Charltons CJC Pty Ltd v Fitzgerald - [2013] NSWSC 958 - NSWSC 2013 case summary — Zoe

NSWNSWSC

Charltons CJC Pty Ltd v Fitzgerald

[2013] NSWSC 958

Supreme Court of NSW|2013-08-02|Before: Pembroke J, Rein J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2013-08-02

Before

Pembroke J, Rein J

Catchwords

[2002] NSWSC 170 Maguire v Makaronis (1997) 188 CLR 449
[1997] HCA 23 Pilmer v Duke Group Ltd (in liquidation) (2001) 207 CLR 165
[2001] HCA 31 Prest v Petrodel Resources Ltd [2013] UKSC 34 Youyang Pty Ltd v Minter Ellision (2003) 212 CLR 484

Source

Original judgment source is linked above.

Catchwords

[2002] NSWSC 170 Maguire v Makaronis (1997) 188 CLR 449[1997] HCA 23 Pilmer v Duke Group Ltd (in liquidation) (2001) 207 CLR 165[2001] HCA 31 Prest v Petrodel Resources Ltd [2013] UKSC 34 Youyang Pty Ltd v Minter Ellision (2003) 212 CLR 484

Judgment (37 paragraphs)

[1]

Introduction 1This is a restraint of trade case. On 24 April 2013, I gave judgment in which I held that I was satisfied as to both of the following: (a)that prior to their departure from the firm known as Charltons, the defendants Fitzgerald and Kishore provided accounting services to persons or entities who were not existing clients of the firm; that they did not bill those persons or entities on behalf of Charltons; and that they effectively diverted from Charltons the business opportunity that those clients represent; and (b)that after their departure from the firm, the first three defendants (Fitzgerald, Kishore and Prasad) assisted each other, and assisted the fourth defendant company of which they were directors (Intuitive), to solicit and entice away from Charltons a significant number of existing clients of the firm. 2The purpose of this hearing is to ascertain and identify the precise extent of the 'breaches' by the defendants. The hearing is directed to the identification of the individual breaches and will be followed in September by a further hearing before Rein J at which the plaintiff will seek to prove and recover its entitlement to loss and compensation attributable to each of the breaches so found. 3The parties addressed me by reference to four substantial issues which, they agreed, constituted a convenient vehicle for the determination of this aspect of the proceedings. Those issues are as follows: (a)whether the plaintiff is entitled to findings that there were concurrent breaches of contract and breaches of fiduciary duty in respect of the same conduct; (b)whether the defendants are entitled to rely on the principle embodied in the Latin expression 'De minimis non curat lex', the literal meaning of which is that 'the law does not concern itself with the smallest things or trifles'; (c)whether two of the proposed orders (Nos 45 and 46), which relate to the third defendant Mr Prasad, should be reduced in scope; and (d)whether, in relation to a substantial number of findings of fact for which the plaintiff contends, and having regard to the failure of any of the defendants to give evidence, there is a sufficient and rational basis to support the proposed finding.

[2]

Concurrent Breaches 4The first issue derives from my findings in paragraphs [42] and [43] of the principal judgment. The plaintiff wishes to have the additional benefit to which it believes it may arguably be entitled, if I conclude that there were breaches of fiduciary duty, as well as breaches of contract, in respect of the same underlying conduct. On the other hand, the defendants contend that the plaintiff should be confined to findings of breach of contract - because in the circumstances 'the concurrent fiduciary duty adds nothing'. 5Paragraphs [42] and [43] of the principal judgment were as follows: 42. Fiduciary and contractual obligations do not always make easy bedfellows however. The express contractual duty of fidelity in Clause 3.1 of the Terms of Employment provides all the protection that the plaintiff could hope to achieve. The concurrent fiduciary duty adds nothing. That is because it is the contractual relationship which is all important. The fiduciary relationship 'must accommodate itself to the terms of the contract so that it is consistent with, and conforms to them': Hospital Products Ltd v United States Surgical Corporation at 97 (Mason J). To similar effect was Lord Browne-Wilkinson in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 206 who observed: ... the extent and nature of any fiduciary duty owed in a particular case falls to be determined by reference to any underlying contractual relationship between the parties. 43. For those reasons, the fiduciary obligation of loyalty owed by Fitzgerald, Kishore and Prasad during their employment, rose no higher than their contractual duty. It was equivalent to and existed concurrently with the duty set out in clause 3.1 of the Terms of Employment. 6What I made clear in those paragraphs was that, in this case, the scope of the equitable and contractual duties was the same. The remedy however may not necessarily be so. In Pilmer v Duke Group Ltd (in liquidation) [2001] HCA 31; (2001) 207 CLR 165 at [85], McHugh, Gummow, Hayne and Callinan JJ reiterated the difference in principle between the equitable measure of compensation and that for breach of contract: Various judgments in this Court (177) establish that, in Australia, the measure of compensation in respect of losses sustained by reason of breach of duty by a trustee or other fiduciary is determined by equitable principles and that these do not necessarily reflect the rules for assessment of damages in tort or contract. 7In the same case, Kirby J said at [153]: It is because equitable relief has large objectives that the measure of equitable compensation will often differ from the measure of common law damages. Often, it will be greater. 8This is a long-standing distinction which has been recognised on many occasions. See also Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 493-494; AG Australia Holdings Ltd v Burton (2002) 58 NSWLR 464; [2004] NSWSC 170 at [73] - [74]; Youyang Pty Ltd v Minter Ellison [2003] HCA 15 at [39]; (2003) 212 CLR 484. 9In this case, there will be a separate hearing on damages before a different judge. The grant of declaratory relief is discretionary. I should not foreclose the opportunity for the plaintiff to recover at the damages hearing any greater amount of compensation to which it may possibly be entitled having regard to the principles which govern the assessment of equitable compensation. 10I am therefore satisfied that it is appropriate in this case, as a matter of discretion, to make declarations as to both breach of contract and breach of fiduciary duty, even though the duties are identical and the underlying conduct is the same. Whether the consequence is to entitle the plaintiff to recover a greater amount of compensation than it would otherwise receive for breach of contract, will be a matter to be determined by the judge at the damages hearing.

[3]

De Minimis 11The second issue concerns the de minimis principle. The defendants contend that in some instances, the evidence of breach is so slight as not to justify a finding of breach at all. The contention is relevant to those 'shadow' clients where the only evidence is that the defendants carried out a modest amount of work for a person or entity who should have been treated as a client of the firm. Six instances were relied upon: (a)the first defendant carried out work for Timothy Mahli in relation to his 2010 and 2011 taxation returns. He appears to have done this work in conjunction with a Paula Edmonds, who did most of the work. The only evidence of the value of the work undertaken by the first defendant is an invoice for $82.50; (b)similarly, the illicit work done for Nicole Sergeant was very minor and any further work is also likely to have been minor given that her income in the following year was $9,261; (c)as to George Verghese, the offending conduct was said to consist of the first defendant generating access to Charltons' ATO portal to provide information to Mr Verghese about his un-lodged taxation returns; (d)as to Cheree Lloyd, the breach was said to involve the correction of her rate of taxation rather than the preparation of her taxation return; (e)as to Gwen Riggs, it was submitted that any work performed for her would have been minimal because her working life had ended, her superannuation had dissipated and she was moving to New Zealand for five years; (f)as to Wendy Guest, it was said that the work was minimal because, initially at least, the second defendant did no more than indicate that he was happy to act as her accountant and invited her to call him when she next visited Sydney from Chicago. 12The difficulty with the defendants' contention is that each breach was part of a concerted and deliberate campaign to cultivate 'clients' who would otherwise have belonged to Charltons. The loss resulting from the defendants' conduct in relation to such shadow clients will not be measured solely by reference to the value of the initial work done by the defendants for those shadow clients during the process of cultivation. At the damages hearing, the plaintiff will be entitled to prove, and seek to recover, the present value of the future fees that could reasonably have been expected to be earned from those shadow clients, subject to an appropriate discount for vicissitudes and uncertainties. 13For those reasons, the identification of the particular breach, whether or not it appears to be minor, is only the beginning of the enquiry as to the amount of compensable loss to which the plaintiff may be entitled. The circumstances of this case therefore make it inappropriate to apply the de minimis principle. The defendants' conduct in relation to each 'shadow' client, no matter how minor it may now seem, was intended to be a springboard to a profitable successful future accounting relationship. By their conduct, the defendants deprived the plaintiff of the opportunity of having the benefit of that relationship. The nature and quality of the breaches are such, that given the remedy to which the plaintiff may be entitled, it is not appropriate to treat any of the breaches as negligible and to ignore them.

[15]

Cheree Lloyd 44Charltons contends for the inference that Fitzgerald provided services within the scope of Charltons' business to Cheree Lloyd in connection with her 2011/2012 income tax return. 45Fitzgerald denies this breach. His primary submission is that Ms Lloyd is an employee of Medicine Today, a former retainer client of Charltons; that the work performed by Fitzgerald during his employment for Ms Lloyd was a 'value add' under Charltons' retainer with Medicine Today; and that the work involved only a minor amendment to Ms Lloyd's personal tax return to fix a problem arising from the tax deducted from her pay by Medicine Today. The defendants also point to Mr Charlton's evidence in cross-examination that from time to time he would do work and not charge for it with a view to establishing good client relationships. Mr Charlton agreed that this was likely with retainer clients. 46In the alternative, Fitzgerald submits that the declaration should be 'in connection with her [Ms Lloyd's] taxation assessment shortfall for the financial year ending 30 June 2012', rather than for work 'in connection with her 2011/2012 income tax return'. 47The issue for resolution is therefore whether the court can infer that Fitzgerald provided services within the scope of Charltons' business to Ms Lloyd in connection with her 2011/2012 income tax return. 48I reject Fitzgerald's primary submission. There is no evidence that the work performed by Fitzgerald for Ms Lloyd was a 'value add' under Charltons' retainer agreement with Medicine Today. In fact, such work was expressly excluded by the terms of the relevant retainer. 49I am satisfied that there should be a declaration as sought by the plaintiff. The inference that Fitzgerald conducted himself as alleged can be drawn from the direct evidence, all of which is unexplained. It includes the fact that Ms Lloyd was not a client of Charltons; that her tax assessment was the subject of correspondence with Fitzgerald on 17 July 2012; and that Fitzgerald benefited from his secret cultivation of this business while Charltons employed him, in that he continued to perform work for Ms Lloyd from September 2012 to January 2013.

Charltons CJC Pty Ltd v Fitzgerald

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Judgment (37 paragraphs)

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Cases Cited (9)

Cited By (1)