COURT IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION SANTOW J HRNG SYDNEY, 28-29 June 1995 #DATE 24:7:1995 #ADD 24:10:1995

Solicitors for the Plaintiffs Ritchie Martin

Solicitors for the Defendants Taylor Kearney Reed and Owen ORDER Orders made JUDGE1 SANTOW J This matter concerns a claim by the Plaintiffs against two former senior employees and their company, formed to compete against the Plaintiffs. The Plaintiffs allege that one of the former employees, the Second Defendant, acted in breach of her contractual or fiduciary duties by usurping a business opportunity in the Plaintiffs' line of business. This work was obtained while both the First and Second Defendants were still employed by the Plaintiffs, starting from a contact gained by virtue of the Second Defendant's position as a manager of the Plaintiffs. The Plaintiffs allege that the First and Third Defendants dishonestly assisted in the Second Defendant's breach of fiduciary obligation, so giving rise for liability as accessories. The Plaintiffs bring an action for damages, or in the alternative, for an account of profits.

2. The Defendants deny any liability. They claim they breached no duty by planning to set up in competition to the Plaintiffs and lining up work for that new business while still employed with the Plaintiffs. They further claim that this was not a business opportunity which the Plaintiffs were capable of performing.

ELABORATION OF FACTUAL BACKGROUND 3. Most of the factual circumstances are not in dispute. Where they are, I give my findings.

The Colour Control Group 4. The Plaintiff Colour Control Pty Ltd ("Colour Control") and the subsequently joined Plaintiff, CCC Enterprises Pty Ltd ("CCC") are related companies. They together with a company Sesoru Pty Limited operate a commercial film and photographic processing and printing business. I refer to them collectively as "the Colour Control group". The business of the Colour Control Group involves the processing of film, the printing of photographic reproductions and enlargements, and the construction of photographic displays. The business has been in existence for over 26 years, has over 2,000 customers and an annual turnover of approximately $700,000. The Managing Director of Colour Control and CCC is Mr Raymond Vine ("Mr Vine") who, with his wife and mother, are the only shareholders.

Sub-contracting 5. Some of the work undertaken by the Colour Control group is in fact sub-contracted. This is done particularly because of limitations in equipment available in-house. The Colour Control Group did not have the necessary equipment to make prints above a certain width. There is some dispute about what was that maximum width. This was in order to produce black and white prints of requisite quality at the relevant time. Ms Rando gave evidence that the Plaintiffs' maximum capacity was a 16 inch width. Whereas, Mr Vine gave evidence that it was 52 inches. In the end I am satisfied nothing hangs on that. I am satisfied that the Plaintiffs were able to produce prints of the requisite size and quality, either in-house or by subcontracting, to satisfy the business opportunity in question, sub-contracting occasionally where necessary. Generally, but not always, the Colour Control group would when subcontracting, mark up the price for the client.

The Defendants 6. The First Defendant, Mr Ricardo Ty ("Mr Ty"), was employed by Colour Control in 1985 as a printer. In 1988 he was promoted to laboratory manager. In that capacity he supervised most of the production work carried out by the Plaintiffs and had direct contact with customers.

7. The Second Defendant, Ms Deborah Rando ("Ms Rando"), was employed by CCC. She was employed in 1987 as a printer and then promoted in 1989 to production and marketing manager. Ms Rando's duties included a number of production tasks such as purchasing materials, pricing jobs and engaging subcontractors. Ms Rando's duties also included dealing with customer inquiries, visiting customers and seeking out new business for the Plaintiffs. I am satisfied she played a principal role in representing the Plaintiffs in their business with existing or prospective customers. She occupied a position of such seniority and trust that when Mr Vine was away on holidays, she managed the business. Effectively she was second in charge.

8. These were both senior positions in the employment of the Plaintiffs. They gave each of the First and Second Defendants full access to all of the Plaintiffs' business records and direct access to the Plaintiffs' customers.

9. The Third Defendant, Photo Technica Pty Limited ("Photo Technica"), was incorporated on 10 August 1992. Mr Ty and Ms Rando are its directors and shareholders. Photo Technica was incorporated to compete with the Plaintiffs and did so since that time. Because in the initial stages, the Defendants were purchasing the necessary processing equipment for their new business, until around mid September 1992 all processing work undertaken by Photo Technica was sub-contracted.

First Contact with the Sydney Jewish Museum 10. For much of 1992, Mr James Doe ("Mr Doe") had been seconded by Westfield Limited to Terrace Towers Pty Limited for the purpose of carrying out duties in connection with the establishment of the Sydney Jewish Museum ("the Museum"). The Museum was to contain a significant display, involving four levels of photographic prints and in the vicinity of 1,000 images. During his work at Westfield, Mr Doe had frequently employed the services of Allied Reprographics, a photographic laboratory which was a competitor of the Plaintiffs. Mr Doe was at that time happy with the service provided by that company, and intended to use it for the Museum work.

However, Mr Doe became unhappy with the quality of a print provided by Allied Reprographics. At some time on or before 22 July 1992, he contacted Ms Rando at the offices of the Plaintiffs in order to see if a better quality print could be obtained than that produced by Allied Reprographics. At his request Ms Rando attended his offices. Ms Rando acknowledged in her affidavit evidence that "I understood that this request was made of the Plaintiff company, and not myself personally". Ms Rando arranged for a 'test strip' to be prepared, which is a sample of part of the print. This was to be used to indicate whether the Plaintiffs could obtain better results. She subcontracted this work to Mr Rischmiller of Amarisco Photographic Services Pty Ltd, a company not infrequently used by the Colour Control group for sub-contract work. The job sheet prepared by Mr Rischmiller on 22 July 1992 (annexure E to his affidavit) was initially headed "Colour Control Centre", but these words were later crossed out. They were replaced with the words "Photo Technica". The Plaintiff was not charged for the work of preparing the test strips, and no charge was made to the Museum.

Ms Rando was told by Mr Doe at the time of this first contact of the significant amount of photographic material required by the Museum. She was also told that if the strip was satisfactory the company she represented might get the Museum work.

There is some dispute as to whether in fact the Colour Control group could have produced that print. It required, according to Ms Rando, a 72 inch black and white processor. This she said the Colour Control group did not have. Mr Vine gave evidence that of all the over 1,000 prints made eventually for the Museum, there were only two or three on the premises which Colour Control could not have produced itself I do not however need to decide who was correct, since it did not matter in the event. First Mr Doe judged the test strips to be no better than Allied Reprographics. Second, it is common ground the Colour Control group regularly sub-contracted in carrying out its business so could have done so this time, if necessary.

On 23 July 1992, the following day, Ms Rando collected the test strip by courier and took it to the Museum. Mr Doe concluded that whilst he had been unhappy with Allied Reprographics print, this alternative source was not appreciably better. Thus at that point, he still remained happy to deal with Allied Reprographics, by reason of his previous dealings with that company. He gave evidence that at that point he saw no reason to transfer any work from Allied Reprographics either to the Plaintiffs or Ms Rando.

Up to this point Mr Vine had been kept informed of Ms Rando's dealings with the Museum and was aware that there was potential work involved. However, it is clear that following this initial setback with the test strips, Ms Rando left Mr Vine with the impression that they "didn't get the Museum job", as indeed was the case at that point. But she gave no indication that the Museum work was not unattainable, or that the Plaintiffs might still get the work by initiating further discussions with Mr Doe. When she did do this shortly after, she did not disclose this to her employer, nor the outcome. I deal with that shortly.

When Ms Rando finally gave notice of resignation, she mislead the Plaintiffs into believing she would have no interest in their business opportunities by falsely stating she intended to work as a counsellor with Alcoholics Anonymous (see below). She actively concealed what later followed with the Museum.

The $3,000 Order with the Museum 17. Ms Rando rang Mr Doe sometime in late July, or possibly early August, but while still employed. She disclosed her plans to set up her own business. She offered her personal assistance in the Museum work. Mr Doe said he would keep it in mind, and told her that they would need someone to do a lot of running around, collecting and returning photographs, taking negatives, and other time consuming work. Ms Rando said she was interested. The exact date of this telephone conversation is not certain. According to Ms Rando it occurred one to two weeks after she had showed Mr Doe the test strips. Mr Doe stated in his affidavit it was in late July. In any event, the conversation was indubitably whilst Ms Rando was still employed by the Plaintiff group, though possibly after she gave notice on 31 July 1992. However, as this conversation appears to have occurred prior to the meeting referred to in the next paragraph, I consider the date of the conversation was more likely prior to 31 July 1992, based on the likely date of that meeting. I turn now to that meeting.

Shortly after this conversation Ms Rando had the meeting with Mr Doe. Mr Doe mentioned a specific job for which Allied Reprographics had quoted $4,000. Ms Rando said she thought she could do a better job and at a better price. She agreed to do it for $3,000. Mr Doe decided to give Ms Rando this small order for Level 2 in the Museum ("the $3,000 order"). It is significant that Ms Rando did not disclose this order or conversation to the Plaintiffs. It is clear she wished to conceal it. The precise date of this meeting is in dispute. It certainly must have occurred on or prior to 3 August 1992, when Ms Rando delivered the books and photographs for the $3,000 order to Mr Rischmiller (see below). Ms Rando claims it happened after her resignation, that is to say after she gave her notice of resignation on 31 July 1992. However, in cross examination she said that the meeting must have occurred on the weekend of 1 and 2 August 1992 (transcript at 92), so even on her account while working out her one week's notice and thus while still employed. Her contention that the meeting occurred on that weekend was not however mentioned in her affidavit evidence. Mr Doe was unable to put a date to the meeting in cross examination (transcript at 74). Mr Ty conceded in cross examination that he knew Ms Rando had some work with the Museum prior to going on holidays on 31 July 1992, thus suggesting that the meeting may well have occurred prior to that time (transcript at 102). Most significantly, the actual date of the $3,000 order was 28 July 1992. It appears that as at that date the order was made out to Allied Reprographics, and was only subsequently given to Ms Rando. That, however, is consistent with the earlier concealment. I thus conclude it is more likely than not that this meeting occurred earlier sometime between 28 and 31 July 1992, though a later date on or before 3 August 1994 would not matter, given Ms Rando was still then employed.

I am satisfied that Ms Rando was aware at this time, while so employed, that Level 2 of the Museum was to contain many more prints, and that there was thus the potential for considerably more work. I am also satisfied that she concealed this renewed opportunity with the Museum from her then employer. As already mentioned, Mr Doe gave Ms Rando this information when he first met her (transcript at 73). Mr Rischmiller gave evidence that on 3 August 1992, when Ms Rando gave him a request for a detailed quote for the $3,000 order, she said words to him to the effect: "I've left Colour Control now and so has Ricardo. Our Company is called Lab Tech Pty Limited. It looks like we might have got Level 2 of the Jewish Museum". This version of the conversation is denied by Ms Rando and Mr Rischmiller conceded in evidence that his recollection was not clear in that regard (transcript at 30). However, I think it more likely that she thus expressed confidence in getting the Level 2 work. Mr Ty put the position as less certain; "Still a gamble 50/50" (transcript at 107). But I conclude that the Defendants had good reason to and did believe they would get this work; as indeed they did.

The $3,000 order was subcontracted to Mr Rischmiller's company, and the materials for that order were delivered by Ms Rando during the evening of 3 August 1992. Ms Rando had picked up these from Mr Doe earlier that night. The order was not returned for about two weeks. Although the evidence differed as to this, I am satisfied the $3,000 order yielded a small profit of around $610 ($3,000 less Mr Rischmiller's charge of $2,390; see annexure B of Mr Rischmiller's affidavit of 10 May 1993).

Ms Rando's evidence was that the $3,000 order was never given to the Plaintiffs and indeed that the Plaintiffs could not have carried it out with existing equipment. However, she acknowledged that her employer's practice would have been to sub-contract it, if that were so (transcript at 93). Indeed, as I have said, the Plaintiffs not infrequently subcontracted to Mr Rischmiller's company. The question thus arises whether the $3,000 order was in fact placed with Ms Rando personally, or rather was placed through her with the Plaintiffs (even though the Plaintiffs had no knowledge of the order until much later).

Mr Doe gave evidence that when the $3,000 order was first placed, "I was aware that Ms Rando was still working at Colour Control Centre Pty Limited, however I had no intention of dealing with that company. My intention was to deal with Ms

Rando personally"; Doe affidavit 31 March 1993, para 8.

In cross-examination the following question and answer ensued with Mr Doe: "Q: I take it so far as the Museum was concerned, it didn't care who she was employed by. It was her personal involvement that was important ?

A: It was very important to me." (Transcript 30 June 1995 at 74)

I am however satisfied that the $3,000 order was in fact placed with Colour Control Centre Pty Limited, though in the expectation that the Museum would follow Ms Rando if and when she left the Colour Control group. At that time Ms Rando was, to the knowledge of Mr Doe, still employed by that group, though intending to leave. She had no corporate entity yet available to carry out the order or indeed to accept it. She never intended to take on the order personally, but rather to have her company then in process of formation later do so. But the fact remains that in the meantime, the only other entity available to contract to do the work was her present employer. The fact that a sub-contractor was used does not detract from this given that this was in circumstances where concealment would clearly have been much more difficult if work were actually to be done by her employer, assuming capacity.

The resignation of the First and Second Defendant 25. On 31 July 1992 Ms Rando gave the Plaintiffs one week's notice of termination of her employment, falsely telling the managing director of the Plaintiff that she was going to work for Alcoholics Anonymous as a counsellor, yet still leaving her employer with the false impression that nothing had come of the Museum job. Ms Rando claims she did not tell Mr Vine of her plans so as to avoid unpleasantness that might arise. She continued working off her notice period. Her last day of employment with the Plaintiffs was Friday 7 August 1992. 1 have concluded nothing turns on whether the $3,000 order was secured before or after Ms Rando had given notice, given that the order was secured clandestinely so far as her employer was concerned and while she was still employed.

26. On 31 July 1992, the same day Ms Rando gave her notice, Mr Ty went on one month's vacation. He told Mr Vine that he was going to the Philippines to have a holiday and to attend to some family business. In fact Mr Ty did not leave Australia. He used his vacation period to ready the Third Defendant for business by obtaining equipment and by other activities. Mr Ty engaged in subterfuge to give his employer the false impression he had gone overseas. On 17 August 1992, while still on vacation, he sent a letter from Australia to a friend in the Philippines, so it could be re-posted back to the Plaintiffs in Australia with a Philippines postmark. The letter stated that he had decided he wished to pursue some business interests in the Philippines with his brother and his uncle, and tendered his resignation as an employee of the Plaintiffs. Mr Ty conceded that when he went on his holiday on 31 July 1992 he knew Ms Rando had got some work from the Museum and was going to resign. He also conceded that they were both hoping for much more work for the Museum (transcript at 102, 107).

27. It should be noted that Mr Ty and Ms Rando had first discussed setting up business together in March 1992. So these were plans of long-standing, though concealed from their employer till they were ready.

Events subsequent to the resignations 28. Prior to leaving the Plaintiffs, Ms Rando had already taken a number of steps required to establish the new business. For example, she had entered into negotiations for the lease of some business premises at 4 Foster St, Surry Hills. By 28 July 1992 she had reached agreement for that lease. She had investigated the purchase or lease of various items of equipment. This included the purchase during July 1992 of a second hand "R3" machine from Mr Roche of Ab Libidum Trannys Pty Ltd for $4,000. She had also seen a solicitor concerning the office lease and the incorporation of the company to act as a vehicle for carrying out the business. Ms Rando denied that any of this was done during office hours.

29. On 10 August 1992, Photo Technica was incorporated, and everything was in place for the commencement of operations. A copy of a company search of Photo Technica is annexure E to the affidavit of Mr Vine dated 8 March 1993. Photo Technica subcontracted out all processing work until approximately the second week in September of 1992. It was at this time that Photo Technica purchased a 52 inch black and white processor.

30. Over the next IO weeks Photo Technica operated with further very substantial work from the Museum. The Defendants themselves state that they produced the more than one thousand images within a ten week deadline: see annexure D to the affidavit of Mr Vine of 8 March 1993. Mr Vine agrees the work could have been done within such a ten week time frame. Thus I do not accept the later evidence of the Defendants that the job actually took 13 weeks: see the Report of Mr Bell, the accuracy of which was conceded to depend on the accuracy of Ms Rando's instructions, rather than being based on any documentary evidence (transcript at 75).

31. On Ms Rando's evidence generally, I found her defensive and anxious to put the best possible face on events. Mr Vine's evidence was given with a degree of sometimes dogmatic emphasis, though not, so far as could be tested, so as to override accuracy.

Revenues and expenses arising from the Museum work 32. The Defendants have not put forward any evidence isolating the profits made from the museum work, or isolating the revenues gained and expenses incurred in that work. Accordingly it is necessary to make estimates of these amounts based on the evidence before me. It is also necessary to estimate the revenues and expenses that the Plaintiffs would have incurred had they obtained the Museum work.

Ms Rando claims that the total value of the work undertaken for the Museum to January 1993 was $104,212.31, billed as follows: 1992 August $5,814.00 September $24,697.42 October $22,831.18 November $43,676.32 December $4,808.40 1993 January $2,384.99

It is common ground that the Defendants have done some further work for the Museum since January 1993, although the extent of this is not clear. Ms Rando was unable to quantify the billing for this additional work in cross-examination, but conceded that it would have been an easy matter to include such information in relation to February and March in her affidavit of 31 March 1993 (transcript at 98). However, given that the Museum opened on 18 November 1992, I am satisfied such additional work would not have been of nearly the same scale as that of the previous few months. I am thus satisfied that the total revenues received by the Defendants were approximately $110,000.

On 3 March 1993, after hearing that the Museum work had gone to the Defendants, Mr Vine went to the Museum and after viewing the more than one thousand images, estimated that the total value of the job to the Plaintiffs would have been over $150,000. This is Mr Vine's opinion of the total amount that the Plaintiffs would have charged for the work, inclusive of all costs. If the Plaintiffs had done that work, notwithstanding that it had been in business in excess of twenty-six years, it is undisputed that this job would have been the biggest job ever undertaken in that time. However, there does not appear to be any basis for concluding that the Plaintiffs could have charged much more for the Museum work than was actually charged by the Defendants. To obtain the Museum work from Mr Doe they would no doubt have had to make competitive tenders, given that there were other businesses interested in performing the work. However, the revenue received by the Plaintiffs, had they obtained the Museum work, need not have been identical with that in fact received by the Defendants, granted the likely les's personal nature of the service that they would have been able to provide. I am satisfied that an appropriate estimate of the revenues that the Plaintiff would have received is $120,000. This recognises that the estimate provided by Mr Vine must be discounted, his estimate being made on the somewhat impressionist basis of viewing the very large number of prints, and possibly having been influenced by his disappointment with the Defendants for their perceived lack of fidelity to their former employers.

It has been agreed between the parties that the total costs of subcontracting this work incurred by the Third Defendant was $27,725 (transcript at 63), made up as follows: Costs of mounting: $10,757.69 Costs of laminating: $7,979.75 Costs of other photographic laboratories: $8,988.07

There is some difficulty in estimating what the subcontracting costs might have been to the Plaintiffs had they obtained the Museum work. Such an estimate will necessarily be to some extent speculative. Ms Rando concedes that if the Plaintiffs had subcontracted the work out themselves, they may have been able to negotiate a discount with the sub-contractors in the vicinity of 25-30%. I am satisfied that the Plaintiffs were clearly in a better position than the Defendants to perform the work in-house, having access to substantially more equipment than the Defendants. The Plaintiffs claim they could have produced and laminated most of the prints themselves. Mr Vine thus claims the Plaintiffs would only have incurred subcontracting expenses in the vicinity of $12,400. I have referred earlier to there being some disagreement as to exactly what the Plaintiffs' capabilities were in this regard. However, Ms Rando appeared to agree in cross-examination that the Plaintiffs could have done some of this laminating and photography work itself without needing to subcontract it (transcript at 97). I am thus satisfied that $15,000 is an appropriate estimate of the subcontracting expenses that would have been incurred by the Plaintiffs (discounting $27,275, the sub-contracting costs agreed to have been incurred by the Defendants, both for lower prices charged by the subcontractors and the lower volume of work required to be subcontracted in such circumstances).

Some estimate must also be made for wages referable to the Museum work. Mr Bell for the Defendants in his report calculated total wages for the job as being $29,149.54, including office overheads of 20%. This was based on a 60 hour week over 13 weeks for a technician at $650 per week and an assistant at $350 per week, each being paid for an additional 22 hours per week overtime. Mr Bell does not explain where he arrived at the figure of a 60 hour week. He has not claimed any particular expertise in this industry as would be required to estimate the amount of work involved. Indeed his estimate appears to be contrary to Ms Rando's instructions, which were that she and Mr Ty together worked in excess of 3,000 hours over the 13 weeks (which would require them both to work over 16 hours a day, seven days a week, for the full 13 weeks). Thus Mr Bell's evidence in this regard cannot be given any great weight. Mr Vine calculated total wages of $12,000, including office overheads of 20%. This was also calculated on the basis of a technician being paid $650pw and an assistant being paid $350pw, but on the basis of a 10 week job with no overtime. Mr Doe made clear that the Museum work involved time consuming and personalised service. Thus I do not think it realistic to determine wages without any provision for overtime. However, I believe the overtime claimed by the Defendants was somewhat overstated. Accordingly, I am satisfied an appropriate provision for wages for the 10 week job would be $18,000.

The Defendants claim the cost of materials used in the Museum work was approximately $13,500. This was apparently based on an entry in the trading statement for the period ending 30 November 1992, prepared by Mr Maynard of Wilson Maynard Kearns, the Defendants' accountants, Such statement was expressed to be based on information supplied by the Third Defendant, and access to a number of source documents. However this statement was not expressly limited to the Museum work but rather was in relation to all activities of the Defendants during the relevant period. This is not to suggest that there would necessarily have been a great volume of such other work. Thus the provision for materials in the trading statement may have included costs of materials in relation to any other work performed during this time period, or the costs of any stocks of materials accumulated during the Third Defendant's establishment period (no balance sheet being provided by the Defendants to show that any such stocks were treated as an asset rather than as an expense of the business.) Mr Vine estimated in cross examination that the materials used in the Museum work would have cost around $4,000, such estimate being based on his visit to the Museum (transcript at 40). I am satisfied that this can only be a rough estimate given the very large number of prints involved and I feel it may have been somewhat understated. I thus prefer a higher figure of $8,000.

In addition to the above expenses of subcontracting, wages, office overheads and materials, some provision should be made for the other expenses that both the Plaintiff and Defendant would have incurred on the Museum job. For example, Ms Rando deposes that she incurred significant motor vehicle expenses In acting for the Museum, such as in collecting and delivering photographs and commissions, but does not quantify these expenses. Other expenses in this category include telephone, power and repairs. Due to the limited nature of the evidence before me, any quantification must be speculative. However, I am satisfied that it is appropriate to allow an amount of $5,000.

Having calculated the above revenue and expenses, it is possible to reach an estimate of both the profit the Defendants in fact made from the Museum work, and the profit the Plaintiffs would have made had they obtained that work. In both cases the relevant profit is the estimated revenue less the marginal costs of the Museum work. That is the additional expenses incurred to obtain and perform that work. In the current circumstances no account is taken of the fixed costs of the two businesses, such as rent and depreciation, these being costs incurred independently of whether the Museum work was obtained or not.

Based on the above figures, I am satisfied that the profit for the Third Defendant for the Museum work was $51,275, calculated as follows: Third Defendant's Gross revenue: $110,000 Subcontractors fees: $27,725 Wages (including office overheads): $18,000 Materials: $8,000

Other: $5,000 $58,725 Net profit $51,275

Also based on the above figures, I am satisfied that if the Plaintiffs had obtained the Museum work, they would have been above to obtain a profit of $74,000. This profit is calculated as follows: Plaintiffs' potential gross revenue: $120,000 Subcontractors fees: $15,000 Wages (including office overheads): $18,000 Materials:
$8,000 Other: $5,000 $46,000 Potential net profit
$74,000

I am satisfied that Ms Rando's action deprived her employer of the opportunity to garner this substantial work. I discuss below whether this was in breach of any obligation of Ms Rando. I then assess the chance that the Plaintiff would have obtained the Museum work had it been given that opportunity-, in dealing with the assessment of damages. I am satisfied that the Colour Control group were competent to do the work, sub-contracting where necessary. In this regard I generally prefer the evidence of Mr Vine to Ms Rando for reasons earlier mentioned.

Mr Vine first became aware of the Museum work having been carried out by the Defendants in February 1993. Colour Control commenced proceedings by summons on 8 March 1993. CCC was subsequently added as an additional Plaintiff. Of the matters raised the summons, only the orders in relation to the Museum work are still sought by the Plaintiffs.

RESOLUTION OF LEGAL ISSUES Ms Rando's implied duty of fidelity and good faith in contract 45. Implicit in every contract of employment is an implied term under which employees are subject to a duty of good faith and fidelity for the period of their employment. The scope and content of that duty will vary according to the nature and circumstances of the contract of employment: Wessex Dairies Ltd v. Smith (1935) 2 KB 80 at 84-5; Hivac Ltd v. Park Royal Scientific Instruments Ltd (1946) 1 Ch 169, 1 All ER 350; Timber Engineering Co Pty Ltd v. Anderson (1980) 2 NSWLR 488; Schindler Lifts Australia Pty Ltd v. Debelak [1989] FCA 311; (1989) 89 ALR 275 at 300.

46. While the full scope of the implied duty of fidelity is not clearly defined, such duty does give rise to certain clear obligations relevant to the present circumstances. First, an employee may not retain, without approval, any profit or property the opportunity for the acquisition of which was furnished by the employment: Willey v. Syan [1937] HCA 85; (1937) 57 CLR 200; London Corporation v. Appleyard (1963) 2 All ER 834; 1 WLR 982; Reading v. The King (1948) 2 All ER 27 at 28; Reading v. A-G [1951] UKHL 1; (1951) AC 507 at 518 per Lord Oaksey. Second, although in general employees are entitled to work in competition with their employer in their own time, special circumstances may give rise to an implied duty not to compete: Hivac Ltd v. Park Royal Scientific Instruments Ltd (supra). In particular, a director or senior employee who takes up a business opportunity within the scope of the company's actual or potential line of business, without the consent of the company upon full disclosure of the facts, may be required to account to the company for any profit made or to compensate it for any loss suffered: Cook v. Deeks [1916] UKPC 10; (1916) 1 AC 554 at 563-4; (1916-17) All ER 285; Pacifica Shipping Co Ltd v. Anderson (1985) 2 NZCLC 96-040; (1986) 2 NZLR 328, Green and Cara Pty Ltd v. Bestobell Industries Pty Ltd (1982) WAR 1. The employee may be liable to account for such profit even where its acquisition did not adversely effect the employer: Boston Deep Sea Fishing and Ice Co v. Ansell (1888) 39 Ch D 339.

Ms Rando's obligations under the Corporations Law 47. Similar obligations and remedies arise under the Corporations Law. Subsections 232(5) and (6) create civil penalty provisions under which officers and employees, including former ones, must not make improper use of their position, or of information acquired by virtue of their position, to gain directly or indirectly an advantage to themselves or others, or to cause detriment to the corporation. Remedies for contravention include s13l7HD, which empowers the corporation to bring proceedings to recover any profits made, or loss or damage suffered, as a result of such a contravention. These civil penalty provisions have an effect in addition to, and not in derogation of, other rules of law in relation to the duties and liabilities of persons by reason of their office or employment in relation to a corporation: s232(11). It is not, however, appropriate for me to consider whether any potential liability or remedies arise under these sections, as no claim was made under those provisions nor submissions made.

Ms Rando's Fiduciary obligations 48. The relationship of employer and employee is commonly included as an exemplar of fiduciary relationships: See, for example, Hospital Products Ltd v. US Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 per Gibbs CJ at 68, per Mason J at 96, per Dawson J at 141. Fiduciary obligations in the employment context are not limited to senior executives and officers, and may in appropriate circumstances extend to other employees: Timber Engineering Co Pty Ltd v. Anderson (supra); Angus and Coole Pty Ltd v. Render (1989) 16 IPR 387. However, the fiduciary obligations of junior employees, who do not hold positions of decision making discretion and responsibility in matters of management, may tend to be narrower than those of more senior executives and directors: Austin, "Fiduciary accountability for business opportunities", in Equity and Commercial Relationships, (Sydney, LBC, 1987) at 171-172; and see generally State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (O'Keefe CJ, Supreme Court of NSW, 14 September 1994, unreported). In the circumstances of the current case, however, it is undisputed that Ms Rando was a senior employee with significant employment responsibilities involving matters of decision making discretion and managerial responsibility.

The question thus arises as to whether in the circumstances of this case the particular employment relationship between Ms Rando and CCC gave rise to fiduciary obligations. Further, if such obligations do exist, how their scope is to be moulded according to the nature of the particular relationship and the facts of the case. Fiduciary relationships may take a wide variety of forms and give rise to a wide variety of obligations. A relationship which is otherwise not fiduciary may nonetheless give rise to particular obligations of a fiduciary character: Chan v. Zacharia [1984] HCA 36; (1983-1984) 154 CLR 178 at 195; Hospital Products Ltd v. US Surgical Corporation (supra) at 123. Conversely, not all duties imposed on a person who stands in a fiduciary relationship to another will be fiduciary in their natureState Rail Authority of New South Wales v Earthline Constructions Pty Ltd (supra) at 50 of judgment; Birtchnell v Equity Trustee Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 at 408; NZ Netherlands Societies "Oranje" Inc v Kays (1973) 2 All ER 1222 at 1229-30; Noranda Australia Ltd v Lachland Resources NL (1988) 14 NSWLR 1.

In response to the breadth of the fiduciary concept, the authorities wisely essay no allembracing, definitive statement of the criteria by reference to which the existence and scope of fiduciary obligations may be identified. What they rather do, is identify indicia of a fiduciary relationship and the obligations said to flow therefrom. As Gibbs CJ stated in Hospital Products at 69:

"I doubt it is fruitful to make a general statement of the circumstances ill which a fiduciary relationship will be found to exist. Fiduciary relations are of different types, carrying different obligations ... and a test which might seem appropriate lo determine whether afiduciary relationship existed for one purpose might be quite inappropriate for another purpose."

I am satisfied that in the circumstances of the current case there are three factors of particular importance in assessing whether the employment relationship between Ms Rando and CCC gave rise to fiduciary obligations and in defining the scope of those obligations.

First, as was noted above, throughout the time from her first contact with the Museum until she left employment with the Plaintiffs, Ms Rando was entrusted with significant employment responsibilities with the Plaintiffs. She was the production and marketing manager. She had access to all the Plaintiffs' business records. She managed the businesses when Mr Vine was on holidays. She acted as agent for the Plaintiffs in the raising of new business. She represented the Plaintiffs in its business with new and existing customers. She was ostensibly acting on behalf of the Plaintiffs in relation to the potential Museum work. I am satisfied that it was implicit in Ms Rando's employment with the Plaintiffs that she had undertaken to act in the Plaintiffs' best interests to the exclusion of her own in regard to all these tasks. Whether or not such an undertaking to act in the interests of another can always be considered either necessary or sufficient for the recognition of fiduciary obligations, it is clear that such 'representative' element is a factor of significance in such recognition: See, for example, Moorgate Tobacco Co Ltd v. Philip Morris Ltd (No 2) [1984] HCA 73; (1984) 156 CLR 414 at 436; Walden Properties Ltd v. Beaver Properties Pty Ltd (1973) 2 NSWLR 815 at 833; Elders Trustee and Executor Co Ltd v. EG Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193 at 238; US Surgical Corporation v. Hospital Products International Pty Ltd (1983) 2 NSWLR 157 at 208-209; Hospital Products Ltd v US Surgical Corporation at 96-97 per Mason J.

Second, the question arises whether, inherent in the relevant aspect of the relationship, there was a position of disadvantage or vulnerability on the part of one party which caused it to place reliance on the other, and which thus requires the protection of equity acting on the conscience of that other: Hospital Products, at 142 per Dawson J; Paid Dainty Corporation Pty Ltd v. National Tennis Centre Trust [1990] FCA 163; (1990) 22 FCR 495 at 515. No general characterisation of Ms Rando's employment relationship could safely be made that the Plaintiffs were in a position of disadvantage or vulnerability in relation to their employee. However, in relation to the particular aspect of the employment relationship currently under consideration, that of Ms Rando's actions in relation to business opportunities within the scope of the Plaintiffs' line of business, the situation differs. The Plaintiffs were clearly in a position of vulnerability to Ms Rando in that regard, and were required to repose trust and confidence in her that she would act in their interests. This was amply illustrated by the manner in which Ms Rando was actually able to exploit that trust and vulnerability in the circumstances.

Third, the question of the existence and scope of fiduciary obligations must be assessed in the particular context in which they are claimed to arise. Here we are dealing with the relationship between a senior manager and a corporate employer, a recognised fiduciary category in which strict norms of exemplary behaviour are imposed. In Canadian Aero Service Ltd v. O'Malley (1973) 40 DLR (3d) 371 at 382, Laskin J of the Supreme Court of Canada delineated the position thus:- "Descending from the generality, the fiduciary relationship goes at least this far: a director or a senior officer...is precluded from obtaining for himself, either secretly or without the approval of the company (which would have to he properly manifested upon full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so where the director or officer is a participant in the negotiations on behalf of the company.

An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiducary ditties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, the ethic disqualifies a director or senior officer front usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than afresh initiaive that lead him to the

The principle stated in above passage has been cited with approval in subsequent cases: See, for example, Mordecai v. Mordecai (1988) 12 NSWLR 58 at 65, Lord Corporation Pty Ltd v. Green (1991) 22 NSWLR 532 at 543-544; Pacifica Shipping Co Ltd v. Anderson (supra); Green and Clara Pty Ltd v. Bestobell Industries Pty Ltd (supra).

In relation to the scope of the fiduciary obligations arising in the employment context, O'Keefe CJ stated in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd at 52 of the Judgment:

"Those ditties of an employee which are normally characterised as fiduciary relevantly include: (i) to act honestly in the service of the employer. This is sometimes expressed as a duty of loyalty or good faith and in appropriate cases survives the termination of the employment. Breaches of this duty include the taking of bribes or secret commissions or acting in one's own interests or the interests of another rather than in the interests Of the employer; (ii) not to benefit him or herself to the detriment of the employer; (iii) to treat confidential information as such and not disclose it to competitors."

After consideration of the above factors and all the circumstances of the case, I am satisfied that Ms Rando's relationship of employment gave rise to fiduciary obligations to the Plaintiffs during the period of her employment. I am further satisfied that such fiduciary obligations included an obligation on Ms Rando, in the absence of the Plaintiffs' consent upon full disclosure of the facts, to act exclusively in the interests of the Plaintiffs during the period of her employment and in particular in relation to business opportunities to which she was led through her position with the Plaintiffs. Here the business opportunity is within the Plaintiffs' actual or potential line of business, thus reinforcing that obligation, were that necessary. As is noted above, such obligation may survive termination of the relationship from which it arose.

Ms Rando's breach of duty of fidelity and fiduciary obligations 58. Ms Rando has clearly breached both her fiduciary obligations and her implied duty of fidelity to the Plaintiffs. Ms Rando concedes that Mr Doe first contacted her in relation to the Museum work to obtain test strips from the Plaintiffs rather than herself personally. He told her of the very large amount of work potentially available at the Museum at this time. The Museum work was thus a business opportunity of which Ms Rando became aware only by reason of her position as employee and when so employed. It was also clearly a business opportunity within the Plaintiffs' actual line of business which, when arranging the test strips, she had been pursuing on the Plaintiffs' behalf. In good conscience she should have continued so to pursue it. Instead Ms Rando, whilst still employed, pursued the Museum work for her own benefit, while concealing her actions from the Plaintiffs and allowing them to believe that she continued to act in their best interests. She misled them into believing that they "didn't get the Museum job", while realising that a continued opportunity to obtain the work existed. She conceded in cross examination that she did not tell Mr Vine of the work because she intended to leave the Plaintiffs shortly, and wanted to take the Museum job with her. Thus Ms Rando, while still an employee, failed to act exclusively in the interests of her employer in regard to an aspect of her employment where she had fiduciary obligations to do so.

59. In addition, as Canadian Aero Service Ltd v. O'Malley makes clear, an employee may be precluded from acting in relation to a business opportunity even after termination of employment, where the resignation may fairly be said to have prompted or influenced by a wish to appropriate the opportunity sought by the company. I am satisfied that although Ms Rando and Mr Ty had been discussing the idea of setting up their own business for some time, the particular timing of Ms Rando's resignation was prompted or significantly influenced by the desire to obtain the Museum work. I do not accept Ms Rando's evidence that the timing of her resignation was mere coincidence, uninfluenced by the desire to obtain the Museum work for the Defendants. Thus in this aspect also she was not acting in accordance with her fiduciary obligations.

Accessory Liability of Mr Ty and Photo Technica 60. A stranger may be made liable for a breach of trust or of fiduciary obligation where the stranger is the recipient of the trust property or its traceable proceeds, or where the stranger is an accessory in dishonestly procuring or assisting in the breach of trust or of fiduciary obligation: Barnes v. Addy (1874) LR 9 Ch App 244 at 251-252; Consul Developments Pty Ltd v. DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 395-396 per Gibbs J, at 408-409 per Stephen J; US Surgical Corporation v. Hospital Products International Pty Ltd (supra) at 253-256; Royal Brunei Airlines v. Philip Tan Kok Ming (Privy Council, 24 May 1995, Unreported). In relation to whether the principle in Barnes v. Addy applies to impose liability on strangers who knowingly participate in a breach of fiduciary duty by a person who is not a trustee, Gibbs J stated in Consul Developments Pty Ltd v. DPC Estates Pty Ltd (supra), at 397: "If the maintenance of a very high standard of conduct on the part of fiduciaries is the purpose of the rule it would seem equally necessary to deter other persons from knowingly assisting those in a fiduciary position to violate their duty. If, on the other hand, the rule is lo be explained simply because it would be contrary to equitable principles to allow a person to retain a benefit that he had gained from a breach of his fiduciary duty, it would appear equally inequitable that one who knowingly took part in the breach should retain a benefit that resulted there on. I therefore conclude, on principle, that a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty is owed for any benefit he has received as a result of such participation."

61. The cases make it clear that liability of a person who assists in a breach of fiduciary duty is not limited to accounting for any benefit received, but can also extend to a liability in equity to make good any resulting loss suffered by the beneficiary. This is consistent with general fiduciary principles under which a wronged beneficiary is entitled to make an election between an account of profits or compensatory damages: Warman International Ltd v. Dwyer [1995] HCA 18; (1995) 128 ALR 201 at 210.

62. I am satisfied that Mr Ty dishonestly participated in Ms Rando's breach of fiduciary duty in the circumstances. Mr Ty had actual knowledge of all the relevant circumstances of Ms Rando's breach. He was a fellow director of the Third Defendant, and actively collaborated with her both during the period of his employment with the Plaintiffs and subsequently. He took steps to mislead the Plaintiffs as to his own intentions on leaving their employ, going to the extreme of having a letter posted to the Plaintiffs via the Philippines to convince the Plaintiffs that he was pursuing business opportunities in that country. As a shareholder in Photo Technica, Mr Ty was a recipient of pecuniary benefits from Ms Rando's breach of fiduciary duty. Accordingly, I am satisfied that the Mr Ty is liable to the Plaintiffs both under the first and the second limbs of the test in Barnes v. Addy (supra). In light of my decision on this point, it is unnecessary for me to consider whether Mr Ty breached his own duty of good faith and fidelity, or any fiduciary obligations which may have been owed by him, to the Plaintiffs,

63. In relation to the Photo Technica, the Third Defendant, I am satisfied that it also has dishonestly participated in Ms Rando's breach of fiduciary duty, and was the recipient of the benefits of the business opportunity usurped by Ms Rando from the Plaintiffs in breach of her fiduciary duty. Photo Technica is fixed with the actual knowledge of its directors and shareholders, Ms Rando and Mr Ty. It was the vehicle through which the pecuniary benefits from the above breaches were received by the First and Second Defendants. Accordingly, Photo Technica is also liable both under the first and second limb of the test in Barnes v. Addy.

Assessment of damages 64. In relation to the remedies available for a breach of fiduciary duty, the High Court stated in Warman International Ltd v Dwyer (supra) at 210: "Ordinarily a fiduciary will be ordered lo render an account of the profits made within the scope and ambit of his duty (Phipps v Boardman (1967) 2 AC at 127 Per Lord Upjohn). Of course, if the loss suffered by the plaintiff exceeds the profits made by the fiduciary, the plaintiff may elect to have a compensatory remedy against the fiduciary. That election will bind the plaintiff (Kendal v Marsters (1860) 2 De G F and J 200; [1860] EngR 964; 45 ER 598).

The Plaintiffs have sought compensatory damages for the above breaches, or in the alternative, an account of profits. Damages is thus the primary remedy sought. However, it is clear the Plaintiffs have sought to recover damages on the basis that they are entitled to the profits they would have made had they actually performed the Museum contracts. The assumption made by the Plaintiffs is that but for the breaches by the Defendants, they would have obtained the Museum contracts. However that assumption requires testing.

I am satisfied that it is more probable than not, though by no means certain, that the Museum work would only have stayed with the Plaintiffs while Ms Rando remained employed by that group. Mr Doe's evidence was that his intention was always to deal with Ms Rando personally, wherever she was employed. He said he never intended to deal with the Plaintiffs directly. However, I conclude, Mr Doe was at least assisted in reaching that state of mind because of Ms Rando's breach of her fiduciary duty in pressing her services to the exclusion of the Plaintiffs. There is no conclusive evidence of what Mr Doe's views would have ultimately been as to the Plaintiffs' particular ability to perform the Museum work had she not approached him to divert that work for herself Had she acted in good conscience Mr Doe's state of mind may have been very different. She would have made no secret presentations on her own behalf while still employed with the Plaintiffs. She would not have left the Plaintiffs with the misleading impression that the Museum job was not attainable. The Plaintiffs would then have had an opportunity to make their own presentation to Mr Doe, and might have convinced him that they were the business best able to provide the type of service he required for the Museum work and would do the necessary running round which was done by Ms Rando. After all the job was large enough to be clearly worth it.

On the other hand the work may still have gone to the Defendants, even if they had not breached their fiduciary obligations to the Plaintiffs, either by obtaining an informed consent on the Plaintiffs part to pursuing the work or via a fresh initiative in circumstances involving no breach of such fiduciary obligation. Thus the Defendants might still have convinced the Museum that only they could provide the personal service. Finally, it is conceivable, that Allied Reprographics might have kept the work.

It is for these reasons that I conclude that it is by no means certain that the Museum work would have gone to the Plaintiffs in the absence of the Defendants' breach. I am however satisfied that there was a chance the Plaintiffs would have obtained such work and I turn now to an assessment of that chance.

What is thus required is an assessment of the probability or chance that the Plaintiffs would have secured and retained the Museum work, but for the Defendants' breach of their respective duties. Damages can then be quantified on the basis of the loss of that chance. Damages may be assessed for breach of fiduciary duty leading to the loss of a chance: see, for example, Sanders v Parry (1967) 1 WLR 753 at 767; 2 All ER 803 at 809. In the present circumstances, such a chance is not susceptible to assessment by any precise calculation. What is required is a common sense assessment in light of the evidence as a whole. Based on that, I assess the chance the Plaintiffs would have secured and retained the Museum work at around 30%. I recognise that such quantification gives an appearance of precision. Yet the determination is rather a common sense, heuristic process involving recognition rather than the precise calculation of probability theory. For a helpful discussion see "Probability: the Logic of the Law - a Response" in (1995) 15 Oxford Journal of Legal Studies 55-6 by Hodgson J (writing extra-judicially). There he demonstrates how probability theory is generally not applied in any strict sense in such a process, which is rather one of "common sense, experience of the world and based on beliefs of how people behave (folk psychology)". Such a process must always be based on the evidence, though its interpretation necessarily draws on those sources.

The matters I have taken into account in reaching this outcome include the following. First, the test strip suggested that the Plaintiffs were not able to provide better quality prints than Allied Reprographics. Second, the Plaintiffs' own assessment of the amount they would have charged the Museum shows they may not have been price competitive with the Defendants, who as a start-up enterprise, were more concerned with obtaining customers than in making a large profit. Third, Mr Doe's evidence was that the Defendants received the Museum's work subsequent to the $3,000 job due to the enthusiasm and personal service that Ms Rando was able to provide. I have concluded this was crucial to Mr Doe. The Plaintiffs operated an established business with a large customer base, suggesting that the Plaintiffs may have had some difficulties in offering the level of personal service required by Mr Doe for the Museum work. The Defendants on the other hand, were in a start-up phase, with no competing clients. Fourth, and on the other hand, the Plaintiffs were experienced and successful operators in the photographic processing and printing business, who would have been able to make a competent presentation to Mr Doe in order to obtain what was potentially a very significant amount of work. The potential for such a presentation to convince Mr Doe that the Plaintiffs were able to provide the type of service he required for the Museum work should not be discounted. Fifth, the Museum work was in fact a series of jobs. Even if the Plaintiffs had initially secured the work, there is no guarantee they would have kept it in the face of competition from the Defendants and Allied.

Thus the damages that the Plaintiffs should receive for the Defendants' breach is the profits they would have made if they had have secured and retained the Museum work, which I have earlier estimated at $74,000, multiplied by the chance that the work would have been obtained, which I have estimated at 30%. The damages quantified on this basis are $22,200. In so doing, I am applying the approach laid down by the High Court in Malec v J C Hatton Pty Ltd (1990) 169 CLR 63 8 and subsequently developed in Poseidon Ltd and Sellers v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332. As this figure is less than the profits which I am satisfied the Defendants in fact made on the Museum work, I need to look at what an account of profits would yield, with the discount, if any, that may be required.

Account of profits 72. The remedy of account of profits for breach of fiduciary obligations was considered by the High Court in the earlier cited case of Warman International Ltd v. Dwyer, including whether an entitlement to such remedy arose, and the basis upon which such an account should be taken. It is clear that liability to account for profits made in breach of fiduciary obligations is not dependent on upon proof of damages by the person to whom the fiduciary duty is owed, or dishonesty or lack of bona fides of the fiduciary: Warman International at 208; Consul Developments Pty Ltd v. DPC Estates Pty Ltd at 394 per Gibbs CJ. Further, it is generally immaterial to the fiduciary's liability to account that the person to whom the fiduciary obligation is owed could not have earned the profit or gain: Warman International at 212. Thus the above assessment of the Plaintiffs chances of gaining the Museum work is immaterial to such remedy. Although the remedy is discretionary, in the absence of equitable defences such as estoppel, laches or acquiescence, the basic pfinciple is that the principal who so elects is entitled to an account of profits. In the current circumstances, the fiduciaries obtained an identifiable profit from a breach of fiduciary obligation involving active dishonesty, and the persons owed such obligation took appropriate action on becoming aware of such breach. I am thus satisfied that the circumstances are such that the remedy of account of profits is appropriate.

73. The assessment of profit will often be extremely difficult in practice. Again what is required of the inquiry will not be mathematical exactness but a reasonable approximation of what was acquired by the fiduciary in consequence of the fiduciaries' breach of duty: Warman International at 209; My Kinda Town Ltd v. Soll (1982) FSR 147 at 159 per Slade J. I have earlier estimated that the Defendants made a profit on the Museum work of $51,275. The question thus arises whether the Defendants should be liable to account for the full amount of the profits made on the Museum work, or some smaller amount, as being acquired in consequence of their breach. With respect to the current situation where a competing business has been established and carried on by a fiduciary in breach of fiduciary obligations, Mason J noted in Hospital Products that there are two possible approaches to assessing the profit or benefit obtained by that fiduciary in consequence of their breach. His Honour stated at 610:

"One approach, more favourable to the fiduciary, is that he should he liable to account as constructive trustee not of

the entire business but of the particular benefits which flowed to him in breach of his ditty. Another approach, less

favourable to the fiduciary, is that he should be held accountable for the entire business and its profits, due allowance being made for the time, energy, skill and financial contribution that he has expended or made. In re Jarvis ((1958) 1 WLR 815 at 820; (1958) 2 AHER 336 at 340), Upjohn J observed, correctly in my opinion, that it is not possible to say that one approach is universally to be preferred to the other, for each case depends on its own facts and the form of inquiry which ought to be directed must vary according to the circumstances. In each case the form of inquiry to be directed is that which will reflect as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty. "

74. The above passage was quoted with approval in Warman International at
75. The High Court noted at 212 that the onus lies upon the Defendant to establish that it is inequitable to order an account of the entire profits earned by such a business. If the Defendant does not establish such inequity, then the Defendant must bear the consequences of mingling the profits attributable to their breach of fiduciary duty with the profits attributable to their own skill efforts property and resources. The Court stated at 211: "In the case of a business it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal's goodwill over an indefinite Period of time. In such a case, it may he appropriate to allow the fiduciary a proportion of the profits, depending on

the particular circumstances. That may well he the case when it appears that a significant Proportion of an increase in

profits has been generated by the skill, efforts, properly and resources of the fiduciary, the capital which he has introduced and the risks he has taken, so long as they are not risks to which the principal's properly has been exposed. Then it may he said that the relevant proportion of the increased profits is not the product or consequence of the plaintiff's property by the product of the fiduciary's skill, efforts, property and resources."

75. The above passage of Mason J from Hospital Products was referred to by Pincus J in Schindler Lifts Australia Pty Ltd v. Debelak at 301-302 The facts of that case were similar to those before me, in that it involved employees making secret arrangements to compete with their employer in breach of their fiduciary obligations. Pincus J held the employees were liable to account as constructive trustee not for the entire business, but only for the particular benefits which flowed from their breach. These particular benefits were assessed as merely being the acceleration by a month of the process of obtaining the commercial advantage. His Honour thus adopted that approach which was the more favourable to the fiduciaries. In adopting such approach, His Honour relied upon the nature of the breach by the employees, which he treated as being not of a serious nature. Indeed, His Honour went so far as to state that the commercial advantage in that case was one that the employees "may well have felt they were morally entitled to attempt to secure before committing themselves to leaving their employment" (at 301-302). I am satisfied the current situation is distinguishable on that basis, in that the Defendants' breach clearly cannot be considered trivial in nature.

76. It is clear that in the current circumstances, although the Museum work was first secured by the Defendants in breach of their fiduciary duty, the Defendants only retained that work because they were able to offer highly professional and dedicated services, including a great deal of personal running around in collecting prints and the like. Indeed, I hold that a significant proportion of the profits made were thus properly attributable to the Defendants' skill, effort and resources, especially with regard to the later work. Thus due allowance should be made for the time, energy, skill and financial contribution that the Defendants expended in retaining that work over a period of time. I am satisfied that this contribution is best reflected by applying a discount to the total profit made by the Defendants on the Museum work. Such discount should reflect the skill, effort and resources that the Defendants were able to dedicate to that task, a contribution which in fairness entitles them to a proportion of the profits made. I am satisfied that taking all relevant factors into account, an appropriate discount rate is 20%. The Defendants are thus liable as constructive trustees to account to the Plaintiffs for 80% of the total profit made from the Museum work, being the amount of $41,020.

ORDERS 77. I invite the parties to submit draft orders giving effect to this judgement within 14 days.

78. Subject to any submissions either party may wish to make at the time the draft orders are handed up, costs would ordinarily follow the event and thus be awarded to the Plaintiffs.