Employment Contract applied in the Penrith LGA only which is entirely consistent with Mr Henry being relaxed about potential competition outside the Penrith LGA notwithstanding (and perhaps reflecting) his long experience. Hence, it is not inherently improbable that Mr Henry would be focused on preventing competition within the Penrith LGA and not on competition outside it. Further, this submission does not overcome the difficulties with the Court accepting Mr Henry’s evidence of the relevant discussions set out above.
Thirdly, it was noted that cl 18 of the Employment Contract contains a post-employment restraint on dealings with ‘clients’ of RHC Penrith not just activities in the Penrith LGA. I do not see the relevance of cl 18 as there is no suggestion that its terms were the subject of any of the discussions in January and early February 2015 about the establishment of Special Projects.
In relation to (3) above, Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16; [1986] HCA 1, Mason J at 24 said that the various indicia of employment include (but are not limited to) the extent of control which the putative employer has over how, where and when the putative employee does the work, the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work and provision for holidays, the deduction of income tax and the delegation of work by the putative employee. In so far as the question of control is concerned, what is relevant is the authority to exercise control over the work of the putative employee and not the degree of control in fact exercised: Personnel Contracting at [74], [88], [174], [187], [193].
Secondly, while Mr Shatford was a director his work remained essentially the same. He was not acting merely as a director; rather his role was that of a sales representative albeit now in both the Penrith and Campbelltown offices and not just the Penrith office as had previously been the case. There is no evidence to suggest that CHRE (through Mr Henry) ceased to have the right to control the manner in which he performed that role in both offices. There is no evidence to suggest any change in the other indicia of employment, and the evidence indicates that he continued to act as a sales representative representing RHC Penrith rather than acting in an enterprise of his own.
Thirdly, while Mr Henry said in paragraph 44 of his first affidavit that from 1 July 2000 Mr Shatford ceased to be an employee of CHRE, the only basis given for this assertion is that around the time of the discussions concerning Mr Shatford becoming a director and shareholder in CHRE, Ms Archer ‘worked out all Mr Shatford’s employee entitlements, shared her calculations with Mr Shatford and I, and then once everyone agreed on the figure, and (sic) then terminated Mr Shatford as an employee of [RHC Penrith] when he became a shareholder’ (Mr Henry’s first affidavit at [38]).
However, Ms Archer gave no evidence to support these assertions and there is no evidence of any conversations between either Mr Henry or Ms Archer on the one hand and Mr Shatford on the other, on these topics, and Mr Shatford’s evidence as to his discussions with Mr Henry at the time is consistent with his employment continuing unaffected by his appointment as a director and the acquisition of shares in CHRE.
Nor is there any documentary evidence supporting a termination of Mr Shatford’s employment at this time; to the contrary, the employee records referred to above indicate that CHRE continued to treat him as an employee in relation to his remuneration. Accordingly, I give no weight to Mr Henry’s statements about termination which are mere assertion, and note he confirmed in cross-examination that Mr Shatford’s role after he had become a director continued to be that of a ‘salesman’.
In relation to the plaintiff’s submissions summarised at [256]-[257] above:
The issue as to control is not whether CHRE (through Mr Henry) directed Mr Shatford in his role but rather whether it had the authority to exercise control over the work he performed during the period he was a director. His role as a sales representative remained the same and in that role CHRE had the power to control his work. In so far as Mr Shatford’s evidence of arrangements during this period is concerned, Mr Henry’s evidence, which I accept, is that he was actively engaged in the Penrith and Campbelltown offices during the period that Mr Shatford was a director. I consider that CHRE retained, through Mr Henry, the power to control how Mr Shatford performed his work in both offices throughout the period he was a director.
While Mr Henry gave evidence of a discussion, in around March 2000 when the possibility of a share purchase was first raised, that Mr Shatford asked if he could ‘roll in any money owing to me into the purchase price’ there is no evidence to suggest that this actually occurred beyond Mr Henry’s conclusionary statements referred to earlier. Further, it is not clear how a long service leave entitlement as against CHRE which had not yet accrued could be said to be ‘money owing to me’ or how it could be ‘rolled into’ the payment for the purchase price for shares to be transferred by Mrs Henry to Mr Shatford (a transaction in which CHRE was not a party).
The fact that following Mr Shatford’s resignation as a director he entered into a written contract of employment with CHRE does not assist, in the circumstances of this case, in determining whether prior to that time he was an employee under an unwritten contract. There is nothing in the Employment Contract itself to suggest that Mr Shatford was not previously an employee. Further, there is an explanation for Mr Henry requiring a formal contract to be entered into, which is that it included a post-employment restraint to which Mr Shatford was not previously subject and, on the evidence, this was important to Mr Henry at the time Employment Contract was entered into.
The employee records are not equivocal, for the reasons already given.
For these reasons I find that Mr Shatford was an employee of CHRE throughout the period from 2 December 1996 until 24 May 2021.
The plaintiff submitted that if it failed on this issue, Mr Shatford would not be entitled to a set-off for accrued but unpaid long service leave up to 24 October 2002 because at the time he purchased (through his family trust) the shares in the plaintiff, Mr Shatford’s entitlements as an employee were paid out as part of the purchase price of his shares. I reject this submission. As indicated earlier, there is no evidence that Mr Shatford’s long service leave entitlement was ‘paid out’ at the time of the purchase of the shares. Further, as noted above, is not clear how long service leave entitlement which had not accrued into an amount owing to Mr Shatford could be ‘paid out’ as part of the consideration payable on the purchase of the shares by Mr Shatford from Mrs Henry.