I will initially set out the facts that are primarily relevant to the Coyte proceedings. I have been assisted in this respect by a helpful chronology prepared by Mr Priestley and the chronology contained in Mr Afshar's closing submissions. Although some of these facts are disputed, I will not seek to resolve such disputes unless they have relevance to the outcome of the proceedings.
Mr Norman and Mr Coyte are both financial planners. In about 2001, Mr Norman was a co-founder of the Piccadilly Financial Group, which provided accounting and financial services to retail clients (Norman 22.10.14 [6]). Mr Coyte, who Mr Norman had known at high school, joined Piccadilly Financial Group as a client service trainee in 2002 or 2003 (Norman 22.10.14 [7]). Mr Coyte ceased employment with the Piccadilly Financial Group in 2004 and moved back to Newcastle (Norman 22.10.14 [8]). CCPL was incorporated in August 2004, as a vehicle through which Mr Coyte provided financial advisory services and was, it appears, the trustee of the Blooms Discretionary Trust (Coyte 10.12.14 [11]). Mr Coyte was CCPL's sole director and a business name "Centre Capital" was then registered. Mr Norman's evidence was that he was involved with establishing CCPL, while he was still engaged with the Piccadilly Financial Group. I do not consider it necessary to reach a finding as to that matter, although I note that Mr Norman did not then hold an interest in CCPL or the trust, and neither party suggested that course was taken to conceal any involvement of Mr Norman with CCPL from Piccadilly Financial Group. Mr Norman also gave evidence of several conversations in 2004 and 2005 (Norman 13.11.15 [7]-[9]). I do not accept his account of these conversations, by reason of the issues concerning the recollection of oral conversations that took place many years ago, and the issues affecting Mr Norman's credit specifically, to which I have referred above. I am also not persuaded by Mr Norman's evidence that there was discussion at this time of a "client base share" or a 2.5 times multiple, still less that any agreement was then formed as to whether Mr Coyte and Mr Norman would need to agree on any client list, as distinct from retaining their own clients as a matter of fact, if they were to separate their businesses in the future.
It is common ground that a heads of agreement was entered into by Mr Norman and Mr Coyte in early 2005 (Norman 13.11.15 [9]) although that agreement could not be located and was not in evidence. CCN was incorporated and Mr Coyte was appointed as a director and secretary of it in March 2005 (Norman 22.10.14 [24]-[25]) and the Centre Capital (Newcastle) Unit Trust was established in March 2005, with 200 units initially being held by CCPL, 100 units by United Nominees and 100 units by another adviser working in the business, Mr Clint Christoff. Mr Christoff's units in the Centre Capital (Newcastle) Unit Trust were subsequently redeemed in mid-2008 with the result that CCPL then held 200 units and United Nominees held 100 units in that Trust.
Mr Norman was appointed a director of CCPL on 30 May 2005 and on 31 May 2005 the Mutual Fund was established. The 700,000 units in the Mutual Fund were initially issued to a company associated with Mr Norman, Norman Investment Partners Pty Limited ("NIP") and a further 300,000 units in the Mutual Fund were later issued to Blooms (Norman 22.10.14 [15], [17]; Norman 13.11.15 [12]). It is common ground that the allocation of units in the Fund was subsequently changed to 750,000 units held by NIP and 250,000 units held by Blooms (Coyte 10.12.14 [25]). Mr Norman left the Piccadilly Financial Group in late 2005.
From late 2005 until 2008 Messrs Norman and Coyte provided financial planning services to their respective clients and received commissions or fees, whether from the clients or from product issuers, on an upfront basis or as trailing commissions referable to a percentage of either the amount of the original investment or the total value of the portfolio. Until early 2008, Messrs Coyte and Norman provided such services under an Australian financial services licence held by an entity known as PIS, and those services were provided under the Australian financial services licence of CCS from early 2008. The Centre Capital entities operated a separate single bank account and occupied office space at Belmont near Newcastle. Mr Christoff worked in the business as a client adviser, and other office staff, including Ms Bloomfield, provided support services. CCS was incorporated in December 2006, initially with Mr Scorer as its director and subsequently with Messrs Norman and Coyte as its directors. CCS held an Australian financial services licence under Chapter 7 of the Corporations Act. Mr Scorer provided broking and underwriting services to clients.
A new Heads of Agreement ("2007 HOA") (Ex C5, CB 1278) was signed and dated 1 July 2007 and superseded the 2005 version of that agreement. It is common ground that the primary purpose of the agreement was for the provision of financial advice and services (Coyte SOC [5]-[6]; Defence [5]-[6]). The 2007 HOA provided, inter alia, that it was proposed that each respective individual was to "retain their own business" and specified the process for termination of "this Joint Venture Agreement", namely that six months' notice was to be given to the other party and that "[e]ach person will retain their own clients" and, if one party wanted to sell his clients, then the other party had the first right of refusal. The 2007 HOA also referred to the "[r]ecognition of responsibilities outside normal advising duties", such that Mr Norman would be responsible for marketing, referral sources and lead generation and Mr Coyte would be responsible for office and business administration, although that reference was framed as a statement and not as an obligation. The 2007 HOA also provided that, with the exception of management fees, director fees or any other remuneration method agreed by the parties, the profit of the venture would be distributed "along the joint venture percentages detailed above".
The position as to "ownership" of clients reflected in the 2007 HOA is consistent with that stated by Mr Coyte in an email dated 17 December 2007 (Ex C6, CB 1628) to his and Mr Norman's insurance broker, to the effect that Messrs Norman and Coyte:
"will also be authorised rep[resentative]s of Centre Capital Securities notwithstanding we are directors and therefore employees. The reason is a tax reason as we need to own our clients individually".
Mr Norman appears to have received this email and did not then do anything to take issue with it, although he did not accept in cross-examination that the email was consistent with his understanding of the arrangements (T95-96).
Mr Norman accepted in cross-examination that his intention in entering the joint venture in 2005 was to preserve his clients and their revenue and for Mr Coyte to preserve his clients and his revenue and the "taxation position that we had going into it", although he subsequently qualified that position (T60). Mr Norman's evidence was also that his arrangements with Mr Coyte needed to adopt the same approach to clients as the arrangements made when Mr Norman left Piccadilly Financial Group. However, such a requirement would be satisfied by the approach of each adviser retaining his clients that is continued in the 2007 HOA, and did not require that an approach based on "client base share" for which the Norman Parties now contend should be adopted. There was no evidence of a transfer of clients by Mr Norman to any of CCPL, CCS or CCN or either of the trusts, and the balance sheets of those entities in evidence did not record a value for goodwill or other asset value that may have been referable to the clients, consistent with Messrs Norman and Coyte each retaining their own clients.
In January 2011, Mr Coyte advised Mr Norman that he intended to terminate the joint venture or at least that the parties should separate their businesses (Coyte 10.12.14 [77]-[78], Coyte 30.3.16 [75]). The parties agreed certain facts as to the termination of the joint venture between them, for the purposes of the proceedings, as follows:
"The Coyte Parties contend that Coyte gave notice of termination of the Joint Venture in January 2011 in accordance with the JV Agreement. In the alternative, the Coyte Parties contend that Norman accepted that notice of termination of the Joint Venture was given to him in the period January 2011 to May 2011 and agreed to the termination of the Joint Venture. The Centre Capital Parties do not admit that notice was given but do not contend that any absence of notice affects the Coyte Parties' case concerning termination in any way. The parties' joint position is that notice should be accepted as having been given by Coyte in the period January 2011 to May 2011, but in any event, any late notice was accepted by Norman as having satisfied the notice requirements under the JV Agreement and the common intention was that the Joint Venture would be terminated. The Coyte Parties contend that the Joint Venture was terminated in accordance with the terms of the JV Agreement as at 30 June 2011. The Centre Capital Parties contend that it was terminated only in the respects set out in their written and oral submissions."
Notwithstanding the termination of the joint venture with effect from the end of June 2011, Mr Norman and Mr Coyte continued to work together for a further period, as I will note below, until Mr Coyte incorporated Shartru which acquired its own Australian financial services licence and thereafter commenced business in that entity, transferring many of the clients allocated to him at the Centre Capital business to that entity. I will address the circumstances of that transfer below.
Mr Coyte began working with a third party, Equiti Private Wealth, in May 2011 (Coyte 10.12.14 [79]) in anticipation of the termination of the joint venture. On 10 May 2011, following a conversation with Mr Norman, Mr Coyte sent an email (EX C5, CB1321) to Mr Satusky, who provided accounting services to CCPL and CCS, advising of a separation of the businesses of Messrs Norman and Coyte as follows:
"As of 1st July Michael [Norman] and I are separating our businesses and the joint venture that we established through Centre Capital will be finished. As per our agreement we will both retain our respective clients.
I will retain my clients and will continue to service them but in addition to this I will be taking an employed position as a Head of Advice with a growing financial planning company. I will be a representative of their AFSL and no longer operating under Centre Capital's licence.
In regards to structure given my current set up with the Blooms discretionary trust which I originally ran the business through do I simply run the business of looking after my existing clients again through that structure? There will be revenue and expenses associated with this business. Also, need to keep in mind that I then distribute income to Blooms Investment Trust which is where I [have] losses due to negative gearing.
I am assuming the employed position will have no alternative but to be with me personally. Is it possible to be contracted rather than employed?"
Mr Satusky responded on the same day indicating that:
"If Blooms Discretionary owns your clients then you can continue using that entity to run your business." (Ex C5, CB 1321)
These emails are important contemporaneous records of the then position between the parties, at least as understood by Mr Coyte, and in particular record Mr Coyte's then understanding that the separation would take place on the basis that Messrs Coyte and Norman would each retain their existing clients.
On 25 May 2011, Mr Coyte sent a further email (Ex C5, CB 1323) to Mr Satusky and Mr Atra, which stated that:
"Warren with my new arrangement;
Running my own business …
Should we organise a meet with MN, you and I to discuss what needs to be done with Centre Capital?"
Mr Coyte's evidence is that he attempted, without success, to meet with Mr Norman in May 2011 (Coyte 10.12.14 [91]) and they met on 14 June 2011 to discuss his exit from the joint venture (Coyte 10.12.14 [92]). Mr Coyte's affidavit exhibits a file note of that meeting (Ex C5, CB 1325-1326) which again appears to be a contemporaneous record of the then arrangements, at least as understood by Mr Coyte, and records:
"Transfer of clients.
- Six months' notice (done in Jan)
- Each person will retain their own clients.
- If one party wants to sell the other has first right of refusal."
Mr Coyte in turn refers (Coyte 10.12.14 [93]) to a conversation with Mr Satusky, on 16 June 2011, concerning how the arrangement between himself, Mr Norman and Mr Scorer might run for the next six months, which contemplated that three bank accounts for CCS would be established referable to Mr Norman, Mr Coyte and Mr Scorer; CCS would distribute income to corporate vehicles associated with Mr Norman and Mr Coyte and to Mr Scorer's trust; Blooms and United Nominees would contribute to the costs of running the office; and there would be specified arrangements as to CCN and shares in OEG. Mr Coyte's account of that conversation is supported by a file note of that conversation (Ex C5, CB 1329) and is consistent with the fact that separate accounts known as the "R" and "B" accounts were subsequently established and monies deposited into them. Although Mr Satusky's evidence is that he remembers only a discussion concerning OEG shares at this time (Satusky 12.11.15 [11]), I am satisfied that the wider issues referred to in Mr Coyte's evidence and his file note were also discussed.
Mr Coyte also gives evidence of a meeting with Mr Norman and a telephone conversation with Mr Scorer to discuss these arrangements on 22 June 2011. Mr Coyte's file note of that meeting (Ex C5, CB 1330) records, in relation to clients, "transferred MN clients to MN from RC" (Ex C5, CB 1336) and contains a diagram that describes the flow of funds from clients to each of the entities, and also refers to the payment of costs by Mr Coyte. The file note records, in respect of Mr Scorer, that:
"B[rendan] S[corer] HAS BUILT UP RELATIONSHIPS
POTENTIALLY NOT IN RETAIL SPACE
B[rendan] S[corer] WAGE $2K P[er] W[eek] (FIRST REVENUE AFTER COSTS)
COSTS+
PROFIT SPLIT."
Mr Coyte's evidence (Coyte 10.12.14 [96]-[97]) is that the client lists of Messrs Norman and Coyte were discussed and marked up at a further meeting in 22 June 2011 and agreement was reached between Messrs Norman and Coyte as to which clients would go with each of them. Mr Coyte exhibited various client lists, described as "Agreed Client Lists", to his affidavit (for example, Ex C5, CB 1341-1362; Ex C8). Mr Norman generally denied that evidence and Mr Priestley submitted that there is no reliable basis to find that these documents were given to Mr Norman on 22 June 2011, with the possible exception of Exhibit C8, which Mr Norman had conceded in cross-examination might have been given to him (T646). It seems to me that the cross-examination of Mr Coyte confirms that at least some of those documents were not produced or marked at that meeting since they were dated subsequent to that meeting (T518; T521).
Mr Priestley also submits that the file notes relating to this meeting do not record any lists being produced or discussed or any agreement being reached as to which clients would go to which adviser. Notwithstanding the vigour with which Mr Coyte was cross-examined as to this meeting, it seems to me that little ultimately turns on whether and to what extent client lists were agreed at this meeting, because the terms of the 2007 HOA provided for Messrs Norman and Coyte to retain their respective clients on termination of the joint venture, and who were clients of each of them is a matter that can be determined objectively rather than by any further agreement between them. No doubt, the practical implementation of the termination of the joint venture would have been facilitated if Messrs Coyte and Norman could agree that question between themselves, but the client retention contemplated by that agreement did not depend upon any agreement by Mr Norman that a person was a client of Mr Coyte, where that was the fact, or vice versa. That is a matter of considerable significance, because the Norman Parties' case is, in substance, that Mr Norman had not agreed that any particular clients were to be transferred to Mr Coyte, and no substantial attempt was made to establish that the clients that were transferred to Mr Coyte and Shartru were not, objectively, Mr Coyte's clients.
As Mr Priestley points out, Mr Coyte accepted that it was noted at this meeting that the dollar value of funds under management leaving with him was approximately $13,000 per month, and this broadly correlates with the figure that Mr Norman says was discussed at a further meeting which Mr Norman says occurred on 27 June 2011, to which I will refer below. There may be a question as to whether the two figures include all revenue, but a correlation between them does not, in any event, advance Mr Norman's claim that agreement was reached at this point that Mr Coyte would take a 25% share of client revenue rather than taking his clients and the revenue derived from his clients as the 2007 HOA provided.
On 22 June 2011, Mr Coyte sent Mr Satusky an email that was copied to Mr Norman (Ex C5, CB 1363) which stated:
"As discussed recently with Michael [Norman] he has come up with the following for the CCN shares and mutual fund units … The value of the CC Mutual fund units get valued from a practical perspective this will include …
[Mr Norman] said that I effectively sell my units for the value now which will include a cash value now."
Mr Coyte's evidence is that, after either the 14 June 2011 or 22 June 2011 meeting, Messrs Norman and Coyte went to the Belmont Golf Club and Mr Coyte suggested to Mr Norman that Mr Norman "… should look to sell your clients to Clint [Christoff] and myself on some sort of vendor finance arrangement" (Coyte 10.12.14 [109]). Mr Norman did not take up that suggestion.
On 27 June 2011, Mr Satusky sent an email to Mr Coyte (Ex C5, CB 1366) which stated that Mr Satusky had:
"Spoke[n] to Michael [Norman] and he would still like for CCN to hold [OEG] shares in a nominee arrangement for each trust. We can also look at adjusting unit holding from 1/7/11 to 1/3 each".
Despite this email, Mr Norman denied in cross-examination that he had suggested that the OEG shares be held by CCN in trust for each of the parties (T254). I do not accept Mr Norman's evidence in that respect. However, it does not follow from the fact that Mr Norman had made that suggestion that, as the Coyte Parties submit, the parties had agreed that CCN would hold the OEG shares on trust for each of Messrs Coyte, Norman and Scorer, or their nominees. That email also suggested Mr Coyte attend the accountant's offices for a meeting that afternoon.
The Norman Parties rely on a meeting held on 27 June 2011 and on the minutes of a board meeting of 27 June 2011 (Ex N3, CB 511) as giving rise to the "Further Agreement" on which CCPL and CCS rely in their Cross-Claim. I will address the evidence as to those matters in dealing with the claim as to the "Further Agreement" below.
Separate accounts to record revenue of Mr Coyte's and Mr Norman's clients, the R and B accounts, were established on or about 28 June 2011 (Ex N5, CB 1206, 1213). Mr Norman was aware of that process since he was a signatory to both those accounts.
By email dated 29 June 2011 (Ex C5, CB 1387), Mr Coyte advised Mr Morabito, a solicitor who was acting for CCPL and CCS, and Mr Satusky of his understanding of the separation arrangements, referring to a discussion with Mr Satusky and Mr Norman on 27 June 2011. The Coyte Parties rely on that email to support their claims under the pleaded "Termination Agreement" and I will largely address that email in dealing with those claims below. I should note, at this point, that that email also referred to arrangements that would apply between Mr Norman and Mr Coyte until the end of the calendar year, 2011, unless mutually agreed otherwise, which included that:
"A separate bank account will be established that will direct [Coyte] revenue to necessary trading vehicle."
That email also noted that the parties needed to decide upon arrangements for the continuation of the professional indemnity policy and also referred to arrangements to share expenses. That email does not refer to the basis upon which the clients of Messrs Norman and Coyte would be split, or clients would be transferred out of the Centre Capital business, although that would not be surprising where the 2007 HOA provided for that position.
A facsimile to "Macquarie Wrap" dated 29 June 2011 instructed entities associated with Macquarie Group to transfer clients under Mr Norman's adviser codes on the one hand and Mr Coyte's and Mr Christoff's adviser codes on the other to separate dealer codes and pay commissions to separate accounts (Ex C2; CB 1352-1356; Ex C3).
Mr Coyte ceased being a director of CCPL on 30 June 2011 (Norman 22.10.14 [44], Norman 13.11.15 [5], Coyte 10.12.14 [108]). At about this time, Ms Bloomfield transferred clients of Mr Norman and Mr Coyte to the relevant advisers (Bloomfield 17.11.14 [19]). Her evidence was that she had received a bundle of client lists from Mr Norman and Mr Coyte and was instructed to effect the changes to allocate clients to each of them in accordance with those lists (Bloomfield [18]-[19]). I have referred to Ms Bloomfield's evidence above and, on balance, I accept her evidence in this respect. This step is a further significant indication of the parties' then understanding of the separation arrangements.
On 18 August 2011, Mr Coyte sent an email to Mr Satusky and Mr Morabito following up on the preparation of a proposed separation agreement (Ex C5, CB 1392), which was never prepared.
On 20 December 2011, Mr Atra sent an email to Mr Coyte dealing with income and expenses for CCS and the Fund for the September 2011 quarter (Coyte 10.12.14 [150]; Ex C5, CB 1517) which was based on an income split of 75%/25% in favour of Mr Norman and Mr Coyte respectively and an expense split of 50%/50%. It was apparent from Mr Atra's cross-examination that the approach adopted in this email was derived from instructions that he had been given by Mr Norman. The email emphasised the commercial consequence of the agreement which the Norman Parties claim that Mr Coyte had reached with Mr Norman, when the joint venture was terminated, such that he would receive a quarter of the income and bear half of the expenses. As will emerge below, I do not accept that such an agreement had been reached.
Mr Coyte's evidence is that he spoke to Mr Atra after he received that email (Coyte 10.12.14 [151]) and he then emailed a response to Mr Atra's email, on the same day, noting that:
"Buddy this is so far off the mark it is not funny. I have attached the actual rec[onciliation] which is nearly all but done for your info[rmation].
The income is not divided according to [the] split you have suggested. My income is mine and [Mr Norman's] is his." (Ex C5, CB 1517)
Mr Coyte's evidence (Coyte 30.3.16 [58]) is that, after receiving the email from Mr Atra, he also called Mr Norman and said:
"my clients were my clients. Buddy is preparing the accounts based on incorrect information …".
Mr Coyte's evidence (Coyte 30.3.16 [42]) is also that, on 22 December 2011, he had a further conversation with Mr Norman to the effect that:
"the reconciliation that the accountants have sent is incorrect. We have divided the clients along ownership and my clients are my clients and your clients are yours".
Mr Coyte subsequently maintained that position in several subsequent communications. Mr Coyte's evidence (Coyte 10.12.14 [152]) is that, on 4 January 2012, he had a conversation with Mr Norman, in which he said that:
"My clients are mine. We agreed on how those clients are to be separated. We also agreed how the expenses were to be apportioned".
Mr Coyte also refers to a conversation between them on that date in his evidence in reply (Coyte 30.3.16 [43]).
I pause to note that, while I have addressed the question of Mr Coyte's credit above, the basis on which clients were to be allocated on termination of the joint venture was established by the 2007 HOA, unless that agreement was varied by a further agreement between Mr Norman and Mr Coyte as the Norman Parties contend. The parties' agreement as to that matter does not depend on either establishing that they later reasserted that position, although subsequent conduct may be relevant to establishing the existence or non-existence of the oral variation for which the Norman Parties contend.
By email dated 13 February 2012, Mr Coyte emailed Mr Atra, with copies to Mr Norman, Mr Satusky and Mr Mazzoni (who had by then began to assist Mr Norman), setting out his understanding of the terms on which the current arrangement that had been in place since 1 July 2011 would continue. The Coyte Parties rely on that email for their claim under the "Collaborative", said to be embodied in that email, and I will address that email in dealing with that claim below.
There were references in May 2012 and June 2012 to Mr Coyte's intention to commence business in a new entity which would hold its own Australian financial services licence (Ex C6, CB 1765-1766). Mr Coyte gives evidence of a meeting between himself and Messrs Norman, Mazzoni, Satusky and Atra on 30 March 2012 or 10 May 2012 (Coyte 10.12.14 [161]) at which he indicated concerns as to Mr Norman's behaviour and handed over a document recording his "issues" with Mr Norman (Ex C5, CB 1534).
On 2 June 2012, Mr Coyte emailed Mr Mazzoni reconciliations for the year ending June 2012 and other documents (Ex C5, CB 1401) and, on 3 July 2012, Mr Coyte sent another email to Messrs Mazzoni, Satusky and Atra attaching worksheets and reconciliations (Ex C5, CB 1405) which claimed an amount of $24,992.38 was payable to Blooms. That claim is pursued in these proceedings.
Mr Norman gave evidence, in his affidavit, of a meeting on 5 June 2012 at the office of Messrs Satusky and Atra in Sydney and also relied on minutes of a purported meeting on that date. In cross-examination, Mr Norman varied that evidence to say that he thought the meeting at the accountant's offices took place a week before, and in late May or early June 2012 (T274). Mr Coyte recalls that a meeting took place earlier in June 2012, although there is disagreement as to what took place at that meeting. I am not persuaded that Mr Norman attended the meeting at Messrs Satusky's and Atra's office, where his phone records indicate he was not in Sydney on that date. There is also an issue, which the evidence is not sufficient to resolve, as to the date of creation of those minutes, and as to whether an amount referred to in those minutes was paid by the Centre Capital entities to Mr Coyte as a loan. Although I recognise that Mr Atra's evidence provides some support for the latter proposition, I do not understand the relief sought to address that amount and it is not necessary to determine that issue.
On 22 June 2012, Mr Norman removed Mr Coyte as a director of CCS (Coyte 10.12.14 [127]) and he was also removed as signatory of the bank accounts at about this time. Mr Mazzoni wrote to Mr Coyte on that date advising that:
"Further to this morning's declined request on behalf of Michael Norman to transfer $32,136 from the Centre Capital Portfolio Account to Centre Capital Mutual Account,
Michael Norman as sole shareholder of Centre Capital Securities Pty Ltd feels it has become necessary to give Notice Terminating your Directorship with immediate effect as per the Attached Minutes of meeting of shareholders". (The document attached to that email does not correspond to the manner in which it is described in the email) (Ex N3, CB 707)
The explanation of the reason for Mr Coyte's removal as a director of CCS in that email is not consistent with Mr Norman's affidavit evidence of the reasons that he removed Mr Coyte as a director of the companies, namely that he removed Mr Coyte as a director of the companies because of his "poor conduct and management" and because Mr Coyte had made unauthorised payments to Mr Scorer and Mr Coyte and because of other "unprofessional conduct" (Norman 13.11.15 [25]).
Also on 22 June 2012, Mr Coyte wrote to Macquarie Bank requesting that it implement a "temporary freeze" on the payment of commissions for his advice account (Ex N3, CB 710). Mr Norman's evidence is that that email was sent without his authority (Norman 13.11.15 [158]). Given the findings that I reach below, there was no requirement for Mr Norman's authority for that email, since it related to commissions in respect of clients that were, in fact, Mr Coyte's clients and were, by the terms of the 2007 HOA, allocated to Mr Coyte on termination of the joint venture.
On 5 July 2012, Mr Coyte sent emails to his clients seeking their authority to transfer their accounts with him to Shartru (Ex N4, 865). Mr Coyte informed those clients of his intention to join Shartru and those clients executed authorities for their affairs to be transferred to Shartru (CB 1419-1503). An issue was raised in Mr Coyte's cross-examination as to whether aspects of Mr Coyte's approach to his clients were misleading, and Mr Priestley submitted that the reference to a "change of name" in the title of an earlier email to Mr Coyte's clients was misleading. However, the text of the email made clear that Mr Norman and Mr Coyte were separating their businesses and that Mr Coyte's two administrative staff, Ms Bloomfield and Ms Bunting, were embarking upon a "new venture" under the name Shartru. It may be that the reference to a change should be understood as a change of name of Mr Coyte's business, and not a change of name of Centre Capital's or Mr Norman's business (Ex N4, CB 868ff) and, even if that is not the case, the email made clear what was occurring. A further email dated September 2012 to clients also made clear that the "new name" related to the new entity, Shartru (Ex N4, CB 869).
On 26 July 2012, an authority for the transfer of Centre Capital's XPlan user data, recording client information, to Shartru was sent to IRESS Market Technology, purportedly signed by Mr Norman (Ex N3, 735). Mr Norman's evidence is that he did not authorise that transfer (Norman 13.11.15 [174]). However, the evidence as to this issue generally is somewhat unclear, since it appears to have been contemplated that Shartru would provide services to Centre Capital, and the provision of user data to Shartru would have been necessary for it to do so. Correspondence relating to the transfer of client information from the Centre Capital XPlan site to Shartru was also copied by email to Mr Norman, although he denies that he received it, and there is evidence that Mr Norman generally did not respond to email communications. Also on 26 July 2012 and 30 July 2012, client transfer authorities were sent to Macquarie Bank and MLC for the transfer of clients of Mr Coyte to Shartru, signed by Mr Coyte and purportedly signed by Mr Norman; Mr Norman denies that he signed those documents (Ex N3, CB 746; Norman 13.11.15 [182]-[183], [187]).
In early July 2012, Mr Coyte instructed administrative staff to prepare a reconciliation of Centre Capital's accounts and expenses for the financial year 2012 and he emailed that reconciliation to Mr Mazzoni, and his evidence is that he provided that reconciliation to both Mr Norman and Mr Mazzoni (Coyte 10.12.14 [121]-[122]; Ex C5, CB 1405-1418).
On 20 August 2012, a member of Centre Capital's administrative staff sent an email to Australian Executor Trustees attaching change of adviser information for Mr Coyte; Mr Norman's evidence is that he and Mr Coyte had not agreed on the split of the Centre Capital client base at that time (and, so far as Mr Norman's evidence goes, he appears never to have agreed to the client split) (Norman 13.11.15 [188]; Ex N3, CB 771). Mr Norman's position here again highlights a substantial difficulty inherent in the structure of the Norman Parties' case, so far as that case is that Mr Coyte would never take advantage of the allocation of his clients to him on termination of the joint venture, as contemplated by the 2007 HOA, so long as Mr Norman did not agree who those clients were. I do not accept that proposition, so far as the identity of those clients is a question of objective fact and not a matter that requires agreement by Mr Norman.
On 24 August 2012, Mr Coyte sent another reconciliation to Mr Mazzoni (Ex C5, CB 1504) which claimed a payment of $8,202 referable to trading performance for July 2012. Mr Coyte subsequently required payment of several further amounts that were claimed to be outstanding by email dated 10 September 2012 (Ex C5, CB 1505).
On 25 September 2012, Mr Satusky sent Mr Coyte an email reflecting Mr Norman's understanding of how the valuation of the client base would be calculated under the Further Agreement for which the Norman Parties contend (Coyte 10.12.14 [163]; Ex C5, CB 1540-1541). That email depended on Mr Norman's instructions as to that agreement and, as will emerge below, I do not accept that such an agreement was established. On 30 September 2012, Mr Coyte sent Messrs Norman and Mazzoni another reconciliation for the quarter ended 30 September 2012 (Ex C5, CB 1506-1515) which claimed an amount of $18,492.35 as owed to Mr Coyte for that quarter.
Despite the difficulties that by then existed in their business relationship, it appears that, in the latter part of 2012, Messrs Norman and Coyte entered into a form of cost sharing arrangement, under which the Centre Capital Parties agreed to share back office costs with Shartru. That agreement appears to be reflected in an email dated 4 October 2012 from Mr Mazzoni to Mr Coyte (Ex C5, CB 1516) which stated that:
"Michael [Norman] will be available early next week to sort out the Office service agreement.
He has asked me to pass onto you that in principle he has no objection to the base plan for a front office service and what we are currently doing is working our way through the various other costs to reduce duplication … eg. XPLan, telephony and internet services".
There is a further dispute between the parties as to the manner in which client records were uploaded to XPlan and as to access issues which appear to have affected the Centre Capital parties for a short period. That issue is incapable of affecting the outcome of these proceedings, if (as I have held) Mr Coyte's rights to retain his clients arose from the 2007 HOA, and there is no evidence to support any separate claim for damages in this respect. I therefore do not consider it necessary to determine that dispute.
On 22 October 2012 and 20 February 2013, Mr Atra sent Mr Coyte two invoices setting out amounts claimed by the Centre Capital Parties (Atra 12.11.15, [9C]-[11]). Mr Atra accepted in cross-examination (T351, 353) that he prepared those invoices based on reconciliations that he had prepared which were in turn based on figures "roughed out" by Mr Norman. The invoices do not establish the correctness of the approach reflected in them.
[2]
Whether the joint venture agreement was terminated and allocation of clients on termination
There was some common ground between the parties as to the issues that arise in the proceedings. The parties agreed that the first issue in the Coyte Proceedings was whether the 2007 HOA was terminated by agreement. Mr Coyte contends, and Mr Norman denies (Coyte SOC [9]; Defence [9]) that, on 29 June 2011, the 2007 HOA was terminated by mutual consent of Mr Coyte and Mr Norman and in accordance with its terms. I have referred in paragraph 28 above to the parties' agreement as to aspects of that termination. The parties were in disagreement as to whether a further issue arose as to whether the termination provisions set out in the 2007 HOA governed the termination of the joint venture between Mr Norman and Mr Coyte, in particular, as it related to their clients and their income.
It was common ground that, in construing a written contract, the court should look to its objective background, including its genesis and aim, and the common assumptions of the parties: DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429; Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 185 ALR 152 at [11]. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40], a unanimous High Court observed that:
"This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." [Citations omitted]
That approach was confirmed in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 at [35] where French CJ, Hayne, Crennan and Kiefel JJ observed that (citations omitted):
"[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'."
The High Court also reviewed the principles of construction in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188 (at [46]-[52], [59]) and I proceed on the basis that construction should commence with the language used by the parties, although the Court may also have regard to objective surrounding circumstances.
[3]
Whether the pleaded "Termination Agreement" was entered into
Paragraph 9 of the Coyte Parties' Statement of Claim pleads that a term of the Termination Agreement was that Mr Coyte would sell his "stake" or unitholding in the Mutual Fund to Mr Norman for a value agreed at $17,369. The parties identified a further issue as to whether a further "Termination Agreement" for which the Coyte Parties contend was entered in the terms pleaded or at all; and whether, if an agreement in accordance with the "Termination Agreement" was reached with respect to the value of Mr Coyte's interest in the Mutual Fund, the dollar value of that interest was agreed and there was an agreement that that interest be sold to Mr Norman (Coyte SOC [9]).
This issue largely turns upon whether a separate "Termination Agreement", beyond the provisions for termination of the joint venture in the 2007 HOA, arose from earlier conversations, the outcome of which Mr Coyte summarised in his email dated 29 June 2011 (Ex C5, CB 1387) to which I referred in paragraph 45 above. By that email, Mr Coyte advised Mr Morabito, a solicitor acting for CCPL and CCS, and Mr Satusky of his understanding of the separation arrangements, referring to a discussion with Mr Satusky and Mr Norman on 27 June 2011 and recording that the arrangements would be documented by Mr Morabito as indicated by Mr Norman, although that did not in fact occur. Mr Coyte's evidence is that his email dated 29 June 2011 summarised an agreement reached at a meeting on 22 June 2011 between Messrs Norman, Coyte and Scorer to provide financial advice and services "in concert" until the end of the 2011 calendar year. That email also noted that Mr Coyte would be selling his stake in the Mutual Fund to Mr Norman for the market value of the cash, the value of the holding/loans to CCN or CCS and the value of assets including equipment, and that account would need to be taken for future GST liabilities and a $50,000 fee from OEG shortly to be received by CCN. The email stated that Mr Coyte would resign as a director from CCS and CCN would hold the parties' respective shares in OEG "on behalf of our nominated vehicle" and, after the shares come out of escrow, the individual "can decide what to do with the shares without any detrimental effect to the other parties be it CGT or the like".
That email also referred to an "agreement with Mr Scorer" set out in an email dated 24 June 2011 from Mr Scorer to Mr Coyte, which appeared below, although noting that Mr Norman was to discuss the wage component of that agreement with Mr Scorer. Mr Scorer's email dated 24 June 2011 to Mr Coyte in turn set out his understanding of the "[g]o forward" of CCN as at 1 July 2011 which included that:
"After expenses, [Mr Scorer] gets $2,000 per week plus GST (ie the first $104,000 p.a. plus GST of income) to be taken by way of submitting a monthly tax invoice with his ABN, (subject to having sufficient funds in the bank account). This is his income not a loan …
After all expenses, [Mr Scorer's] $104,000 p.a. (plus GST), [Mr Scorer] (or his nominated entity) [Mr Coyte] (or his nominated entity) and [Mr Norman] (or his nominated entity) share the balance whether it be cash, shares, options etc equally (one-third each)."
[4]
Whether the "Collaborative" was entered into
The parties also identified a further issue as to whether an agreement to which Mr Coyte refers as the "Collaborative" was entered into in the terms pleaded or at all (Coyte SOC [14]). That agreement is alleged to have, broadly, the effect that the Coyte Parties would be paid a share of client revenue collected by the Centre Capital business although Mr Coyte no longer held a unitholding or shareholding in the Group. The Coyte Parties plead, and the Norman Parties deny, that, by email from Mr Coyte to Mr Norman dated 13 February 2013 (which must refer to an email dated 13 February 2012 (Ex C5, CB 1398)), an arrangement was entered into between them by which they would continue to provide financial advice and services in concert (Coyte SOC [14]; Defence [14]). The Coyte Parties also plead, and the Norman Parties deny, that it was a fundamental term of the Collaborative that payments for trading performances would be made to Mr Coyte on a quarterly basis and that claim is also denied by Mr Norman (Coyte SOC [15]; Defence [15]). The Coyte Parties claim, and the Norman Parties deny, that Mr Coyte is entitled to payment of approximately $24,992 for the financial year ended 2012; of $8,202 for the quarter ended July 2012; of $18,492 for August and September 2012 and of $8,277.99 being commission for One10 finance between May 2012 and December 2012, totalling $59,963.99.
As I noted above, by email dated 13 February 2012, Mr Coyte advised Mr Atra, with copies to Mr Norman, Mr Satusky and Mr Mazzoni (who had by then began to assist Mr Norman), of his understanding of the terms on which the arrangement that had been in place since 1 July 2011 would continue, as follows:
"We are extending our current arrangement that we have had in place since 1 July for the immediate future.
That is as follows:
● My revenue is my revenue.
● [Mr Norman's] is his revenue.
● We are sharing agreed expenses.
● Respective share of profit is then distributed to respective trusts. The old formula [f]or profit sharing arrangement is no longer in place and that ceased on 30 June 2011. That joint venture is finished." [emphasis in original].
Mr Coyte attached a spreadsheet which he stated was being used to divide revenue and costs to each person and noted that Mr Norman had mentioned that Mr Norman may collapse the Mutual Fund which was currently being used to pay for expenses and was where Mr Norman's "profit" was paid before he distributed it to his trust (Ex C5, CB 1398). Mr Coyte also noted that he no longer had a shareholding in CCS but had not received any consideration for the cash on balance sheet that would equate to his share. That email was, on its face, sent to Mr Norman (although, as I noted above, there is evidence that Mr Norman prefers not to receive email communications) and also to Messrs Atra, Satusky and Mazzoni, who do communicate by email. There is no contemporaneous record of any objection by Mr Norman, or by Mr Mazzoni on his behalf, to that record of the terms of the arrangement.
[5]
The Coyte Parties' unconscionability and misleading conduct claims
Paragraph 20 of the Coyte Parties' Statement of Claim makes alternative claims in respect of unconscionable conduct and misleading or deceptive conduct. The Coyte Parties pleaded that the relevant conduct amounted to conduct that was in all the circumstances unconscionable, pursuant to s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth), which prohibits unconscionable conduct in connection with the supply or possible supply of financial services to a person. In my view, the claim for unconscionability is misconceived, since the relevant conduct related to dealings between Mr Coyte and Mr Norman inter se, and did not have any material connection with the supply or possible supply of financial services by either of them or the respective corporate entities: Avoca Consultants Pty Ltd v Millennium3 Financial Services Pty Ltd [2009] FCA 883; (2009) 73 ACSR 307 at [232]. That claim therefore fails.
The claim for misleading or deceptive conduct was not addressed by substantive submissions and I assume it is not pressed. If it were pressed, it cannot be fairly determined where it has not been articulated in a manner that would allow the Norman Parties an opportunity to respond to it. The Coyte Parties did not press their claims for breach by Mr Norman of alleged "Marketing Obligation" (Coyte SOC [13]).
[6]
Claim in respect of the "Wrongful Payments"
The parties were agreed, to a large extent, as to the issues that arose from the Norman Parties' Cross-Claim in the Coyte Proceedings. Mr Priestley identifies seven separate claims brought in that Cross-Claim, a matter which has significantly contributed to the complexity of the proceedings.
The first claim brought in the Cross-Claim relates to alleged "wrongful payments". CCPL and CCS relied on the terms of a trust deed dated 31 May 2005 relating to the Mutual Fund which provided for distributions to unitholders to be in proportion to units, and pleaded that the unitholdings in the fund were that NIP held 750,000 units and Blooms held 250,000 units until 30 June 2011. CCPL and CCS plead that, on or about 30 June 2011, all of the units of Blooms in the Mutual Fund were redeemed or otherwise surrendered and that, as Blooms ceased to be a unitholder in the Mutual Fund, it was not entitled to any further distribution from the Mutual Fund and, between July 2011 and June 2012, Blooms or alternatively Mr Coyte was paid various sums to which it or he was not entitled. Those payments are pleaded to be wrongful on the basis that no meeting of the officers of CCPL or CCS (presumably, Mr Norman) resolved to authorise the payments; no duly constituted meeting of the unitholders of the Mutual Fund occurred with respect to the payments; no vote by unitholders of the Mutual Fund occurred with respect to the payments; no meeting of shareholders of CCPL was held with respect to the payments; and the payments were made in error or otherwise wrongfully. The premise of this allegation is that the relevant payments made by CCPL or CCS were an unauthorised distribution from the Mutual Fund and that there was no other justification for the payment.
The parties accepted that this claim raised the issue whether the "Wrongful Payments" (as pleaded) were made without authority, in error or otherwise wrongfully (ASOCC [20]). There was a somewhat arid dispute as to whether the converse issue, whether those payments were made with authority, arose. At the least, a finding that the payments were made with authority, as a matter of fact and law, would necessarily defeat the Norman Parties' claim that they were made without authority. It seems to be common ground that those payments were made without regard to the revenue share dictated by the 2007 HOA and the proportionate unit holdings in the Fund and did not reflect an allocation of 25% of the profit from the business to Blooms. Mr Satusky's firm, on Mr Norman's instructions as to the proper basis of the arrangements, calculated that $113,316.50 was paid to Blooms in excess of its entitlement based on an allocation of 25% of the profit from the business (Norman 13.11.15 [162]; Atra 12.11.15 [9]).
[7]
Whether the alleged "Further Agreement" was entered into
CCPL and CCS plead a claim in respect of an alleged Further Agreement as a further or alternative cause of action with respect to the amount of $113,316.50 claimed under the "Wrongful Payments" claim. Paragraph 25 of the First Cross-Claim pleads the terms of the Further Agreement alleged to have been formed in about June 2011 between Mr Norman on behalf of CCPL and Mr Coyte or alternatively Blooms, as follows:
"In about June 2011 Michael Norman, on behalf of [CCPL] and in his capacity as [d]irector, entered into a further agreement ("the further agreement") with Coyte (or alternatively with Blooms) the terms of which provided that:
(a) [CCPL] and Coyte would retain their respective client base share;
(b) [CCPL] and Coyte would operate separately from each other with respect to the provision of financial services;
(c) It was an implied term that Coyte would not transfer, solicit or interfere with the clients of [CCPL] (including the income generated from such clients);
(d) It was an implied term that Coyte would act in good faith with respect to the agreement;
(e) Coyte would agree to the redemption or otherwise surrender of the units held by Blooms in the Fund;
(f) In consideration of the surrender of the units held by Blooms in the Fund Coyte would be entitled to retain his respective client base share;
(g) Coyte would be entitled to retain $13,000 (inclusive of GST) of monthly gross fee income. This figure represented the agreed gross monthly income of the respective client base of Coyte's share;
(h) That a party would pay to the other an amount equal to 2.5 times annual client revenues in the event of a client being transferred from one party to the other party;
(i) Coyte would pay an equal share of the expenses incurred with respect to provision of financial services including but not limited to:
(i) Professional indemnity premiums
(ii) Rent
(iii) Staff
(iv) Business Administration
(v) Compliance costs (collectively "the expenses")
(j) The expenses were to be paid equally up until 30 December 2012 except for professional indemnity insurance premiums which were to continue for up to 7 years or as required as 'run-off' cover;
(k) It was an express term of the further agreement that drawings, advances and unpaid expenses to or by Coyte (and/or Blooms) were to be added to the loan account of Coyte (and/or Blooms) which represented a debt to [CCPL] payable at the end of each relevant accounting period;
(l) It was an express term of the further agreement that, with respect to paying his share of the expenses, Coyte would either:
(i) Leave sufficient funds in the expenses account to enable payment of his share of the expenses; or
(ii) Pay them as they fell due;
(iii) Pay them within 7 days of a demand for payment by [CCPL]; or
(iv) Alternatively it was an implied term of the agreement the he [sic] pay them within a reasonable time.
(m) Each of the parties would be entitled to separately retain income from any new business which they respectively received.
[8]
Diversion of clients and client income and claim for "breach of the Fund"
The parties agreed that there were further issues in the Cross-Claim in the Coyte Proceedings as to whether Blooms and Mr Coyte diverted clients or client income of the Centre Capital Group in breach of the Further Agreement (ASOCC [35]-[36]) and whether diversion of clients or client income of the Centre Capital Group constituted a breach of trust by either Blooms or Mr Coyte or a breach of statutory duties by Mr Coyte. There was a dispute as to whether that claim was limited to a diversion in breach of the Further Agreement (ASOCC [35], [35.1], [59]-[60]).
The third claim made in the Cross-Claim relates to a claim under the alleged Further Agreement for diversion of client revenue. By paragraph 35 of the First Cross-Claim, CCPL and CCS plead that, in breach of the Further Agreement, Mr Coyte caused to divert or otherwise transfer clients and income from such clients of CCPL to him or an entity which he effectively controlled or had a financial interest in, to the detriment of CCPL. The claim in that paragraph is not established, because the existence of the Further Agreement is not established for the reasons noted above.
Mr Priestley also submits that it was necessary for reasonable business efficacy of the Further Agreement that a term be implied in it that Mr Coyte would not transfer, solicit or interfere with Centre Capital's clients (other than clients he was entitled to so deal with pursuant to the agreement itself) and that the agreement to continue providing services to the clients, sharing revenue and expenses as agreed leading up to a formal written agreement in which the ultimate transfer of clients would be formally provided for would necessarily have been unworkable and ultimately defeated without such an implied term. I do not accept that submission, because I do not accept that the Further Agreement was established and there is therefore no basis to imply a term into it. The term sought to be implied is also inconsistent with the 2007 HOA which, I have held above, governed the parties' relationship on termination of the joint venture.
Mr Priestley also submits that the Further Agreement properly had implied in it by law a term that the parties act with respect to the performance of the agreement in good faith. The implication of such a term is controversial in Australian law, and attempts to imply such terms have had limited success since the decision in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558 on which Mr Priestley relied. It is not necessary to address that question further since there is no room to imply that term into the Further Agreement where that agreement has not been established.
[9]
Alleged breach of duty as to further payments
The parties also identified further issues in the Cross-Claim in the Coyte Proceedings as to whether various payments by the Centre Capital Group made or authorised by Mr Coyte between July 2011 and June 2012 constituted a breach of statutory duties by Mr Coyte and as to the quantum of loss caused by the alleged breaches or other conduct.
Paragraphs 39-54 of the First Cross-Claim plead a claim for breach of director's statutory duties relating to payments made to Mr Coyte and interests associated with Mr Coyte from income of the Mutual Fund received by CCS. Although that claim is formulated in general terms, without identifying the origin of the income to which it relates, the evidence establishes that CCS is the Australian financial services licensee that conducts the financial planning business with which Mr Norman and Mr Coyte were involved, and that income was derived from the provision of financial planning services to the clients to which Mr Norman and Mr Coyte provided such services. This claim therefore raises similar legal issues as the further claim for "diversion of funds" pleaded in paragraphs 55-61 of the First Cross-Claim, although the former claim appears to be primarily directed to events prior to June 2012, while Mr Coyte provided services to clients through CCS, and the latter to events from July 2012, by which clients serviced by Mr Coyte were transferred to Shartru.
CCPL and CCS plead that the business known as "Centre Capital" trades through CCPL as trustee of the Mutual Fund and, until June 2011, Mr Coyte was a director of CCPL (ASOCC [41]-[42]) and that, until June 2012 Mr Coyte was a director of CCS (ASOCC [43]). CCPL and CCS further plead that the income from the provision of financial services was received into Macquarie Bank accounts operated by the "Centre Capital Business" including accounts in the name of CCS (ASOCC [44]) and that income of the Funds which is received by CCS is treated as income of the Fund and receivable by the Fund (ASOCC [45]).
CCPL and CCS plead that, as director, Mr Coyte owed duties to CCS and CCPL under ss 180-182 of the Corporations Act 2001 (Cth) (ASOCC [46]-[48]). The pleaded statutory duties are founded on Mr Coyte's role as a director or "former director" of CCPL and CCS where, as I noted above, it is not pleaded that Mr Coyte was a director of CCPL beyond June 2011 or of CCS beyond June 2012. CCPL and CCS also plead that, between July 2011 and June 2012 various payments were made from the Mutual Fund into accounts in the name of Blooms and Mr and Mrs Coyte and were not duly authorised by CCPL, CCS or Mr Norman and were made in error or "otherwise wrongfully" (ASOCC [49]). CCPL and CCS in turn plead (ASOCC [50]) that:
"By virtue of his position as director of [CCS] Coyte and former director of [CCPL], enabled, directed or otherwise facilitated the payments:
(a) without proper authority;
(b) either knowing or reasonably suspecting that the payments were not properly payable or without proper regard to the circumstances of the payments;
(c) without due observation of the requirements of operating the Account;
(d) without due observation of his duties as an officer of [CCS] and former officer of [CCPL];
(e) without due observation of the requirements of the operation of the Fund."
CCPL and CCS in turn plead that, by reason of these matters, Mr Coyte breached his duties under ss 180-182 of the Corporations Act and CCPL or alternatively CCS have suffered loss or damage (ASOCC [51]-[54]).
[10]
Breach of duty claim with respect to diversion of client income
The sixth claim made in the Cross-Claim relates to a claim for breach of statutory duty in respect of diversion of client revenue. I have noted above that this claim raises substantially the same issues as the claim pleaded in paragraphs 39-54 of the First Cross-Claim, although in the later time period from July 2012. Mr Priestley accepted in oral submissions that Mr Norman had not put a case that particular persons transferred to Mr Coyte were Mr Norman's clients, other than in respect of the alternative case raised by Mr Mazzoni's third affidavit (T640) which I will address below.
Paragraphs 55-61 of the Amended Statement of Cross-Claim plead this claim by reference to a letter dated 26 July 2012 provided to Macquarie Bank. CCPL and CCS plead that that letter was created by and signed by Mr Coyte; that it purports to be signed by Mr Norman (with an electronic signature) but was not in fact signed by him; that Mr Norman did not authorise the letter, including the use of his signature; and that CCPL did not approve the letter. CCPL and CCS also plead that the letter caused funds to be diverted from various Centre Capital accounts to accounts in the name of Shartru and, by virtue of Mr Coyte's position as a "former director" of CCPL and CCS who had previously been authorised to operate its accounts, Mr Coyte wrongfully caused those funds to be diverted to Shartru. Paragraph 60 of the Amended Statement of Cross-Claim pleads a breach of s 182 of the Corporations Act, to which I have referred above, in that respect.
Mr Priestley submits that Mr Coyte commenced taking steps to transfer clients to Shartru in the months leading up to the end of June 2012, involving conversations with some clients and the incorporation of Shartru. On 22 June 2012, about the time Mr Norman removed Mr Coyte as a director of CCS, Mr Coyte emailed Macquarie Bank requesting that it implement a "temporary freeze" on the payment of commissions for his adviser account (Ex N3, CB 710; T525) and advised other fund managers, apparently accurately, that the requested change were as a result of a dispute (Ex N3, CB 713). Mr Priestley submits that Mr Coyte then began the process of transferring clients and diverting client income away from CCS, including creating a letter dated 26 July 2012 on Centre Capital letterhead purportedly signed by Mr Coyte and Mr Norman (Ex N3, CB 746) which was sent to Macquarie Bank, MLC and other fund managers (Ex N3, CB 759, 762) which caused the relevant fund managers to divert client income from CCS to Shartru. Mr Priestley submits that Mr Norman did not sign this document or expressly authorise it being sent (Norman 13.11.15 [182]-[183]) and that CCS also did not authorise the document. Ms Bloomfield's evidence was that she had Mr Norman's authority to use his electronic signature, which appeared on the relevant letter, when it was needed presumably for CCS's business purposes (T583), although it should be recognised that this step was hardly taken in the ordinary course of CCS's business.
[11]
The alternative calculation based on Mr Mazzoni's evidence
The Cross-Claimants alternatively submit that a number of individual clients that were transferred to Shartru and provided client authority forms to authorise that transfer were not the subject of any discussion or agreement as to that transfer between Messrs Norman and Coyte. This claim has the premise that agreement was reached between Messrs Norman and Coyte as to which clients would go with each of them at the meeting in 22 June 2011 to which I referred in paragraph 37 above, and that that agreement is reflected in the "Agreed Client Lists" annexed to Mr Coyte's affidavit (to which I referred above), notwithstanding that Mr Norman denied Mr Coyte's evidence of those matters. The Cross-Claimants rely on a list of the clients falling within that discussion or agreement contained in Tab A to Mr Mazzoni's third affidavit sworn 26 May 2016.
There is a fundamental difficulty with this alternative case, such that it cannot succeed. Its essential premise, which I have rejected above, is that Mr Coyte's retention of a client required that Mr Norman have first agreed that the client was Mr Coyte's client, and not only that that was the fact. I have held above that the 2007 HOA provided for Messrs Norman and Coyte to retain their respective clients on termination of the joint venture, and that whether a person was a client of each of them was a matter that could be determined objectively rather than requiring any further agreement between them. The evidence as to the late June 2011 meeting does not establish that the discussion as to the identity of the clients to be transferred amounted to an agreement to vary, narrow or abandon the 2007 HOA, as distinct from a practical attempt to reach consensus as to its implementation. If a client was in fact a client of Mr Coyte, then he was entitled to retain that client under the 2007 HOA even if it was not identified as such in that discussion; conversely, if a client was not a client of Mr Coyte, then he was not entitled to do so even if the client was wrongly identified as such in that discussion. As I have noted above, the Norman Parties did not seek to establish that the relevant clients were not in fact Mr Coyte's clients, and the client records indicate that the relevant clients were Mr Coyte's clients, with the exception of one client as to whom the Norman Parties took no point.
[12]
Claim against Shartru
The parties also identified a further issue in the Cross-Claim in the Coyte Proceedings as to whether the Third Cross-Defendant, Shartru, received monies with knowledge that they were received as a consequence of the alleged breaches (ASOCC [63]-[64]). The Amended Statement of Cross-Claim pleads a claim against Shartru that CCS lost the benefit of ongoing commission and other financial benefits to which it was or would become entitled in respect of the existing business investments of clients who were transferred to Shartru, or alternatively that CCPL lost the benefit of such commissions and other financial benefits; that Shartru with knowledge of specified matters had received income from clients that were transferred to it from CCS and thereby derived profits; and that CCS and CCPL have suffered loss or damage. CCPL and CCS also plead that a letter of demand was sent by their solicitors to Shartru, which has not accounted to CCPL or CCS in relation to the ongoing commissions and other financial benefits it has received.
Mr Priestley submits that the clients and client income in dispute were transferred such that the clients became clients of Shartru and their commission fees are now paid to that entity. Mr Priestley submits that, if the client income has been diverted to Shartru wrongfully, that wrongfulness was at all relevant times known to Mr Coyte and must also have been known to Shartru, where Mr Coyte was a director of that entity and a principal of its business. Mr Priestley submits that this would constitute knowing receipt of property disposed of in breach of the statutory fiduciary duty giving rise to a claim contemplated under the first limb of potential claims discussed in Barnes v Addy (1874) LR 9 Ch App 244; (1874) 43 LJ Ch 513. That result does not follow where the claimed breach by Mr Coyte has not been established.
Mr Priestley also submits that, because the Cross-Claimants are not in a position to precisely quantify these monies, the appropriate remedy would be an order that Shartru provide an account of them. I would not have accepted that submission, had the claim against Shartru otherwise been established, where the Cross-Claimants have not brought a claim for account of profits, the Court did not make orders for separate hearings of liability and quantum, and having regard to the matters to which I referred in paragraph 151 above.
[13]
The Scorer proceedings
The parties were in agreement as to the issues that arose in the Scorer proceedings, namely whether payments made to Mr Scorer as pleaded were made without the proper authority of CCN or CCS (SOC [13]-[21], [26]-[33]); whether United Nominees received monies with knowledge that they were paid without authority (SOC [36.10]); and whether the payments made to Mr Scorer as pleaded constituted a breach of statutory duties by Mr Coyte (SOC [45]).
I now turn to set out the pleaded claims and the applicable facts. By their Amended Statement of Claim filed in the Scorer proceedings, CCN and CCS seek orders that, relevantly, Mr Coyte pay them the amount of $112,500 with respect to the First and Second Payments, as defined. CCN and CCS also sought declarations under s 1317E of the Corporations Act that Mr Coyte has contravened ss 180, 181 and 182 of the Corporations Act. It may be that that relief is not pressed, since the corresponding declaration sought in the First Cross-Claim was not pressed; if it is pressed, it cannot be given, since such a declaration is only available in proceedings for a contravention of a civil penalty provision brought by the Australian Securities & Investments Commission. CCN and CCS also seek an order under s 1317H of the Corporations Act that Mr Coyte compensate them for the loss they or one or other of them has suffered in consequence of that contravention. They also seek an order that United Nominees pay CCS an amount equal to the total of all monies received by United Nominees by way of payment for tax invoices payable by third parties to CCS.
Before turning to the impugned payments, it is necessary to refer to the nature of Mr Scorer's engagement by CCN and CCS. On 20 May 2008, Mr Norman sent an email to Mr Coyte (Ex N1, CB 99) stating that Mr Scorer's "first 52K is a share of profit not a salary". That approach is not reflected in the Adviser Employment Contract for Mr Scorer which was subsequently signed, although dated January 2008. In oral submissions, Mr Priestley submits that that email is relevant to Mr Coyte's and Mr Norman's understanding and shows Mr Norman's belief that payments to Mr Scorer should not have been made. Mr Priestley also submits that it is unlikely that Mr Norman changed his mind as to that matter, although he recognises the possibility that the terms of the employment agreement may not properly record Mr Norman's views (T645). It seems to me that it is not necessary to determine whether, as Mr Coyte contends and Mr Norman denies, Mr Norman later changed his mind, because Mr Norman's subjective intent as to that matter is not relevant to the proper construction of the terms of the written Adviser Employment Contract with Mr Scorer, absent a claim for rectification of that contract.
[14]
Claim as to the impugned payments
Turning now to the impugned payments, CCN and CCS plead that the First Payment and the Second Payment (as defined) were made in circumstances that no meeting of officers of CCN resolved to authorise the payments; CCN did not make a decision to make a distribution payment from the Mutual Fund during the relevant accounting period; no meeting or vote of unitholders occurred with respect to the payments; no meeting of shareholders of CCN was held with respect to the payments; and no authority was given to Mr Scorer or Mr Coyte to make the payments. CCN and CCS also plead that no meeting of officers of CCS occurred resolving to authorise the payments; no authority was granted to Mr Scorer or Mr Coyte to authorise the payments; and no meeting of shareholders of CCS was held with respect to the payments.
The First Payment is pleaded in paragraphs 12-24 of the Statement of Claim in the Scorer Proceedings and was a payment of $30,000 made from an account of CCS to Mr Scorer on or about 8 September 2011. CCN and CCS plead that the funds in the account were held on trust for CCN in anticipation of being paid to it; that CCN as trustee did not make a distribution payment to any other unitholder during the relevant accounting period and the First Payment was not made in accordance with the provisions of the relevant trust deed or authorised by CCN as trustee and was made "wrongfully". Paragraphs 23 and 24 plead that Mr Scorer was unjustly enriched by that payment, but that claim is not now pursued where Mr Scorer is bankrupt.
It is common ground that the First Payment had been discussed between Mr Coyte and Mr Norman before it was made. Mr Scorer's evidence is that, prior to July 2011, he spoke to Mr Coyte about a transaction involving OEG and the payment of $30,000 to Mr Scorer as a bonus was discussed (Scorer 29.3.16 [39]) and that Mr Scorer then spoke to Mr Norman about those matters (Scorer 29.3.16 [37]). Mr Coyte's evidence is that Mr Norman agreed to that payment being made unconditionally, whereas Mr Norman's evidence is that that payment was an "advance" against Mr Scorer's distribution and was conditional upon CCN's expenses first being met (Norman 22.10.14 [70]; T238.) Mr Coyte accepted, in cross-examination, that Mr Norman had told him in about late 2008 that expenses had to be paid before payments could be made to Mr Scorer (T423).
[15]
Claim for breach of duties against Mr Coyte
Paragraphs 43-50 of the Amended Statement of Claim plead that Mr Coyte owed duties to CCN and CCS under ss 180-182 of the Corporations Act and that, by enabling the First Payment and the Second Payment, Mr Coyte breached those sections of the Corporations Act, and CCN and CCS have suffered loss and damage. CCN and CCS submit that making the payments in those circumstances was a breach of Mr Coyte's duty to exercise his powers with due care and diligence under s 180 of the Corporations Act, in good faith in the best interests of the corporation and for a proper purpose under s 181 of the Corporations Act and was also an improper use of his position to gain an advantage for someone else in breach of s 182 of the Corporations Act. I have addressed the scope of those provisions above.
Mr Priestley submits that it was not in the interests of the Centre Capital entities to make such payments if it was not obliged to do so. Mr Priestley also submits that, by this time, Mr Coyte and Mr Scorer had both fallen out with Mr Norman and were colluding with respect to the finances of the Centre Capital entities. Mr Priestley submits that Mr Coyte owed duties both to CCN and CCS to attend to the expenses and other obligations of the companies in an orderly way and not to prefer some creditors at the expense of others, or at the expense of the business itself. Mr Priestley points out that Mr Coyte relied, in cross-examination, on the value of shares in OEG to cover the cost of the payments to Scorer (T454), although their ultimate value to Centre Capital could not be known at that time. Mr Priestley also submits that, if Mr Scorer's email proposal for an increase in entitlements of 24 June 2011 is said to be a basis for making the payments, that is not sustainable because Mr Coyte and Mr Norman did not accept that proposal (Ex C6, CB 1654; T 437).
Mr Coyte relies on the fact that Mr Scorer's Adviser Employment Contract (Ex N1, CB 101) provides for remuneration to be paid to Mr Scorer before profit is distributed and I have, in substance, accepted that submission above. Mr Norman refers to conversations dating back to 2008 which he claims amended the terms of Mr Scorer's arrangement (Norman 22.10.14 [56], [60]). I do not accept Mr Norman's evidence in that respect, by reason of the issues as to his credit generally. Mr Coyte submits that the arrangements were further amended in June 2011, with Mr Scorer to be paid more, but as a consultant rather than an employee. The email from Mr Coyte to Mr Norman on 29 June 2011, which in turn attached the email from Mr Scorer to Mr Coyte and was also sent by facsimile to Mr Norman (to which I referred above) refers to the terms of the new arrangements and, as I noted above, there is no contemporaneous evidence of Mr Norman having disputed that statement of the content of the arrangement. Mr Coyte's evidence is that he made payments to Mr Scorer, including payments made to him prior to the payments in 2011, in accordance with the contractual arrangements with Mr Scorer as he understood them (Coyte 30.3.16 [24], [38]).
[16]
Claim against United Nominees
Paragraphs 36.8-36.10 of the Statement of Claim in the Scorer proceedings in turn plead a claim against United Nominees. Paragraph 36.8 pleads that, between May 2012 and 30 June 2013, CCS earned and became entitled to receive payments from clients of its business and, between May 2012 and 30 July 2013, Mr Scorer without CCS's knowledge or consent directed payment of those amounts to a bank account in the name of United Nominees and caused certain clients of CCS to make payments of sums due to CCS into United Nominees' account. The particularised amounts total $21,450. CCN and CCS plead that United Nominees, on receiving the Diverted Funds (as defined) was aware that it was not entitled to receive payment of those amounts; was aware that Mr Scorer procured payment of those amounts to it in breach of his obligations to CCS and received the Diverted Funds (as defined) as a constructive trustee of those monies.
There is evidence of deposits into United Nominees' bank account from 13 February 2012, although the identity of the depositors is unknown (Norman 13.11.15 [33]). There is evidence that Mr Scorer caused broking client income, in particular from IQ Novate ($24,750) and an entity known as M2L ($3,250), to be diverted from CCS to United Nominees (Ex N1, CB 313, 319, 323, 394-403; Ex N4, CB 1148). Mr Priestley submits, and I accept, that Mr Scorer's evidence in cross-examination did not provide any justification for the diversion of amounts due to CCS to United Nominees, to the extent that such amounts were in fact diverted to that entity (T624). I am satisfied that CCN and CCS have established a restitutionary claim, in the nature of a claim for monies had and received, or alternatively a claim for the receipt of trust monies against United Nominees in respect of the amounts noted above shown to have been diverted to United Nominees: compare Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81 at [39]-[41], [45].
CCN and CCS also submit that a further $71,000 in fees payable by M2L (Ex N5, CB 1025) was paid to United Nominees rather than CCS. However, the evidence relied on by CCN and CCS in support of that submission does not support it, since the amount of $71,000 was M2L's anticipated costs of a compliance prospectus; including accountants' fees, legal costs and ASIC and Newcastle Stock Exchange fees which would not have been payable to CCS or CCN, and CCN and CCS identify no evidence that the anticipated sponsoring brokers' fees of $15,000 or nominated advisers' fees of $10,000 or any other amount (other than the $3,250 referred to above) in fact fell due by M2L to CCN or CCS or were paid by M2L to United Nominees.
[17]
Summary, orders and costs
In summary, the Coyte Parties' claims in the Coyte Proceedings in respect of the alleged "Termination Agreement", including the claim for the Stake Value (as defined) of $17,369 and a declaration in respect of the OEG Shares, and their claim in respect of the alleged "Collaborative" fail. The Coyte Parties' claim for unconscionability also fails.
The Norman Parties' claim in the Cross-Claim in the Coyte Proceedings in respect of restitution for the "Wrongful Payments" fails, because it has not been established that the payments were unauthorised distributions from the trust, as distinct from payment of client income to Mr Coyte or Blooms that he was entitled to receive by reason that, under the terms of the 2007 HOA, he retained his clients on termination of the joint venture between Messrs Norman and Coyte. I do not accept Mr Norman's evidence as to the conversation that is alleged to support the Further Agreement and, where that agreement is not established, the claims under it are also not established.
The claim that Blooms and Mr Coyte diverted clients or client income of the Centre Capital Group in breach of the Further Agreement fails, because that agreement is not established. The pleaded claim for "breach of the Fund" also fails, and the amount of the loss claimed in respect of that alleged breach has also not been established. The claim for breach of director's statutory duties relating to payments made to interests associated with Mr Coyte from income of the Mutual Fund received by CCS prior to June 2012 fails, since the duty owed by Mr Coyte in that respect was narrowed to reflect his "ownership" of his clients on termination of the joint venture, pursuant to the 2007 HOA, and the claim for diversion of funds or clients to Shartru from July 2012 fails for the same reason. The claim against Shartru fails, because the claim against Mr Norman and Blooms of which it is derivative has failed.
In respect of the Scorer proceedings, I have held that a contravention of s 180 of the Corporations Act on the part of Mr Coyte is established, by reason of the manner in which two payments were made to Mr Scorer. CCN's and CCS's claims in respect of contraventions of ss 181 and 182 of the Corporations Act have failed. CCN and CCS have not established that they suffered any loss by reason of the contravention they have established or the payments to Mr Scorer. The Cross-Claimants' claim that Mr Coyte should be ordered to reimburse CCN or CCS the amount of the payments or, in the alternative, such proportion of the payments as the Court thinks just in the circumstances pursuant to s 1317H of the Corporations Act fails. CCN and CCS have established their claim against United Nominees in respect of monies diverted to that entity, and should be allowed an opportunity, in preparing short minutes to give effect to this judgment, to confirm the amount claimed.
[18]
Amendments
01 December 2016 - Para 2 - line 3 - change "The claim against Ms Scorer" to read "The claim against Mr Scorer"
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 01 December 2016
alian Securities and Investments Commission Act 2001 (Cth), s 12CB
- Civil Procedure Act 2005 (NSW), s 56
- Companies (SA) Code, s 229
- Corporations Act 2001 (Cth), ss 180, 181, 182, 1317E, 1317H, Ch 7
- Evidence Act 1995 (NSW), s 140
Cases Cited: - Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507
- Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
- Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
- Australian Financial Services & Leasing Pty Limited v Hills Industries Limited [2014] HCA 14; (2014) 253 CLR 560
- Australian Securities and Investments Commission (ASIC) v Rich (2009) 236 FLR 1; (2009) 75 ACSR 1
- Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373
- Avoca Consultants Pty Ltd v Millenium3 Financial Services Pty Ltd [2009] FCA 883; (2009) 73 ACSR 307
- Barnes v Addy (1874) LR 9 Ch App 244; (1874) 43 LJ Ch 513
- Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384
- Bofinger v Kingsway Group Ltd (2009) 239 CLR 269
- Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
- Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558
- Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178
- Chew v R (1991) 4 WAR 21 at 49; 5 ACSR 473
- County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
- David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 353; (1992) 175 CLR 353
- DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423
- Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599
- Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25
- Equuscorp Pty Limited v Haxton [2012] HCA 7; (2012) 246 CLR 498
- Fistar v Riverwood Legion and Community Club Ltd [2016] NSWCA 81
- Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
- Grimaldi v Chameleon Mining NL (No 2) [2012] - FCAFC 6; (2012) 200 FCR 296
- Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd [2011] FCA 1154; (2011) 86 ACSR 393
- Howard v Commissioner of Taxation [2014] HCA 21; (2014) 309 ALR 1
- JR Consulting & Drafting Pty Limited v Cummings [2016] FCAFC 20; (2016) 329 ALR 625
- Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (t/a Uncle Ben's of Australia) (Federal Court of Australia, 29 June 1995, unrep)
- Maguire v Makaronis (1997) 188 CLR 449 at 466
- Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 185 ALR 152
- Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
- Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188
- Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110
- Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449
- Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd [2011] FCAFC 166; (2011) 285 ALR 63
- Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313; (2015) 90 NSWLR 605
- Pennimpede v Gerard Pennimpede [2009] NSWSC 85
- Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233
- Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547
- Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516
- Spellson v George [1992] NSWCA 254; (1992) 26 NSWLR 666
- Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 278 ALR 291
- Target Holdings Ltd v Redferns (a firm) [1995] 3 All ER 785; (1995) 17 ACSR 582
- Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
- Watson v Foxman (1995) 49 NSWLR 315
- Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484
Category: Principal judgment
Parties: 2013/43716
Robert Edward Coyte (First Plaintiff/Second Cross-Defendant)
Blooms Investment Nominees Pty Ltd (Second Plaintiff/First Cross-Defendant)
Michael Norman (First Defendant)
Centre Capital (Newcastle) Pty Ltd (Second Defendant)
Centre Capital Pty Ltd (First Cross-Claimant)
Centre Capital Securities Pty Ltd (Second Cross-Claimant)
Shartru Wealth Management Pty Ltd (Third Cross-Defendant)
Affidavit evidence and witnesses
Before turning to the affidavit evidence, I should recognise well-established principles applicable in cases where, as here, significant parts of the parties' claims, and particularly the Norman Parties' claims, turned on oral evidence of conversations that occurred some time ago. I have been conscious of the principle that it is important to have regard to the fallibility of human memory, which increases with the passage of time, particularly where litigation intervenes, and I have had regard to the value of contemporaneous documents, and an assessment of motive and the overall probabilities, in reaching assessments as to credit.
In Watson v Foxman (1995) 49 NSWLR 315 at 318, McLelland CJ in Eq observed that, where a party seeks to establish conduct comprising:
"the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, 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 of 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."
In Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599 at [15], the High Court similarly approved an observation of Tamberlin J at first instance in Lake Cumbeline Pty Ltd v Effem Foods Pty Ltd (t/a Uncle Ben's of Australia) (Federal Court of Australia, 29 June 1995, unrep) at 122-3, that:
"[Given the lapse of time] between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time."
I have referred to the terms of the 2007 HOA (Ex C5, CB 1278) in paragraph 25 above. That agreement provided, inter alia, that:
"Centre Capital is a vehicle designed to facilitate the joint venture between Michael Norman and Robert Coyte. The centre Capital Mutual Fund will be the vehicle in which the joint venture will be facilitated.
The Australian Financial Services Licence will be held by Centre capital Securities Pty Ltd which in turn is fully owned by the Centre Capital Mutual Fund.
It is proposed that each respective individual is to retain their own business. …
The Centre Capital Mutual Fund will be a fixed unit trust of which Centre Capital Pty Ltd will be the trustee company. Initially, the unit trust will issue 1,000,000 units of which [NIP] ATF Norman Investment Partners Trust will hold 750,000 and [Blooms] ATF Blooms Discretionary Trust 250,000. More units may be issue if both parties agree.
In the event of Death or Total and Permanent Disablement the non affected party has the option to:
● Purchase the other's goodwill at 2.5 times which would be payable over 5 years (50% of the attributed revenue over a 5 year period).
…
To terminate this joint venture agreement the following process is to be followed:
● Six months notice needs to be given to the other party.
● Each person will retain their own clients.
● If one party wants to sell their clients then the other party has a right of first refusal. …
The purpose of this agreement is to provide a 'All In' vehicle in which all parties have an equity participation as per the above percentages. With the exception of management fees, director fees or any other remuneration method agreed by the parties the profit of the venture will be distributed along the joint venture percentages detailed above." [emphasis added]
Mr Norman was cross-examined as to the fact that a Separation Deed which he executed when he left the Piccadilly Financial Group (Ex C1) recorded that he would retain his own clients (T188-189). Mr Priestley submits, and I accept with a qualification, that an earlier agreement between Mr Norman and a different party could only be of limited use in interpreting the 2007 HOA. The qualification is that the arrangement between Mr Norman and Piccadilly Financial Group emphasises that Mr Norman was familiar with an approach by which a financial adviser brings clients to a business, and takes those clients with him or her if he later leaves that business, and presumably understood the advantage of that approach to an adviser with a strong client base. Mr Priestley also points out that a deed that governed the transfer of clients from PIS (Ex N7), signed by Mr Coyte, referred to the transfer of clients of PIS to CCS. However, that seems to me to reflect the fact that, as Mr Priestley recognised in submissions, clients of Messrs Norman and Coyte could be characterised as clients of the adviser, or of the business, depending on the context.
Mr Afshar submits that the Court should find that, under the 2007 HOA, the parties' respective unit holdings were to apply only to the distribution of profit and not to clients, and that that is the effect of the words, "… the profit of the venture will be distributed along the joint venture percentages detailed above". Mr Afshar submits that clients were to be distributed in accordance with the termination provision set out in the JV Agreement, namely that, "each person will retain their own clients". Mr Afshar also submits that the reference to the purchase of goodwill at a 2.5 times multiple of client income referred to in the 2007 HOA applies only in the event of "Death or Total and Permanent Disablement" of one of the parties; there is no basis for reading the words "2.5 multiple" or the concept of a "client base share" into the 2007 HOA; and the words "equity participation" do not assist the Norman Parties where a multiple could have been included if it was intended to apply. Mr Afshar also submits that the 2007 HOA covers all clients, not only the clients the parties had prior to 1 July 2007, absent limiting words. Mr Afshar submits that the consequence of these matters is that each of Messrs Norman and Coyte were to retain their clients on termination of the joint venture established under the 2007 HOA.
Mr Priestley submits that commissions and fees were (at least in the first instance) paid to CCS and pooled, and that expenses were then paid, and the parties subsequently received distributions in accordance with their unit holdings (at least prior to the termination of the 2007 HOA) to submit that the clients were not treated as belonging to any adviser for the purpose of the income and expenses of the business. Assuming the correctness of that proposition, it seems to me to take the question of the allocation of the clients on termination of the 2007 HOA no further. There is no inconsistency between the existence of such arrangements, for administrative purposes, and the agreement recorded in the 2007 HOA that each adviser was to retain his own clients on termination of the 2007 HOA.
Mr Priestley submits that the parties had not provided for any means of identifying new clients of the business as belonging to one adviser or another in any meaningful way, either in the 2007 HOA or otherwise, and submits that Mr Coyte accepted this in cross-examination (T399) although he did not accept that this meant that clients could not be allocated (T511). However, as Mr Afshar pointed out in closing oral submissions, the Norman Parties' case that the parties had agreed on a revenue figure of $13,000, as reflecting Mr Coyte's clients at the point of termination of the joint venture, itself implies that Mr Coyte's clients had then been identified, at least to the extent necessary for such a calculation (T676). The business also maintained records that would allow an attribution of clients to each of Messrs Norman and Coyte and "Confidential Client Data Forms" exhibited to Mr Mazzoni's affidavit dated 26 May 2016 record the adviser for each of the relevant clients. With one exception (as to which the parties took no issue), all of the clients whose forms and details appear in that exhibit were Mr Coyte's or Mr Christoff's and not Mr Norman's clients. The evidence indicates that there would largely be no difficulty in the allocation of clients to Mr Norman or Mr Coyte, where that allocation was recorded in client records and also in product issuer records. To the extent that any issue might arise as to the allocation of clients who were previously serviced by Mr Christoff, that does not seem to me to prevent the 2007 HOA having effect in accordance with its terms. If agreement could not be reached between the parties as to that allocation, then any dispute could be determined in an appropriate forum.
Mr Priestley submits that the parties should not be found to have agreed that upon dissolution either party could necessarily take clients simply by reference to which adviser had been nominated on client data forms or statements of advice, and that the statement in the 2007 HOA that each person will retain their own clients must be interpreted consistently with this, and with the final paragraph that expresses the purpose of an "all in" vehicle that fixes equity participation. It seems to me that the statement that each of Messrs Norman and Coyte will retain their own clients is clear in its terms, although the matters relevant to the allocation of clients on termination are not necessarily limited to those identified by Mr Priestley, and there is no inconsistency between an "all in" vehicle while the arrangement continues and an allocation of clients to the respective adviser when it terminates. Mr Priestley also submits, but I do not accept, that to allow either party to take a greater share of revenue with them on termination than their equity share would be inconsistent with a sensible commercial construction of the written agreement: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109. That submission seems to involve an impermissible substitution of what the parties might have agreed for what they did agree in the terms of the 2007 HOA.
For these reasons, I find that the 2007 HOA was terminated with effect from the end of June 2011, and that, on termination of the 2007 HOA, Mr Coyte was entitled to retain his own clients, as identified objectively, and without the need for Mr Norman's agreement as to their identity. That finding overlaps with the determination of further issues that I will address below.
Mr Norman's evidence was that he did not respond or agree to the email because he needed more advice from solicitors and accountants (Norman 22.10.14 [62]). That evidence does not sit comfortably with Mr Norman's claim that the "Further Agreement" on which he relies had already been formed at this time and does not explain the continuing absence of any response, as distinct from a delay in a response while such advice was sought. Mr Priestley also submits that, so far as Mr Coyte relies on Mr Norman's failure to respond to or contradict emails, Mr Norman rarely used emails and did not wish to receive email communications (T647). However, that was not Mr Norman's explanation for his failure to respond to this email, which turned on the need for further advice as I noted above. I should also note that, while Mr Norman generally did not respond directly to emails, he appears in the latter part of the period to have communicated his views to others, particularly Mr Mazzoni, who in turn communicated those views to Mr Coyte.
In opening submissions, Mr Priestley submit that no agreement was reached between the parties at that time, so as to support Mr Coyte's claim under a further "Termination Agreement"; that any agreement that may have been reached did not terminate the 2007 HOA; that there was no agreement as to the sale of the 25% stake in the Mutual Fund, although there was discussion as to the fact that the Coyte Parties would transfer their equity in the business in the near future; that no sum reflecting the shares in the Mutual Fund was agreed; and that there is no basis to conclude that Mr Norman personally agreed to acquire any share in the Mutual Fund from the relevant owner; although it was accepted, in later reconciliations as part of the separation process, that the amount of $17,369 should be included as compensation for relinquishing Mr Coyte's share in the Fund in reconciling indebtedness. Mr Priestley also submits that the oral conversations alleged to have occurred about these matters did not constitute a final agreement and, to the extent that the alleged "Termination Agreement" was embodied in the email of 29 June 2011, the matters set out by Mr Coyte in that email do not establish a concluded agreement. Mr Priestley also submits that the price to be paid had not been determined or agreed and was still subject to valuation, and points out that the email expressly refers to Mr Coyte's "understanding" of the arrangement and that the words "will be selling my stake" contemplate a future event, and the mechanism (for example, sale or redemption) and identity of the purchaser in a sale of the units had not been determined.
The Coyte Parties also allege, and the Norman Parties deny, that the "Termination Agreement" provided that CCN would acquire and hold in escrow a proportion of the shares in OEG on behalf of Mr Coyte or his nominee. The Coyte Parties seek a declaration that a holding of shares in OEG is held in escrow on behalf of Blooms. The Norman Parties deny that such an agreement was reached, on the basis that the discussions as to this matter also did not reach the point of agreement. Mr Priestley submits that the email of 29 June 2011 (Ex C5, CB 1388) refers to a "nominee agreement" to be established in the future and that no firm agreement had yet been reached. There is also evidence that Mr Coyte was not satisfied as to the treatment of the OEG shares in separation discussions at that time (Ex C6, CB 1657; T497). Mr Coyte also, fairly, accepted in cross-examination that he expected that the treatment of the OEG shares would have been the subject of a final separation deed (T496) which was ultimately not prepared.
The question whether the "Termination Agreement" was established raises issues as to whether the parties had the requisite intention to enter contractual relations and as to whether agreement was reached as to the essential terms of such an agreement. In Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 at 360, Dixon CJ, McTiernan and Kitto JJ identified three categories of case which may exist where parties, which have been in negotiation, reach agreement upon terms of a contractual nature and agree that the matter of their negotiation will be dealt with by a formal contract. The plurality in Masters v Cameron above observed (at 360), in respect of the third category of case, that:
"… thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract."
The plurality also noted (at 361) in respect of that third category of case that:
"Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: Governor &c. of the Poor of Kingston-upon-Hull v Petch [(1854) 10 Exch. 610 [156 E.R. 583]."
In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548, Gleeson CJ (with whom Hope and Mahoney JJA agreed) observed that the question of the intention of the parties to make a concluded bargain is related to but not the same as the question whether the parties have reached agreement upon such terms as are legally necessary to constitute a contract. His Honour also noted that:
"… in the ordinary case, as a matter of fact and common sense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention."
The Court may have regard to the parties' communications after the formation of an allegedly binding agreement in order to determine, objectively, whether or not they intended to form such an agreement: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd above at 547-548.
In Pavlovic v Universal Music Australia Pty Ltd [2015] NSWCA 313; (2015) 90 NSWLR 605, Bathurst CJ in turn observed (at [15]) that, in cases which did not depend on the construction of a single document, the Court is required to undertake an objective determination whether the parties intended to bind themselves to a contract:
"from the communications between the parties in their context and the parties' dealings over the time leading up to the making of the alleged contract. This involves consideration of the subject matter of the communications ...".
Beazley P (with whom Bathurst CJ generally agreed and Meagher JA agreed) also noted (at [64]-[65]) that whether parties intend to be immediately bound is to be determined objectively, having regard to the "outward manifestations" of their intentions and that the question was "what each party by words and conduct would have led a reasonable person in the position of the other party to believe". Her Honour also noted that (at [72]) it was relevant to consider the commercial context and surrounding circumstances of the parties' dealings in determining whether a binding agreement had come into existence. The Court of Appeal also noted (per Beazley P at [118], with whom Meagher JA agreed), consistently with Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd above, that the Court may have regard to subsequent conduct of the parties in determining whether, at an earlier juncture, the parties intended to enter into a binding agreement.
It seems to me that, for the reasons put by Mr Priestley in submissions, the discussion of these matters at this time contemplated a future agreement, likely in the form of a documented separation agreement, addressing matters such as the mechanism for a disposition of the units in the Mutual Fund and the identity of the purchaser and resolving the unresolved issues as to the OEG shares. It seems to me that the discussions proceeding the 29 June 2011 email and that email did not reflect an intent to create contractual relations at this point, and had had left key terms (including, as I noted above, the mechanism to be adopted and the identity of the purchaser) unresolved, such that a binding agreement as to these matters had not been reached. The Coyte Parties' claims in respect of the "Termination Agreement", including the claim for the Stake Value (as defined) of $17,369 and a declaration in respect of the OEG Shares, therefore fail. The Coyte Parties' claim in respect of the OEG shares also fails for a further reason. Mr Priestley submits, and I accept, that the declaration sought in respect of those shares cannot be made where the evidence is that no entity in the Centre Capital Group now holds the shares (T215), although no documentation as to their sale was produced. There is no adequate evidentiary basis for a claim in compensation for those shares, even if it were otherwise available.
Mr Priestley submits, and I accept, that the email dated 13 February 2012 does not, on its face, embody an agreement, and that there is also a fundamental lack of clarity in the suggested terms, which appear to contemplate both that individual advisers will receive their own "revenue", presumably by reference to individual client fees, and that "[the] [r]espective share of profit is then distributed to the respective trusts". As Mr Priestley points out, there is particular uncertainty as to how expenses would be taken into account in such an arrangement. I have referred to the relevant principles in dealing with the claimed "Termination Agreement" above. It seems to me that the 13 February 2012 email recorded Mr Coyte's understanding of the proposed arrangements between the parties, but does not disclose an intent of the parties to create contractual relations by that email or any previous discussions of those arrangements, and also lacks sufficient certainty to have contractual effect. I am not satisfied that the email dated 13 February had contractual effect and the alleged "Collaborative" and claims under it are not established.
The Cross-Claimants recognise that Mr Coyte and Blooms deny the basis of that claim on the basis that the 2007 HOA and the arrangements in respect of the Mutual Fund no longer applied after termination of the 2007 HOA. The Cross-Claimants contend that this could only be the case if there was mutual agreement by the relevant parties, being Messrs Norman and Coyte and NIP and Blooms, to terminate those arrangements, thereby enabling the allocation of profit on some other basis. The Cross-Claimants also contend that Mr Coyte and Blooms have not put forward any "sufficiently clear or convincing evidence" that Mr Norman agreed to the termination of the 2007 HOA or the terms which governed profit sharing under that agreement. The Cross-Claimants contend that Mr Coyte's email dated 29 June 2011 did no more than set out his own assessment of what should happen in the future, and that would be subject to a formal written separation agreement. I do not accept this submission, since the 2007 HOA permitted termination of the joint venture on the specified notice by either party; the matters agreed between the parties as set out in paragraph 28 above and my findings above at least have the result that the notice given by Mr Coyte was accepted by Mr Norman as satisfying the requirements for termination of the 2007 HOA; and the parties plainly proceeded on the basis that such notice had taken effect and that the 2007 HOA had been terminated by negotiating and implementing other arrangements, including separate bank accounts relating to the relevant advisers, going forward.
The Cross-Claimants alternatively submit that the relevant business income was received in the first instance by CCS and then by the Mutual Fund, and there was no authority for any profit to be distributed other than in accordance with the Trust Deed. I do not accept the essential premise of this submission, that the relevant payments made by CCPL or CCS were an unauthorised distribution from the Mutual Fund and that there was no other justification for the payment. As I have held above, the 2007 HOA provided that each party retained its clients on termination of the joint venture and thereby provided sufficient authority for each party to retain the profits derived from those clients. No additional agreement of Mr Norman or the Norman Parties was required in that respect. The Cross-Claimants made no attempt of any substance to establish that the monies paid to Mr Coyte and Blooms were anything other than the profits derived from Mr Coyte's clients.
Mr Priestley characterises this claim as in the nature of a claim for restitution of the relevant payments, although the ASOCC did not put the claim in that manner. He submits that the Cross-Defendants have been "unjustly enriched" and the Cross-Claimants would be entitled to recovery of the payments pursuant to the principles identified in David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 353; (1992) 175 CLR 353; Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 553; Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at 299; Equuscorp Pty Limited v Haxton [2012] HCA 7; (2012) 246 CLR 498; and Australian Financial Services & Leasing Pty Limited v Hills Industries Limited [2014] HCA 14; (2014) 253 CLR 560. Mr Afshar fairly accepted in oral closing submissions that a claim put by the Cross-Claimants based in the nature of restitution did not raise any issue that had not been addressed by the evidence (T673). However, that claim cannot succeed where its fundamental premise, that the payments were wrongful or unauthorised, has not been established.
CCPL and CCS in turn plead that, between July 2011 and June 2012, various payments were made from the Mutual Fund and/or CCS from time to time and that CCPL paid a portion of the expenses payable by Mr Coyte. CCPL and CCS plead that, for the period between 1 July 2011 to 30 June 2012 and beyond Mr Coyte, in breach of the Further Agreement, failed to pay his share of the expenses and caused to be withdrawn from the account sums which exceeded what he may otherwise have been entitled to retain in accordance with the Further Agreement. CCPL and CCS also plead tax invoices issued by CCS with respect to expenses on 22 October 2012 and 20 February 2013 and a demand for payment of professional indemnity premium made on or about 6 February 2013, totalling $169,870.25. These amounts are said to represent the balances of sums owed by Mr Coyte after reconciliation of amounts paid by him from time to time.
The parties agreed that this claim raised issues as to whether the alleged Further Agreement (as defined) was entered into in the terms pleaded or at all (ASOCC [25]) and whether Blooms and Mr Coyte owed money under the Further Agreement to CCPL and CCS (ASOCC [29]-[34]). In opening submissions, Mr Priestley pointed to Mr Norman's affidavit evidence in support of the Further Agreement; submitted that the existence of that agreement was supported "up to a point" by contemporaneous documents; and summarised this aspect of the Cross-Claim as follows:
"On the Cross-Claimants' version of events, the parties reached some preliminary agreement based on an approximate figure of monthly revenue ($13,000) that fairly reflected the Coyte [P]arties' then current share of revenue within the business, that is at June 2011. The Cross-Claimants allege that Coyte took numerous steps to transfer clients and client income out of the Centre Capital business to himself or his entities, many of which steps were misleading both to the clients themselves and to the fund managers which regulated the various monthly income payments, were in some respects dishonest and were in any event in breach of at least the understanding if not the agreement that the parties had come to or foreshadowed. Further, by these actions, a significant number of clients and a substantial corresponding revenue stream were transferred out of the business wrongfully."
I turn now to the evidence on which the Norman Parties relied in respect of this claim. Mr Norman's affidavit evidence (Norman 13.11.15 [6]) was that the meeting on 27 June 2011 on which the Norman Parties rely to establish the Further Agreement was attended by Messrs Norman, Coyte, Satusky and Atra and he sets out what was said in direct speech extending for over two pages of his affidavit. He records, inter alia, his having said that:
"It looks to me that the value of the existing client base is roughly $600,000 per annum in ongoing client fees. This would entitle [Mr Coyte] to approximately $150,000 in annual fees as his 25% share. [Mr Coyte] has given me a draft list of clients which equates to [Mr Coyte] receiving $12,800 per month in client fees including GST, which is his 25% share. I'm happy with that valuation because it's consistent with the annual fees we're receiving." …
"There are a number of clients that may wish to go with [Mr Coyte] or myself in due course. If that happens then any clients that wish to go with [Mr Coyte] beyond the client list once it has been agreed, then [Mr Coyte] will need to pay me 2.5 times the value of the client's annual fees and vice versa, if clients want to come with me." …
"Going forward Centre Capital will continue to pay for the expenses but 50% of the expenses going forward will be paid for by [Mr Coyte]. [Mr Coyte] will have to reimburse Centre Capital for that 50% of the expenses or pay that share directly when invoices come in."
Mr Norman also refers to discussion of the premium for professional indemnity insurance and for payment for insurance to continue as long as "run-off" cover was required. The reference to ""run-off" cover is not consistent with the usual usage of that term, in respect of the period after an entity ceases business, since CCS continued to conduct business under Mr Norman's control.
Mr Coyte's evidence (Coyte 10.12.14 [101]) was that he attended a meeting on 27 June 2011 with Mr Satusky and he exhibits a file note that he prepared of that meeting (Ex C5, CB 1368-1369). Mr Coyte accepted in cross-examination that there may also have been a meeting with Mr Norman on that day (T473-474).
Mr Satusky's evidence of the meeting on 27 June 2011 refers to discussion of a split of expenses 50/50 (Satusky 12.11.15 [4]); such an arrangement would, of course, be commercially unlikely if the large part of client revenues was to be retained by Mr Norman. Mr Satusky also refers to either Mr Norman or himself having suggested that:
"We need to see a client list to work out which of the clients [Mr Coyte] will take with him and which he is entitled to in accordance with the split." (Satusky 12.11.15 [5])
That observation may assume, but does not establish, the need for a further agreement as to the split of clients, although, as I have noted above, the 2007 HOA already provided that each adviser would retain his own clients on termination of the joint venture. Mr Satusky's evidence in cross-examination was that a meeting occurred at this time and expenses were discussed, consistent with Mr Norman's evidence, and that the question of paying 2.5 times revenue in order to acquire a client from the other adviser was possibly discussed but at another meeting (T364). Mr Satusky did not recall reference to a number of other aspects of that meeting on which the Norman Parties rely, including reference to a "client base share", that Mr Norman would end up with 75% of the business and Mr Coyte with 25% of the business, or any agreement as to the client list being based on the respective "equity share" under the joint venture agreement or in respect of insurance (T364-366).
Mr Afshar submits that Mr Norman's evidence in respect of this meeting (and the Further Agreement founded on it) should be rejected; that it is uncorroborated by the other attendees or by any documents; and that the Court should find the conversation to which Mr Norman deposes is either a fabrication or a reconstruction by a person who cannot recall what was said. Mr Priestley fairly acknowledged that Mr Norman's version of the meeting is effectively uncorroborated, and challenged by Mr Coyte, although he submits that Mr Coyte's versions of discussions about the separation of the business at around this time tend to confirm that certain of these matters were discussed.
Having observed Mr Norman's evidence over a lengthy cross-examination, I am satisfied that Mr Norman does not recall this meeting in the terms set out in his affidavit. The detail and precision of that recollection is inconsistent with Mr Norman's lack of recollection of other matters. Mr Norman's evidence of this meeting and the Further Agreement said to have been formed at it is further undermined by the fact that, although that agreement would have radically altered the basis of termination of the joint venture provided under the 2007 HOA, neither Mr Norman nor Mr Satusky (nor Mr Coyte, who generally made file notes) made any record of it, or sought to confirm what had allegedly been agreed by an email to Mr Coyte at the time, or advised the Centre Capital Group's solicitor, Mr Morabito, who was to draft a more detailed separation agreement, of the significant matters that were said to have been agreed.
Mr Norman was also cross-examined (T112-113) as to the conversation to which he deposed, with a view to demonstrating that that conversation, even if it had occurred, would not have given rise to an agreement, as follows:
Q. Over the page at 466, there is no offer expressed in those passages either, is there? The last portion of the conversation.
A. The last part of it does look like an offer.
Q. Well, which part are you referring to?
A. The very last.
Q. Can you tell me which words?
A. "Once the client list has been sorted out, we'll get Dominic [Morabito] to prepare the documents".
Q. Do you say that's the offer?
A. Well, that's part of the offer.
Q. Up to that point, there were no offers in this discussion, so if you don't mind just focusing on those words so you're saying the offer was, for Dominic Morabito to prepare an [sic] agreement documents since he prepared the trust deed originally; is that what you're saying the offer was?
A. And all the other issues that have been raised.
Q. But a moment ago you said that ‑ sorry, you're saying the other issues were offers, were they?
A. Each one of them were a specific thing that had to be sorted out. And then it was agreed that Dominic was the most suitable person to do it for us.
Q. Yes. That was what was agreed, wasn't it?
A. Yes.
Q. The words, "All agreed" and "Yes" are about Dominic preparing the documents?
A. Yes, but obviously with some fine tuning and other suggestions he might've had.
Had I otherwise accepted Mr Norman's account of that conversation, which I do not, that cross-examination would have displaced a conclusion that such a conversation was intended to have contractual effect, as distinct from being an exploration of the possible terms of any separation agreement that might ultimately be reached between the parties.
The Norman Parties also relied on the minutes of a board meeting of 27 June 2011 (Ex N3, CB 511) to establish the existence of the Further Agreement, although Mr Norman acknowledged that those minutes were, at least, incorrect in recording that meeting as having occurred at CCPL's offices rather than in Sydney. Those minutes identified the purpose of the meeting as to "discuss share of income and expenses from Centre Capital" and recorded that:
"It was agreed that Robert Coyte's 25% share of income equates to $13,000 a month in gross revenue including GST.
Resolved to split all expenses 50/50 going forward with exception of Edward Mazzoni Consulting.
Any client transfers to be paid for at 2.5 x annual revenue by the acquiring party.
There being no further business the meeting closed."
Mr Norman was vigorously cross-examined as to whether those minutes had been prepared contemporaneously or at a substantially later date. Mr Norman's evidence as to the origin of these minutes in cross-examination (T160-161) seemed to me to be evasive and did not provide a clear or convincing explanation as to how they came to be prepared, dated or deployed in his affidavit in support of the claim that the Further Agreement existed. I set out part of that cross-examination below:
Q. You say, don't you, that that document records what happened at the meeting on 27 June 2011; isn't that right?
A. Yes, well, thereabouts. It was around about that time.
Q. You see that it says on 27 June 2011, don't you?
A. Yes.
Q. Purports to be some minutes of the meeting on 27 June 2011, doesn't it?
A. Yes, it looks like that.
Q. The meeting it refers to was on 27 June 2011, isn't that right?
A. Not necessarily. But that's what it says.
Q. Are you telling this Court that you signed at the bottom of those minutes and purported that these were minutes of a meeting on 27 June 2011 if you can't be sure that that meeting happened on 27 June 2011?
A. Well, the 27 of June, that could have been when the accountants either prepared it ‑ I think that, if we scan back there, that, for example, 11 Macquarie Street, Belmont, I don't think that's quite right. That's actually where our mail goes, but that's not necessarily where the meeting was. So I'm not sure whether 27 June's right or the actual location that's written there is 100% right.
Q. You're not sure whether the date is right on that document. Is that what you're telling the Court?
A. The date?
Q. Yes.
A. Right at the moment, no. I haven't got a diary to confirm exactly whether that was a [sic] spot on. This is typically an accountant generated document by the look of it.
Mr Norman's cross-examination as to the minutes continues as follows (T162):
Q. You expect, don't you, that minutes of meetings when they have a date on them, that is the meeting date, isn't that right?
A. Not necessarily. It depends on when things are executed. So, for example, when our annual accounts are done, there's typically a bunch of minutes in there that have been developed over the course of the year, and they're typically signed off on when we get together with our accountants.
Q. When it says, "Held at" location on such a date, you say that on such a date might be a date when the accountants prepare it and you sign off on it. Is that what you're saying?
A. Quite possibly if there's a transaction happening.
Q. You date documents by reference to the date on which they are signed as opposed to the date of the event which they've described having happened?
A. Not necessarily. It gets back to when the accountants prepare documents like this. This looks like a template ‑ a typical template of theirs, so what date they put in and what, you know, held at, might not be 100% accurate because it's a template driven software system.
Mr Afshar rightly pointed out that, although Mr Norman said that "an accountant" had prepared the document, he did not identify that accountant. Mr Satusky and Mr Atra did not give evidence that either of them prepared the minutes, and Mr Atra did not attend this meeting and his evidence was that he did not see the minutes of it until early November 2015 (T347).
Mr Priestley fairly acknowledged that aspects of the minutes of this meeting were incorrect, including the stated venue for the meeting and the record of who attended it. Mr Priestley also fairly accepted that the minute was probably created long after the meeting, a matter which Mr Norman had not indicated in his affidavit evidence but conceded in cross-examination (T285), and could not be used as a reliable record of any conversation. Mr Norman was also cross-examined as to the "metadata" record of when that minute was created (Ex C7). Mr Priestley submits, and I accept, that the metadata is equivocal, since the date "last printed" on that record oddly predates the "content created" date.
I am satisfied that the minutes of the board meeting on 27 June 2011 does not accurately record the substance of a meeting of the directors of CCPL and that resolutions were not passed in the terms recorded in it. I do not find it necessary to determine whether those minutes were created at a later date, as the Coyte Parties contend, for the purpose of advancing the Norman Parties' Cross-Claim in these proceedings.
Mr Priestley submits that the Court should find that some agreement was reached between Messrs Norman and Coyte at around this time, although a number of matters were left unresolved; that that agreement included a term that Mr Coyte was entitled to take as part of the separation client revenue valued at $13,000 per month; that the agreement included a term that the parties would continue to be responsible for 50% of the expenses of the business each ongoing until final separation; that there was some non-binding agreement to agree relating to other matters relevant to separation, in that the parties accepted that the final separation between them would be governed by a formal written contract (consistent with the third category in Masters v Cameron above at 361); and that these other matters relevant to separation, not yet agreed, included which clients would be transferred, when this would occur, how this would occur, and what consideration if any would be paid for some clients. Mr Priestley also fairly accepted in oral submissions that there were aspects of the alleged Further Agreement that appeared uncommercial and unattractive for Mr Coyte and that was a matter that could properly be taken into account in determining whether that agreement existed, which in turn depends upon whether Mr Norman's account of the conversation said to give rise to it should be accepted.
Mr Priestley submits that, if the entry into the Further Agreement is accepted, then it would follow that the Cross-Defendants are liable for breach of contract damages for the period June 2011 to June 2012 in the same sum, that is, $113,316.50. Mr Priestley also submits that the Centre Capital Group's accountants have calculated that, on the terms of the Further Agreement, Mr Coyte and Blooms continued to accrue liabilities for expenses calculated by the accountants to be $46,759.95 (Atra 12.11.15 [11]; CB 820, 822). Those calculations each depend on their premise that such an agreement is established. Mr Priestley submits that the Further Agreement provided for continuing contribution to the professional indemnity insurance premiums of the Centre Capital business after Mr Coyte's departure and Mr Coyte's one-third share for the following financial year was $9,744.30, and relies on a concession of Mr Coyte in cross-examination that such an agreement would have been fair had it been considered at some point in the business relationship (T408).
Mr Afshar submits, and it is common ground that, the parties' post-contractual conduct may be used to ascertain if there was an oral agreement at all and, if so, the terms of that agreement (as distinct from determining what any of those terms mean): County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [21]-[25] (Spigelman CJ); Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [11]; JR Consulting & Drafting Pty Limited v Cummings [2016] FCAFC 20; (2016) 329 ALR 625 at [86]. Mr Afshar also submits that the Cross-Claimants' claims under the Further Agreement depend on the Court accepting that the parties reached agreement, first, that the clients were going to be split in accordance with the parties respective "client base shares", which was to be calculated by reference to their respective unit holding in the Mutual Fund and, second, that if a client above and beyond the "client base share" was to move from Mr Coyte to Mr Norman or vice versa, then the adviser to whom the client was transferred would pay the other an amount equivalent to 2.5 times the annual revenue of the client. Mr Afshar submits that both these contentions fail as there is nothing other than Mr Norman's affidavit evidence to support them. Mr Afshar submits that, if the alleged Further Agreement is not established, Mr Coyte is not liable to pay any monies in relation to the invoices and expenses claimed by the Coyte Parties (ASOCC [34]) since the revenue and expenses leading to those figures were calculated by the Centre Capital Parties in accordance with the terms of the Further Agreement (and on specific instructions from Mr Norman).
Without any disrespect to the detailed and helpful submissions as to this claim, it can and should be dealt with briefly. The pleaded Further Agreement depends upon Mr Norman's account of the conversation which is said to have given rise to the oral agreement to which I have referred above. I do not accept Mr Norman's evidence of that conversation, which I am comfortably satisfied did not reflect an actual recollection of that conversation, and had been shaped so as to advance the claim made in the First Cross-Claim. Where the Further Agreement is not established, then no breach of it can be established.
Although my findings as to Mr Norman's credit and my rejection of his evidence of the conversation which is said to give rise to the Further Agreement would be sufficient to support that finding, that result is reinforced by several remarkable features of that claim. In particular, the alleged Further Agreement would have had the effect that, notwithstanding that Mr Norman and Mr Coyte would operate separately and Mr Coyte would receive no more than the share of revenue which he had obtained when they worked together; then he would now pay an equal share of the expenses incurred in respect of the provision of financial services although he would receive only a quarter of the income generated from the provision of those services. The alleged Further Agreement would also have the effect that Mr Coyte would pay professional indemnity insurance premiums in respect of CCS for up to seven years, notwithstanding that he would also be paying professional indemnity premiums in respect of the business which it was intended that he would subsequently establish.
I recognise that, from time to time, parties may enter agreements that are disadvantageous to them, often where the parties are inattentive or not commercially astute or that disadvantage is not apparent at the time of entry into that agreement. That result is less likely where a party is, as Mr Coyte plainly was, attentive to the relevant issues and where the relevant disadvantages were manifest in the terms of the alleged Further Agreement. It seems to me to be highly unlikely, or inconceivable, that Mr Coyte would have entered into that remarkably disadvantageous Further Agreement on which the Cross-Claimants rely and that reinforces the views which I have formed as to Mr Norman's evidence in respect of this matter and generally.
The fourth claim made in the Cross-Claim relates to a claim described as a claim for "breach of the Fund". Paragraph 35.1 of the First Cross-Claim in turn pleads that:
"Pursuant to clause 31 of the Deed by reason of the matters pleaded in paragraph 35 (and the subparagraphs contained therein) Coyte is liable for a breach of the Fund for being dishonest and/or acting or omitting to act, knowing that he was in breach of trust."
It appears that this paragraph draws upon paragraph 31 of the trust deed for the Mutual Fund, to which I have referred above.
Mr Priestley submits that client fee income for the Centre Capital business was received in the first instance by CCS then transferred to the Mutual Fund and, as revenue of the Mutual Fund, the terms of the trust deed constituting the Mutual Fund governed the treatment of that income, including the payment of expenses and distributions (Ex N1, CB 41-42). Mr Priestley submits that, by diverting this income so that it would no longer be received by the Mutual Fund, Mr Coyte and/or Blooms acted in breach of the trust deed, either as a trustee, being a director or former director of the nominated trustee CCPL; or as an intermeddler in the trust. Mr Priestley submits that the proper remedy in the circumstances would be equitable compensation in the amount identified in the previous claim, consistently with the principles identified in Target Holdings Ltd v Redferns (a firm) [1995] 3 All ER 785; (1995) 17 ACSR 582; and Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484.
It is, of course, well-established that the terms of a trust may be narrowed to permit, or the parties may provide advance consent to, conduct that would otherwise amount to a breach of trust: Birtchnell v Equity Trustee Executors and Agency Co Ltd (1929) 42 CLR 384 per Dixon J at 408; New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 1 WLR 1126 at 1130; Spellson v George [1992] NSWCA 254; (1992) 26 NSWLR 666; Maguire v Makaronis (1997) 188 CLR 449 at 466. I also refer to several cases that establish the corresponding proposition in respect of the scope of a fiduciary duty below. The chronology of events that I have set above indicates that the Mutual Fund was established as one of the business entities through which Mr Norman, Mr Coyte and their associated entities conducted their financial planning business, at about the same time as the heads of agreement was entered into by Mr Norman and Mr Coyte in early 2005, which was later superseded by the 2007 HOA. It seems to me that the trust deed for the Mutual Fund, which (as Mr Afshar submits) appears to be in a common rather than a tailored form, was to have effect subject to the terms of the wider arrangements between the parties, including the 2007 HOA, which specifically provides for the treatment of Mr Coyte's clients on termination of the joint venture. Alternatively, the 2007 HOA provides the parties' authority and consent for the conduct that was permitted by that agreement. Conversely, it seems to me that it was not the parties' objective intention that conduct that was authorised by the negotiated terms of the 2007 HOA should constitute a breach of trust under the standardised terms of the trust deed of the Mutual Fund. The claim in paragraph 35.1 of the First Cross-Claim fails because the breach of trust that is its premise is not established.
Paragraph 36 of the First Cross-Claim in turn pleads that:
"Coyte (or alternatively Blooms) acted to wrongfully and in breach of the further agreement to cause the transfer of [CCPL] clients away from the business which [CCPL] estimates the value of its share of income from these clients to the value of $157,000 per annum [sic]. It is a generally accepted standard in the financial planning industry that a multiplier of 2.5 of annual client income should be applied to reflect fair consideration for the transfer of a client to another planning firm."
If this paragraph should be understood as asserting a freestanding claim for breach of duty, as distinct from repeating the claims for breach of duty pleaded elsewhere by the Norman Parties (which I address below), then that claim is also not established, because no material facts are pleaded, or established, to establish that any conduct of Mr Coyte or Blooms was "wrongful" other than by breach of the Further Agreement, and the breach of the Further Agreement is not established because that agreement is not established. It may be that this paragraph is intended to identify the loss claimed by CCPL, quantified by reference to its "estimate" of the value of its share of income or the alleged generally accepted standard of the multiplier of annual client income. If that is the case, the claim for loss must also fail because the evidentiary basis of that "estimate", or the fact that there is any generally accepted standard in the financial planning industry in respect of such a multiplier, is also not established.
Mr Priestley also submits that, on the basis of the existence of the Further Agreement as pleaded, Mr Coyte should not have caused the diversion of client income effected by means of transfer of clients away from CCS over and above the $13,000 per month that had been agreed between Messrs Norman and Coyte, under the Further Agreement, as Mr Coyte's entitlement. Mr Priestley submits that the Cross-Claimants "estimate" by reference to the financial records of the business that ultimately approximately twice this sum was transferred out in 2012 and refers to the CCS trial balance for 30 June 2013, under "221 Commissions" (Ex N1, CB 333), and for 2014 (Atra 12.11.15, Annexure K, CB 828). Mr Priestley also submits that the Cross-Claimants "estimate" the revenue diverted at that time over and above the $13,000 per month agreed was $157,000 per annum. No expert evidence was led to support that calculation. Mr Priestley submits that a more precise figure could only come from an accounting by Shartru. I do not accept that submission. The amount of any loss could have been established by seeking production of relevant documents and leading evidence of it in the usual way.
The Cross-Claimants contend that, if their arguments for this claim are accepted, damages should be valued by multiplying that annual revenue stream by 2.5 times, based on Mr Norman's evidence as to what was the "standard" in the industry, which was not accepted by Mr Coyte in cross-examination. I recognise that multiplier was agreed in the 2007 HOA in a particular context, for transfer of clients in different circumstances. I do not accept Mr Norman's evidence that it has wider application, still less as industry "standard". CCPL's claim for loss and damage, "estimated" at 2.5 times annual client income of $157,000, is therefore not established.
Paragraph 38 of the First Cross-Claim repeats paragraphs 24-37 of the Cross-Claim as though they applied to the Further Agreement, on the basis that that agreement was established between CCPL and Blooms, rather than between CCPL and Mr Coyte. That pleading is superfluous, since paragraph 25 of the First Cross-Claim had already pleaded a claim, in the alternative, that CCPL had entered the relevant agreement with Blooms. In any event, that claim would fail for the same reasons that the claims pleaded in paragraphs 24-37 of the First Cross-Claim fail.
Mr Priestley submits that Mr Coyte was a director of CCPL until 30 June 2011 and was a director of CCS until about 22 June 2012. Mr Priestley submits that, in each of these roles, he owed the well-recognised duties of a director and officer of the respective corporate entities under ss 180, 181 and 182 of the Corporations Act. Mr Priestley submits that Mr Coyte used his position in CCPL and CCS to make the payments that the Cross-Claimants contend were wrongful and, in so doing so, he was in breach of the duties to act in good faith for a proper purpose and not to use his position to gain an advantage for himself. Mr Priestley indicated that a claimed declaration for breach of ss 180, 181 and 182 of the Corporations Act under s 1317E of the Corporations Act is not pressed and the Cross-Claimants seek compensation for these breaches pursuant to s 1317H of the Corporations Act in the same amounts as pleaded in the "Wrongful Payments" claim.
I will first deal generally with the scope of the relevant director's duties here although they arise in respect of several aspects of CCPL's and CCS's claims, and it will be necessary to address their application in the particular context of the alleged diversion of clients below. Mr Priestley refers to the articulation of a director's duty of care under s 180 in Australian Securities and Investments Commission (ASIC) v Rich (2009) 236 FLR 1; (2009) 75 ACSR 1, and submits that the pleaded conduct constituted a breach of Mr Coyte's statutory director's and officer's duties and that it was in breach of the statutory duties that correspond to the common law duties against misappropriation by a corporate officer. Mr Priestley also rightly points out that the diversion of corporate opportunities, either as a breach of general law or statutory duties, has been considered in numerous cases, including Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110 and Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd [2011] FCA 1154; (2011) 86 ACSR 393.
Mr Afshar submits that the content of the director's duty to exercise reasonable care and diligence as codified in s 180 of the Corporations Act will be delineated by reference to the particular circumstances of the corporation in question and the responsibilities of the particular director or officer. Mr Afshar there referred to Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 at [100], where Brereton J observed that:
"In determining whether a director has exercised reasonable care and diligence, as s 180(1) expressly contemplates, the circumstances of the particular corporation concerned are relevant to the content of the duty. These circumstances include the type of company, the provisions of its constitution, the size and nature of the company's business, the composition of the board, the director's position and responsibilities within the company, the particular function the director is performing, the experience or skills of the particular director, the terms on which he or she has undertaken to act as a director, the manner in which responsibility for the business of the company is distributed between its directors and its employees, and the circumstances of the specific case …". [citations omitted]
Mr Afshar relies on that decision as authority that relevant circumstances of the corporation will include, among other things, the provisions of its constitution, the director's position and responsibilities within the company, the particular function the director is performing, the terms on which he or she has undertaken to act as a director, the manner in which responsibility for the business of the company is distributed between its directors and its employees and the circumstances of the specific case. Mr Afshar also submits that the content of the statutory duty arising under s 180 of the Corporations Act will be informed by any contractual arrangements underpinning the relationship between the relevant director and the party to whom the duty is owed. In oral submissions, Mr Priestley accepted that proposition, but submitted that client fee income was paid to CCS and passed through it to the Mutual Fund, and the profit share was distributed in accordance with unitholdings (implicitly, subject to the dispute as to the effect of termination of the joint venture which I have determined above) (T654).
Mr Priestley submits that a director's duties under s 181 of the Corporations Act equate to general law fiduciary duties and that directors must exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose, and refers to the elements of that duty as noted in Chew v R (1991) 4 WAR 21 at 49; 5 ACSR 473 at 499 and Australian Securities and Investments Commission v Maxwell above at [106], where Brereton J observed that:
"As to s 181(1), which requires a director or other officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation, and for a proper purpose, in Chew v R [above], Malcolm CJ (at WAR 47; ACSR 499) summarised the requirements of the duty to act in good faith as including that directors: (1) must exercise their powers in the interests of the company, and must not misuse or abuse their power; (2) must avoid conflict between their personal interests and those of the company; (3) must not take advantage of their position to make secret profits; and (4) must not misappropriate the company's assets for themselves. The words 'in the best interests of the corporation' emphasise the significance of the relevant constituencies - in particular, the shareholders as a whole, and the creditors in the case of impending insolvency. This duty is imposed not to secure compliance with the various requirements of the Corporations Act, but, as it was at general law, to prevent abuses of directors' powers for their own or collateral purposes."
I summarised the relevant principles in respect of s 181 of the Corporations Act and the broadly corresponding general law duty in Re Colorado Products Pty Ltd (in prov liq) above at [419]-[421] as follows (omitting several citations of authority):
"Section 181(1) of the Corporations Act requires a director or other officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation, and for a proper purpose. In Chew v R (1991) 4 WAR 21; 5 ACSR 473 at 499, Malcolm CJ summarised the requirements of that duty as being that directors (1) must exercise their powers in the interests of the company, and must not misuse or abuse their power; (2) must avoid conflict between their personal interests and those of the company; (3) must not take advantage of their position to make secret profits; and (4) must not misappropriate the company's assets for themselves.
The case law is divided as to whether a contravention of s 181(1)(a) of the Corporations Act requires that it be established that a director engaged deliberately in conduct which he or she knew was not in the company's best interests: for example, Forge v Australian Securities and Investments Commission [2004] NSWCA 448; (2004) 213 ALR 574 at [245] per McColl JA (with whom Handley and Santow JJA agreed); Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd above at [150], varied on appeal on another point in V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd above. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1, the Court of Appeal of the Supreme Court of Western Australia unanimously held that the corresponding general law duty to act in good faith in the company's best interests was subjective and would be complied with if directors honestly believed they acted in the company's best interests (at [923] per Lee AJA, at [1988] per Drummond AJA, [2027], at [2772], [2795] per Carr AJA). The alternative view is that a contravention of that limb of s 181 can be established if the law objectively considers that what the director did was improper, even if the director subjectively believed that he or she was acting in the company's best interests: see, for example, Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 at 270-271; 6 ACLC 529 per King CJ; Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd [2011] VSCA 392; (2011) 86 ACSR 277 at [32]-[33]. The difference in those approaches does not seem to me to be material for the purposes of this case. The section may be contravened if a director promotes his or her personal interest in a situation where there is a conflict or real or substantial possibility of a conflict between those interests and the company's interests: Australian Securities and Investments Commission v Adler above at [735]; Parker above at [72].
A contravention of s 181(1)(b) may also be established if a director does not exercise his or her powers for the purpose for which they were conferred or exercised them for an improper purpose, and the bulk of authority indicates that question is to be determined objectively: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; 14 ACSR 109 at 137 per Ipp J (with whom Malcolm CJ and Seaman J agreed); Australian Securities and Investments Commission v Adler above at [738]-[739]; Parker above at [73]. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) above, the majority held that whether a director acts for an improper purpose, for the purposes of the corresponding general law duty, is determined objectively involving an assessment by the Court of what was reasonable in the circumstances (at [933] per Lee AJA, at [1988], [2027], [2073] per Drummond AJA). By contrast, Carr AJA held that the test whether directors had acted for an improper purpose was primarily subjective, although a decision would be voidable if directors acted in good faith for a purpose that was beyond their powers or for a collateral purpose (at [2923])."
CCPL and CCS also rely on s 182 of the Corporations Act. I summarised the relevant principles in respect of that section in Re Colorado Products Pty Ltd (in prov liq) above at [432]-[433] as follows (omitting several authorities):
"Section 182(1) of the Corporations Act prohibits a director, secretary, officer or employee of a corporation from improperly using his or her position to gain an advantage for himself or herself or someone else or cause detriment to the corporation. An objective standard is to be applied in determining what amounts to an 'improper' use of position, and impropriety is established by 'a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case' …
It is not necessary that the relevant director gain an advantage for himself or herself or cause a detriment to the company in order to establish a contravention of the section: Chew v R [1992] HCA 18; (1992) 173 CLR 626 at 633 per Mason CJ, Brennan, Gaudron and McHugh JJ. An objective test was also applied to determine whether this section was contravened in Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd above and, in Hydrocool Pty Ltd v Hepburn (No 4) [2011] FCA 495; (2011) 279 ALR 646, Siopsis J followed R v Byrnes, above, in holding that impropriety for the purposes of this section was objective and did not require subjective knowledge of impropriety and followed Chew v R, above, in holding that a contravention could be established although the desired object was not achieved. …."
Mr Afshar accepts, of course, that the general law duties owed by a director to the company of which he or she is a director include fiduciary duties to avoid a conflict of interest, to act in good faith and in the interests of the company, and to exercise his or her powers for proper purposes. Mr Afshar also submits that, where a contractual relationship exists between a director and those to whom his or her duties as a director are owed, then the duties owed by that director will reflect the terms of that contract. Mr Afshar also recognises the well-established proposition that the statutory duties imposed on directors by ss 181-182 of the Corporations Act co-exist with their equivalent equitable duties.
The applicable legal principles are well-established but operate subject to a proper definition of the scope of the relevant duties and the scope of the relevant corporate opportunity. It is necessary to address these principles more fully than Counsel did in submissions. As I noted in Re Colorado Products Pty Ltd (in prov liq) above at [361]ff, a necessary step in determining whether a breach of the rule against conflict of interest is established is to ascertain the subject matter of the relevant fiduciary obligations, which may be determined from the course of dealing between the parties: Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 at 409 per Dixon J; Chan v Zacharia above at 196 and 204 per Deane J; Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 278 ALR 291 at [70]. In Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd [2011] FCAFC 166; (2011) 285 ALR 63 at [206], Jacobson J (with whom Rares and Besanko JJ agreed) characterised the proposition that the scope of a fiduciary duty must be "moulded according to the nature of the particular relationship and the facts of the case" as "fundamental".
In Streeter v Western Areas Exploration Pty Ltd (No 2) above, McLure P (with whom Buss JA agreed) in turn observed (at [66]) that a fiduciary is under an obligation, without informed consent, not to promote his or her personal interest by making or pursuing a gain or benefit in circumstances in which there is a conflict or a real or substantial possibility of a conflict between the fiduciary's personal interest and those whom he or she is bound to protect. Her Honour also observed (at [76]) that:
"When examining the case law, a distinction needs to be drawn between those cases in which the fiduciary was under a positive duty to acquire or seek to acquire a particular benefit or property for the company (Cook v Deeks [1916] 1 AC 554; Chan v Zacharia; Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; [1972] 2 All ER 162; Keech v Sandford (1726) 25 ER 223) and cases where there is no such positive duty. This case falls into the latter category. Whether there is a sufficient connection in those circumstances can give rise to difficult questions of fact. Indeed, where a complex course of dealing is in issue, as in this case, minds reasonably may differ as to the outcome of the application of the principles: Maguire v Makaronis (468). The principles in this area of the law are easier to state than to apply."
In Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296, the Full Court of the Federal Court (Finn, Stone and Perram JJ) observed that (at 345-6):
"The concept of 'duty' in the 'conflict of duty and interest' formula of the first of these [themes] is convenient shorthand. It refers simply to the function, the responsibility, the fiduciary has assumed or undertaken to perform for, or on behalf of, his or her beneficiary. What that function or responsibility is, is a question of fact. It may be narrow and circumscribed, as is often the case with specific agencies; it may be broad and general, as is characteristically the case with the functions of company directors; its scope may have been antecedently defined or determined; it may have been ordained by past practice; it may be left to the fiduciary's discretion to determine; and it may evolve over time as is commonly the case with partnerships. Put shortly the actual function or responsibility assumed determines '[t]he subject matter over which the fiduciary obligations extend' for conflict of duty and interest and conflict of duty and duty purposes".
In Howard v Commissioner of Taxation [2014] HCA 21; (2014) 309 ALR 1, French CJ and Keane J in turn referred (at [34]) to the principle that:
"The scope of the fiduciary duty generally in relation to conflicts of interest must accommodate itself to the particulars of the underlying relationship which give rise to the duty so that it is consistent with and conforms to the scope and limits of that relationship."
Their Honours also noted (at [34]), with reference to authority, that such a duty is to be "moulded according to the nature of the relationship and the facts of the case". Gageler J (at [110]) there referred with approval to the observation in Grimaldi v Chameleon Mining NL (No 2) to which I have referred above.
In Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507 at [32], Gleeson CJ and Heydon J in turn noted that, although shareholders cannot release directors from the statutory duties imposed by, relevantly, s 229(4) of the Companies (SA) Code (which was a predecessor to s 182 of the Corporations Act, on which the Cross-Claimants rely), their acquiescence in a course of conduct might affect the practical content of those duties and be relevant to a question of impropriety.
It seems to me that the duties owed by Mr Coyte, while he was director of CCPL and CCS and to the extent that any such duties had a continuing operation after he ceased to be a director, were narrowed and the opportunity to provide services to the relevant clients was not an opportunity of CCS or any other Centre Capital entity so far as the clients were, by the terms of the 2007 HOA, to be treated as Mr Coyte's and Mr Norman's clients respectively on termination of the joint venture. This claim cannot succeed, because CCPL and CCS cannot, by reliance on the statutory duties attaching to a director, sidestep the fundamental terms of the arrangement under which they had access to Mr Coyte's and Mr Norman's clients, as documented by the 2007 HOA, including the arrangements that dealt with the allocation of those clients on a termination of the joint venture between Mr Norman and Mr Coyte. So far as the payments made to Blooms and the interests associated with Mr Coyte reflected amounts payable by reference to servicing "his" clients, at least in the sense of clients for which he had been or was responsible, the effect of termination of the 2007 HOA was that each of Mr Coyte and Mr Norman was entitled to retain his respective clients on a termination of the joint venture. Where that matter was agreed between the persons holding the entire economic interest in the relevant entities, any duty owed by Mr Coyte was restricted, so that it did not extend beyond the requirements of that agreement; conversely, Mr Coyte cannot have breached that duty by doing what the 2007 HOA permitted him to do, namely to receive the benefits derived from providing services to his clients, albeit that those services were provided through CCS as the holder of the relevant Australian financial services licence.
Mr Priestley made a faint attempt, in closing submissions, to suggest that this claim would support an order for an account of profits. An account of profits was not claimed in the pleadings and the case was not conducted on that basis. If that claim had otherwise succeeded, it seems to me that it would have been contrary to a just, quick and cheap resolution of the matters in dispute in these proceedings, after a 12 day hearing that may already have been disproportionate to the amounts claimed, to further extend the dispute between the parties to permit a claim for an account of profits that had not previously been sought.
Mr Priestley also submits that, given the then dispute about the mechanism of separation, fee income and expenses, Mr Coyte could not have believed that Mr Norman had authorised, was authorising, or would authorise the sending of the relevant letter to the fund managers. I accept that proposition, and do not accept Mr Coyte's evidence to the extent it was to the contrary, with the significant qualification that Mr Norman's failure to cooperate in implementing the transfer of clients contemplated by the 2007 HOA (which I accept would likely have occurred) would likely have amounted to a breach of that agreement.
Mr Coyte also sent emails to clients, which as far as the evidence goes were his clients rather than Mr Norman's clients, seeking their authority to transfer their business (Ex N4, CB 865, 868). Mr Priestley criticises the form of those letters (Coyte 10.12.14 [129]; T563) and the failure specifically to point out that clients had a choice as to that matter. It seems to me that that submission has a degree of unreality about it, since it seems unlikely that a significant number of clients would have wished to be advised of, or exercised, an option not to keep their business with their existing adviser but instead to begin to deal with Mr Norman, with whom they had no previous advisory relationship. Mr Priestley also contends that aspects of the email to clients were misleading, including the subject heading "We are changing our name" and I have addressed that submission in paragraph 60 above.
Mr Priestley submits that the relevant clients were clients of CCS and the income earned from them could not be diverted to Mr Coyte or Shartru without proper authority. However, that submission directs attention to the question what would constitute "proper" authority for a transfer of the relevant clients or income earned from them to Mr Coyte or Shartru. It seems to me that the 2007 HOA conferred any necessary authority on Mr Coyte in that regard, so far as it provided that Mr Coyte's and Mr Norman's clients would remain their own on a termination of the joint venture, and neither Mr Coyte nor Mr Norman thereafter required further authority from CCS or each other to deal with their own clients or the revenue or profit derived from them. It should also be recognised, in this respect, that the Norman Parties' claim that CCS retained the interest in all clients, including those which the 2007 HOA provided would remain with Mr Coyte on termination of the joint venture, would have the extraordinary consequence that, where Mr Norman would be the party with the only economic interest in the Mutual Fund after termination of the joint venture, clients who had, under the 2007 HOA, been recognised as Mr Coyte's clients would be serviced by Mr Coyte for the economic benefit of Mr Norman.
Mr Priestley submits that this process was done deliberately in secret so far as Mr Norman was concerned and I accept that, at the least, no effort was made to disclose it to Mr Norman. However, that matter does not assist the Cross-Claimants where, as I have held, the conduct was otherwise authorised and Mr Norman's further consent to it was not required. Mr Priestley also submits that the conduct was not authorised by CCS or any other entity in the Centre Capital Group, and refers to Mr Coyte's further attempt to seek agreement to a client split as late as 10 October 2012 (Ex N3, CB 611). I also do not accept that submission because, as I have noted above, the necessary authority to transfer the clients was derived from the terms of the 2007 HOA applicable on termination of the joint venture, and that authority extended to those persons who were objectively the clients of the particular advisers and did not depend upon a future agreement as to that question, although it would no doubt have been practically desirable to reach such agreement.
The Norman Parties fairly conceded, in submissions, that diversion of income from the Centre Capital Group or corporate opportunities for the Group may have been permissible, and not in breach of statutory duty, had Mr Coyte made the companies fully aware of his intended actions and obtained authority from the companies. The Norman Parties also accepted that Mr Coyte would have a defence to the claim for breach of duty in diverting client income to the extent, but only to the extent, that it had been sanctioned, and contend that was limited to an income amount of $13,000 per month, although they then seek to retreat from that concession by suggesting that defence would be "questionable" absent the formal written separation agreement that had been discussed between the parties but not executed. That submission properly recognises that, as I have held above, the statutory duties apply within the scope of the relevant arrangement, which can be narrowed between the parties. Mr Priestley also submits that Mr Coyte has no defence to the claim for breach of duty in diverting income or corporate opportunities from entities within the Group over and above the amount of $13,000 per month. Mr Priestley recognises that Mr Coyte's evidence in cross-examination was that he considered he had authority to transfer "his clients" (T567), and I have held above that Mr Coyte was correct in that view. Mr Priestley also submits that, by Mr Coyte's evidence, he sought authority to transfer clients by reference to a particular list or lists (T566). As I have noted above, that was a practically sensible course but did not confine the authority that arose from the 2007 HOA.
Mr Priestley also submits that, although Mr Coyte maintained in cross-examination that he believed that Mr Norman had agreed to a transfer of clients by adviser allocation, not by reference to unit holding proportions, Mr Mazzoni had advised Mr Coyte to the contrary (presumably on Mr Norman's instructions) on 1 May 2012, shortly before the transfer process began (Ex C6, CB 1764). Mr Mazzoni had no independent knowledge of that matter and his communication of Mr Norman's position does not establish that it was correct. I have held above that the authority arising from the 2007 HOA did not depend on agreement between Mr Coyte and Mr Norman as to the identity of particular clients, where that was a matter of fact that was capable of objective determination.
I have reviewed the relevant legal principles in dealing with the claim for breach of, inter alia, s 182 of the Corporations Act in respect of Mr Coyte's dealings with income derived from clients in the period prior to July 2012. This claim fails for the same reasons that that claim failed, primarily that the relevant duty was narrowed by the terms of the 2007 HOA. I should also note, for completeness, that Mr Priestley accepts that the conduct alleged against Mr Coyte in the period from July 2012 occurred after Mr Coyte had ceased to be a director of either CCPL or CCS. The Cross-Claimants seek to extend the duties owed by Mr Coyte beyond that point by contending that the preliminary steps toward the process of transfer of the relevant clients were taken while Mr Coyte was still a director, at least of CCS, although the factual basis of that proposition is not identified. The Cross-Claimants also seek to rely on an unpleaded case that Mr Coyte had access to client information as a responsible manager with CCS. The Cross-Claimants submit that a director's duties as to conflicting opportunities may, in some circumstances, persist beyond his or her ceasing to be a director or officer of the relevant company. It is not necessary to address these matters, since I have held that the scope of Mr Coyte's duties were narrowed such that they were not breached in any event.
The Cross-Claimants submit that the appropriate remedy in respect of this claim would be equitable compensation, quantified either by reference to the $157,000 per annum figure and again applying a multiplier of 2.5 or, in the alternative, by reference to the monthly commission fee found at the foot of the commission column in the table in Tab A to Mr Mazzoni's affidavit. I have held above that the evidentiary basis for the $157,000 "estimate" and the 2.5 times multiplier have each not been established. I will address Mr Mazzoni's alternative calculation below. This claim has not been established.
Mr Coyte also pointed, in cross-examination, to a second difficulty with this alternative case, that it appears that Mr Mazzoni had not matched the names of clients' superannuation funds to the names of clients (T568) and that clients might also have been "new business" engaged after the discussions of June 2011 (T569). Mr Mazzoni's evidence in cross-examination was that he had checked whether a client's superannuation fund was contained in the list attached to his affidavit (T315), but he appears to have proceeded on the basis that authority to transfer the superannuation fund associated with a client did not also constitute authority to transfer the client's account. In my view, that approach is unduly technical, at least in the context of an informal discussion as to the identity of clients to be transferred, partly directed to individual clients and their closely held self-managed superannuation funds. It is scarcely conceivable that Messrs Norman and Coyte, still less the relevant client, would have contemplated a result that a client and his or her closely held self-managed superannuation fund would be managed by different advisers in different firms. A third difficulty with this alternative case is that it depends on the "Agreed Client Lists" annexed to Mr Coyte's affidavit, where all parties now accept that some of those lists postdate the discussions of June 2011, and which do not provide a reliable basis for that case.
Later in 2008, CCN, CCS and Mr Scorer signed an Adviser Employment Contract (Ex N1, CB 101) (although, as I noted above, it was dated January 2008) and Mr Scorer was appointed as authorised representative of CCS and was responsible for performing broking services for CCN (Norman 22.10.14 [54]; Norman 13.11.15 [35]; Coyte 30.3.16 [24]; Scorer 29.3.16 [19]). The Schedule to that agreement entitled Mr Scorer to the "first $52,000" per year "inclusive of superannuation (after expenses)". Clause 2 of the Schedule to Mr Scorer's Adviser Employment Contract in turn deals with specified expenses at paragraphs (a) to (d) which would be paid by the companies in the ordinary course of business. The text below the section dealing with costs states that:
"Common costs incurred with other entities of the Centre Capital group will be apportioned along the same percentages as revenue. These adjustments will be made at the end of the financial year before 30 June based on reasonable basis". (Ex N1, CB 113)
Mr Norman's evidence in cross-examination was that he attributed one third of the costs associated with CCS's Australian financial services licence to CCN (T234). An issue arose, which it is not necessary or possible to determine on the evidence, whether such an allocation was properly founded.
Mr Scorer's evidence was that the reference to "expenses" in brackets, in the paragraph that dealt with his salary, was a reference to out of pocket expenses such as "cost of cab fares, hotels…". (T597). That question must, of course, be determined objectively and not as a matter of Mr Scorer's (or Messrs Norman's or Coyte's) subjective understanding of the clause. In oral submissions, Mr Afshar also submits that the reference to "expenses" in the paragraph of the Adviser Employment Contract dealing with Mr Scorer's salary is to out of pocket expenses, rather than to all business expenses of CCN (T677-678). I accept that submission, since it seems to me that the subsequent provision in that agreement for calculation of profit contemplates that general business expenses will be taken into account at that point, rather than prior to the payment of Mr Scorer's salary; and a deduction of general business expenses prior to the initial payment would also be inconsistent with the concept of a salary in general usage, on which superannuation was to be paid, as distinct from a share in the net profit of a business as calculated after its ordinary business expenses. It is not necessary to determine the further question as to the extent of monies available to CCN, after deducting its general business expenses, on that construction of the Adviser Employment Contract.
On 24 June 2011, Mr Scorer sent an email to Mr Coyte which referred to a meeting on 23 June 2011 and listed the matters that Mr Scorer understood to have been agreed "on the 'Go forward' of Centre Capital Newcastle as at 1st July, 2011". That email (Ex C5, CB 1388) records that:
"After expenses, Brendan gets $2,000 per week plus GST (ie. the first $104,000 pa plus GST of income) to be taken by way of submitting a monthly Tax invoice with his ABN (subject to having sufficient funds in the bank account) …".
This email was sent by email and also by facsimile to Mr Norman on 29 June 2011 (Ex C6, CB 1654) (in a communication which I have addressed above) and there is no evidence of his then expressing disagreement with Mr Scorer's summary of the position. As I noted above, Mr Priestley submits, so far as Mr Coyte relies on Mr Norman's failure to respond to or contradict emails, that Mr Norman hardly ever used emails and did not wish to receive email communications (T647) and points to Mr Norman's affidavit evidence of a face-to-face discussion with Mr Scorer of the matters. However, this communication was sent by facsimile in addition to email, and Mr Priestley accepted that this communication appears to postdate the earlier meeting with Mr Scorer (T648).
CCN then received a payment of $55,000 (or possibly $50,000) from OEG (Ex C6, CB 1812; T338, 359, 441) and Mr Coyte caused that payment of $30,000 to be made to Mr Scorer on 8 September 2011, out of the funds received from OEG (Coyte 30.3.16 [35]). Mr Scorer issued an invoice purportedly dated 10 September 2011 to CCPL in the amount of $30,000 (Scorer 29.3.16 [44], CB 1586). Mr Priestley submits that the invoice issued by Mr Scorer was addressed to the wrong entity in the Centre Capital Group and postdated the payment to Mr Scorer by two days and submits that that invoice was not a proper basis for Mr Coyte to have made the payment. Mr Coyte advised the accountants, Messrs Atra and Satusky, of the payment to Mr Scorer, and other payments including staff superannuation, a bonus and leave payment to another adviser on his resignation, and a payment to the Australian Taxation Office by email dated 13 October 2011 (CB 1662).
The Second Payment is pleaded in paragraphs 25-36 of the Statement of Claim in the Scorer proceedings, and was a payment in the amount of $82,500 made from an account in the name of CCS to Mr Scorer on or about 21 December 2011. CCN and CCS plead that those monies were properly receivable by the trust and were held by CCS on trust for CCN and that CCN as trustee did not make a distribution payment to any other unitholder, did not authorise the Second Payment and the Second Payment was made wrongfully. Again, claims in unjust enrichment are pleaded against Mr Scorer, but not pursued where he is now in bankruptcy.
On 12 December 2011, Mr Scorer sent Mr Coyte a copy of a tax invoice which was to be issued to IQ Novate Ltd in the amount of $82,980 plus GST. His covering email (Ex N1, CB 221) anticipated that the invoice should be approved for payment shortly and stated that:
"As soon as it hits the account we need to get our expenses and payment ASAP before other eyes want to dispute previous agreements."
The reference to "other eyes" is plainly to Mr Norman, and Mr Coyte and Mr Scorer were each cross-examined on the basis that they were seeking to conceal the second payment to Mr Scorer from Mr Norman, at least until after it was made. It must be recognised, however, that that email proceeds on the basis that there were previous agreements as to the relevant matter, and anticipates a risk that Mr Norman would seek to resile from those agreements (Ex N1, 221). Mr Priestley fairly accepted, in oral submissions, that that email would not alter the position if the payment made to Mr Scorer was otherwise properly made, and also made clear that it was not submitted that the conduct of Mr Coyte or Mr Scorer was fraudulent, but rather that they, or at least the writer of the email, was concerned that Mr Norman would take issue with the payment if he was consulted at the time (T651).
By a further email dated 19 December 2011, Mr Scorer sent Mr Coyte an undated tax invoice claiming an amount of $75,000 referable to "consultancy as per agreement" and GST (Ex N1, CB 225) and, on 21 December 2011, the amount of $82,500 was transferred to Mr Scorer's personal account (Norman 22.10.14 [77]). Mr Norman denies that he was aware of, or involved in, any discussion of this payment. His evidence was that, at the time of the payments, the Newcastle Trust was in deficit as a result of accumulated expenses in previous years (Norman 22.10.14 [72]-[74], [77]) and there is reference to that position in an email from the accountants to Mr Scorer dated 27 November 2012 (Atra 12.11.15, CB 841) and in a trial balance for CCN that postdates that email (CB 845).
Mr Afshar submits that the Schedule to the Adviser Employment Contract with Mr Scorer, to which I have referred above, provides that he was entitled to the first "52K" after his out of pocket expenses and that, thereafter, any "profit" (calculated by reference to the costs set out at 2(a) to (d)) would be distributed to Messrs Scorer, Coyte and Norman. I have accepted that submission as to the terms of the Adviser Employment Agreement above. Mr Afshar also submits that similar effect should be given to the terms set out in Mr Scorer's email dated 24 June 2011 and that Mr Scorer was always entitled to payments once funds were received. Mr Afshar asks, rhetorically, if Mr Coyte acted in accordance with those arrangements, to which Mr Norman was a party, how could he be liable or in breach of his director's duties?
The allegations made by CCN and CCS involve allegations of impropriety on the part of Mr Coyte constituting a contravention of civil penalty provisions. In determining those allegations, I must apply the standard of proof as set out in s 140 of the Evidence Act 1995 (NSW), which is consistent with that recognised in the general law in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449. Section 140 of the Evidence Act provides that, in a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities and that, without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account the nature of the cause of action, the nature of the subject-matter of the proceeding and the gravity of the matters alleged.
On balance, it seems to me that the manner in which the payments were made amounted to a breach of Mr Coyte's duty of care and diligence under s 180 of the Corporations Act, at least in the sense that relatively large payments were made without bringing the matter before the board of CCN or CCS for a decision or at least reaching an informal consensus among the directors as to the payments; in the case of the First Payment, contrary to Mr Norman's expressed position that accrued business expenses of CCN should be reimbursed prior to such a payment; and, in the case of the Second Payment, in a manner that would prevent Mr Norman from seeking to object to it, even if his doing would have involved his resiling from a previously agreed position.
I am not satisfied that CCN and CCS have established to the requisite standard that the payments were not made in good faith in the best interests of CCN and CCS or for a proper purpose, so as to establish the contravention of s 181 of the Corporations Act alleged against Mr Coyte. I am also not satisfied that CCN and CCS have established to the requisite standard that there was an element of impropriety in the payments, so as to establish the contravention of s 182 of the Corporations Act alleged against Mr Coyte. It does not seem to me those matters are established to the requisite standard, since Mr Scorer had substantial entitlements under the Adviser Employment Contract which were, on balance, increased by the arrangement reached in June 2011; it is plain that CCN and CCS had not satisfied those entitlements, a matter to which I will return below; and Mr Scorer had brought in significant benefits to CCN and CCS in respect of the OEG and IQ Novate transactions for which he had at least an expectation of being remunerated. It does not seem to me that a payment made to an employee or consultant in those circumstances can be said, on the balance of probabilities and in the relevant circumstances, to be not made in good faith in the best interests of CCN and CCS, or not made for a proper purpose, or made improperly.
Although I have held that a contravention of s 180 of the Corporations Act is established, CCN and CCS have not established that they suffered any loss by reason of that contravention or the payments to Mr Scorer. I have accepted the Coyte Parties' submissions that, on the proper construction of the Adviser Employment Contract, Mr Scorer was entitled to receive payment of salary, after deduction only of out of pocket expenses and not of CCN's business expenses generally. On balance, the amount of Mr Scorer's entitlements was increased by the arrangements made in June 2011. CCN and CCS had not made salary payments to Mr Scorer in accordance with the Adviser Employment Contract, possibly because Mr Norman took a different view of Mr Scorer's entitlements, although there is evidence that some (unquantifed) payments had previously been made by Mr Coyte to him. CCN and CCS made no attempt to quantify the amount that they, or either of them, owed to Mr Scorer, on the proper construction of the Adviser Employment Agreement and the June 2011 arrangements, but quantified their claim against Mr Coyte as the total of the amounts paid to Mr Scorer. It does not seem to me that CCN's and CCS's loss in making the payments to Mr Scorer can be quantified in that manner, and without regard to the amounts to which Mr Scorer was entitled to be paid. The evidence does not permit any alternative quantification, or any finding that it would be just in the circumstances to order that Mr Coyte pay any proportion of an amount that is not properly quantified to CCN or CCS. I do not consider that it would be consistent with the just, quick and cheap resolution of the real issues in dispute in the proceedings, as required by s 56 of the Civil Procedure Act 2005 (NSW), to afford CCN and CCS an opportunity to lead further evidence as to that matter, given the length of the hearing in this matter and the costs that will already have been incurred by the parties in that respect.
CCN's and CCS's claim that Mr Coyte should be ordered to reimburse CCN the amount of the payments or, in the alternative, such proportion of the payments as the Court thinks just in the circumstances pursuant to s 1317H of the Corporations Act therefore fails.
CNN and CCS claim compensation in the amount of $13,500 against United Nominees on the basis that it knowingly received monies improperly obtained or that United Nominees should account for these receipts. I will make the former order, subject to any brief further submission that CCN and CCS seek to make as to the quantum of the compensation claimed, which appears to be less than the amount that may be supported by the evidence referred to above. There should be no order for an accounting where such a claim was not pleaded and this hearing was set down to deal with all issues of liability and quantification.
The parties should bring in agreed short minutes of order to give effect to this judgment within 14 days or, if there is no agreement between them, their respective draft short minutes of order and short submissions as to the differences between them. I will hear the parties as to costs.
In Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at 129, Gleeson CJ, Gummow and Kirby JJ observed that:
"Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical."
In Pennimpede v Gerard Pennimpede [2009] NSWSC 85 at [29], Bryson AJ referred to these observations and noted that:
"Considerations of these kinds pose serious difficulties of proof for a party relying upon spoken words as a foundation of a cause of action in the absence of some reliable contemporaneous record or other satisfactory corroboration. In this case there is no contemporaneous document which supports the claim that the true arrangement was only a loan on mortgage, not a purchase, and there is no satisfactory corroboration. McLelland CJ in Eq's observations apply with only slight changes to the present case. A great deal of what I was told related to conversations which were alleged to have occurred well over 10 years before I heard the evidence. Most of what I was told about the conversations seemed to me to be little more than impressions, accompanied by plausible details which were very unlikely to be based and were not based on actual memory. These impressions came to me through a filter (perhaps an osmotic barrier) of years of conflict, argument and strong feeling."
I in turn summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 at [10], where I noted, with reference to authority, that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness's motives and the overall probabilities.
The Norman Parties rely on Mr Norman's affidavit dated 13 November 2015 in the Coyte Proceedings and on Mr Norman's affidavits dated 22 October 2014 and 13 November 2015 filed in the Scorer proceedings. In closing submissions, Mr Afshar, who appears for the Coyte Parties, emphasised the application of the principles to which I have referred above to Mr Norman's evidence and also attacked Mr Norman's evidence as:
"… peppered with self-serving reconstructions of alleged conversations from long ago recounted in unbelievably intricate detail, the contents of which are inconsistent with contemporary documents. Norman's account should be, unless consistent with contemporaneous documents, wholly rejected and be given no weight."
Mr Afshar submits that Mr Norman was evasive, argumentative and displayed an unwillingness to engage with questions being asked of him and to answer them directly, fairly and openly. Mr Afshar also submits that Mr Norman sought to re-interpret clear words in documents to which he was referred and did not accept clear propositions arising from them. On the other hand, Mr Priestley, who appears for the Norman Parties, submitted that Mr Norman was a forthright, honest and reliable witness who "[g]enerally speaking" was prepared to answer questions directly without prevarication and make appropriate concessions, despite lengthy cross-examination about matters that happened many years ago. I regret to say that I formed the contrary view.
I will refer here to several of the matters which lead me to place little weight on Mr Norman's evidence and will deal further with a number of those matters in the narrative of events below. Mr Norman's affidavit evidence is replete with lengthy conversations set out in direct speech, in which he sets out lengthy statements he claims to have made as to the nature of arrangements which Mr Coyte is said to have accepted, and those conversations are universally favourable to the Norman Parties' cause. These include, for example, a two page conversation which Mr Norman cannot date more precisely than it occurred sometime prior to setting up the Centre Capital Mutual Unit Trust ("Mutual Fund") (Norman 13.11.15 [9d]). Mr Norman also sets out a further lengthy conversation, which he is also unable to date other than that it occurred in early 2012, during which he claims to have precisely explained the earlier arrangement in the terms for which he now contends, although he does not record Mr Coyte's response to his observations (Norman 13.11.15 [67]).
As Mr Afshar points out, Mr Norman claimed in cross-examination that he remembered specific phrases in conversations many years ago (T58) although he often said that he could not recall more recent events or the dates of more recent meetings or who attended those meetings. For example, Mr Norman indicated he wished to have reference to a diary to assist him in recalling whether a critical meeting took place on 27 June 2011, at which he claims the "Further Agreement" on which CCPL and CCS rely in their Cross-Claim came into existence (T144). Mr Afshar also rightly points out that, in cross-examination, Mr Norman repeatedly referred to additional conversations that were not recorded in his affidavit evidence or contemporaneous documents and which invariably would also, if they had occurred, have advanced the Norman Parties' case. I have formed the view that, to the substantial extent that Mr Norman's evidence is inconsistent with the contemporaneous documentary evidence or evidence given by other witnesses to which I refer below, it should not be accepted.
The Norman Parties also rely on Mr Mazzoni's affidavits dated 13 November 2015 and 26 May 2016 filed in the Coyte Proceedings which contain a range of complaints as to Mr Coyte's conduct, not all of which appear to be relevant to any relief sought in the proceedings. The Norman Parties also rely on Mr Mazzoni's affidavit dated 13 November 2015 filed in the Scorer proceedings where Mr Mazzoni refers, inter alia, to acknowledgements by Mr Scorer, at a meeting on 15 March 2013, that expenses had to be taken into account before Mr Scorer was paid (Mazzoni 13.11.15 [6]) and, at a meeting on 25 June 2013, that Mr Scorer owed Mr Norman an amount of $82,500 that had been paid by CCN (Mazzoni 13.11.15 [9]). Mr Mazzoni's evidence is also that Mr Norman also claimed, at that meeting, that Mr Scorer's adviser agreement had been varied to remove the provision for him to be paid $1,000 per week, and that Mr Norman had never approved payment of the amount of $82,500 to him. The Norman Parties also relied on a further affidavit of Mr Mazzoni dated 26 May 2016 which supported an alternative calculation of damages claimed by the Norman Parties to which I will refer below.
Mr Afshar submits, and I accept, that Mr Mazzoni generally had no direct knowledge of any of the arrangements between Mr Norman and Mr Coyte or Mr Scorer. Mr Afshar also submits that Mr Mazzoni's evidence should be approached with caution. Conversely, Mr Priestley submitted that Mr Mazzoni was an impressive witness and that the Court would have no hesitation in accepting him as honest and reliable. It does not seem to me necessary to form any general view as to Mr Mazzoni's credit.
The Norman Parties rely on an affidavit of Mr Satusky dated 12 November 2015 filed in the Coyte Proceedings, an affidavit of Mr Atra dated 12 November 2015 filed in the Coyte Proceedings and an affidavit of Mr Atra dated 12 November 2015 filed in the Scorer proceedings. Mr Atra gives evidence, inter alia, of a meeting in early June 2012 attended by Messrs Norman, Coyte, Satusky, Mazzoni and Atra at which reference was made to a loan by the company to Mr Coyte to cover personal expenses (Atra 12.11.15 [8]). The existence of that loan is disputed although that issue does not appear to be raised by the relief sought in the proceedings. Mr Atra subsequently prepared reconciliations of income and expenses in respect of the relevant companies, on the basis of a methodology set by Mr Norman, to which I will refer below. Mr Priestley submitted that Messrs Satusky and Atra were forthright witnesses and that it was not put to either witness that they had any reason to be other than fully frank and honest in their evidence and there is no basis for such a finding. Mr Afshar accepted in oral submissions that Mr Atra's evidence should be accepted, subject to his acknowledgement as to limitations to his memory of events (T664). I generally accept that Messrs Satusky and Atra did their best to give accurate evidence, with the qualifications that they had limited direct knowledge of the arrangements in issue, much of their understanding of those arrangements was derived from what they were told by Mr Norman, and their recollections were inevitably affected by the passage of time and the disputes that have now developed between the parties, in which they are aligned with the Norman Parties.
The Coyte Parties relied on Mr Coyte's affidavits dated 10 December 2014 and 30 March 2016 filed in the Coyte Proceedings. Mr Afshar submits that the Court should accept Mr Coyte as a witness of truth and should prefer his evidence over Mr Norman's wherever their evidence is in conflict. Mr Priestley submitted that Mr Coyte was a defensive witness, who made concessions about a number of matters that he did not perceive to be important, but his insistence that he believed that Mr Norman had "authorised" the transfer of the relevant clients and client revenues in July and August 2012 did him no credit. Mr Coyte's evidence generally seemed to me to be more consistent with the documentary evidence and the objective probabilities than Mr Norman's evidence, and Mr Coyte generally did not seek to advance his case by self-serving evidence of lengthy conversations in the manner adopted by Mr Norman. Nonetheless, it seems to me that Mr Coyte's evidence, particularly when under vigorous cross-examination, was also affected by the fact that he has real personal interests at stake in the proceedings. Little ultimately turns on Mr Coyte's credit, given the extent to which the Norman Parties' case turns on Mr Norman's oral evidence of conversations, the fundamental difficulties with Mr Norman's credit, and the extent of contemporaneous correspondence which is largely consistent with the arrangements for which Mr Coyte contends.
The Coyte Parties also relied on Ms Bloomfield's affidavit affirmed 17 November 2014. Mr Afshar submits that Ms Bloomfield's evidence, especially relating to instructions from Messrs Coyte and Norman to separate the clients, should be accepted. Mr Priestley submitted that Ms Bloomfield was a sufficiently disinterested witness, although her memory of matters beyond the words of her affidavit was not good, and her insistence that she considered she had proper authority to use Mr Norman's signature on documents effecting transfer of clients was unimpressive. I am conscious that Ms Bloomfield has both business and family connections with Mr Coyte. I generally accept that she did her best to give accurate evidence, with the qualifications that she also had limited direct knowledge of the arrangements in issue, and her recollection was also inevitably affected by the passage of time and the disputes that have now developed between the parties. I generally accept her evidence as to the identification of Mr Norman's and Mr Coyte's clients, and I do not consider that Mr Priestley's criticism of her use of electronic signatures was well-founded, where that practice had plainly previously been authorised at least by Mr Norman for his convenience.
The Coyte Parties also relied on the affidavit of Mr Scorer sworn 29 March 2016 in the Scorer Proceedings. Mr Afshar submits that Mr Scorer's evidence should be accepted and preferred over Mr Norman's and Mr Mazzoni's evidence. Mr Priestley submitted that Mr Scorer was a particularly defensive witness, and submits that his justification in cross-examination for diverting broking client income from CCS to United Nominees did nothing to deflect the proposition that the conduct was wrongful. There are difficulties with Mr Scorer's evidence, arising in part from his willingness to divert monies due to the Centre Capital Entities to United Nominees, and I approach his evidence with caution.
The Coyte Parties also relied on the affidavit of Mr Meakin sworn 30 March 2016 filed in the Coyte Proceedings. Mr Meakin was not cross-examined and no issue arises in respect of his credit.