Supreme Court of WA|2013-05-17|Before: Mr P, Beech J

EC DAWSON INVESTMENTS PTY LTD -v- CRYSTAL FINANCE PTY LTD [No 3] [2013] WASC 183 (17 May 2013)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : EC DAWSON INVESTMENTS PTY LTD -v- CRYSTAL FINANCE PTY LTD [No 3] [2013] WASC 183

BETWEEN : EC DAWSON INVESTMENTS PTY LTD (ACN 121 204 448)

Equity - Fiduciary duties - Duties of company director - Scope of duties - Significance of facts and circumstances to content of duty

Corporations - Liquidator - Whether liquidator can assign company's claim for breach of fiduciary duty

Second Defendant : Mr D E J Ryan SC & Mr G M Abbott

1 In 2004, Financial Relationship Consultants Pty Ltd (FRC) conducted a successful and profitable finance broking business. It was a two man company. Its two directors and equal shareholders were Mr Emile Dawson and Mr Robert Coombs.

2 In the first half of 2005, relations between them broke down.

3 For several months from mid2005 to October 2005, Mr Coombs and Mr Dawson discussed various proposals for the ending of FRC's finance broking business, and for that business to be split between two new separate companies to be associated with each of the director shareholders.

4 In October 2005, Mr Dawson announced that he no longer wished to leave FRC or end its business.

5 By then, a condition had been imposed on FRC's business certificate requiring it to cease its finance broking business by 31 December 2005.

6 Also by then, Mr Coombs had acquired a new company, Crystal Finance Pty Ltd (Crystal), the first defendant in this action. For the rest of 2005, he continued preparations to leave FRC at the end of 2005, and for Crystal to commence a new finance broking business at the beginning of January 2006. On 3 January 2006, Crystal commenced its finance broking business.

7 In December 2005, Mr Coombs filed an application for the appointment of a provisional liquidator to FRC. On 16 January 2006, the court ordered that a provisional liquidator be appointed to FRC. In May 2006, a liquidator was appointed.

8 In December 2006, the liquidator sold assets of FRC to the plaintiff, EC Dawson Investments Pty Ltd, a company associated with Mr Dawson. Among the assets sold were FRC's causes of action against Crystal and Mr Coombs.

9 In this action, the plaintiff sues as FRC's assignee, claiming FRC had causes of action against Mr Coombs and Crystal. There are issues about what causes of action were assigned and were capable of being assigned.

10 In broad summary, the plaintiff claims that Mr Coombs breached his fiduciary and contractual duties to FRC in that he:

(a) arranged for conditions to be imposed on FRC's business certificate to ensure that the business certificate terminated on 31 December 2005;

(b) established and commenced the business of Crystal in competition with FRC, and obtained a licence for Crystal to act as a finance broker on the basis that Mr Coombs would be the licensed finance broker in control of Crystal;

(d) diverted FRC's telephone and facsimile numbers to Crystal;

(e) occupied FRC's Victorian office in place of FRC, and used its property there;

(f) removed FRC's property, including client files and the client database, from its WA office to the premises of Crystal and used that property for the benefit of the defendants;

(g) arranged loans for people on or associated with those on the FRC database, or those referred to FRC from a loan aggregator known as The Investors Club; and

(h) used FRC's staff, goodwill and the other matters referred to in (d) to (f) above, to secure Crystal's accreditation with and referrals from The Investors Club and other aggregators.

11 In late January 2006, the provisional liquidator made an agreement with the defendants to do work on behalf of FRC and to remit commission earned to the provisional liquidator. The plaintiff also claims that the defendants have acted in breach of their duties under this agreement, including by failing to account in respect of relevant commissions received by Crystal.

12 The parties agreed that there should be a trial of preliminary issues in respect of the defendants' liability in relation to some selected finance broking transactions entered into by Crystal in 2006.

(6) Did Mr Coombs breach his fiduciary or other duties? [440] [637];

14 The parties adduced a substantial volume of documentary evidence: more than 500 exhibits were tendered. Nevertheless, some significant elements of the plaintiff's case were founded on the evidence of Mr Dawson, who was the only witness for the plaintiff. Mr Dawson's evidence painted a picture of surreptitious and disloyal conduct by Mr Coombs in the course of the second half of 2005. As will be seen, my findings of fact differ markedly from the version of events advanced in Mr Dawson's evidence.

15 Mr Coombs gave evidence. The defendants also called some other employees of Crystal who were, up to the end of 2005, employees of FRC: Mr Brad Blaxill, Mr Brett Sheppeard and Ms Denise Maginn. Unless I say otherwise, when I set out evidence from Mr Coombs, I accept that evidence. Generally, and with very few exceptions, where the evidence of Mr Dawson conflicts with the evidence of one of the defendants' witnesses, I prefer the evidence of the defendants' witness.

16 By way of general observation, to my mind Mr Dawson:

(a) very often in the course of crossexamination gave evidence that was not responsive to the question asked;

(b) seemed to me to often seek to advance his case rather than answer the question asked;

(c) was prepared, in his witness statement and oral evidence, to make insupportable categorical statements about past events in order to support his case;

(d) at times gave evidence that was inherently lacking in credibility;

(e) gave evidence that, in a number of respects, was internally inconsistent;

(f) was unwilling to concede points which should plainly have been accepted by him; and

(g) in a number of instances, did, said and wrote things in the course of 2005 and 2006 which were, at best, misleading, and which reflect adversely on his credit.

17 A number of examples of these will emerge in the course of my findings of fact. Further, I will give some more examples of the third and last of these points at the end of section 2 of my reasons.

2.2 Background: the establishment and commencement of FRC

18 Prior to 1999, Mr Dawson and Mr Coombs knew each other. They met in a business context. Mr Coombs was the relationship manager, for the Commonwealth Bank, managing Mr Dawson's business loan requirements.

19 In late 1998, Mr Coombs went on long service leave from the Commonwealth Bank. While on long service leave, he and Mr Dawson had discussions about starting a finance broking business together. They agreed to do so, through a company which changed its name to FRC.

20 The parties agreed that they would be equals in the business, being equal shareholders and codirectors (exhibit 1A [24] [27]; ts 990).

21 The business commenced in an office at 76 Canning Highway, Victoria Park in February 2009.

22 Mr Coombs understood that he needed a finance broking licence.

23 Mr Coombs prepared a business plan for FRC in mid1999 (exhibit A2). Under that plan, one of Mr Coombs' responsibilities was to secure the necessary finance broking licences. Mr Coombs and Mr Dawson agreed that that would be part of Mr Coombs' responsibilities (ts 992 993).

24 Mr Dawson started working in the FRC office in about the middle of 1999. Mr Coombs did the finance broking work. Mr Dawson did not do finance broking work. He dealt with inquiries from potential clients and attempted to find new clients to generate further work.

25 Later, in 2003, Mr Dawson was designated the business development manager for FRC.

26 Mr Coombs obtained a finance broking licence in 2000 (exhibit A3; exhibit 1A [64]).

2.3 Background: finance broking business and aggregators

27 A finance broker earns commissions from brokering loans between prospective borrowers and lenders. The broker arranges and then manages the loan.

28 Brokers receive an upfront commission, and a trail commission. The commission is paid by the tender.

29 An aggregator pools loan applications to generate a large volume of loans. In that way, the aggregator is able to obtain a higher commission rate from a bank than could be achieved by a single broker.

30 Each finance broker has an agreement with the aggregator, known as an accreditation agreement.

31 The bank or other lender pays commissions to the aggregator, not to the individual finance broker.

32 From about 2001, FRC entered into an accreditation agreement with an aggregator called Professional Lenders Association Network of Australia Pty Ltd (PLAN). PLAN assigned a unique identifying number to each PLAN member. FRC would nominate individual finance brokers and finance managers, each of whom would be separately accredited. Each of those individuals was assigned his or her own individual PLAN ID number. PLAN only provides such numbers to licensed finance brokers or individuals employed by licensed finance brokers.

34 Following that, he was also accredited with many of PLAN's panel lenders, including a number of major banks.

35 When a person is accredited with a particular lender, they are given a unique identifying number from that lender, known as a broker code. The broker code must be included on each loan application lodged with that lender.

36 The broker code enables the lender to identify to whom the commission is payable. The lender could identify, from the broker code, that FRC was the finance broker and that FRC aggregated with PLAN so that the commission was to be paid to PLAN.

37 The PLAN ID number also needed to be used in the course of the loan application process. That number is entered on the PLAN website when details of the loan application were lodged on the PLAN database. The PLAN ID allows PLAN to apportion the commission to the relevant broker.

38 PLAN would retain 10% of the upfront commission and pay the balance to FRC.

39 PLAN would periodically (monthly or weekly) prepare a recipient created tax invoice (RCTI). The RCTI would set out a summary of commissions for the period for each individual accredited finance manager, broken down by upfront, trail and clawback commissions. It is necessary that RCTIs be checked. It was agreed between Mr Dawson and Mr Coombs that Mr Coombs would check the RCTIs.

40 Clawbacks would occur if the client refinanced the loan through another lender, or in various other circumstances.

41 'Orphan' commissions had been retained by PLAN where it could not identify the PLAN member who should be paid the commission. It was necessary to check FRC's internal records to see whether an anticipated commission had not been received. If it had not been received, then it would be chased up through the 'orphans'.

42 The Investors Club refers individuals who wish to invest in the residential market to, among other things, finance brokers. The finance broker, such as FRC, would pay a percentage of the commissions it earned from those references to The Investors Club.

43 The Investors Club was a very large part of FRC's business.

44 The Investors Club operated through Club Loans Pty Ltd. Club Loans would accredit finance brokers throughout Australia. It had branches in all Australian states.

45 A potential investor was not shown The Investors Club's list of possible investment properties until they became a member of the club. In order to become a member of the club, there needed to be an assessment of the borrowing capacity of the potential investor. That assessment was done by one of the club's accredited finance brokers.

46 Other units at 76 Canning Highway, Victoria Park, where FRC had its offices, were occupied by businesses that were branches of The Investors Club in WA.

47 After doing some individual matters, FRC was approved by the CEO of The Investors Club as an accredited broker for The Investors Club.

48 Over time, the brokers in FRC developed strong relationships with the branch managers and support staff of the branches of The Investors Club.

49 As a first step, a person who attended a seminar or workshop would complete a document called a Finance Enquiry Form (FEF). The FEF was given to The Investors Club support member who would forward it to a finance broker to calculate the borrowing capacity of that individual.

50 Mr Coombs would assess the FEF when received. After that, a business development manager from FRC would discuss the results with the client.

51 Once a client saw an investment property that they were interested in, they would complete an Expression of Interest Form (EOI) for the purchase of that property. Generally, that would be sent to the broker who had considered the FEF. The business development manager of FRC would contact the member to discuss a loan strategy. Then the transaction would be referred to one of the finance managers to begin the loan application process.

52 FRC data was entered on the receipt of an FEF and on receipt of an EOI.

53 On receipt of an FEF, the receptionist or administrative clerk would enter the name and details into the client database.

54 The Finance Capacity Form (FCF) subsequently replaced the FEF.

55 If an EOI was received, the details would be entered on the application register and allocated to a business development manager.

56 Finance managers would also update The Investors Club website as a particular job progressed.

57 Commission was payable once the loan settled. It was paid to the aggregator. When FRC received commission it would calculate the commission payable to The Investors Club. Mr Coombs would complete this task each month and provide an RCTI to The Investors Club.

58 The Investors Club obtained 50% of upfront commissions and, initially, 20% of the trail commissions. By the agreement of 1 July 2005, after 12 months The Investors Club would also obtain 50% of the trail commissions (see exhibit A32).

59 In September 2001, Mr Coombs received a letter from the Finance Brokers Supervisory Board (the Board) advising that the Board was of the view that FRC should make arrangements to obtain a finance broking licence and business certificate (exhibit A6). In October 2001, Mr Coombs wrote to the Board informing it that FRC intended to apply for a business certificate (exhibit A7). In June 2002, FRC applied for a finance broking licence (exhibit A9). The application stated that Mr Coombs would be the person in bona fide control of FRC.

60 The Finance Brokers Control Act 1975 (WA) (FBC Act) regulated the conduct of the business of finance broking. Under s 29 of the FBC Act, as it then stood, in order for a company to obtain a business certificate, one director had to be a licensed finance broker and the person who was bona fide in control of the body of the company's business as a finance broker had to be a licensed finance broker.

61 In the course of 2001, Mr Coombs became aware of these requirements. In particular, he became aware that one of the directors of FRC, relevantly himself, had to hold a finance broking licence in order for FRC to hold a business certificate (ts 994 996).

62 In about August 2002, FRC was granted a finance broking licence and a business certificate (exhibit A12, A13). It was a condition of the licence that Mr Coombs remain one of two directors of FRC, be the person in bona fide control of the business, and notify the Board immediately of any changes to FRC and any of those details.

63 From 2001 to 2005, the business of FRC grew very substantially. Much of that was through work generated through The Investors Club. The Investors Club provided FRC with the vast majority of its work (ts 1006). As a result of the work generated through The Investors Club, by 2002, FRC had become a highly profitable business (ts 999).

64 During this period, the business grew. By 2005, FRC employed more than 10 people. Mr Coombs remained the person in bona fide control of the business. He agreed that he was responsible for the general management of the office, saying that he was 'responsible for just about everything' (ts 1000).

65 By mid2001, Mr Coombs created an applications register, setting out the name of the client, the date the application was received, the purchase price, the date of submission to the bank, the date of approval and other matters. This was done on a whiteboard and on an Excel spreadsheet. The application register was developed in more detail subsequently.

66 In 2001, Mr Coombs' son, Mark, did some work helping update the application register. Mr Dawson complained about this. It was then agreed that family members would not be employed (apart from existing arrangements with wives).

67 Mr Dawson was not initially accredited with banks to lodge loans but gradually gained accreditation with various lenders.

68 FRC's major lenders were the Commonwealth Bank, Westpac, ANZ, Macquarie and RAMS.

69 FRC also dealt with Interstar. Interstar had customers who could not source funds from traditional lenders. Interstar was not a broker aggregator and did not use a broker aggregator. Thus, a broker dealing with Interstar needed a direct lending agreement with them.

70 Mr Dawson suggested in 2003 that FRC should open an office in Melbourne. Brett Sheppeard was trained in Perth during 2003. He started work in Melbourne in the middle of 2003. He worked from home. Most of his work was on referral from The Investors Club. As the work grew, FRC opened an office in Melbourne, away from Mr Sheppeard's home, in October 2005.

71 In late 2003, Mr Dawson told Mr Coombs that Mr Dawson's son, Galvin, would start working in the business. Mr Coombs objected, pointing out that there had been earlier problems with Mr Coombs' son and that it had been agreed that family members would not work in the business.

72 Nevertheless, Galvin starting working at the business. That led to issues between Mr Coombs and Mr Dawson

73 Mr Coombs' wife, Robyn, did bookkeeping for FRC from about 2000. She did that from home. Mr Dawson wanted access to the books so they were brought into the office. Thus, Robyn came into FRC to work on the books two or three times a week.

74 Mr Coombs and Mr Dawson discussed their shared desire for some more time away from the office. In that context, Mr Coombs suggested to Mr Dawson that there should be an administration manager.

75 Mr Coombs appointed Robyn to do the books and accounts and to help him in the administration role. Mr Dawson agreed to this.

76 Mr Coombs gave Robyn the title Manager Accounts/Human Resources. That was not discussed with Mr Dawson.

77 By email of 30 March 2005, Robyn requested the mileage on Mr Coombs' and Mr Dawson's cars to be provided by the end of the month. In Mr Dawson's email response of 31 March 2005 (exhibit A28), he instructed her not to give instructions to employees or to refer to herself as Manager Accounts/Human Resources. The email also made a complaint in respect of bonus payments being made to staff.

78 Mr Dawson and Mr Coombs had a heated argument about this. Mr Coombs said that he needed help with the administration. Mr Dawson said he did not want Robyn working in the office but she could work from home. Mr Coombs said they should get Robyn to join the discussion. Mr Dawson repeated that he did not want Robyn in the office.

79 After Robyn left the office, Mr Coombs asked Mr Dawson whether he was sacking Robyn, to which he said 'yes'. Mr Coombs said 'That's it. I can't work with you any longer' (exhibit 1A [268]). Mr Dawson said he wanted to stay with FRC. Mr Coombs said he wanted Mr Dawson to buy him out.

80 A few days later, Mr Dawson said that he had got a quote from accountants to do the bookkeeping work and that it would cost $12,000 and that he proposed they could do the job. Mr Coombs said that he was not interested in that option because it would add to his workload and said that he was serious when he said 'You should buy me out'.

81 In his witness statement, Mr Dawson says that the heated exchange about Robyn occurred prior to the emails of 30 March 2005. According to Mr Dawson, Mr Coombs said that 'If Robyn couldn't be the accounts manager then he didn't want to work with me any more', to which Mr Dawson responded: 'If you want to move on, that's up to you. I don't want to end the business. I want to stay with FRC': (exhibit C1 [51] [52]). Nothing turns on the difference between these two versions.

82 This issue about Mrs Coombs marked the beginning of the end of the relationship between Mr Dawson and Mr Coombs.

83 A little later Mr Dawson said he would buy Mr Coombs' interest in FRC to which Mr Coombs said that a valuation should be done. Mr Dawson arranged for a valuer (exhibit 1A [274] [275]).

84 By memorandum dated 9 June 2005 (exhibit A32A), Mr Dymock, of the Department of Consumer and Employment Protection (DOCEP), set out a complaint that had been made against Mr Dawson.

85 By letter of 14 June 2005 (exhibit A30), Mr Dawson offered to purchase Mr Coombs' 50% interest in FRC for about $566,000. The letter stated that he sought to have the sale completed by 30 June 2005. The letter did not include a copy of the valuation. The letter stated that his lawyer was currently drafting a restrictive covenant.

86 Mr Coombs asked for a copy of the valuation and said to Mr Dawson that if he was going to buy Mr Coombs out he would need his own finance brokers licence. Mr Dawson said that that was under control. Mr Dawson gave a copy of the valuation.

87 Shortly after this Mr Coombs spoke to Mr Dawson and said that he did not want to sell his interest with a restrictive covenant because finance broking was all he knew. He also said that he did not like the price, to which Mr Dawson said that he would not negotiate on price.

88 Mr Coombs said that he would buy Mr Dawson's interest in FRC for the same amount, but without the restrictive covenant. Mr Dawson rejected this offer.

89 By letter of 30 June 2005 (exhibit A31A), Mr Coombs put an offer to this effect. The letter also included an alternative offer to the effect that:

(a) FRC remain in place to collect its trail commissions; and

(b) both the parties have the client list and, in effect, compete for their work.

90 On or about 28 June 2005, Mr Dawson applied for a finance brokers licence (exhibit A30A).

91 The application was advertised on 27 June 2005 in the newspaper.

92 The enclosed police certificate identified a conviction for stealing on 19 September 1996 for which a penalty of $200 was imposed. The application included a letter from Mr Dawson which sought to explain the conviction. The letter stated that while buying 10 items he inadvertently forgot to pay for two of them. The security officer at the end of the till challenged him. He explained it was a genuine oversight. Although the officer agreed, she said it was company policy to report the matter. The letter then states (without explanation) that he pleaded guilty in court.

93 The application also contained a number of references.

94 I do not think that the timing of this application, in the course of discussions and correspondence about the two directors parting company, is a coincidence. The expectation that they would be separating was the catalyst for the application.

95 In late June 2005, Kevin Young of Club Loans met with Mr Coombs and Mr Dawson, wanting to renegotiate commission rates on FRC's agency agreement with Club Loans. A new agency agreement was signed on or about 1 July 2005 (exhibit A32).

96 Mr Coombs was asked by various staff, some clients, some Investors Club support members, and some PLAN employees, about whether Mr Dawson was buying Mr Coombs out of FRC. He asked how they knew about that and they said that Mr Dawson had told them that was the case.

97 There were further discussions between Mr Coombs and Mr Dawson. Mr Coombs reiterated that he did not want to be in business with Mr Dawson any longer. Mr Dawson responded with words to the effect that he accepted they could no longer be in business and that they wanted to work in their own businesses, and that they would split from each other but the details of how that was to be done needed to be worked out (exhibit 1A [293] [294]).

98 Mr Coombs suggested to Mr Dawson that one way of approaching it would be to split FRC's assets between the two of them and that they each go about building their own businesses. Mr Dawson said that he was receptive to that idea and wanted to see a written proposal (exhibit 1A [295]).

100 On 18 July 2005, Mr Coombs wrote to Mr Dawson (exhibit A33). The letter commences by stating that Mr Dawson had asked for an outline of how Mr Coombs sees the way they can both be free to go their own separate ways, and build their separate businesses as they think best, and keep the benefits of FRC. Notwithstanding Mr Dawson's denials (ts 561 562), I find that Mr Dawson had asked Mr Coombs to put a proposal in writing. I accept Mr Coombs' evidence on this. The letter states that the goals just referred to are achievable, and he deals with the issues of the FRC database of clients, the assets of the business and the premises, the Melbourne office, and the staff issues and admin support.

101 The letter proposed that FRC keep going with a skeleton staff to split the net income between Mr Coombs and Mr Dawson equally, and the Melbourne office continue with Mr Sheppeard remaining with FRC. It also proposed that staff would be free to choose where to work.

102 After Mr Coombs gave Mr Dawson his letter of 18 July 2005, they had a long discussion that evening. Mr Dawson was receptive to the idea of splitting the assets, asking a few questions and discussing likely splits of staff (exhibit 1A [302] [305]).

103 Mr Coombs sent an email to his solicitor setting out the upshot of the discussion (exhibit A33A). That email said that their talk had gone 'surprisingly well' and that Mr Dawson was 'obviously receptive to the whole idea'.

104 Mr Dawson could not recall whether he talked to Mr Coombs that evening or, if he did, what was said (ts 561; exhibit C1 [56]). I accept Mr Coombs' evidence on this.

105 A short time later, the two discussed the timetable, suggesting that three months was a realistic time to complete the split. Mr Dawson agreed to work towards 1 December 2005 (exhibit 1A [308]). Mr Coombs suggested, and Mr Dawson agreed, that they should together tell the staff about their agreement (exhibit 1A [309]; ts 1026). Mr Dawson's evidence was to the same effect (exhibit C2 [38.13]; ts 566 568).

106 On 3 August 2005, Mr Coombs submitted an application on behalf of FRC for the renewal of FRC's business certificate, which was due to expire on 22 August 2005 (exhibit 1A [310] [311]).

107 By late July or early August 2005, Mr Coombs was proceeding on the basis that Mr Coombs and Mr Dawson had agreed that FRC would be split, and that that would accordingly occur (ts 1024 1025).

108 From August 2005, Mr Coombs began to take steps so that he could be in business for himself after the split (exhibit 1A [312]).

109 In August 2005, he was appointed sole director of Crystal (exhibit A301).

110 Exhibit A34A is notes of a meeting of the licensing panel of the Board on 22 July 2005. (The notes were approved by the Board on 16 August 2005.) The notes state that the licensing panel noted that there was a current investigation concerning a company of which Mr Dawson was a director and that the complaint specifically concerned Mr Dawson's actions. The licensing panel recommended that Mr Dawson's licence application be deferred given the ongoing investigation of the complaint concerning Mr Dawson and FRC.

111 A handwritten note on the exhibit states that, on 17 August 2005, an officer telephoned Mr Dawson and informed him that the application was pending the outcome of the complaint and that his business partner, Mr Coombs, was meeting with a senior compliance officer on 23 August 2005.

112 Mr Dawson accepted part of this, but not that he had been told that Mr Coombs was meeting with a compliance officer (saying that he could not recall that) (ts 569). I find that Mr Dawson was told this. I accept the accuracy of the handwritten note.

113 Also on 17 August 2005, Mr Coombs was contacted by Mr Lane of DOCEP. Mr Lane said there had been a complaint about Mr Dawson arising from an East Perth development. He also said that Mr Dawson had an application pending for a finance brokers licence. That day, 17 August 2005, Mr Lane sent Mr Coombs an email (exhibit A39) confirming a meeting about these two issues.

114 Mr Coombs spoke to Mr Dawson. Mr Dawson said that it was an old complaint and it was nothing to worry about (exhibit 1A [326] [329]).

115 The meeting occurred on 23 August 2005. Before Mr Coombs went to the meeting he did not expect it to relate to FRC's licence (ts 1030). Given the contents of the email and what he had been told, that was understandable.

116 In the course of the discussions, Mr Coombs told the officers of DOCEP that Mr Dawson and he had agreed to go their separate ways after 1 December 2005 and that he would be applying for a business certificate in the name of Crystal (exhibit 1A [338]; ts 1032).

117 When he returned to the office, Mr Coombs told Mr Dawson that he had the impression that the DOCEP officers had doubts about whether he was a fit and proper person, and that he told the DOCEP officers that Mr Dawson and Mr Coombs were splitting on 1 December 2005. Mr Dawson did not really respond (exhibit 1A [341] [342]). Mr Dawson denies this (exhibit C2 [45]). I accept Mr Coombs' evidence.

118 By this time, as I have said, Mr Coombs and Mr Dawson had agreed that they should have a meeting with staff to tell them of their plans. That meeting was held in late August 2005.

119 Mr Coombs' evidence about the meeting is to the following effect.

120 At a meeting of staff on 25 August 2005, Mr Dawson and Mr Coombs gathered the staff. Mr Dawson said that the directors had news for staff and that Mr Coombs and Mr Dawson were going to go their separate ways. Mr Coombs said that the business would be split between them, each would set up their own business and staff would have their employment with FRC terminated, and that this would happen by 1 December 2005. Mr Coombs said that Mr Dawson and he would be talking to staff individually to see their preferences for subsequent employment and that they were free to go with whoever they wished (exhibit 1A [344] [348]).

121 That evidence is also consistent with the evidence of others who attended the meeting: Mr Blaxill (exhibit 5 [8] [11]; ts 1162), although Mr Blaxill is mistaken about the timing of the meeting; and Ms Maginn (exhibit 4 [13] [16]). In his responsive statement, Mr Dawson denies parts of these witnesses' evidence, but in his response to Mr Coombs' witness statement he specifically refrains from responding to the evidence about what was said at the meeting (see exhibit C2 [3], [16], [45] [46]; ts 568).

122 I accept Mr Coombs' evidence of what was said at the meeting.

123 It should be noticed, that at the meeting, Mr Dawson and Mr Coombs did not say to staff that they were planning to go their separate ways and set up their own businesses, subject to coming to an agreement on questions such as how the business of FRC would be split. Rather, they said, in an unqualified way, that by 1 December 2005 staff would not be employed by FRC, and each of the directors would be conducting his own separate business.

124 I accept Mr Dawson's evidence that on 28 August 2005, he and Mr Coombs went to an Investors Club meeting in Albany and that they travelled and stayed together without any discussion of a split (exhibit C2 [26]). The absence of discussion on the topic of FRC's future does not seem to me to bear on the probabilities of the competing versions of events given by Mr Coombs and Mr Dawson.

125 On 31 August 2005, Mr Dymock of DOCEP provided a memorandum to the licensing panel of the Finance Brokers Supervisory Board regarding Mr Dawson's application for a finance brokers licence. The memorandum set out Mr Dawson's conduct and other events in relation to a development in East Perth. The memorandum also set out a number of objections to the issue of a finance brokers licence arising from what was said to be Mr Dawson's conduct.

126 The memorandum concluded by saying there was a body of evidence which suggested that Mr Dawson was not a fit and proper person to hold a finance brokers licence; further investigations would take place and, in the interim, it was recommended that Mr Dawson not be granted a finance brokers licence (see exhibit A42A).

127 On 31 August 2005, the panel recommended that the Board defer Mr Dawson's application pending the completion of the investigation (exhibit A42B).

128 By letter of 31 August 2005 (exhibit A42), a solicitor wrote on behalf of Mr Coombs to Mr Dawson. The letter stated that the solicitor was instructed that relations between them had broken down irretrievably, and that they had agreed to a separation mechanism that will maintain the significant trail commissions that FRC would generate in the future. The letter stated that Mr Coombs was adamant the process must be completed by the end of November 2005 and that on 1 December 2005 he would be operating his own business. The letter stated that Mr Coombs would deliver a timetable of steps to be taken, sought a reply by 16 September 2005, and proposed that third parties be appointed to carry out the necessary tasks to ensure the deadline was met.

129 This letter spells out to Mr Dawson that Mr Coombs intended to commence operating his own business by December 2005. By necessary implication, preparation would occur in the meantime. Nothing in Mr Dawson's solicitors' letters of 13 September 2005 or 30 September 2005 said anything to challenge that intention (exhibits A46 and A50).

130 There is no evidence that Mr Coombs and Mr Dawson discussed this letter.

131 From this time on, nothing Mr Coombs said or did changed or qualified his statement in this letter that he intended to leave FRC and then conduct his own business. To the contrary, he continued to state that intention for the rest of 2005. Thus, this is not a case where a director or employee secretly prepares to leave a company and set up in competition.

132 Some time soon after the staff meeting, probably within about two weeks, Mr Dawson came to see Mr Blaxill in his office. Mr Dawson invited Mr Blaxill to lunch at Burswood. Mr Dawson told Mr Blaxill about his plans for his new business, saying that he intended to move into a East Perth unit, get closer to The Investors Club and grow the business. Mr Dawson talked to Mr Blaxill about how Mr Blaxill would fit into the new business (exhibit 5 [14]).

133 Although in his responsive statement Mr Dawson denied parts of this evidence by Mr Blaxill (see exhibit C2 [4]), Mr Blaxill's evidence on this point was not challenged in crossexamination, and I accept it.

134 Thus, in late August or early September 2005, Mr Dawson intended to establish a new business, was planning accordingly and talking to prospective employees about it.

135 In the period from late August to midOctober 2005, Mr Dawson also spoke to Mr Sheppeard, asking whether he would be interested in working with Mr Dawson if Mr Dawson and Mr Coombs went their separate ways (exhibit 3 [54] [56]).

136 Further, Mr Dawson asked Mr Sheppeard if he had any suggestions for a name for Mr Dawson's new business. Mr Sheppeard emailed Mr Dawson a few suggestions, but Mr Dawson later told Mr Sheppeard that he had decided to use a name that Galvin, his son, had put forward, namely Finance Edge (exhibit 3 [60]).

137 Again, some of this evidence of Mr Sheppeard was denied by Mr Dawson in his responsive witness statement (exhibit C2 [8] [10]). However, none of it was challenged in crossexamination and I accept it.

138 On or about 7 September 2005, Mr Coombs gave Mr Dawson a Gantt chart setting out the tasks and timelines for completion of the process (exhibit A44; exhibit 1A [357]).

139 In early September 2005, Mr Coombs received a phone call from one of the DOCEP officers asking for confirmation of what had been said at the meeting about the future of FRC (exhibit 1A [359]). At that stage, as far as Mr Coombs was concerned, he was dealing with DOCEP regarding FRC not Crystal (ts 1033). Objectively, that was the position, given that FRC then had a pending application and Crystal did not.

140 Mr Coombs sent an email dated 9 September 2005 to Mr Allen of DOCEP (exhibit A45). The email 'confirmed' that Mr Dawson and Mr Coombs had agreed to separate and wind up FRC, that legal and consulting advice had been engaged and that the timetable expected to achieve this by 1 December 2005 after which FRC would no longer trade. The email stated that Mr Coombs intended to continue to operate as an independent finance broker in his own right, that he had formed a new company and would be applying for a new business certificate.

141 The email also stated that the decision to split is firm and irrevocable.

142 I will say more about this email, and Mr Coombs' intentions in sending it, in section 6.1 when I deal with the alleged breaches by Mr Coombs relating to the finance broking licences and business certificates of FRC, Crystal and himself.

143 On 9 September 2005, an officer of DOCEP telephoned Mr Dawson and advised him of the Board's decision to defer the application pending completion of the investigation and that the matter may be considered further at the Board meeting of 14 September 2005. On 14 September 2005, Mr Dawson telephoned DOCEP. The officer advised him that the Board still intended to defer the application pending the completion of the investigation, which may be in four to six weeks (exhibit A42B).

144 A note on DOCEP's application checklist for FRC states that on 5 September 2005, the relevant officer spoke to Mr Dymock who, having interviewed Mr Coombs, would not be seeking disciplinary action against FRC and considered it was 'okay' to renew FRC's licence (exhibit A43A).

145 On 12 September 2005, the registrar of the Board prepared an agenda paper for the Finance Brokers Supervisory Board (exhibit A46A). The paper recommended that the Board consider the application for renewal of the business certificate for FRC. It referred to the Board's recent resolution to defer Mr Dawson's application. The paper stated that Mr Coombs was not a person of interest to the investigation. It also stated that Mr Coombs and Mr Dawson 'have parted company and according to [Mr Coombs' email of 9 September 2005] this process has commenced but may take several months'.

146 Mr Dawson engaged solicitors in September 2005. By letter of 13 September 2005, Mr Dawson's solicitors wrote to Mr Coombs' solicitors, referring to the letter of 31 August 2005 (exhibit A46). Mr Dawson's solicitors' letter:

(a) stated that they would take instructions, but that because Mr Dawson was away they would not be in a position to respond by 16 September 2005; and

(b) stated that Mr Dawson wishes to effect settlement of this matter as soon as possible and that this should take place as amicably as possible.

147 On 14 September 2005, the Board resolved that the business certificate for FRC be renewed subject to conditions (see exhibit A48).

148 By email of 29 September 2005, Mr Allen of DOCEP wrote to Mr Coombs (exhibit A48). The email stated that:

(a) at its meeting of 14 September 2005 the Finance Brokers Supervisory Board had considered the application for renewal of certificate and resolved that it be renewed subject to standard conditions, and also a condition that the certificate become invalid and expire on 31 December 2005 should the company not have been wound up and ceased to trade by that date;

(b) that last condition was imposed in light of concerns raised by an ongoing investigation of a complaint concerning Mr Dawson and the comments in Mr Coombs' email [of 9 September 2005]; and

(c) application could be made to the Board or the Commissioner for Fair Trading for the special condition to be removed or amended.

149 See also the business certificate of 30 September 2005 (exhibit A49).

150 Mr Coombs did not expect this condition, but was not concerned or disappointed about it (ts 1041 1042), given the intention for FRC to cease trading at the end of November. He told Mr Dawson about the email. Mr Dawson did not respond (exhibit 1A [375]; ts 1045 1046). Mr Dawson denies this (exhibit C1 [41] [42]; exhibit C2 [27], [52], [53]). He says that had he known of the condition, he would have approached the Board to have it removed or asked Mr Coombs to do so. Given that, at that stage, Mr Dawson intended the split to occur, this seems improbable. I will explain why I prefer Mr Coombs' evidence on this point later in these reasons.

151 On 29 September 2005, Mr Dawson gave a document to Mr Coombs, saying that it was 'regarding the split' (exhibit 1A [364]). The document is the document attached to Mr Dawson's solicitors' letter of 30 September 2005 (exhibit A50).

152 Although it was not challenged in crossexamination, I do not accept Mr Coombs' evidence that Mr Coombs' Gantt chart was an attachment to the document Mr Dawson gave him on 29 September 2005. Given the contents of Mr Dawson's document, explained immediately below, it would have made little sense for Mr Coombs' Gantt chart to be attached to Mr Dawson's document.

153 Mr Dawson's document was entitled 'FRC Settlement Process'. It was drafted as if FRC was a partnership. It outlined steps and matters to be dealt with in the 'FRC Settlement Process'. It stated that the settlement process cannot be finalised until a finance brokers licence is granted to Mr Dawson or to Galvin (his son) (condition 11). Condition 12 identified the need to calculate how the loan/trail book was to be split, to determine if either party would rewrite the business and if so, to calculate the payment to be made in relation to the trail, and to confirm specifics of the proposed announcement in relation to the Melbourne office. The document also identifies, as one of the steps to be taken, the registration of a new company in the names of Emile Dawson and Galvin Dawson (condition 15).

154 Towards the end of September 2005, Mr Coombs interviewed two consultants, Karen Twort and Dianne Ryman. Mr Coombs had provided to Mr Dawson a document relating to those two persons who Mr Coombs thought might be appropriate to engage to analyse the database to assist with the split. After the interview in late September 2005, Mr Coombs wanted them to meet Mr Dawson. Mr Dawson said he did not want to see them (exhibit 1A [376] [379]).

155 By letter of 30 September 2005 (exhibit A50), Mr Dawson's solicitors wrote to Mr Coombs' solicitors. The letter:

(a) stated that Mr Dawson had given Mr Coombs a document entitled FRC Settlement Process and enclosing a copy;

(b) stated that the intention is for Mr Coombs and Mr Dawson to liaise in order to appoint a suitable administrator, as proposed in Mr Dawson's settlement process document;

(c) expressed concern about the meeting between Mr Coombs and two possible consultants, and that he was being excluded and that they would not be impartial;

(d) stated that it is premature to have the company database split prior to a meeting between Mr Coombs and Mr Dawson to discuss the basis on which the database will be split; and

(e) stated that an independent administrator must be agreed.

156 There is no suggestion in this letter that the split would not or might not occur. Moreover, the thrust of the letter is about the process by which it would occur.

157 After receiving the letter, Mr Coombs did not make any further appointment with these consultants (exhibit 1A [383]).

158 Soon after 30 September 2005, Mr Coombs received FRC's renewed business certificate, with the conditions that had been foreshadowed (exhibit A49). Mr Coombs' evidence is that he showed Mr Dawson the business certificate and pointed out the conditions, and that Mr Dawson did not really make any response to this (exhibit 1A [386]; ts 1049 1052). That is denied by Mr Dawson (exhibit C2 [27], [53]). Mr Dawson says that he asked Mr Coombs to display the business certificate but that never happened.

159 I accept Mr Coombs' evidence on this point. Mr Dawson accepted that, had Mr Coombs kept the conditions on the business certificate a secret, and Mr Dawson become aware of it, Mr Dawson would have complained to Mr Coombs (ts 582). As Mr Dawson accepted, Mr Dawson never made any such complaint (ts 582). In Mr Dawson's solicitors' letter of 25 October 2005 there is a complaint that Mr Coombs' representations to the Board led to the conditions being made without consultation with Mr Dawson (exhibit A64). But that letter makes no complaint that the condition on the certificate had been kept secret from Mr Dawson after it was imposed. Moreover, there was no complaint or reference to this in the solicitors' letter to DOCEP of 13 December 2005 (exhibit A81). The subject matter and purpose of that letter is such that had the fact of the condition been concealed from Mr Dawson for a period, that point is very likely to have been made in the letter.

160 Further, Mr Dawson's version of events may be thought to be somewhat improbable. On that version, at substantially the same time, Mr Coombs was falsely denying that he had the business certificate, in order to hide the fact of the condition, while Mr Coombs' solicitor wrote on 10 October 2005 (exhibit A51 referred to below), specifically referring to the 31 December 2005 condition.

161 Mr Coombs was crossexamined on the fact that his solicitors' letter of 21 November 2005 (exhibit A74) did not say that Mr Coombs had already told Mr Dawson about this condition (ts 1049 1052). In my view, that is understandable, given that Mr Dawson's solicitors' letter of 25 October 2005 had made no complaint that Mr Dawson had not been told of the condition (after it was imposed). Rather, as I have said, the complaint had been that there had been no consultation before steps were taken with the Board.

162 By letter of 10 October 2005, Mr Coombs' solicitors responded to Mr Dawson's solicitors' letter of 30 September 2005 (exhibit A51). Mr Coombs' solicitors' letter of 10 October 2005:

(a) stated that Mr Dawson had not responded to the Gantt chart schedule of activity;

(b) stated that Mr Coombs was seeking to progress this by speaking to potential administrators;

EC DAWSON INVESTMENTS PTY LTD -v- CRYSTAL FINANCE PTY LTD [No 3] [2013] WASC 183 (17 May 2013)

At a glance

Court

Decision date

Before

Catchwords

Source

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Judgment (1271 paragraphs)

EC DAWSON INVESTMENTS PTY LTD -v- CRYSTAL FINANCE PTY LTD [No 3] [2013] WASC 183 (17 May 2013)

Legislation Cited (3)

Cases Cited (34)