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

Corporations Act 2001 (Cth), s 477

Finance Brokers Control Act 1975 (WA)

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;

(c) solicited employees of FRC to leave FRC and commence work for 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;

(c) stated that the task of the administrators would be to extract information from the database to inform the directors' decisions about splitting the assets;

(d) stated that it appeared that the action and timetable for the division of FRC assets between the two directors is largely agreed to by Mr Dawson;

(e) stated that it did not appear to be the intention of the parties to wind up FRC, and sought confirmation that that was Mr Dawson's position;

(f) stated that Mr Coombs' understanding of the agreement reached was that FRC would remain as an entity and collect trail commissions on existing loans, seeking confirmation that that was the understanding of Mr Dawson;

(g) stated that the key issue to be determined, from Mr Coombs' perspective, was the equitable balancing of the directors' loan accounts;

(h) said Mr Coombs objected to the proposal by Mr Dawson to postpone the settlement process until a finance brokers licence had been granted to either him or Galvin Dawson, stating that the division of assets must be completed by 1 December 2005 and that was imperative in light of the expiring of FRC's business certificate on 31 December 2005; and

(i) stated that Mr Coombs was happy to discuss the issues set out at pars 12 to 15 of Mr Dawson's document.

163 On 7 October 2005, Mr Coombs signed, on behalf of FRC, a residential tenancy agreement for the Melbourne offices (exhibit A52).

164 Mr Coombs, on behalf of Crystal, took various steps to be ready to start business immediately after the split, including arranging a post office box, professional indemnity insurance, computer equipment and accounting software. See, for example, exhibits A53 and A63.

165 Mr Dawson's solicitor wrote to Mr Coombs' solicitor by letter of 18 October 2005 (exhibit A55). The letter:

(a) confirmed a meeting between lawyers and clients on 20 October 2005;

(b) referred to 'the fact that the parties are in dispute as to their future business relationship', stating that it was important for Mr Coombs to comply with his obligation as a director of the company to act in the best interests of the company;

(c) stated that they were confident that the 'matters in dispute are capable of resolution'; and

(d) asserted that it was appropriate for all cheques to be signed by both directors.

166 Mr Coombs says that this letter took him aback because it was the first time he learned that Mr Dawson thought there was a 'dispute as to a future business relationship' (exhibit 1A [397]). In crossexamination, Mr Dawson accepted that this was the first time he or his solicitor had suggested there was a dispute with Mr Coombs about their future business relationship (ts 594).

167 By letter of 19 October 2005 (exhibit A56), Mr Coombs' solicitor:

(b) expressed surprise at the statement that Mr Coombs and Mr Dawson were in dispute as to their future business relationship, saying that upon her instructions, and as set out in her letter of 31 August 2005 and confirmed in the letter of 30 September 2005, they had agreed to go their separate ways and divide the FRC assets between them, adding that Mr Dawson had verbally agreed this would be completed by 1 December 2005;

(c) said that while there were many decisions to be made, it should not be seen as a dispute between Mr Coombs and Mr Dawson, asking what it is that Mr Dawson says is the dispute he has with Mr Coombs as to their future business relationship;

(d) requested to be informed as to what it was about engaging administrators as referred in the letter of 10 October 2005 that Mr Dawson found objectionable; and

(e) asserted that it would be impractical for both directors to have to sign all cheques.

168 There was a meeting between the parties and their solicitors on 20 October 2005. Mr Dawson's solicitor said that Mr Dawson wanted to continue with FRC. Mr Coombs' solicitor said that that was completely unacceptable. Mr Coombs says that he was very angry at this. Mr Coombs' solicitor told Mr Dawson and his solicitor in effect that the split had to occur, it was not negotiable and that Mr Coombs would be leaving FRC on 1 December. They left the meeting (exhibit 1A [401] [407]).

169 After that meeting, Mr Coombs says that he and Mr Dawson did not speak to each other for the next two weeks or so (exhibit 1A [408]).

2.16 Conclusion: a shared communicated understanding from July to midOctober 2005

170 In my view, the evidence overwhelmingly establishes that, from about late July 2005 until midOctober 2005, there was a shared communicated understanding between Mr Dawson and Mr Coombs that, by December 2005, FRC would cease to conduct business on its own account, and its business would be 'split', that is conducted through two separate companies to be run by its two directors.

171 A number of aspects of the evidence sustain that conclusion.

172 First, I refer to the discussions between Mr Dawson and Mr Coombs following Mr Coombs' letter of 18 July 2005.

173 Secondly, at the meeting with staff in late August 2005, both Mr Coombs and Mr Dawson spoke. In essence they told staff, in an unqualified way, that they were going to go their separate ways and set up their own businesses, and that staff's employment with FRC would be terminated. They said that Mr Coombs and Mr Dawson would talk to staff individually about their preferences for subsequent employment.

174 Thirdly, the correspondence between the parties and their solicitors in the period until midOctober 2005 supports the conclusion that I have stated. Mr Coombs' solicitors' letter of 31 August 2005 stated that the two had agreed to a separation mechanism, and that the process by which each would be operating their own business needed to be completed by the end of November 2005. Nothing in Mr Dawson's solicitors' letters in response, of 13 September 2005 and 30 September 2005, challenged the assertion that there had been an agreement of a separation mechanism. Further, neither letter suggested that FRC would not be split, or that either Mr Dawson or Mr Coombs would continue to conduct business through FRC. To the contrary, Mr Dawson's solicitors' letter of 30 September 2005 was about the process of splitting FRC. By that letter, what was proposed by Mr Dawson was that each director would set up his own company, and the business of FRC would be split between those companies. FRC would not continue to conduct finance broking business, although it would continue to exist to collect trail commissions.

175 When the incongruity between his solicitors' letter of 30 September 2005 and his evidence that he 'constantly' told Mr Coombs that he would not agree to split FRC was put to him, Mr Dawson said 'it depends when I told him' (ts 577).

176 Further, as Mr Dawson accepted, his solicitors' letter of 18 October 2005 was the first time that he or his solicitors had suggested there was a dispute about any future business relationship between Mr Dawson and Mr Coombs (ts 594).

177 Fourthly, during this period both parties were acting in accordance with their joint plan for each to have a separate business by the end of the year. Mr Dawson spoke to both Mr Blaxill and Mr Sheppeard about the possibility of each of them working for Mr Dawson's separate business. Further, Mr Dawson was pursuing the setting up and naming of a company as the vehicle for his new business. That was foreshadowed in his solicitors' letter of 30 September 2005. He discussed possible names for the new company with Mr Sheppeard.

178 Fifthly, although, as I will explain, Mr Dawson's evidence was in this respect often inconsistent, much of his evidence supports or is consistent with the conclusion I have reached. For example, in exhibit C2 [49], Mr Dawson says from about midOctober 2005 he 'was no longer prepared to agree to a split' (emphasis added). Similarly, in oral evidence he said that 'from that point in time [meaning midOctober 2005] I was resolute' (ts 583). Further, in some parts of Mr Dawson's responsive statement he accepted that at a staff meeting a statement had been made that he would be agreeable to splitting the files with Mr Coombs and that the files would be split between them (exhibit C2 [3.6]).

179 In some parts of his evidence, Mr Dawson said that through all of 2005 he always wanted FRC to continue and 'constantly' told Mr Coombs that he wanted FRC to continue. See, for example, exhibit C2 [3.2], [38.4]; ts 554, 579, 584, 627.

180 I reject this evidence of Mr Dawson. It is inconsistent with other parts of his evidence, with what he did at the time, and with other evidence which I accept. To my mind, this evidence of Mr Dawson is an example of his preparedness to make a categorical statement which has no proper foundation. I am satisfied that Mr Dawson did this in a misguided attempt to advance his case by an emphatic statement which he thought would assist his cause.

181 It was put to Mr Dawson that in the second half of 2005 he had many discussions with Mr Coombs about the mechanics of splitting the business. Mr Dawson's answer was:

No, I didn't. It was Mr Coombs who drew up and was trying to force a process upon me which I rejected every time because I was not prepared to make any changes to FRC when we had a successful business (ts 557).

182 His evidence that he did not have many discussions with Mr Coombs about splitting the business is contrary to other evidence of his (see ts 562). His evidence that he was 'not prepared to make any changes to FRC' is patently false, as the history I have outlined demonstrates. Apart from anything else, his solicitors' letter of 30 September 2005 outlined a process for the splitting of the business of FRC between two companies, to be set up by the two directors and run separately. I accept the defendants' submission that Mr Dawson's refusal to qualify his written evidence that in July 2005 and thereafter he constantly told Mr Coombs he wanted FRC to continue demonstrates the lengths Mr Dawson was prepared to go in order to advance the plaintiff's case as he saw it.

183 I find that the reason for Mr Dawson's change of mind in midOctober was his concern about obtaining a finance broking licence.

184 I do not accept Mr Dawson's evidence (exhibit C2 [47] [48]; ts 555, 587), that the reason for the change was a conversation between him and Mr Coombs in which Mr Coombs said words along the lines of 'are you scared of losing clients to me'. That conversation took place, according to Mr Dawson, in about September 2005. Mr Coombs accepted there was a conversation to similar effect but thought it was in July 2005 (ts 1059). Even on Mr Dawson's version, it was not until about midOctober 2005 that he was 'no longer prepared' to agree to a split. In my view, on all the evidence, the probabilities distinctly favour the conclusion that the reason for Mr Dawson's change of mind was a growing concern on his part about being able to obtain a finance broking licence. By early October 2005, attempts that he had made on several occasions in September and early October 2005 to expedite the process had been met with no success.

185 Moreover, at one stage in his evidence, Mr Dawson appeared to accept that his concerns about his licence were the reason for his change of mind. He said that, he thought to himself 'I cannot leave FRC because I have no licence' (ts 583). He accepted that the fact that he did not have his licence was heavily influential in his decision that he was no longer prepared to agree to a split (ts 583).

186 The plaintiff submits that Mr Coombs did not believe, in August to October 2005, that there was a legally binding agreement and that he took no step to enforce the arrangement as such (PCS [35] [36]). That may be accepted. However, Mr Coombs believed that both he and Mr Dawson were committed, in a nonlegal sense, to ending FRC's finance broking business, and splitting that business between the two of them.

187 The plaintiff emphasises, as is the fact, that the two men had not reached agreement on how the business would be split. Nevertheless, in my view, both were proceeding on the confident expectation that that would occur. Further, in the circumstances as I have outlined them, I find that it was reasonable for Mr Coombs to proceed on that basis.

188 On 22 October 2005, Mr Coombs arranged for Crystal to buy the full range of office equipment needed to run its business. See exhibits A58 and A59.

189 On or about 23 October 2005, Mr Coombs submitted an application by Crystal for a business certificate from the Finance Brokers Supervisory Board. See exhibits A60, A61 and A62. Mr Coombs' letter to the Board stated that the business certificate for Crystal was intended to take effect from the expiry of FRC's business certificate, namely 1 January 2006, to enable the appropriate accreditations to be sought in anticipation of 'the change over' (exhibit A60). The letter concluded by saying that should it be necessary to seek an earlier 'transition date' the Board would be notified accordingly.

190 The terms of this letter received considerable attention in crossexamination of Mr Coombs and in the plaintiff's closing submissions. I will say more about it when I deal with the alleged breaches in section 6.1.

191 By letter of 25 October 2005, Mr Dawson's solicitor wrote to Mr Coombs' solicitor (exhibit A64). The letter:

(a) stated that Mr Dawson wishes the company to continue operating;

(c) stated that the representations made by Mr Coombs to the Board were done without consultation with Mr Dawson;

(d) asserted that the business certificate is an asset in respect of which Mr Coombs was obliged to consult with his fellow director and consider the interests of all shareholders;

(e) requested that Mr Coombs cooperate with Mr Dawson to make an immediate application to extend the business certificate; and

(f) expressed concern about the effect of Mr Coombs' conduct, and the cancellation of the business certificate, on contracts due to settle between then and the middle of 2006.

192 There was very little discussion between Mr Coombs and Mr Dawson in the period late October 2005 to midNovember 2005 (exhibit 1A [417] [419]).

193 On 4 November 2005, Mr Coombs lodged with DOCEP an application for a finance brokers licence for Crystal (exhibits A66 A68). The need for this further application was brought about by a change in the regulations on 30 October 2005.

194 On 17 November 2005, Crystal's application for a finance brokers licence was advertised in The West Australian newspaper (exhibit A72).

195 Mr Coombs decided to use an office in Canning Vale for Crystal when its business started. He engaged Ms Ryman and Ms Twort to work there to prepare Crystal to be ready to start on 1 January 2006 (exhibit 1A [425]).

196 Sometime before 21 November 2005, Mr Coombs wrote to the Commissioner (exhibit A69) (wrongly dated 4 November 2005). The letter:

(a) enclosed the advertisement of his application; and

(b) said that, as 'I need the licence to secure other accreditations before takeover date of 1 January 2006', requested processing as soon as possible.

I will say more about this letter in dealing with the alleged licence breaches in section 6.1.1.

197 By letter of 21 November 2005 (exhibit A74), Mr Coombs' solicitor wrote to Mr Dawson's solicitor, referring to the meeting of 20 October 2005. The letter:

(a) stated that the meeting had been convened to allow the parties to agree the steps to be taken to split the FRC assets as referred to in the letters of 31 August 2005, 19 October 2005 and Mr Dawson's solicitors' letter of 30 September 2005;

(b) asserted that the statement that Mr Dawson no longer wished to proceed with the split took Mr Coombs and his solicitor by surprise, and that it was not an option acceptable to Mr Coombs;

(c) asserted that there was a complete breakdown in the relationship between Mr Coombs and Mr Dawson;

(d) stated that Mr Dawson had made a number of unilateral decisions and taken a number of unilateral actions in relation to FRC including a staff meeting, reallocating staff, obtaining finance broker accreditations for Mr Dawson's son, and other matters;

(e) stated that the unilateral actions by Mr Dawson illustrate the reasons for Mr Coombs' decision that he is not prepared to continue to be in business with Mr Dawson;

(f) stated that if the split cannot take place cooperatively then Mr Coombs would have no option but to apply for the appointment of a provisional liquidator;

(g) stated that there should be no misapprehension that after 31 December 2005 the FRC business certificate would expire, Mr Coombs would not be the person in bona fide control of FRC, FRC could not operate as a finance broking firm, and thereafter Mr Coombs would commence his own separate business;

(h) set out what is said to be Mr Coombs' involvement with the Board in relation to the condition imposed on the FRC business certificate, stating that the Ministry of Fair Trading had received a complaint against Mr Dawson, Mr Coombs had been summoned because he was the person in control of the business, and in the course of answering questions Mr Coombs had mentioned that the two had agreed to go their separate ways; and

(i) concluded by stating that she had instructions to make immediate application for the appointment of a provisional liquidator of FRC, requesting advice as to whether Mr Dawson's solicitor had instructions to accept service.

198 Again, like the letter of 31 August 2005, this letter makes it plain that Mr Coombs intended to commence his own finance broking business.

199 The plaintiff emphasises that this letter was not written immediately, rather it took four weeks. Further, the plaintiff points out that the letter does not assert that the split had been agreed or that any agreement was legally binding.

200 On 29 November 2005, Mr Allen of DOCEP wrote, by email, to Mr Dawson (exhibit A76). The email said that, as discussed, there was a condition on the licence that if the company had not been wound up by 31 December 2005, the certificate will become invalid.

201 Crystal bought more office furniture and a photocopier in late November 2005 (exhibits A78, A79).

202 In early December 2005, Mr Dawson came to Mr Coombs' office and asked him to delay the liquidation. Mr Coombs said that it was too late and that the process was underway. Further, Mr Coombs said that the FRC licence was going to be cancelled irrespective of what he did (exhibit 1A [436]). Mr Coombs said that he would definitely be leaving FRC on 31 December 2005 to start his own finance broking business (exhibit 1A [437]).

203 On 9 December 2005, Mr Coombs' solicitor wrote again to Mr Dawson's solicitor (exhibit A80). The letter:

(a) stated that there had been no response to the letter of 21 November 2005;

(b) complained that Mr Dawson had caused FRC to enter into a lease agreement in respect of a unit which Mr Dawson had recently purchased;

(c) asserted that the lease agreement was voidable at the option of FRC; and

(d) asserted that the papers for the application for the appointment of a provisional liquidator had been drawn and that service would be affected shortly.

204 On 13 December 2005, Mr Dawson's solicitors wrote to DOCEP (exhibit A81). The letter:

(a) said that Mr Dawson and Mr Coombs were involved in discussions aimed at terminating their business relationship, including as to the future of FRC;

(b) stated that Mr Dawson would prefer operating FRC under his own licence;

(c) stated that Mr Dawson did not agree for FRC to terminate its business on 31 December 2005;

(d) expressed concerned that Mr Dawson had not been granted a finance brokers licence following his application for one, referring to potential prejudice to FRC's existing clients;

(e) requested that his application for a licence be expedited to ensure that FRC is able to continue after 31 December 2005, or that the existing licence held by Mr Coombs be extended beyond 2005 to allow FRC to continue operating; and

(f) requested information regarding the termination of FRC's licence, stating that Mr Dawson believed that Mr Coombs may have provided incorrect information to DOCEP.

205 On 12 December 2005, there was an advertisement in The West Australian giving notice that Finance Edge Australia Pty Ltd was applying for a finance brokers licence. A copy of the advertisement is part of exhibit A90A.

206 In midDecember 2005, Mr Coombs issued termination letters to all FRC staff. Copies of three of the letters, which are in substantially identical form, are exhibits A82, A83 and A83A. The letters state that the business certificate will expire and the services of the employee will no longer be required from 31 December 2005.

207 On 13 December 2005, Mr Dawson's solicitor wrote to Mr Coombs' solicitor (exhibit A84). The letter:

(a) referred to without prejudice discussions on 8 December 2005;

(b) asserted that Mr Coombs had acted unilaterally in his own best interests and disregarded the interests of the company, its shareholders, and the clients of the business;

(c) stated that Mr Coombs had applied for and obtained a separate licence under a new entity, asserting that if he commenced operations under the new entity he would need to resign as a director of FRC to avoid a conflict of interest;

(d) stated that Mr Coombs should not attempt to solicit FRC's clients because they are assets of FRC, and any such approach would result in legal action;

(e) stated that Mr Dawson did not agree to the appointment of a provisional liquidator; and

(f) asserted that Mr Dawson never agreed to a termination date of 31 December 2005.

208 On 14 December 2005, Mr Dawson's solicitor forwarded a reference to DOCEP in connection with Mr Dawson's application for a finance brokers licence (exhibit A85).

209 On 16 December 2005, Mr Coombs received an email from DOCEP advising that Crystal's finance brokers licence had been granted (exhibit A86).

210 On 20 December 2005, Mr Coombs' solicitor wrote to Mr Dawson's solicitor (exhibit A87). The letter:

(a) asserted that the decision to grant FRC a business licence to 31 December 2005 was made by the Finance Brokers Supervisory Board, not by Mr Coombs;

(b) asserted that FRC would not be licensed as a finance broker from 1 January 2006;

(c) restated that Mr Coombs did not wish to be in business with Mr Dawson and that it was Mr Dawson who had reneged on the agreement to manage the split in an orderly fashion;

(d) denied that there will be any conflict of interest, given that FRC is not in a position to operate as a finance broker, and its only interest will be in the orderly winding up of its affairs; and

(e) stated that Mr Coombs had offered to enter into an arrangement by which FRC could continue to operate until Mr Dawson obtained his licence but there had been no response.

211 On or about 20 December 2005, Mr Coombs on behalf of Crystal sent offers of employment to Mr Blaxill, Ms Hutchings, Mr Sheppeard, Ms Paull and Ms Eddy (exhibits A86A A86E).

212 On or about 21 December 2005, Mr Coombs sent a document about Crystal to The Investors Club (exhibit A88). In effect, it was an application for accreditation. I find that the document was sent on 21 December 2005 notwithstanding that Mr Coombs agreed in crossexamination that it was sent on 16 December 2005 (ts 1068 1069). The effect of the solicitors' letter that was part of exhibit A88 was that the defendants admitted the document was sent on 21 December 2005. I formed the impression that, in agreeing with the date of 16 December 2005, Mr Coombs was mistakenly assuming that that was the date identified in his solicitors' letter. At other times in his crossexamination Mr Coombs displayed an inclination to accept whatever was suggested about what date was revealed by a document, without looking at the document.

(a) referred to staff continuity and the absence of disruption, saying that Crystal would provide a 'more professional and efficient service to clients';

(b) stated that The Investors Club can be assured that current commission structures, payments and performance standards will remain consistent;

(c) stated that Crystal is a company that has had the opportunity to take the best of the old and incorporate the new;

(d) stated that Crystal will manage the business of FRC when its licence expires on 31 December 2005;

(e) included a heading 'FRC transition arrangements';

(f) stated that Crystal recognised that under FRC there were areas that required upgrading and modernising;

(g) stated that FRC, although not licensed to process new business, will remain as a company and will continue to receive trail income. FRC will continue to make payments to Club Loans under current arrangements and timeframes. Crystal is able to take up all submissions in progress and new business under the standard payment structure to the Club of 50% upfront and trail commissions received by Crystal;

(h) stated that the team has 'designed an information strategy to inform the existing member network of the impending changes, complete with new contact details';

(i) stated that FRC phones will be diverted to Crystal as of 31 December 2005; and

(j) stated that PLAN accreditation is approved and a finance brokers licence has been issued so that Crystal is geared to start business on 3 January 2006.

214 I will say more about this document, and what if anything, it reveals about Mr Coombs' intentions in section 6.

215 By letter mistakenly dated 21 November 2005, but intended to be 21 December 2005, and sent by facsimile on 22 December 2005, Mr Coombs' solicitor wrote to Mr Dawson's solicitor enclosing what was described as suggested management of the separation process (exhibit A73). The letter stated that the application to appoint a provisional liquidator had been filed and the return date was 11 January 2006. Attached was a two page 'without prejudice' heads of agreement.

216 On 22 December 2005, West Coast Mortgage Services Pty Ltd provided a letter, addressed 'To whom it may concern' (exhibit A89). It stated that it understood the current position placed on Mr Dawson and the impost on the maintenance of proper care and attention to FRC's clients. The letter stated that West Coast Mortgage was in a position to deal with the customer base of FRC.

217 Crystal's licence under the FBC Act was issued on 23 December 2005, licensing Crystal to carry on business from 1 January 2006 to 31 December 2008, with Mr Coombs as the person in bona fide control (exhibit A93).

218 On 23 December 2005, Mr Dawson's solicitor wrote to Mr Coombs' solicitor, headed 'without prejudice save as to costs' (exhibit A94). In this letter, Mr Dawson:

(a) proposed that Mr Coombs continue to run FRC with Mr Dawson taking extended leave until he obtains a licence, with Mr Coombs not making any significant decisions without Mr Dawson's consent;

(c) proposed that Mr Coombs formally request an extension of the FRC licence from DOCEP to allow FRC to continue operating;

(d) alternatively, proposed that Mr Coombs undertake to DOCEP that he collocate Crystal and FRC while issues between the directors are resolved;

(e) reiterated Mr Dawson's concern about FRC's clients with 'deals in the pipeline';

(f) reiterated Mr Dawson's concern that the matter is resolved in a way that the company, the clients and the shareholders' interests are respected; and

(g) reiterated that Mr Dawson did not agree to the appointment of a provisional liquidator.

219 On 28 December 2005, Mr Dawson wrote to Mr Sheppeard and Mr Blaxill, saying that he did not agree that their employment with FRC had been terminated (exhibits A94A, A94B).

220 On 30 December 2005, Mr Dymock of DOCEP wrote to Mr Dawson's solicitor (exhibit A97). The letter:

(a) stated that Mr Dawson's application for a licence was unlikely to be determined in the next six weeks; and

(b) stated that Mr Coombs' application did not provide detail about how he could manage two businesses and consequently he could not be licensed to manage both FRC and Crystal.

221 It appears that at around this time Mr Dawson appointed a new solicitor.

222 On 30 December 2005, Mr Dawson's (new) solicitor wrote (exhibit A98) to Mr Coombs' solicitor, referring to Mr Coombs' solicitor's facsimile of 30 December 2005 (not in evidence). The letter:

(a) asserted that Mr Coombs could not remove or deal with any of the assets of FRC without consent of the directors; and

(b) stated that, to avoid doubt, Mr Dawson does not consent to any such conduct, which would be actionable.

223 Around 31 December 2005 (although the document is undated) Mr Coombs created a document entitled 'Financial Relationship Consultants - Important Information' (exhibit A99). The document:

(a) stated that from 31 December 2005 FRC would not have a broking licence, but will remain as a separate company;

(b) stated that the new company, Crystal, would manage all finance enquiries, applications, submissions, work in progress and established portfolios as of 1 January 2006; and

(c) stated that many of the same people were here and committed to looking after you.

224 In the first week of January 2006, Mr Coombs sent a document in the form of exhibit A99 to clients of FRC who had pending loan applications (exhibit 1A [530] [532]).

2.20 Mr Coombs' conduct in late December 2005 and early January 2006

225 Mr Coombs' evidence about what he did in the last few days of December 2005 and at the beginning of January 2006, and why, is as follows. What he did is, largely, not in issue. Why he did it is in issue.

227 Mr Coombs considered that, because FRC's business certificate and finance brokers licence was expiring on 31 December 2005, it could not operate in WA after 1 January 2006. Mr Coombs considered that he had continuing obligations under the Act and the Code of Conduct in respect of the applications and loans that were on foot through FRC but incomplete by 31 December 2005. He wanted all FRC files under his control so that he could discharge his obligations in respect of the ongoing work in progress (WIP) files. He did not want Mr Dawson to hold himself or FRC out as being engaged in any finance broking work and did not want him to have access to the files (exhibit 1A [474] [480]).

228 Consequently, he transferred all filing cabinets containing FRC client files, and containing completed files and active work in progress applications to his Canning Vale office on 31 December 2005 (exhibit 1A [481]).

229 On 23 December 2005, Mr Coombs took a copy of the FRC application register, in order to get a snapshot of it as at 31 December 2005 when the business certificate expired (exhibit 1A [482]). It is about 3,000 pages and was not tendered. Mr Coombs later produced a status report of all loans in progress and gave it to the provisional liquidator (exhibits 1A [489]; A139).

230 Mr Coombs arranged for the diversion of the FRC telephone, fax numbers and email addresses to the Crystal telephone, fax numbers and the personal email addresses for the staff who joined Crystal (exhibit 1A [494]; see also exhibit A101G). He did this in order to allow the continuing management of the FRC WIP. There would likely be no one in FRC's offices after 2 January 2006 and, in any case, FRC was not permitted to undertake finance broking work and as a director of FRC he would or could be responsible (exhibit 1A [495]).

231 He 'thought it protected the clients and FRC and ... it could all be sorted out when the liquidator was appointed' (exhibit 1A [499]).

232 This evidence is of some importance and is challenged by the plaintiff. The plaintiff contends that Mr Coombs acted as he did with the intention of and for the purpose of enabling Crystal to, in effect, take over the whole of FRC's business.

233 I will make findings about the intention with which, and purposes for which, Mr Coombs acted in section 6.

234 On 30 December 2005, Finance Edge applied for a finance brokers licence (exhibit A90A).

235 As at January 2006, FRC's lease of its Melbourne premises at Unit 21, 3 Carre Street, Elsternwick still had about 5½ months to run. From the beginning of January 2006, Brett Sheppeard and Kathy Paull worked from Unit 21 but worked for Crystal. FRC's office equipment and files remained in Unit 21 (exhibit 1A [501] [504]). Mr Coombs says he told Brett Sheppeard not to use information on FRC files when dealing with applications lodged with Crystal (exhibit 1A [505]). Neither Mr Coombs nor Mr Sheppeard was crossexamined on that evidence and I accept it.

236 By the beginning of January 2006, Crystal was ready to commence work from the Canning Vale office. At that office, Crystal had Brad Blaxill and Natalie Ivankovich writing loans, Robyn Coombs looking after finance administration, Sarah Cross as Mr Coombs' personal assistant, Denise Maginn as receptionist, and Aleisha Hutchings as the manager operations, with assistance from Jessica Eddy. In the Melbourne office, Brett Sheppeard was writing loans and being assisted by Kathy Paull (exhibit 1A [509]).

237 By 1 January 2006 Ms Paull, Mr Sheppeard, Ms Eddy and Ms Maginn had signed employment offers (exhibits A99C A99K). Others signed in the following days (exhibits A101C A101F).

238 Mr Coombs told the staff they could not use any FRC documentation in respect of new deals, that is work they were doing for Crystal. Rather, they would have to obtain full information from the client including financial position. They used a colour coded system for FRC deals and a different one for Crystal deals (exhibit 1A [510] [513]). Again, there was no crossexamination on this evidence and I accept it.

239 Staff were told that no new deals were to be written under the FRC codes, all deals were to be done under the Crystal PLAN ID codes. Mr Coombs said that both application registers had to be kept up to date and that reports would be done to the liquidator (exhibit 1A [514] [515]).

240 Mr Coombs compiled a 'liquidation workflow chart' (see exhibit A98A).

241 Mr Coombs told staff that if people contacted Crystal expecting to talk to FRC, the caller should be told that 'Crystal was handling the work on behalf of FRC' (exhibit 1A [517]).

242 Crystal signed an intermediary agreement with PLAN on and from 1 January 2006 (exhibit A99B.1).

243 Mr Coombs created a new application register for Crystal from 2 January 2006, using the same format as for FRC (exhibit 1A [521] [522]).

244 He used the FRC application register to prepare his reports on the progress of the WIP files to the provisional liquidator, Mr Holbrook. Over time, he made some modifications to the format of the report (exhibit 1A [525] [526]).

245 Mr Coombs says that every loan application that was an FRC WIP file can be traced to resolution via the two application registers (exhibit 1A [529]).

246 Early on 2 January 2006, Mr Dawson attended FRC's business premises in Victoria Park. He found that substantial assets of FRC were missing which he took to be stolen. He reported this to the police. Mr Dawson made a list of missing items (exhibit A101; exhibit C1 [90], [95] [96]). I am satisfied that Mr Dawson did not suspect that anyone other than Mr Coombs had taken the missing property.

247 Mr Coombs did not inform Mr Dawson that he was going to remove files and other property of FRC and take it to Crystal's office. Obviously, Mr Dawson did not consent to that occurring. Further, that had been specifically spelled out in Mr Dawson's solicitors' letter of 30 December 2005 (exhibit A98).

248 On 3 January 2006, Mr Coombs' solicitor wrote to Mr Dawson's solicitor advising that Mr Coombs had relocated FRC's files to the Crystal office, and acknowledging that the files remained the property of FRC (exhibit 101A). The letter:

(a) stated the return date for the provisional liquidation application was 11 January 2006;

(b) stated that with a view to servicing the clients and preserving the assets of FRC until a provisional liquidator is appointed, Mr Coombs was prepared to provide the required services under the business certificate of Crystal;

(c) stated that to that end, Mr Coombs had relocated FRC client files to the Crystal office;

(d) enclosed a copy of an email 'to all FRC clients which had been or [would] soon be sent';

(e) stated that the files, of course, remain the property of FRC until all future distribution takes place and that Mr Coombs would account fully for all funds received and all deductions made;

(f) stated that Mr Coombs would negotiate an appropriate fee for the services with the provisional liquidator and deliver up the FRC values to the provisional liquidator as required;

(g) stated that by this process, Mr Coombs would maintain the value of FRC for the ultimate benefit of the shareholders; and

(h) asked whether Mr Dawson consented to the appointment of a provisional liquidator.

249 The same day, Mr Dawson's solicitors responded (exhibit A101B). That letter:

(a) asserted that the Board had stated that it would extend the licence for FRC beyond 31 December 2005 to accommodate the then present position;

(b) asserted that it was not in the best interests of FRC or its shareholders or clients to wind up FRC;

(c) asserted that the complaint made against Mr Dawson had been dismissed by the Board, and that there was no impediment to his application for a licence proceeding in the ordinary course, and that Mr Dawson had been informed that this was now happening.

(d) asserted that Crystal was an inappropriate agent, with a manifest conflict of interest, whose appointment by the provisional liquidator would be opposed;

(e) stated that Crystal had no authority to complete any settlements and that any involvement of Crystal in the affairs of FRC would be actionable;

(f) asserted that Crystal had no entitlement to contact the clients of FRC, and that to do so would breach confidentiality and privacy laws;

(g) stated that the email attached to Mr Coombs' solicitors' letter proposed to be sent to clients should not be sent;

(h) complained that, in effect, Mr Coombs as director of FRC had removed FRC's property and began dealing with it as if it were his own without any consent by Mr Dawson;

(i) threatened proceedings against Crystal on behalf of the company (by derivative action); and

(j) stated that 'it was the case and remains the case that the directors of FRC are not in dispute', saying that rather there had simply been no agreement reached on splitting the files.

250 The statements in par (c) were without foundation. That they were made, on Mr Dawson's instructions, reflects adversely on his credit.

251 Mr Coombs saw that in his solicitors' letter, Mr Dawson complained that referrals from The Investors Club would be sent somewhere other than FRC. Mr Coombs says that that seemed to assume that somehow FRC could continue to service The Investors Club and clients as a finance broker (exhibit 1A [537]).

252 The letter also suggested that Crystal would be breaching confidentiality if it contacted the clients of FRC. As a consequence of that, Mr Coombs prepared an email and proforma authority which he caused to be sent to all FRC WIP clients to obtain their authority to transfer their files and documents held by FRC to Crystal to enable Crystal to commence management of their finance requirements (exhibit 1A [539]). See exhibit A107.

253 The proforma authority document was in terms by which the client authorised FRC to 'transfer all files documents (including but not limited to attachments, bank statements, wage summaries, profit and loss statements, asset and liability statements and all personal information in my client file) together with all digital information and other information held by [FRC] to [Crystal]'. The authority stated that the information was to 'enable [Crystal] to commence management of my finance portfolio, and assist with current and ongoing finance requirements'.

254 On 3 January 2006, Mr Coombs wrote, on FRC letterhead, requesting diversion of FRC's telephone numbers to Crystal (exhibit A101G). The letter said he signed as 'authorised agent'. This was done without Mr Dawson's knowledge or approval (exhibit C2 [62]). Mr Coombs was not asked in crossexamination about signing as 'authorised agent'.

255 On 9 January 2006, a client, Mr McKessar, sent an email to FRC commencing 'Hi Emile' (exhibit A106). Mr Coombs responded to the email stating that as Mr Dawson did not hold a licence he could not respond to the query. The email came from Crystal. Mr McKessar stated in a further email that he was a little confused as to why the email had been referred to another company, asking whether FRC did not have a finance broking licence. By email of 10 January 2006, Mr Coombs:

(a) stated that as from 31 December 2005 FRC no longer holds a broking licence, but will continue as a separate company;

(b) stated this was due to the two directors, Mr Coombs and Mr Dawson, going their separate ways;

(c) stated that 'unfortunately' Mr Dawson did not at that stage hold a finance brokers licence and so could not deal with clients;

(d) stated that Mr Coombs had formed a new company called Crystal employing many of the same staff;

(e) stated that Crystal would manage all new finance enquiry applications and submissions, and would temporarily manage FRC work in progress and established portfolios as of 1 January 2006; and

(f) stated that should he wish to continue liaising with Mr Dawson once he obtained his finance brokers licence he would be more than welcome to do so but Crystal would like to assist with any lending requirements.

256 In early January 2006, Mr Dawson contacted other finance brokers who expressed their willingness to manage work for clients of FRC (exhibits A103 A104).

257 Crystal did not get accreditation with The Investors Club before 18 January 2006, as The Investors Club head office was closed early in the New Year (exhibit 1A [543]; exhibit A128).

258 On 11 January 2006, Mr Dawson wrote letters on FRC letterhead to clients of FRC. It is unclear how many of these letters were written. He obtained contact details for the clients from the FRC database (ts 641 642). He also telephoned many of FRC's clients, again obtaining contact details from the database (ts 639). Exhibits A108 A109 are letters in standard form. The letter:

(b) asserted that as at that date the directors had not ... made any move to cause FRC to cease to trade;

(c) stated that the directors of FRC have not approved or consented to the clients' personal confidential and private information being disclosed to any other party;

(d) stated that as a director of FRC, Mr Dawson had not approved of the client's files being administered by Crystal;

(e) stated that the removal of the files from FRC's office has been reported to the police;

(f) stated that FRC does not at that time have a licence to conduct a finance broking business 'due to [Mr Coombs'] unwillingness to extend FRC's licence'; and

(g) stated that all reasonable endeavours are being taken to obtain a licence quickly and it was expected that one would be obtained shortly.

259 In circumstances where, as Mr Dawson knew, Mr Coombs had filed an application for the appointment of a provisional liquidator, the assertion in par (b) was misleading.

260 In the first part of January 2006, almost all of Crystal's staff time was spent on FRC WIP work (exhibit 1A [549]). As the work continued, it emerged that the FRC application register was not up to date and needed substantial updating (exhibit 1A [559]).

261 Mr Coombs says negotiations appeared to be progressing in the lead up to the Supreme Court hearing on 11 January 2006. Consequently the matter was adjourned for two weeks (exhibit 1A [550] [551]).

262 On 13 January 2006, Mr Coombs was told by his solicitor that she had spoken with a detective. The detective had said that Mr Dawson had complained that Mr Coombs had stolen FRC's property and the property needed to be returned. As a result, Mr Coombs instructed his solicitor to make an urgent application for the appointment of a provisional liquidator to FRC (exhibit 1A [566] [567]).

263 On 11 January 2006, Crystal made a written application to Interstar to be an originator (exhibit A110). Interstar sent the loan origination and management agreement back to Crystal on 13 January 2006 (exhibit A112).

2.22 16 January 2006: appointment of a provisional liquidator

264 On 16 January 2006, the application for the appointment of a provisional liquidator to FRC came before EM Heenan J. In the course of submissions, counsel for Mr Coombs told the court that Mr Coombs acknowledged that he held the WIP files of FRC on trust for FRC and would deliver them to the provisional liquidator so that he could make the decisions that needed to be made (exhibit 1A [568]).

265 Mr Dawson swore an affidavit on 10 January 2006 opposing the application (exhibit A106B). In par 20 of that affidavit he stated that he was not aware of any objectors or reasons why the licence to operate as a finance broker for which he had applied would not be issued to him. In my view, that was a misleading statement. Mr Dawson knew there was a complaint about his conduct, and that his application was being deferred pending the investigation of the complaint. Even if Mr Dawson had expected that the investigation would ultimately result in the dismissal of the complaint, and the issuing of a licence, to put the matter as he did was misleadingly incomplete.

266 In the course of submissions to the court on 16 January 2006, counsel for Mr Dawson:

(a) said that Mr Dawson would probably agree with Mr Coombs that further cooperation or joint activity was out of the question;

(b) stated that the two men needed to split, to 'go their own separate ways';

(c) agreed with the court that the two men were 'at daggers drawn';

(d) said that Mr Dawson's case was that he had parties with licences available to conduct the pending settlements and the company could eventually go into liquidation or the two men could resolve their dispute;

(e) said that Mr Dawson agreed that Mr Coombs consent would be required to transfer the business to another broker, and that would not be forthcoming, which was a problem; and

(f) said that Mr Dawson did not want the pending deals held up.

267 His Honour published reasons for decision in appointing a provisional liquidator: Coombs v Finance Relationship Consultants Pty Ltd [2006] WASC 15. The reasons for decision include the following:

(a) no longer holding a licence, FRC was unable to carry on its finance broking business [3];

(b) Mr Coombs was purporting to complete or continue part of the current work of FRC under Crystal's and Mr Coombs' licences, holding himself accountable to FRC for any profit received [3];

(c) Mr Coombs said that it was incumbent on him to do this as the only officer of FRC with a licence under the Act [3];

(d) the court evidently recognised the need for the interim work to be done [4];

(e) the court referred to Mr Dawson's proposal for other finance brokers to do the work as not providing a practical solution [5] [6];

(f) it was found that there was 'clearly a deadlock preventing the continuation of the important business' of the company in compliance with the Act, and that there was no prospect of that deadlock being resolved between the two disputing parties [7];

(g) the court concluded that authority needed to be conferred on a person who would have the power and responsibility to restore a proper working regime in conformity with requirements of the legislation [8]; and

(h) that the provisional liquidator's most immediate priority would be to secure a licensed finance broker to continue the important work of the company in relation to FRC's pending files [8].

268 The court order appointed Mr Kim Holbrook as provisional liquidator of FRC (exhibit 120C). The court ordered that the duties of the provisional liquidator included a duty to 'engage an agent as necessary to allow the company to carry on the business of finance broking pending the disposal or winding up of the business' (par 1.2e). The court also ordered (par 1.3) that the provisional liquidator take possession of all the assets and property of FRC.

2.23 16 30 January 2006: the provisional liquidator's first steps

269 Also on 16 January 2006, Finance Edge Pty Ltd was granted a finance brokers licence (exhibit 120B).

270 Exhibit A121 is, or appears to be, the FRC database as at 16 January 2006. There is no evidence that the document was in the possession of, much less used by, Crystal or Mr Coombs in January 2006 or thereafter.

271 Mr Coombs' evidence is that the database was contained on the main server of FRC's computer and that he did not take that (ts 1010 1011, 1019). There is no evidence to the contrary and I accept Mr Coombs' evidence.

272 Although it was part of the plaintiff's case as pleaded and opened that Mr Coombs took and used FRC's database, in the course of closing submissions, the plaintiff accepted that there was no evidence that the defendants had used the FRC database (ts 1276).

273 On 17 January 2006, Mr Coombs met with Mr Holbrook, the provisional liquidator. Mr Coombs' evidence as to the meeting was not challenged, and I accept it. In summary, the following occurred at the meeting:

(a) Mr Coombs gave Mr Holbrook details of the business of FRC, including an explanation of the tasks involved in finance broking, and the arrangements FRC had with PLAN and The Investors Club;

(b) Mr Coombs said that he considered he owed every client a duty to complete the WIP file;

(c) Mr Coombs said that he had removed from FRC's offices all of the FRC files and WIP files, in order to complete any pending applications and manage the WIP of FRC, and that he needed the rest of the files including settled files to help work out what commissions might be outstanding and owing to FRC;

(d) Mr Coombs also said that he needed the files to ensure that FRC did not breach the Act or Code by allowing any nonlicensed person to provide finance broking services;

(e) Mr Coombs said that he had diverted FRC's telephone numbers and emails and taken filing cabinets, computers and other items, all of which were in Crystal's Canning Vale office;

(f) Mr Coombs said that FRC had an office in Melbourne which was reasonably autonomous and that similar things had occurred in that Crystal had in its possession all of the files;

(g) Mr Coombs sought from Mr Holbrook a clear definition as to at what point in the process of progressing towards applying for a loan that a matter became work in progress;

(h) Mr Holbrook said that FRC had no interest in any matter until the loan application was submitted, and that unless a loan application had been lodged by FRC prior to the expiry of its licence, the matter would not be a WIP file;

(i) Mr Holbrook asked for a list of pending files, to which Mr Coombs said that he had a list that had errors in it, and that work was being done to reconcile the list against the applications in the filing cabinets;

(j) Mr Coombs said that once Crystal was accredited with Club Loans it might get referrals from The Investors Club that could be from people who were already on the FRC book;

(k) Mr Coombs asked whether it was all right for Crystal to do the work for its own benefit if Crystal had received a referral or inquiry that was not FRC WIP work; and

(l) Mr Holbrook stated that if an application had been lodged with a lender by FRC before it lost its licence Crystal would be doing the work on behalf of FRC, but if the matter had not progressed to that point then Crystal could do that work for itself and Crystal could also deal with any other new matters (exhibit 1A [571] [590]).

274 By letters of 17 January 2006 (exhibits A122, A124), the provisional liquidator sought a report as to the affairs of FRC from Mr Coombs, and asserted control over the assets and affairs of the company, and setting out obligations arising on Mr Coombs as a director. The letter included a notice requiring Mr Coombs to deliver various books and records of FRC.

275 Also on 17 January 2006, Crystal received an email from The Investors Club confirming that Crystal had been appointed as a Club Loans Accredited Finance Broker (exhibit A126). An Accredited Agency Agreement between Club Loans and Crystal was signed on 18 January 2006 (exhibit A128).

276 The provisional liquidator and one of his officers attended Crystal's Canning Vale offices and inspected the application files and WIP files on 19 January 2006 (exhibit 1A [597]).

277 On 18 January 2006, the provisional liquidator wrote to PLAN informing it of his intention to continue FRC's current payment arrangements with PLAN (exhibit A127A).

278 By letter of 19 January 2006 (exhibit A129), Mr Dymock of DOCEP advised Mr Holbrook that Mr Holbrook could not carry on business as a finance broker in the absence of a licence, but that he could enter into a contract with a licensed finance broker for the licensed broker to do the work on a consultancy basis.

279 By letter of 20 January 2006, Mr Dawson's solicitor complained to the liquidator that the property of FRC had not been recovered from Crystal (exhibit A131). The letter stated that unless the position was remedied in a short time frame, an application to the Supreme Court would be made.

280 The solicitors for the provisional liquidator responded that day (exhibit A132). The letter suggested that in the circumstances there was little option but to accept an undertaking from Mr Coombs to protect the provisional liquidator's rights of access to the company property.

281 On 20 January 2006, Mr Coombs gave Mr Holbrook a list of pending files (exhibit A145) and an estimate of costs to complete the pending work for FRC (exhibit A144).

282 By letter of 20 January 2006, Westate Finance informed the provisional liquidator that it was willing and 'very capable' of managing an additional 300 files from FRC (exhibit A130).

283 At around this time, Mr Holbrook appointed valuers to come to the offices of Crystal to complete a list and valuation of the FRC furniture and equipment in Crystal's possession. This was completed around 23 January 2006 (exhibit A135).

284 By letter of 23 January 2006, Mr Dawson's solicitors again expressed concern that Crystal had not delivered up the property of FRC (exhibit A136).

285 On 23 January 2006, Mr Holbrook asked Mr Coombs to sign an acknowledgement as to the FRC files and property and to undertake to provide access and delivery upon his direction. Mr Coombs signed as requested. See exhibits A138 A139.

286 On 24 January 2006, PLAN wrote stating that it would continue to pay commissions to FRC. The provisional liquidator forwarded that letter to Mr Dawson (exhibits A139A, A140).

287 By letter of 24 January 2006 (exhibit A141), the provisional liquidator sought advice from DOCEP as to whether DOCEP approval was required for Crystal to undertake FRC's work in progress. The following day an officer of DOCEP stated there was no requirement for approval (exhibit A143).

288 By letter of 25 January 2006, Mr Dawson's solicitors wrote to the provisional liquidator expressing further concern and requesting an update (exhibit A142).

289 On 27 January 2006, the provisional liquidator wrote to both Mr Coombs and Mr Dawson (exhibit A147). The letter sought to make progress in resolving the impasse regarding the work to be done on FRC's work in progress. In particular, there were issues about which finance broker should complete the work. The letter proposed a meeting on 31 January 2006.

290 Also on 27 January 2006 (exhibit A148), Mr Holbrook requested a list of all files not yet settled which were the subject of the company's agreement with Interstar.

291 On 31 January 2006, Mr Coombs provided a loan progress report to the provisional liquidator (exhibit A150).

292 On 31 January 2006, a meeting was held between the provisional liquidator, Mr Dawson, Mr Coombs and solicitors for each of those parties.

293 Mr Coombs says, and it is not in dispute, that the liquidator's solicitors' letter of 31 January 2006 (exhibit A151) accurately summarises what was discussed and agreed at the meeting (exhibit 1A [614]). Among other things:

(a) by 6 February 2006, Mr Coombs would provide the liquidator an uptodate list of FRC's work in progress as at 31 December 2005 (WIP), ie a list of all active but not yet settled finance applications. The list was to set out the state of the various finance applications;

(b) Crystal would continue until 10 February 2006 to service the FRC WIP files in its possession and pay to FRC all commissions derived from that work, bearing the administrative costs of doing that work; and

(c) subject to agreement by FRC clients, the parties would work towards an agreement to split FRC's WIP files and completed files, to be reached (if possible) by 10 February 2006.

294 Mr Coombs says that at the meeting the provisional liquidator asked Mr Coombs to provide an uptodate WIP list. Mr Holbrook said that by WIP he meant an active but not yet settled finance application being handled by FRC as at 31 December 2005. Mr Coombs says that he agreed with this because it recognised the period before an application was lodged (exhibit 1A [616]).

295 On 6 February 2006, Mr Coombs wrote to the provisional liquidator (exhibit A159). The letter enclosed a loan progress report (exhibit A155); a missing files report (exhibit A157) and a retained files list (exhibit A156).

296 Apart from the question of remuneration, the terms of this agreement continued to govern work done by Mr Coombs and Crystal from January 2006 through to December 2006.

297 There is an issue between the parties as to the proper construction of the agreement. I will identify and resolve the question of construction in section 6.2 in the course of dealing with the alleged breaches of the Liquidator's Agreements or fiduciary duties flowing from it.

298 By facsimile of 7 February 2006 (exhibit A161), the provisional liquidator informed Mr Dawson that his employment with FRC was terminated. The plaintiff says that no such letter was sent to Mr Coombs, indicating that his employment with FRC continued. I do not accept that. In my view, Mr Coombs gave notice from 31 August 2005 on, that he would resign his employment with FRC from 31 December 2005.

299 By letter of 7 February 2006 (exhibit A162), the provisional liquidator wrote to Mr Dawson and Mr Coombs. The letter set out some history and explained the basis on which the WIP files would be made available to Mr Dawson, including that copies were to be made.

300 Soon after this, Mr Dawson inspected the company's files. He produced a list of files that were missing. The provisional liquidator sent this list to Mr Coombs (exhibit A166).

301 Mr Coombs responded to this list (exhibit A167).

302 The parties did not agree how to divide up the assets of FRC between them by 10 February 2006 (exhibit 1A [630]).

303 On 13 February 2006, Mr Dawson's solicitor wrote to the liquidator complaining that Mr Coombs was managing the business and assets of FRC, contrary to the intent of the orders of the court (exhibit A168).

304 The provisional liquidator wrote again to Mr Dawson and Mr Coombs on 13 February 2006 (exhibit A169). The letter advised that the provisional liquidator intended to:

(a) invite from Mr Dawson, Mr Coombs and other third parties written offers to purchase the company's assets, including WIP and pending files; and

(b) invite from Mr Coombs, Mr Dawson and other third parties written offers to bear the administrative costs associated with completing the current WIP and pending files through to settlement.

305 The letter stated that, pending settlement, Crystal was to continue to service the FRC WIP pending files with all commissions payable to FRC and Crystal bearing the administrative costs.

306 By letter of 14 February 2006 (exhibit A171), Mr Coombs' solicitor advised the provisional liquidator that Mr Coombs was not willing to do the FRC WIP work while bearing all costs of carrying out the work. There followed offers and counteroffers as to a weekly fee (exhibit A172 A175). The parties agreed a fee of $5,000 per week (exhibit A177).

307 Thus, the liquidator chose to engage Crystal as the broker to do the remaining work on FRC's active files.

308 By then, the liquidator had discussed with Mr Dawson whether he was interested in having the finance broking company, associated with him and his son, do the FRC WIP work. Mr Dawson said that he did not wish to do so. Exhibit A181 records this consultation, which was never denied by Mr Dawson.

309 On 15 and 17 February 2006, there was correspondence between the solicitors for Mr Dawson and the solicitors for the provisional liquidator, with Mr Dawson requesting information (exhibit A176 and A181).

310 In early March 2006, an issue arose between Mr Coombs and the provisional liquidator about whether the $5,000 per week was inclusive of GST. Mr Coombs' solicitor wrote a letter giving notice of termination and offering to do the work for $5,500 (exhibit A187). The provisional liquidator agreed (exhibit A188).

311 On 9 March 2006, Mr Coombs prepared a loan progress report for FRC's files (exhibit A189).

312 By letter of 13 March 2006 (exhibit A190), the solicitor for the provisional liquidator wrote a lengthy letter to Mr Coombs' solicitor. The letter:

(a) referred to the undertaking in Mr Coombs' affidavit of 16 January 2006 to account to FRC for all funds received and deductions made;

(b) sought confirmation from Mr Coombs in respect of a number of matters raised, including the plant and equipment in the possession of Crystal, the clients to whom the circular email of January 2006 (exhibit A101A) was sent by Crystal, whether Mr Coombs had caused enquiries received through FRC's website to be accessible to Crystal and, if so, asking for details of the enquiries received and business generated;

(c) stated that the provisional liquidator was aware that Mr Coombs had caused FRC's phone number to be diverted to a message that provides callers with Crystal's number, stating that the liquidator required the message to be changed so as not to divert callers to Crystal;

(d) requested various forms of accounting and information;

(e) sought confirmation that neither Crystal nor Mr Coombs had received any commission in connection with FRC's pending files, finance enquiries first made to FRC before 1 December 2006, or FRC's clients or contacts;

(f) sought confirmation that neither Crystal nor Mr Coombs were soliciting or canvassing any of the people the subject of FRC's pending WIP files at 31 December 2005, persons the subject of finance enquiries or applications first made to FRC before 1 January 2006, or FRC's clients or contacts; and

(g) queried the commercial justifiability of Mr Coombs' proposal to do the calculations of Club Loans commission for a fee of $1,000 and suggested that that proposal may involve Mr Coombs taking advantage of his knowledge as a director to advantage himself and disadvantage FRC.

313 On 14 March 2006, Mr Coombs informed the provisional liquidator, by letter, that he (the provisional liquidator) was the only person with the authority to reverse the telephone diversion (exhibit A191).

314 By letter of 17 March 2006, the liquidator's solicitor requested a substantive response by 20 March 2006 to the matters raised in the letter of 13 March 2006 (exhibit A193).

315 Mr Coombs' solicitor responded by letter of 20 March 2006 to the provisional liquidator's solicitor (exhibit A194). The letter:

(a) stated that Mr Coombs was shocked and dismayed by the contents of the facsimile;

(b) denied every implication of breach of duty or wrong on the part of Mr Coombs or Crystal;

(c) gave five days notice to the provisional liquidator to terminate the agreement to do the work associated with the FRC WIP;

(d) stated that all FRC property is available for collection by the provisional liquidator;

(e) said that at all times Mr Coombs has been ready and willing to give a full account in respect of moneys received by Crystal from FRC WIP files 'including those files where the existing FRC applications have lapsed and were rewritten'; and

(f) stated that neither Mr Coombs nor Crystal had received any commission in respect of any FRC settled file since 1 January 2006.

316 Mr Coombs and his solicitor met with the provisional liquidator and his solicitor on 27 March 2006. They discussed the contents of the letter of 13 March 2006. The upshot of the meeting was that Crystal continued to carry out the WIP work.

317 Thereafter, there was no further response or reference to the provisional liquidator's solicitors' letter of 13 March 2006.

2.27 April to December 2006: loan progress reports and sale of FRC's assets

318 On 31 March 2006, Mr Coombs' solicitor wrote to the provisional liquidator (exhibit A195). The letter offered for Mr Coombs to calculate the Club Loans commissions for a fee of $5,000 per month.

319 By letter of 3 April 2006 (exhibit A196), the provisional liquidator accepted Mr Dawson's offer to calculate the Club Loans commissions, made in the letter of 28 March 2006 (not in evidence). See also exhibit A197.

320 By letter of 15 May 2006 (exhibit A204), the provisional liquidator requested reports from Mr Coombs in relation to:

(b) the names of the files that have settled and the amounts paid;

(c) for each file for which no funds had been paid and none are expected, the reasons why that is so; and

(d) for each file that was expected to settle, the anticipated date of settlement and the amount of funds payable.

321 The letter requested the reports by the end of that week. It also sought advice in relation to the return of the files in the Melbourne office.

322 By letter of 16 May 2006, Mr Coombs advised that the Melbourne files were available for collection from Crystal's Canning Vale office (exhibit A207).

323 By letter of 22 May 2006, Mr Coombs responded to the provisional liquidator's request for reports (exhibit A208). The letter attached a number of reports. It also stated that the information was not complete, setting out a number of reasons for the difficulties in completing the task.

324 On 29 May 2006, an order was made that FRC be wound up, with Mr Holbrook appointed as liquidator (exhibit A209). (That does not appear to have been contested.)

325 On 6 June 2006, Mr Coombs sent to the liquidator the first payment of FRC commissions received by Crystal on behalf of FRC. Crystal paid the sum of $43,157 to FRC (exhibit A214). A further sum of just over $10,000 was paid on 5 July (exhibit A231A).

326 In June 2006, the liquidator prepared an information memorandum relating to FRC's finance broking assets and inviting offers to purchase by 13 July 2006 (exhibit A218).

327 In midJune 2006, Mr Coombs prepared loan progress reports for FRC for Victoria and Western Australia and sent them to the liquidator (exhibits A214 A217).

328 Mr Coombs sent further loan progress reports in July 2006 (exhibits A229, A232, A234, A235) and in August 2006 (exhibits A242 A245, A247).

329 In September 2006, the plaintiff and the liquidator agreed that the plaintiff would purchase FRC's assets (exhibits A251, A274). I will outline some of the terms of the sale agreement in section 9 when I deal with issues relating to the assignment by FRC of its causes of actions against Mr Coombs and Crystal.

330 By letter of 11 October 2006, the liquidator advised Mr Coombs that an offer had been accepted for FRC's assets and that settlement was due on 24 October 2006 (exhibit A260A).

331 On 19 October 2006, Mr Dawson's application for a finance brokers licence was rejected on the basis that the Board was not satisfied that he was a fit and proper person to hold a licence (exhibit A266A). Evidence of this was tendered to demonstrate that, at the earlier relevant times in 2005, the concerns of DOCEP and the Board were of substance and not merely ephemeral. It was not tendered as evidence of Mr Dawson's character or credit (ts 944 945).

332 On 24 October 2006, the Supreme Court gave approval under s 477(2B) of the Corporations Act 2001 (Cth) for the liquidator to enter into the sale agreement between FRC, the plaintiff and Finance Edge (exhibit A269).

333 On 17 November 2006, the liquidator proposed to Mr Coombs that Mr Coombs do the WIP work on the remaining files for $450 per week plus GST (exhibit A277). In response, Mr Coombs gave five business days notice to terminate the management agreement between himself and FRC, and advised that the WIP files would be available for collection on 4 December 2006 (exhibit A285).

334 Consequently, the WIP agreement came to an end on 4 December 2006.

335 By letter of 14 December 2006, the liquidator wrote to FRC's remaining WIP clients and other clients advising that settlement of the sale was expected on 20 December 2006 and seeking consent for Finance Edge to take over from FRC (exhibit A287A).

336 By letter of 20 December 2006, the liquidator's solicitor wrote to PLAN (exhibit A289). The letter enclosed the schedule to the sale agreement. The letter stated that as the sale agreement included a sale of all of FRC's rights held from 1 September 2006, if the plaintiff so wished it could contest Crystal's entitlement to receive commissions on those files which Crystal had progressed in its own name. The letter was received in evidence on the basis that it was not evidence of the correctness of that assertion (ts 431 432). The letter also identified schedules in respect of which commissions after 1 September 2006 should be paid to the plaintiff.

2.28 2007 - 2008: further adjustments and payments

338 After acquiring new software in late 2006, over the next year or so Mr Coombs redesigned the reports which he could produce from his database. In 2008 he did a further summary identifying discrepancies between what had been paid to FRC and what the summary showed should have been paid (exhibit 1A [707] [710]).

339 In April 2008, Mr Coombs produced a report entitled Commissions Payment Details (exhibit A300A) and a summary of the commissions received by Crystal with appropriate adjustments (exhibit A300B).

340 As a result, after discussion with Mr Holbrook, Mr Coombs paid adjustment amounts to FRC in respect of 2006 commissions and to the plaintiff and Finance Edge in respect of commissions from 2007 (exhibits A301A A301G). I will say more about this in dealing with Transaction 56 in section 8 of these reasons.

341 Some payment continued to be made in error by PLAN to Crystal. In respect of those, Mr Coombs caused a further payment to the plaintiff and Finance Edge in August 2008 (exhibit A301I).

2.29 Further observations on Mr Dawson's credit

342 In concluding this section of my reasons, I will expand on my earlier observations as to why I do not accept Mr Dawson's evidence where it conflicts with the evidence of another witness.

343 As I have said, in my view, Mr Dawson was prepared to make insupportable statements, often of a categorical nature, in his witness statement and oral evidence in order to support his case. His evidence that, from July 2005, he 'constantly' told Mr Coombs that he wanted FRC to continue is an example of this. There are other examples.

344 First, in par 41 of exhibit C2, Mr Dawson states that, among other things, no concern was ever expressed to him by the Board about the use of the FRC letterhead in writing to the bank to authorise the making of a progress payment for the East Perth property. That is a patently false statement. It was a matter on which the Board expressed concern in its letters to him in 2006 (see exhibit A196E), leading to the finding by the Board that he was not a fit and proper person to hold a finance brokers licence (see exhibit A266A). Nevertheless, Mr Dawson adhered to that evidence (ts 650). In oral evidence he said that the Board 'never ever contacted me or reprimanded me with regard to that' (ts 652). However, Mr Dawson did accept that the Board mentioned that matter to him when they gave their reasons for rejecting his licence (ts 652).

345 Secondly, in par 47 of exhibit C2, Mr Dawson states that Mr Coombs 'said he had an action plan and a deadline but he never gave me any details. The only information about this I ever received was in letters from the solicitors'. These assertions are directly contradicted by Mr Dawson's own evidence in par 38.12 of the same statement. There he says Mr Coombs handed him an action plan. See exhibit A44. He eventually conceded that par 47 was wrong (ts 563 566).

346 There are other insupportable statements in Mr Dawson's witness statements.

347 In par 95.4 of exhibit C1, Mr Dawson asserted that on or about 1 January 2006, Mr Coombs removed the server from FRC's premises. His evidence when this was tested in crossexamination revealed that, at best, he had no basis for this assertion (ts 635 639). Mr Dawson said that he does not understand computers and thought that, because as far as he could tell all the computers were gone, that included the server (ts 635). He accepted that his list of things taken (exhibit A101) did not mention a server (ts 636). He said that there was a reference to the hard drive of the computer (ts 636). Even when evidence that the server was located at FRC's Osborne Park premises in January 2006 was put before him (ts 637), he did not withdraw the assertion. Mr Dawson accepted that he had operations staff access the FRC computer to obtain contact details for clients, enabling him to ring 'hundreds and hundreds' of clients in January 2006 (ts 639).

348 Paragraph 62 of exhibit C2 asserts that on 29 January 2013, through the discovery process, he became aware for the first time that on 2 or 3 January 2006 the defendants caused the diversion of FRC's Telstra telephone and fax numbers to Crystal (referring to exhibit A101G). In crossexamination, Mr Dawson accepted that the statement that he first became aware of this in January 2013 was a mistake. He accepted that he knew about it from January 2006. When invited, he could offer no explanation as to how it came about that he had made this assertion (ts 641).

349 In his evidence, Mr Dawson sought to deny any knowledge of or involvement with Finance Edge, his son's company. In my view, his evidence on this topic was unsatisfactory and damaging to his credibility.

350 The effect of his evidence was that he never had any intention of being involved with Finance Edge (ts 577 579). Mr Dawson described his son as applying for a finance brokers licence for Finance Edge 'on his own' (ts 613). Mr Dawson denied that his son was applying for the licence as part of Mr Dawson's plan to set up and operate a new finance broking business through Finance Edge (ts 613). He said that he had 'no intention of being with [his son] at all ... and had no inclination of joining him in Finance Edge, never' (ts 613).

351 It is clear from cl 15 of Mr Dawson's settlement process document that he contemplated and proposed that a new company would be set up in the names of Mr Dawson and his son, Galvin (exhibit A50). Thus, as at 30 September 2005, Mr Dawson's intention was for both he and his son to be involved in the new company.

352 That invites attention to the question of why and when that changed. Mr Dawson's evidence offers no explanation.

353 The probabilities favour the conclusion that Mr Dawson dropped out of being involved with the new company because of the problems he was having with his application for a finance brokers licence, and the complaint against him.

354 I find that Mr Dawson was well aware of Finance Edge. The original intention was that he and his son would be directors and that it would be the vehicle for the new business following the split of FRC. Mr Sheppeard's evidence shows that Finance Edge was the vehicle for the new business (exhibit 3 [60]). Mr Dawson only ceased to be involved as a director of Finance Edge because of the problems he was having obtaining his finance broking licence.

355 Further, as I have said, it seems to me that in a number of instances Mr Dawson said and wrote things in the course of 2005 and 2006 which were, at best misleading and reflect adversely on his credit.

356 I have already made findings to that effect about the statement in Mr Dawson's solicitors' letter of 3 January 2006 that the complaint against him had been dismissed (exhibit A101B, point 3).

357 In his evidence, Mr Dawson insisted that it was his understanding that the complaint was dismissed by the Board (ts 609). He went on to say that at the time he had had no response from the Board (ts 609). In fact, in late December, his previous solicitor had been informed by telephone and in writing that the issues relating to the application for a licence would not be resolved in the short term and that a decision was likely in the next six weeks (exhibit A97). That was Mr Dawson's understanding (ts 608). By then, Mr Dawson was well aware that his licence application was being held up pending the ongoing investigation of the complaint concerning the East Perth redevelopment. He was told this as early as 17 August 2005 by an officer of DOCEP (as Mr Dawson accepted: ts 569). It was reiterated in further phone calls between Mr Dawson and DOCEP officers on 9 September and 14 September (exhibit A42B) and in early October 2005 (exhibit A50A; ts 591).

358 In my view, the paragraph of Mr Dawson's solicitors' letter I have quoted was misleading. It conveyed the impression that Mr Dawson's licence application would be dealt with as a matter of course. That was contrary to the facts known to Mr Dawson.

359 I have already made similar observations about the statement in Mr Dawson's affidavit of 10 January 2006 that he was not aware of any reasons why a licence to operate as a finance broker would not be issued to him.

361 First, in about October 2005 he told Mr Colley, a member of the Finance Brokers Supervisory Board, that he had no idea why his (Mr Dawson's) application for a finance brokers licence was being held up (exhibit A50A). However, Mr Dawson accepted that he had, in the time leading up to that, been told by more than one officer of DOCEP that his licence application was being held up pending an investigation into the East Perth development (ts 590 591).

362 Next, I accept Mr Sheppeard's unchallenged evidence that in late 2005 Mr Dawson told him that it was unlikely that Mr Coombs would keep the Victorian office going (exhibit 3 [54] [55]). That was an untrue statement for which Mr Dawson had no basis. I find that it was made with the intention of misleading Mr Sheppeard to make a decision to work for Mr Dawson's business.

363 In his letter to clients dated 11 January 2006 (exhibits A108 and A109), part of what Mr Dawson told clients was that the directors of FRC 'had not ... made any move to cause FRC to cease to trade'. In circumstances where Mr Dawson was well aware of a pending application by Mr Coombs for the appointment of a provisional liquidator, that was a misleading statement. To my mind, Mr Dawson's attempt to explain this, that he was 'not giving consideration' to the application for the appointment of a provisional liquidator, was, unconvincing and unsatisfactory (ts 644).

364 Next, Mr Dawson admitted that, by letter of 28 November 2005 (exhibit A77), he falsely told clients of FRC that the relevant bank had unconditionally approved the loans referred to in the letter (ts 646). His explanation was unsatisfactory. In effect, he said that otherwise the clients were going to lose their property and he 'knew' that he would have the ability to be able to get their finance (ts 646).

365 I do not accept Mr Dawson's attempts (ts 647 648) to deflect responsibility for this on to Mr Coombs.

366 Finally, Mr Dawson submitted a document in July 2005 to DOCEP in support of his licence application (exhibit A30A). The document stated that Mr Wainwright was carrying on FRC as his business and that he undertook to the Board to provide Mr Dawson with ongoing mentorship and training. That document plainly was calculated to create a false and misleading impression. Mr Dawson was not able to explain his conduct in lodging this document in support of his application (ts 649 650). He asserted, incorrectly, that there was 'no mention of FRC' (ts 650). He also said that he needed to state a mentor and that he was 'merely trying to get [his] licence' (ts 650).

367 For these reasons, and the reasons I have already given, I do not accept Mr Dawson's evidence wherever it conflicts with other evidence in the case.

368 I turn next to outlining the plaintiff's case, as pleaded in the statement of claim and as articulated in the plaintiff's written opening submissions (POS).

369 The plaintiff pleads in par 7.2 of the statement of claim that, as at 31 December 2005, FRC had the following assets:

(a) unpaid upfront commissions on loans which had settled;

(b) trail commissions to be paid on existing loans;

(c) anticipated upfront commissions and trail commissions on loans which had been brokered, agreed in principle by the lender, but not yet settled;

(d) anticipated upfront and trail commissions on loans on which FRC had done work, but which had not yet been agreed in principle or settled (this and the previous category being referred to as work in progress);

(e) office equipment, client files, computers, computer software and electronic database of clients including contact details, personal financial information and other records;

(g) goodwill in the form of experienced staff members and client relationships from which FRC could reasonably anticipate earning further income.

3.2 Defendants' use of FRC's property, and other conduct

370 The plaintiff claims that the defendants made use of FRC's property without its authority or consent. It pleads (SC 8.1) that the defendants:

(a) removed FRC's property, including hard and soft copy client files and office equipment from the WA premises to the business premises of the first defendant and thereafter used it for the benefit of the defendants (8.1.3);

(b) solicited and commenced servicing the WA clients of FRC for the benefit of the defendants (8.1.4);

(c) began occupying the Victorian premises (8.1.5);

(d) solicited and commenced servicing the Victorian clients of FRC for the benefit of the defendants (8.1.6); and

(e) diverted FRC's telephone and fax numbers to Crystal (8.1.7).

371 The plaintiff also complains that the defendants sought the accreditation of Crystal to carry on business as finance broker with Mr Coombs to be the person in bona fide control, and in December 2005, sought accreditation for Crystal with Club Loans (SC 8.1.1 and 8.1.2).

372 Further, the plaintiff complains that the defendants, without authority or consent of FRC, used FRC's property and goodwill, and took advantage of the diversion of telephone numbers and occupation of the Victorian premises in managing FRC's affairs for and on behalf of FRC, including its work in progress and goodwill in January 2006 (SC 8.2).

373 The plaintiff also asserts that the defendants used FRC's property, premises, staff and goodwill to secure accreditation as a broker or agent with The Investors Club, Interstar and others and to secure referrals (SC 8.3).

374 The plaintiff pleads that from 31 December 2005, FRC used FRC's property, premises, goodwill and accreditation to arrange loans for investors of FRC or investors that FRC would ordinarily expect to have arranged loans for (SC 8.4).

375 The plaintiff pleads that in late January 2006 FRC, by its provisional liquidator, agreed to engage the defendants to manage FRC's work in progress as agent for and on behalf of FRC. A similar agreement was made in February 2006, under which the defendants were paid remuneration, and again in late May 2006 after the liquidator was appointed. These are referred to as the Liquidator's Agreements (SC 9).

376 The plaintiff pleads that various duties were imposed on or undertaken by Mr Coombs:

(b) contractual and equitable duties, or fiduciary duties, arising from his position as general manager and senior employee;

(c) like duties arising from the defendants assuming the position of acting for FRC from 1 January 2006 to 16 January 2006; and

(d) duties arising under the agreements with the liquidator after 16 January 2006.

377 The plaintiff pleads (SC 11) that as director of FRC, Mr Coombs owed a fiduciary duty to FRC:

(a) in any matter falling within the scope of his office, not to have an interest that conflicted, or may possibly conflict, with his duty to the company, except with the company's fully informed consent;

(b) in any matter falling within the scope of his office, not to have an inconsistent engagement with a third party, except with the company's fully informed consent;

(c) not to misappropriate the company's property for his own or a third party's benefit;

(d) not to misuse his position for his personal or a third party's possible advantage, except with the company's fully informed consent;

(e) not to divert any profitmaking opportunity in the same line of business as the company's present or prospective business, to himself or some third person, except with the company's fully informed consent; and

(f) to account for any gain or benefit obtained or received by reason of, or through use of, his fiduciary position, or opportunity or knowledge resulting from his position.

378 The terms said to be implied in Mr Coombs' employment agreement are set out in par 10 of the statement of claim. These include that he would:

(a) act with good faith and fidelity in the best interests of FRC in the performance of his work, and not in furtherance of his own interests or that of a third party;

(b) disclose to FRC all material information in his possession acquired while acting in the scope of his engagement;

(c) render to FRC a true and full account of his dealings with clients of FRC;

(d) not solicit clients of FRC for a future time after his employment had ceased, or take steps to facilitate subsequent solicitation of clients after the termination of his employment with FRC; and

(e) not take or make use of FRC's property, including its list of customers.

379 The plaintiff's case distinguishes between three periods of time: first, prior to 1 January 2006; secondly, 1 to 16 January 2006; and from 16 January 2006 on.

380 In the period from late 2005 to 31 December 2005, the plaintiff claims that Mr Coombs breached his duties in that he:

(a) acquired and set up Crystal, and caused it to acquire property and obtain a licence (SC 14.1, 14.1A; POS [56]);

(b) commenced Crystal's business in competition with FRC's business (SC 14.1 - this was abandoned in closing submissions: ts 1185);

(c) arranged for FRC's business certificate to have imposed on it a condition that, in effect, meant it would lapse on 31 December 2005 (SC 14.1AA, POS [57]);

(d) took no steps to enable FRC to secure a finance broking licence for the period after 31 December 2005 (SC 14.1AA);

(e) took the finance broking business opportunity afforded to Mr Coombs and Crystal by Crystal's business certificate when it was an opportunity properly for FRC within the scope of FRC's line of business (POS [57] [58]; ts 312 314). Section 40 of the FBC Act prevented Mr Coombs from being in bona fide control of both Crystal and FRC. The plaintiff claims that by establishing the business of Crystal and obtaining a licence in respect of which he was in bona fide control of Crystal, Mr Coombs breached his duties in that he thereby precluded himself from holding a finance brokers licence necessary for FRC to carry out its business. That had the effect, as Mr Coombs knew, that FRC would not be licensed (POS [65]; ts 325 327, 332 336).

(f) sought and obtained accreditation of Crystal with The Investors Club, using FRC's property (SC 8.3, 14.1D), thereby diverting an opportunity that was within FRC's business (POS [59], [74], [75]);

(g) took property of FRC to Crystal's offices, including client data, client files, telephone and fax numbers (SC 8.1, 14.1D; POS [60]) and used FRC's property for the benefit of Crystal and Mr Coombs;

(h) solicited employees of FRC to leave FRC and commence employment with Crystal (SC 14.1C; POS [61]);

(i) applied for the appointment of a provisional liquidator to FRC (SC 14.1B; POS [62] - this was abandoned during the defendants' opening submissions: ts 847);

(j) misappropriated the whole of FRC's Victorian office to Crystal (SC 8, 14.1D; POS [63]); and

(k) solicited clients of FRC or persons referred from The Investors Club or Interstar or associated people, or did work of arranging or rearranging loans for them (SC 8, 14.2).

381 On 1 March 2013, the plaintiff filed and served an outline of submissions on the Transactions. That outline sought to articulate the plaintiff's case in relation to each of the Transactions.

382 On the last day of the trial (12 March 2013), the plaintiff filed an outline of submissions on the Transactions which overtook the submissions of 1 March 2013. I will refer to the submissions of 12 March 2013 as the Plaintiff's Transaction Submissions or PTS.

383 The Plaintiff's Transaction Submissions begin with what purports to be a summary of the claims made by the plaintiff (PTS [3] [15]). Given their timing, to the extent that PTS articulates any claim beyond what is pleaded and or is in the plaintiff's opening outline of submissions, it would be unfair to the defendants to determine such claim adversely to them. But I do not read this summary as travelling beyond, in any significant way, what had been already articulated by the plaintiff.

384 In the Plaintiff's Transactions Submissions, shorthand names are given to the plaintiff's various claims relating to the alleged breaches of duty. At times I will use these shorthand terms. The PreEmptive Claim is the claim I have summarised in par (a); the Crystal Business Certificate Claim is in pars (c) (e); The Investors Club Claim is in par (f); the Misappropriation of the Victorian Business Claim is in par (j); the FRC Database and Appropriation of FRC Files Claim and the FRC Contact Details Claim are in par (g).

385 In the period from 1 to 16 January 2006, the plaintiff alleges that substantially similar conduct on the part of Mr Coombs continued (SC 19). See also POS [70].

386 Further, the plaintiff claims that by their conduct, the defendants effectively appointed themselves agent for FRC in conducting FRC's work, with the result that the defendants owed FRC the usual fiduciary duties of an agent (POS [48.5]). In the PTS this claim is referred to as the 'Agency Claim'.

387 Further, the plaintiff pleads that the defendants sent out letters to clients in FRC's database requesting that they consent to Crystal conducting all their existing and future finance requirements, and when signed authorities were received, transferred the clients from FRC to Crystal (SC 19.10, 19.11). In PTS, this claim is referred to as the Authority to Act as Agent of FRC Claim. Although this claim was not articulated fully in the plaintiff's opening, in my view, part of what was litigated at the trial was whether Crystal was liable to account for commission on a transaction on the basis that it sought and obtained authorities from clients to permit Crystal to use information on the footing that Crystal was doing the work as agent for FRC (see, for example, ts 1193 1195).

388 The plaintiff's case in relation to the period from 16 January 2006 to 21 December 2006 is less clear. Paragraph 23 of the statement of claim pleads that in that period the defendants continued to keep and use FRC's property and goodwill, including the telephone diversion, for the purpose of managing FRC's work in progress and goodwill in the period in the performance of the Liquidator's Agreements. Given that this occurred with the consent of FRC's provisional liquidator or liquidator, this, in itself, is not a claim of breach.

389 The plaintiff pleads that in breach of the Liquidator's Agreements, and in breach of the duties as a director which are said to continue notwithstanding the appointment of the provisional liquidator and liquidator, Crystal, at the direction of Mr Coombs, took the opportunity to arrange loans for people on FRC's databases or who had made enquiries of FRC, or who were referred to Crystal by The Investors Club or Interstar. The plaintiff alleges that the defendants stated to the liquidator that the application for finance had failed or had lapsed or fallen over or not been proceeded with when this was untrue (SC 24). In PTS, these claims are referred to as the Liquidator's Agreement (breach of fiduciary duty) Claim.

390 Paragraph 24 of the statement of claim refers to the document 'Plaintiff's List of Transactions and Facts with Defendants' Response dated 21 October 2011' (the Transactions Document October 2011). That document is said to contain examples of the transactions complained of in par 24.

391 I will say more about the Transactions Document October 2011 in explaining the trial of preliminary issues in this action in the next section of these reasons.

392 Further, in the alternative, the plaintiff claims that the defendants have failed to manage FRC's WIP by failing to pay appropriately under the Liquidator's Agreements (SC 27A). In PTS these claims are termed the Liquidator's Agreement (breach of contract) Claim.

393 Finally, there was a further alternative claim that by retaining the work in progress payments the property of FRC, Mr Coombs and Crystal were unjustly enriched at the expense of the plaintiff (SC 27B). This claim was abandoned (ts 783, 1209).

394 Crystal is said to have made unauthorised gains by reason of Mr Coombs' breaches of duty. It is pleaded that Crystal knowingly assisted Mr Coombs and was in knowing receipt of benefits obtained in breach of fiduciary duty. See SC 16, 17, 21, 22, 26, 27 and 29. It is clear, and the plaintiff accepts, that its claim against Crystal is put on the basis of the two limbs of Barnes v Addy (1874) LR 9 Ch App 244, and on no other basis (ts 452 453, 1256).

395 At the strategic conference, counsel for both parties identified that the plaintiff's claim would involve giving detailed attention to many thousands of individual finance broking transactions conducted by Crystal. Both parties agreed that it would be efficient and in the interests of justice for the parties to confer to identify a select number of individual transactions to be the subject of a trial of preliminary issues. The essential notion was that individual transactions would be identified that would require resolution of the issues of substance between the parties. Once that was done, the parties would be able to attempt to resolve matters between them by applying the decision on the preliminary issues relating to the selected transactions to all of the transactions.

396 Conferral to identify an agreed list of transactions evidently proved difficult and timeconsuming.

397 By November 2011, the parties agreed a list of more than 60 transactions to be the subject of the trial of preliminary issues. On 4 November 2011, orders were made for a trial of preliminary issues in respect of the defendants' liability, as pleaded in the statement of claim, in respect of the Transactions Document October 2011. The parties proceeded to prepare for trial of those preliminary issues.

398 In the year that followed, invitations, requests and directions from the court in the course of directions hearings and a further strategic conference for the parties to confer with a view to refining the transactions to be tried, and to narrow the issues in respect of those transactions, proved, it would appear, fruitless.

399 In the week or two before trial, the plaintiff proposed a reduced list of some 27 transactions to be the subject of the trial of preliminary issues. There was no opposition to that reduction in the scope of the transactions to be the subject of the trial of preliminary issues.

400 On 4 March 2013, I discharged the order of 4 November 2011 for trial of preliminary issues and, in its place, ordered that the defendants' liability to the plaintiff as pleaded in the statement of claim in respect of the document described as the 'Amended Plaintiff's Final List of Transactions with the Defendants' Response dated 21 October 2011 with Loan Transactions Deleted' be determined as a preliminary issue. I will call this amended list of transactions the Transactions Document February 2013. It is reflected in the papers for the judge as at 21 February 2013. I will refer to the 27 individual transactions, the subject of the order for trial of preliminary issues as the Transactions.

401 Regrettably, by the time the trial commenced on 18 February 2013, the parties were a very long way short of concluding their conferral about the facts relating to the Transactions. That was so notwithstanding repeated invitations, requests, and directions from the court for the parties and their counsel to confer with a view to agreeing facts or narrowing the issues relating to the Transactions.

402 It was necessary to interrupt the continuity of the trial in order for this process to be properly undertaken.

403 The result of this was that, after the trial had been adjourned for a few days, on 5 March 2013, the parties provided a document entitled 'Further Amended Plaintiff's Final List of Transactions and Facts of 5 March 2013'. In that document (which I will call the Transactions Document March 2013), each party set out its factual assertions in relation to the Transactions, and the opposing party stated whether it agreed, or not, with each proposition.

404 The parties agreed that the trial proceed on the basis that the parties agreed the facts to the extent stated in this document (ts 735 737). From time to time, in the course of the hearing, some amendments were made to it, which have been recorded on the document.

405 I turn to outlining the relevant legal principles.

5.1 The existence, scope and purpose of fiduciary duties

406 In Streeter v Western Areas Exploration Pty Ltd [No 2] [2011] WASCA 17 [364] [367], Murphy JA (with whose exposition of principle McLure P and Buss JA agreed) gave the following introductory overview of the law of fiduciary relationships.

The critical feature of a fiduciary relationship is that the fiduciary undertakes or agrees to act for or in the interest of another person. The fiduciary acts in a representative character: Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96 97.

The essence of a fiduciary relationship is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other: Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165, 196 197 [71].

Within the scope of the fiduciary relationship the fiduciary must give undivided loyalty to the person to whom the obligation is owed: Breen v Williams [1996] HCA 57; (1996) 186 CLR 71, 93, 108; Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 465. Within that scope, fiduciaries must subordinate their own interests to the interests of the other person to whom they stand in a fiduciary relationship: Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583, 590 (Latham CJ).

The undivided loyalty is secured by the general principle of equity concerning the obligation of a person in a fiduciary relationship to account for undisclosed personal benefits or gains. In Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178, 198 199 Deane J said:

'The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one "fundamental rule" embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the "use of fiduciary position" doctrine is but an illustration or part of a wider "conflict of interest and duty" doctrine (see, eg Phipps v Boardman [[1967] 2 AC, 123]; NZ Netherlands Society 'Oranje' Inc v Kuys [[1973] 1 WLR, 129]), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee: see Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd [(1958) [1958] HCA 33; 100 CLR 342, 350]. That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed.'

407 As can be seen from the passage quoted from Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178, the law of fiduciaries has two principal themes, often termed the conflict rule and the profit rule. See also Breen v Williams [1996] HCA 57; (1996) 186 CLR 71, 113 and Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 [178] and generally Streeter [64] [74] and [372] [393]. In this case, as in Streeter (see [449]), it is not necessary to decide whether the duty of a director to act bona fide in the best interests of the company and for proper purposes is fiduciary in character (compare Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157 [1978]).

408 In Streeter [65] and [78], McLure P left open the question of whether there is a business opportunity wider in scope than the conflict and profit rules.

409 The plaintiff relied on the statement of five fiduciary rules in Austin RP, Ford HAJ, Ramsay IM, Company Directors: Principles of Law and Corporate Governance (2005) [8.5] termed the conflict of interests rule, the conflict of duties rule, the misappropriation rule, the profit rule and the business opportunity rule. That statement was quoted by Owen J in The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1 [4496].

410 It is not necessary to decide in this case whether there is a separate business opportunity rule wider in scope than the profit rule and the conflict rule. That is because, on my analysis of this case, any separate business opportunity rule would not provide the plaintiff with any greater rights than it obtains through the conflict and profit rules.

411 The conflict rule is, in essence, that a fiduciary is under an obligation, without informed consent, not to promote their personal interest by making or pursuing a gain in circumstances where there is a conflict, or real or substantial possibility of a conflict, between their personal interests and those to whom the duty is owed: Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 [78]; Streeter [66], [372].

412 Liability would not arise where the interest of the fiduciary is remote or insubstantial: Streeter [373], citing Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 103, and Pilmer [83]. The same is true if the interest of the principal is remote or insubstantial. That is because, in either case, there is no real sensible possibility of a conflict of interest.

413 If a director has a positive duty (which may be non fiduciary) to pursue or acquire a particular benefit, opportunity, or property for the company, and seeks that benefit or opportunity or property for his private person, there will be a conflict of interest because the positive duty gives the company a relevant interest in the benefit or property: Streeter [68]. Otherwise, whether an opportunity was actually or likely to be available to the company can be a relevant consideration in determining whether the company has an interest which conflicts with that of the fiduciary: Streeter [78].

414 The profit rule is usually or often formulated by reference to an account of profits. In Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, 557 the High Court said that 'a fiduciary must account for a profit or benefit if it was obtained ... by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position'. See Streeter [73], [386].

415 In Streeter, McLure P made the following observations about the need, in a case where an account of profits is claimed, for a causal connection between the profit and the use of the fiduciary office in order that there be a breach of the profit rule:

As the relief sought in this case was an account of profits as a proprietary remedy (a constructive trust), it can be taken that Mr Streeter and Mr Cooper were prohibited by the profit rule from obtaining a profit by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. That is, the profit rule prohibits a fiduciary from misusing his position for his personal advantage: Chan v Zacharia (199).

Thus, where the relief sought is an account of profits, there must be a sufficient connection between the breach of the conflict or profit rule and the profit derived: Maguire v Makaronis (468). It is clear from the terms of the profit rule that there must be a causal connection between the profit and use of the fiduciary office. What is a sufficient connection between a profit and a breach of the conflict rule is not as clear. However, a mere temporal connection would seem to be inadequate [74] [75].

416 The necessary connection is that the profit was obtained 'by reason of' the fiduciary position or taking advantage of opportunity or knowledge derived from it: Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 468; Streeter [387].

417 In examining cases concerning whether there is a sufficient connection between a profit and a breach of the conflict rule, 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, and those where there is no such positive duty: Streeter [76]. Cook v Deeks [1916] 1 AC 554, Chan v Zacharia and Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, are all cases in the first category: Streeter [76].

418 I adopt Murphy JA's outline of the corporate opportunity cases discussed in Streeter [409] [444].

419 The purpose and policy of fiduciary law was outlined in the following passages in Warman, cited by Murphy JA in Streeter [397], [399].

The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves 'at a level higher than that trodden by the crowd' [Meinhard v Salmon (1928) 164 NE 545, 546 per Chief Justice Cardozo]. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage [Chan v Zacharia (198 199)].

Thus, it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken or that the fiduciary acted honestly and reasonably [Birtchnell v Equity Trustees, Executors & Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384, at p 409; Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583, at p 592; Consul Development (1975) 132 CLR, at p 394; Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; [1972] 2 All ER 162; Canadian Aero Service Ltd v O'Malley [1974] SCR 592; (1973) 40 DLR (3d) 371]. So, in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n, although the directors acted in good faith and in the interests of the company of which they were directors in taking up shares in a subsidiary which the company could not afford to take up, they were held accountable for the profit made on the sale of the shares. And, in Phipps v Boardman [1966] UKHL 2; [1967] 2 AC 46, the solicitor was held accountable for the profit he made, notwithstanding that he acted bona fide and in the interests of the trust and that the opportunity would not have been availed of but for his skill and knowledge (557 558).

...

As already explained, it is firmly established that the liability of a fiduciary to account for a profit or gain made in breach of fiduciary duty does not depend upon the person to whom that obligation is owed suffering a loss or injury [Birtchnell v Equity Trustees (408 409) per Dixon J; Consul Developments (394, 395) per Gibbs J]; and it is ordinarily immaterial to the fiduciary's liability to account that the person to whom the fiduciary obligation is owed could not have earned the profit or gain [Birtchnell v Equity Trustees (408 409); Furs Ltd v Tomkies (592); Consul Development (394, 395); Industrial Development Consultants Ltd v Cooley; Canadian Aero Service Ltd v O'Malley; Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (4, 20)]. The courts have always insisted on compliance by fiduciaries with strict and rigorous standards with a view to ensuring that they do not expose themselves to a conflict of interest and duty. The point is that a fiduciary is not entitled to make a profit out of, or by reason of, a fiduciary position without the knowledge and assent of the person to whom the fiduciary duty is owed [Phipps v Boardman (105); Consul Development (393) per Gibbs J] (562 563).

420 The accepted fiduciary relationships include director and company; employer and employee; and agent and principal: Hospital Products (96); Breen v Williams (92).

421 As McLure P observed in Streeter [76], it is often easier to state the general principles in this area of law than to apply them to a given factual situation.

422 It is dangerous to take statements of a general character made in one factual context and seek to apply them to an entirely different factual situation. I repeat what I said in Red Hill Iron Ltd v API Management Pty Ltd [2012] WASC 323:

In any case involving an allegation of breach of fiduciary duty, resort to generalisations may be dangerous. It is necessary to give detailed attention to the particular facts and circumstances of the case. It is also necessary to keep in mind questions of the existence of a fiduciary relationship, its scope, the content of any duties, the manner in which any duty is said to have been breached, and the consequences of breach [354].

423 The law of fiduciaries is not to be applied mechanically or inflexibly. The remarks of Deane J in Chan v Zacharia (205) seem to me to be pertinent:

[O]ne cannot but be conscious of the danger that the overenthusiastic and unnecessary statement of broad general principles of equity in terms of inflexibility may destroy the vigour which it is intended to promote in that it will exclude the ordinary interplay of the doctrines of equity and the adjustment of general principles to particular facts and changing circumstances and convert equity into an instrument of hardship and injustice in individual cases: see Canadian Aero Service Ltd v O'Malley (97); Cretney, loc. cit., pp 168ff; Oakley, Constructive Trusts (1978), pp 57ff. There is 'no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them': per Lord Selborne LC, Barnes v Addy (98).

424 Identification of the scope of a fiduciary duty, and determining whether it has been breached are highly sensitive to the facts and circumstances of the case: Price v Powers [2006] WASCA 262 [2] [3]; Grimaldi [179], [513]. To my mind, this case illustrates that proposition.

425 When a fiduciary relationship exists, the scope and content of the fiduciary duties must be examined. It is wrong to assume the duties of general unlimited scope and content are automatically or presumptively imposed. The nature and extent of the duties depends upon the particular relationship and all the circumstances of the case: Hospital Products (102); News Ltd v Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410, 539; Streeter [70], [400] [407]; Grimaldi [179].

426 In Streeter, McLure P explained the position as follows:

Of course, the scope of the rules can be narrowed or excluded by contract or other instrument which defines the duties and powers of the fiduciary. There is no suggestion in this case of any relevant provisions in WAE's constitution. However, that is not the only means by which the content of fiduciary duties can be affected. The High Court has said that the content of fiduciary duties are moulded to the character of the particular relationship so that even within an established fiduciary relationship, the content of the duties will not be uniform for all cases: United Dominions Corp Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, 11. Further, the subject matter over which fiduciary obligations extend can be ascertained from the course of dealing between the parties or the circumstances of the appointment of the fiduciary: Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178, 196 and 204. In my view, these authorities provide the principled basis for any narrowing of the fiduciary rules applying to directors [70].

427 The subject matter over which fiduciary obligations extend is to be ascertained not only from the terms of any agreements between the parties, but also from the course of dealings that have been actually pursued between them: Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384, 400 401, 408 409; Chan v Zacharia (196); News Ltd v Australian Rugby (539); Streeter [70], [404] [406]; Grimaldi [179].

428 The plaintiff emphasises that any in principle agreement was between Mr Dawson and Mr Coombs; not FRC. But Mr Coombs and Mr Dawson were the sole shareholders and directors of FRC. An agreement or arrangement between them was, in my view, capable of modifying the content of the fiduciary obligations they would each otherwise have owed to FRC; compare Angas Law Services Pty Ltd (in liq) v Carabelas [2005] HCA 23; (2005) 226 CLR 507 [24]. Those arrangements are part of the course of dealings that informs the scope of the fiduciary duties.

429 Where there are agreements between the parties, the terms of the agreement must be given close scrutiny in identifying the scope of the fiduciary relationship and the scope of fiduciary duties. See the discussion in Red Hill [368] [371]:

... Of course, a fiduciary relationship can be founded on a contract. In a passage cited with approval and applied by the High Court in John Alexander's Clubs Pty Ltd [91] [92], Mason J explained in Hospital Products that

'it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction (97).'

See also News Ltd v Australian Rugby (541).

In Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1, 15 17, Bryson J applied these principles to the joint venture agreement between the parties to that action. In rejecting a claim for breach of fiduciary duty his Honour observed that 'it would not be right to impose on the parties fiduciary obligations wider or different to those which in careful terms they imposed on themselves. The parties' agreement is the prime source for discerning the existence of a fiduciary obligation' (17).

Whether a party is subject to fiduciary obligations, and the scope of any fiduciary relationship, is to be determined by construing the contract as a whole in light of the surrounding circumstances known to the parties and the purpose and object of the transaction: ASIC v Citigroup [281].

As I have said, in John Alexander's Clubs Pty Ltd [91] [92], the High Court cited with approval and applied the statement of Mason J in Hospital Products (97) that I have outlined. Having done so, the High Court observed that the terms of the contract include not only those expressed but those implied, including those implied in fact in accordance with the principles in Codelfa (352 355). Their Honours then observed that where a term to like effect as the suggested fiduciary obligation cannot be implied, it will be very difficult to superimpose the suggested fiduciary obligation upon the contract that does not include the implied term: John Alexander's Clubs Pty Ltd [92].

430 See also Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2 [100].

431 Fiduciaries can not unilaterally absolve themselves of liability by resigning from fiduciary office in order to take the profit for which they should otherwise account: Streeter [370] and cases there cited.

5.2 Remedies for breach of fiduciary duty: general principles

432 Breach of fiduciary duty will give rise to a number of possible remedies including:

(a) a constructive trust over or order for return of any property or benefit derived in breach of fiduciary duty, to the extent that the property or benefit remains extant or can be traced in the fiduciary's hands;

(b) an in personam (personal) liability to account for profits made that are attributable to the breach of fiduciary duty;

(c) liability on the part of the fiduciary to pay equitable compensation to a beneficiary who has suffered loss: Warman (553); Grimaldi [183] [187].

433 Subject to discretionary considerations, the choice of remedy is a matter for election by the beneficiary: Grimaldi [183] [187]; Warman (556, 559, 569 570).

434 The principles summarised or set out in section 5.1 support the following propositions about a claim for an account of profits:

(1) in a claim for an account of profits based on a breach of the profit rule, the claimant must show that the profit was derived 'by reason of' the fiduciary's position or his taking advantage of the opportunity or knowledge derived from it;

(2) the liability to account does not depend upon the plaintiff having suffered any loss; and

(3) it is generally immaterial that the principal could not have earned the profit claimed from the fiduciary.

435 In Grimaldi, consistently with these propositions, the Full Federal Court expressed the question as being whether the fiduciary had made the profit in consequence of their breach of fiduciary duty [710].

436 In Warman (559) the High Court said that ordinarily a fiduciary would be ordered to render an account of the profit made within the scope and ambit of his duty. The following further propositions are stated in Warman:

(1) The remedy must be fashioned to fit the nature of the case and the particular facts (559).

(2) The scope of an account of profits depends on a number of factors, including the nature of the property, the relevant powers and obligations of the fiduciary, and the relationship between the profit made and the powers and obligations of the fiduciary (560).

(3) Where a business is acquired by the fiduciary within the scope and ambit of his fiduciary responsibilities, an account of profits of that business may be appropriate. However, it may be inappropriate and inequitable to compel the fiduciary to account for the whole of the profit for his conduct of the business or his exploitation of the principal's goodwill over an indefinite period of time (560 561).

(4) In that context, it is for the defendant to establish that it is inequitable to order an account of the entire profits. If the defendant does not establish that, then the defendant bears the consequences of mingling the profits attributable to the defendant's breach and the profits attributable to those earned by the defendant's efforts and investments (561 562).

(5) In determining the proper basis for an account of profits, it is important to ascertain precisely what it was that was acquired in consequence of the fiduciary's breach of duty (565). It may also be relevant to ascertain what was lost by the plaintiff (565).

437 In a claim for equitable compensation for loss for breach of fiduciary duty, causation should be determined in the same way as for the trustee of a traditional trust, namely by inquiring whether the loss would have happened if there had been no breach: O'Halloran v RT Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262, 277 278.

438 It was not in dispute that, as a senior employee of FRC, Mr Coombs owed FRC a duty to act with good faith and fidelity in the best interests of FRC in the performance of his work for FRC, and, in that sphere, not to act in furtherance of his own interests or that of a third party. See, for example, Streeter [420]; Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117; Independent Corporate Services Ltd v Stevens [2002] WASC 280 [63].

439 That brings me to the question of whether Mr Coombs breached his fiduciary and other duties in the respects alleged by the plaintiff.

6. Did Mr Coombs breach his fiduciary or other duties?

440 As I explained in section 3.4, the plaintiff's case distinguishes between three periods of time: up to 31 December 2005; 1 to 16 January 2006; and from 16 January 2006 to 21 December 2006. It is convenient to deal with the question of breach in respect of the first two of these periods together, and then deal with the position after the appointment of the provisional liquidator.

6.1 Alleged breaches in the period up to 31 December 2005, and for 1 January 2006 to 16 January 2006

441 In section 3.4 of these reasons, I summarised the plaintiff's claims of breach of duty on the part of Mr Coombs.

442 I begin by dealing with the allegations of breach relating to FRC's and Crystal's finance broking licences.

6.1.1 Breaches relating to finance broker licences?

443 The plaintiff makes several claims of breaches by Mr Coombs relating to FRC's or Crystal's finance broking licence.

6.1.1.1 Arranging for the 31 December 2005 condition

444 First, the plaintiff claims that Mr Coombs 'arranged' for conditions to be imposed on FRC's broking licence or business certificate 'to ensure' that the licence terminated on 31 December 2005 (SC 14.1AA). That pleading invites attention to what Mr Coombs is alleged to have done to arrange for the imposition of the conditions. That is not spelled out in the pleading or particulars. Moreover, the plaintiff's submissions did not seem to me to grapple with the need for some specificity in this respect.

445 The evidence is that the condition on FRC's business certificate was imposed by a decision of the Board on 14 September 2005. Prior to that, the only contact between Mr Coombs and the Board or DOCEP was the sending of FRC's application on or about 3 August 2005, a telephone conversation between Mr Coombs and Mr Lane of DOCEP on 17 August 2005, a meeting between Mr Coombs and officers of DOCEP on 23 August 2005, and the email sent by Mr Coombs on 9 September 2005 (following a request in a phone call from a DOCEP officer some days earlier).

446 There is no evidence of any other contact. Further, I accept Mr Coombs' evidence (ts 1030 1031, 1076 1079) that he was not engaged in ongoing negotiation or discussion with DOCEP or the Board; rather there were discrete communications, usually in writing.

447 For the reasons that follow, I am satisfied that none of Mr Coombs' conduct in relation to FRC's licence involved a breach of fiduciary duty, or involved Mr Coombs 'arranging' for the imposition of the 31 December 2005 condition.

448 There is no complaint by the plaintiff in respect of the initial application for FRC's business certificate submitted in August 2005.

449 I refer to the findings I have already made in section 2.

450 On 23 August 2005, Mr Coombs met with Mr Lane and other DOCEP officers. DOCEP raised issues regarding the fitness and properness of Mr Dawson. In the course of the meeting, Mr Coombs said that he would be starting a separate business for Crystal. He was crossexamined on why he raised this at the meeting (ts 1032 1033). He said that he had an obligation to keep DOCEP informed regarding his position as a director in FRC (ts 1032 1033). That is correct - it was a condition of FRC's business certificate. He also accepted that he conveyed to them that whatever problems there were with Mr Dawson relating to FRC, Crystal was going to be a separate business (ts 1033).

451 At that stage, as I have said, the shared communicated position between Mr Coombs and Mr Dawson was that FRC would cease to do business in December 2005, and that Mr Dawson and Mr Coombs would set up two separate companies, through which they would conduct separate businesses. What Mr Coombs told DOCEP was consistent with what both Mr Coombs and Mr Dawson told staff at the staff meeting two days later.

452 Further, as I found in section 2.13, Mr Coombs told Mr Dawson of his discussions with the DOCEP officers. There was nothing underhand or concealed about Mr Coombs' conduct in this respect.

453 In my view, nothing said or done by Mr Coombs at the meeting on 23 August 2005 involved any breach of fiduciary, contractual or equitable duty.

454 In early September 2005, Mr Coombs received a phone call from an officer of DOCEP asking Mr Coombs to send him an email confirming what had been said at the meeting in August 2005. At that stage, he was dealing with them regarding FRC, but not, on his understanding, regarding Crystal (ts 1033). Given that Crystal had, by then, not made any application for a licence, that is objectively correct.

455 I turn to the email of 9 September 2005 (exhibit A45), which received considerable attention in the crossexamination of Mr Coombs, and in the plaintiff's closing submissions.

I refer to our telephone conversation and confirm that codirector, Emile Dawson, and myself have agreed to separate and wind up [FRC].

457 I do not accept the plaintiff's submission in par 54 of its written closing submissions (PCS [54]) that Mr Coombs' statement to DOCEP that he and Mr Dawson had agreed to wind up FRC was not true. I accept Mr Coombs' evidence that the reference to winding up FRC was meant as the winding up of the finance broking business of FRC (ts 1034). Finance broking is what DOCEP was concerned with (ts 1035, ts 1047 1048).

We have engaged legal and consulting advice to assist with implementation of this decision and agreed to a timetable for the winding up. The timetable outlines key milestones to be achieved as we progress the winding up process. We expect to achieve this by 1 December 2005. FRC will no longer trade after this date.

459 Mr Coombs agreed that, at that stage, he did not know whether Mr Dawson had engaged any accounting or legal advice (ts 1036).

460 At this stage, Mr Dawson had agreed to the date of 1 December 2005. Mr Coombs had given Mr Dawson his Gantt chart on 7 September 2005. Mr Dawson had not, by 9 September 2005, responded to that. Mr Coombs had given Mr Dawson a timetable, in the form of a Gantt chart, but Mr Dawson had not agreed to the detailed timetable, although he had agreed to the 1 December deadline (ts 1036 1037).

461 Thus, the first two sentences of the second paragraph were inaccurate.

462 At that stage, from Mr Coombs' perspective, he thought that the two director/shareholders were of one mind (ts 1037).

463 When he called Mr Coombs in early September 2005, the DOCEP officer asked Mr Coombs to confirm what he had said in the earlier conversation. The last part of his email went beyond confirming what had already been said (ts 1039).

464 The third and fourth paragraphs of the email read as follows:

I intend to continue operating as an independent finance broker in my own right. To this end I have formed a new company with myself as sole director and will be applying for a fresh business certificate.

My original intention was to have this arranged before renewal of the current certificate, however some logistical issues have needed to be resolved beforehand. These have now been agreed and incorporated into the timetable.

465 Mr Coombs said in the third paragraph of the email that he intended to continue operating as a finance broker in his own right and had formed a new company because it had been agreed to by Mr Dawson. Mr Dawson had already made an application and Mr Coombs wanted to inform DOCEP that he also would make an application (ts 1038).

466 The 'this' referred to in the fourth paragraph is the obtaining of a fresh business certificate for the new company (ts 1040). Thus, in that paragraph Mr Coombs was saying that his original intention had been to arrange for Crystal's business certificate before renewal of FRC's (ts 1040).

467 The logistical issues referred to were those involved in the preparation of the Gantt chart timetable (ts 1040). The statement that the 'logistical issues have been agreed' was not accurate. They had not been agreed (ts 1040 1041).

468 At this stage, Mr Coombs knew that he could not operate in bona fide control of both FRC and Crystal (ts 1041).

469 It was put to Mr Coombs that, in September 2005:

(a) he wanted FRC to cease doing business and to be split, and for Crystal to start as a separate business; and

(b) his 'discussions' with DOCEP in September were designed to pave the way for those two things to happen (ts 1042 1043).

470 He denied that that was so. His thinking was that FRC had to continue trading so that there could be an orderly move to the separate businesses (ts 1043).

471 I accept that Mr Coombs' email of 9 September 2005 to DOCEP overstates the extent of agreement between Mr Dawson and Mr Coombs. However, I am not persuaded that that overstatement amounts to or evidences a breach of fiduciary or other duty. I am not satisfied that the email, in isolation or viewed with Mr Coombs' other conduct, involved any misuse of his position as a director or senior employee. Apart from the general propositions put at ts 1042 1043 (which I have just summarised), it was not suggested in crossexamination or submission that Mr Coombs wrote the email intending to act contrary to FRC's interests, or to prefer Crystal's or his interests to FRC's. I am not satisfied that Mr Coombs had any such intention. (I am not suggesting that such an intention is a necessary element of a claim of breach of fiduciary duty). Nor, in the circumstances, was that the objective effect of the email. Further, for the reasons explained in the next paragraph, when he wrote the email, Mr Coombs was not in a position of a real sensible conflict between his duties and FRC's interests on the one hand, and Crystal's or his interests, on the other.

472 At the time he sent the email of 9 September 2005, both of the director/shareholders of FRC appeared set on a course for the split of FRC and the ceasing of FRC's finance broking business by December 2005. At that stage, Mr Coombs did not anticipate that Mr Dawson would have a change of heart and withdraw from the joint plan to bring FRC's finance broking to an end and split its business. In the circumstances I have outlined in section 2, in my view it was reasonable for Mr Coombs not to have anticipated such a change of mind. Further, in my view, that position remained until the meeting of 20 October 2005.

473 For these reasons, I reject the plaintiff's claim that Mr Coombs arranged for FRC's business certificate to have the 31 December 2005 condition imposed on it and thereby breached his duties.

6.1.1.2 Failure to take steps to secure a finance broking licence after 31 December 2005

474 Secondly, the plaintiff pleads that Mr Coombs took no steps to enable FRC to secure a finance broking licence for the period after 31 December 2005.

475 The plaintiff's further and better particulars dated 15 January 2013 identify two steps which it alleges Mr Coombs should have taken. First, Mr Coombs failed to appoint another director of FRC who was licensed under the FBC Act. Secondly, Mr Coombs failed to collocate the business of Crystal with the business of FRC so as to enable FRC to have 'secured the benefit' of Crystal's licence. (See responses 2(iii) and 6(vi).)

476 For the reasons that follow, I am not satisfied that Mr Coombs breached his fiduciary or other duties by failing to take these or any other steps to enable FRC to secure a finance broking licence after 31 December 2005.

477 I have found that Mr Coombs told Mr Dawson about the imposition of the conditions at the end of September or in the early part of October. See section 2.15.

478 Mr Coombs did not breach his fiduciary duties by failing to appoint another director to FRC. Nobody proposed the appointment of another director. In particular, Mr Dawson never proposed the appointment of a new director. Mr Dawson proposed that FRC obtain assistance from other licensed brokers, but that is very different from the appointment of a new director. Further, there is no evidence that any licensed finance broker was willing to be appointed as a new director.

479 Further, even if these hurdles were overcome, I am not satisfied that Mr Coombs' fiduciary, contractual or equitable duties would have obliged him to agree to the appointment of a new director. While that question would turn on the detail of all the facts and circumstances (which cannot be known, given that the question is hypothetical), on the face of it, given the nature of FRC as a vehicle for Mr Coombs and Mr Dawson's business, it is very difficult to see how Mr Coombs' duties would have required him to agree to the appointment of a new director.

480 The notion of collocating Crystal's business with FRC's, to enable FRC to obtain the benefit of Crystal's licence, was floated only belatedly and somewhat vaguely in Mr Dawson's solicitors' letter of 23 December 2005 (exhibit A94).

481 The primary position advanced in that letter was to propose that Mr Coombs formally request DOCEP to extend his licence with FRC for a period to enable an orderly resolution of all matters outstanding between the two parties. There is no plea or particular complaining that he failed to make that request. In any event, in my view, Mr Coombs' fiduciary and other duties did not require him to make that request. That is because those duties did not require him to continue to work at FRC after 31 December 2005, whether to preserve the efficacy of its finance broking licence or business certificate or otherwise. Mr Coombs gave ample notice of his intention to leave FRC. He was entitled to do so if he chose that course.

482 The proposal for collocation was put as an alternative in the letter of 23 December 2005. It came very much at the eleventh hour. It was put in a very general way, leaving a number of important details about how and whether the arrangement could work, and by whom the work would be done, to be resolved later. In the circumstances, Mr Coombs' fiduciary and other duties did not require him to approach DOCEP and the Board with a view to ascertaining whether arrangements could be made, satisfactory to the Board, for the collocation of the business of Crystal with the business of FRC.

483 For these reasons, I reject the plaintiff's claim that Mr Coombs breached his duties by failing to take steps to enable FRC to secure a finance broking licence for the period after 31 December 2005.

484 In its written and oral opening, the plaintiff makes a third claim of breach by Mr Coombs in relation to FRC and Crystal's finance broking licences. It is not clear to me that this third claim is pleaded in the statement of claim. Nevertheless, issue appears to have been joined in relation to it, and I will deal with it.

485 Section 40 of the FBC Act prevented Mr Coombs from being the person in bona fide control of both Crystal and FRC. The plaintiff claims that the finance broking business opportunity afforded to Mr Coombs and Crystal by Crystal's business certificate was an opportunity properly for FRC within the scope of FRC's line of business (POS [57] [58]). In opening, the plaintiff submitted that, because he was the person in bona fide control of FRC, Mr Coombs was not permitted to leave FRC and start up Crystal with a licence in respect of which Mr Coombs would be the person in bona fide control (ts 313). The plaintiff submitted that while Mr Coombs remained a director of FRC, he had to devote his energy to the business of FRC, and any profitmaking opportunity derived from his finance broking licence, and his role as the person in bona fide control, was an opportunity of FRC and, for so long as Mr Coombs remained a director of FRC, he could not pursue it for Crystal (ts 313 314).

486 I do not accept these submissions. The finance broking opportunity afforded to Mr Coombs and Crystal by Crystal's licence was not an opportunity properly for FRC within FRC's line of business. Mr Coombs' obligations as a director and senior employee did not require him to remain as the person in bona fide control of FRC, for the purposes of its finance broking licence and business certificate, or resign as a director. Mr Coombs was not obliged to continue to devote his skills and his finance broking licence to FRC. Mr Coombs was free to decide to leave FRC and to set up a new and separate finance broking business. That did not require him to resign, immediately upon so deciding, as a director. Apart from anything else, as I will develop in more detail later in these reasons, there was no reasonable contemplation that FRC would be competing with Crystal, since they would not both have a licence at the same time. (Insofar as the plaintiff complains about that, that complaint is dealt with immediately below.) Further, it would have been contrary to FRC's interests for Mr Coombs to resign as a director. That would have caused FRC's business certificate to cease to operate, with immediate effect.

487 Mr Coombs did not keep his intention to leave FRC a secret. To the contrary, Mr Dawson was well aware of Mr Coombs' intention for all of the second half of 2005.

488 The plaintiff further claims that by establishing the business of Crystal and obtaining a licence for it, with him in bona fide control, Mr Coombs breached his duties because he thereby precluded himself from holding a finance brokers licence that was necessary for FRC to carry out its business. That meant, as Mr Coombs knew, that FRC would not be licensed (POS [65]; ts 312 314, 325 327, 332 336). In opening submissions, counsel for FRC submitted Mr Coombs had 'effectively negotiated a position whereby it was necessary for the FRC licence to lapse for the Crystal licence to commence' (ts 332). See also ts 334.

489 In its written closing submissions, the plaintiff submits that the proper conclusion is that Mr Coombs 'arranged for the licence of FRC to terminate and the licence of Crystal to commence immediately thereafter': PCS [90]. The plaintiff submits that Mr Coombs' email of 9 September 2005 and letters of 23 October 2005 and 4 November 2005 (referred to immediately below) sustain an inference that in his dealings with DOCEP Mr Coombs was seeking a transition in which the business and licence of FRC would be turned into the licence and business of Crystal: PCS [62], [70] and [74].

490 For the reasons that follow, I do not accept these contentions.

491 In explaining why that is so, I will make some further factual findings.

492 On 23 October 2005, Mr Coombs wrote to the registrar of the Finance Brokers Supervisory Board (exhibit A60). The letter attached his application for a business certificate for Crystal. In that application, Mr Coombs was identified as the person who would be in bona fide control of Crystal. The letter also referred to the recent renewal of the business certificate for FRC which was due to expire on 31 December 2005. The letter then stated that:

Please note that it is intended that this Business Certificate for Crystal Finance is to take effect from expiry of [FRC]'s business certificate ie 1 January 2006. This is to enable the appropriate accreditations to be sought in anticipation of the changeover.

Should it become necessary to seek an earlier transition date, I will notify the Board accordingly (exhibit A60).

493 The accreditations referred to are with PLAN and the banks (ts 1076).

494 Mr Coombs was asked what he intended to convey to the Board when he used the word 'changeover'. Mr Coombs said he did not know, that it was 'just a word', and that he did not mean anything by it (ts 1076).

495 Mr Coombs' evidence was that the important thing was that he could not be in bona fide control of two finance broking businesses at the same time, so it was important that the Board understood that he did not want the licence for Crystal immediately, but on 1 January (ts 1076). He wanted to make sure the Board was aware that Crystal's licence had to start when the other one ceased and not before (ts 1076). I accept this evidence. Mr Coombs' concern was not with bringing FRC's licence to an end (that was happening by force of the 31 December 2005 condition) - it was with ensuring Crystal's licence did not commence before FRC's ceased to operate.

496 Mr Coombs was not having discussions with the Board in this period, he was simply corresponding with them (ts 1076 1079).

497 He accepted that in this letter he was intending to convey that he was going from the state of being the person in control at FRC to the person being in control of Crystal (ts 1078).

498 By letter wrongly dated 4 November 2005, but in fact sent some time between 17 and 21 November 2005 (ts 1078 1079), Mr Coombs wrote to the Commissioner for Consumer Protection attaching the advertisement of Crystal's application for a business certificate (exhibit A69). The letter stated that Mr Coombs needed the licence 'to secure other accreditations before takeover date of 1 January 2006', saying it would be greatly appreciated if the application could be processed as soon as possible.

499 Mr Coombs said that he perhaps should have used the word commencing date for Crystal, rather than takeover date (ts 1079). He agreed that he understood takeover date to mean you are taking over one business and turning it into another or absorbing it into another business (ts 1079), saying that that was not what he meant. He said he probably used the wrong terminology and was not really thinking about it (ts 1079).

500 I find that as at 23 October 2005, and for the following month:

(1) the Board had imposed the condition on FRC's business certificate that meant FRC would cease its finance broking business on 31 December 2005;

(2) Mr Coombs had determined that he was leaving FRC and starting Crystal on 1 January 2006;

(3) Mr Coombs was entitled to act as summarised in (2); and

(4) Mr Coombs wished to ensure that Crystal's licence did not commence before 1 January 2006, since if it did, it would prejudice FRC because he could not be in charge of both FRC and Crystal at the same time.

501 In those circumstances, the language of 'changeover' and 'transition' was not inapt. Further, contrary to the plaintiff's submission, that language did not reflect or reveal an intention that Crystal would take over FRC's licence, or the entirety of FRC's business.

502 In my view, the letters of 23 October 2005 and November 2005 did not involve or evidence any breach of fiduciary or other duty by Mr Coombs.

503 For these reasons, I reject the plaintiff's third set of complaints about Mr Coombs' conduct relating to FRC and Crystal's finance broking licences.

6.1.2 Breach by acquiring and setting up Crystal?

505 The plaintiff alleges that Mr Coombs breached his fiduciary duties and duties of loyalty as a senior employee during late 2005 by acquiring and setting up Crystal, and taking steps to enable it to be ready to conduct a finance broking business. The plaintiff submits that a person in a fiduciary position breaches his fiduciary duties and duties as an employee if, while a director and employee, he actively prepares to enter into competition with the company and to be in a position to act preemptively to the detriment of the company.

506 In that regard, the plaintiff relies on a number of cases, including Southern Real Estate Pty Ltd v Dellow [2003] SASC 318; (2003) 87 SASR 1; Re Cheal Industries Pty Ltd; Fitzpatrick v Cheal [2012] NSWSC 261; Mordecai v Mordecai (1988) 12 NSWLR 58; Cook v Deeks [1916] 1 AC 554, and Green v Bestobell Industries Pty Ltd [1982] WAR 1. I will say something about each of these cases.

507 In Southern Real Estate Pty Ltd v Dellow, the defendant was a director and employee of the plaintiff. The plaintiff carried on business as a real estate agent, managing rental properties on behalf of clients. The defendant prepared to resign and immediately commence a business managing rental properties in competition with the plaintiff. She took steps in that regard before her resignation. She did not inform anyone else at the plaintiff of her intention to resign. She did that deliberately, so that she could send letters she had already prepared to clients, soliciting customers, while the plaintiff had little time to respond to her actions [27] [30]. This conduct was found to amount to a breach of her fiduciary duties. In that regard, she was actively preparing to enter into competition with the plaintiff and to be in a position to act preemptively to the detriment of it. She had a conflict of interest in preparing the list of customers while still a director [31]. See also [33] [38].

508 In Re Cheal Industries Pty Ltd; Fitzpatrick v Cheal, Mr Cheal was director of a company, the shareholders of which were, in substance, he and his wife. That company carried on a business of manufacturing surfboards bearing a particular logo. In order to exclude his wife from an ongoing share of the business, the defendant, Mr Cheal, set up a new company in which his wife would not be a shareholder, with the intention that it would carry on the same business as had been carried on by the first company. That conduct was held to involve a breach of the defendant's fiduciary duties to the first company and to be oppressive conduct; see [137] [160].

509 In the course of her reasons, Ward J (as her Honour then was) held that it was a breach of fiduciary duty for a director to depreciate the value and progress of the company's business by asking customers to cease to deal with the company, and to deal with him in a competing business [154], referring to Mordecai v Mordecai.

510 In Mordecai, there were three directors of a company. They were brothers. One of them died. The two remaining directors were executors of their brother's will. The remaining two directors set up a new company to which they divested all the current business of the first company. They did so in order to prevent their deceased brother's exwife and her son from obtaining an interest in the business of the first company. The two defendant directors contacted customers to inform them that the first company would not continue to operate, but that they would be trading under their own names and, later, would run the second company.

511 In that context, Hope JA stated that it is a breach of a director's duty for a director to depreciate the value and progress of a company's business by asking the company's customers to cease to deal with the company, and instead to deal with him in his competing business (64). The directors' decision to close down the company's business was made for reasons unrelated to the company's interests (66).

512 In Cook v Deeks, there was a falling out between some of the directors and shareholders of a railway construction company. Three of the directors began covertly diverting construction contracts to a new company that had been founded by the three defendants. Those defendants had acted as the representatives of the company in all the negotiations regarding previous construction contracts. The defendants caused the company to expedite the last contract in order to demonstrate efficiency for the purposes of securing future work. The defendants then negotiated for a new contract for the purpose of securing the new contract for themselves. In doing that, they concealed what they were doing from the plaintiff who was their codirector (see 561 563). Lord Buckmaster said that:

Men who assume the complete control of a company's business must remember that they are not at liberty to sacrifice the interests which they are bound to protect, and while ostensibly acting for the company, divert in their own favour business which should properly belong to the company they represent (563).

513 The House of Lords noted that the defendants could have undertaken the business in question, separately from the plaintiff, without being in breach of their duties as directors, if they had first terminated their business relationship and its consequential duties and obligations, by placing the company into voluntary liquidation (559).

514 In Green v Bestobell Industries, the defendant was employed by the plaintiff. The defendant was a senior manager. Through a new company which he formed, the defendant tendered in competition with his employer. The tender was submitted while the defendant was still employed by the company and when he knew that his employer would be likely to tender for the job (8, 19). It was held that he was liable to account in that he occupied a fiduciary position with respect to his employer, and by tendering against his employer, he placed himself in a position where his duty and interest conflicted or where there was a real and sensible possibility that the two may conflict. It was not necessary for the plaintiff to prove that the manager had made use of the knowledge or information obtained in the course of his fiduciary position in submitting the tender, or that he had obtained the benefit of the contract from the actual use of such knowledge and information (5 7, 10 11, 19 20).

515 In my view, all of these cases are far removed from the present case.

516 Like McDougall J in Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987 [82] [83] (albeit that that case concerned an employee who was not a director), I do not think it is sufficient to say that Mr Coombs breached his fiduciary or contractual obligations to FRC simply because during 2005 he took steps to set up a business that would, after Mr Coombs left FRC, conduct finance broking business. Rather, it is necessary to look at the steps taken and the circumstances in which they were taken, to see if any involved a breach.

517 Mr Coombs did not set up Crystal to compete with FRC. When Mr Coombs set up Crystal, the mutual intention of Mr Coombs and Mr Dawson was that, by December 2005, FRC would not continue to conduct finance broking business, and that business would be split between two separate companies to be run by each of Mr Dawson and Mr Coombs.

518 The plaintiff submits that Crystal was created to take over the business of FRC: PCS [74]. I do not accept that submission. Crystal was created to be the vehicle for Mr Coombs' separate business. From August 2005 (when Crystal was created) to October 2005, Mr Coombs and Mr Dawson had the mutual intention that FRC's business would be split between their respective separate companies. Thus, the intention was for Crystal to take over part of FRC's business.

519 When Mr Coombs set up Crystal, it was not contemplated that there would be any time at which both Crystal and FRC would be conducting finance broking business.

520 In my view, that position continued through all of 2005.

521 By the time Mr Dawson changed his mind about ending FRC's finance broking business, FRC's business certificate had been issued, with the 31 December 2005 condition. For the rest of 2005, no realistic proposal ever emerged under which FRC's licence would be extended beyond 31 December 2005.

522 Mr Dawson's solicitors' letter of 23 December 2005 sought that Mr Coombs agree to remain at FRC pending Mr Dawson obtaining his finance broking licence. As I explained in section 6.1.1.2, Mr Coombs was not obliged to agree to that. In the absence of Mr Coombs agreeing to stay at FRC, the prospect that Mr Dawson would be granted a finance broking licence, become the person in bona fide control of FRC and FRC would obtain a new business certificate, was not a real or sensible possibility, as at December 2005. It was not suggested, in December 2005 or at trial, that, absent agreement from Mr Coombs to stay at FRC in the interim, Mr Dawson's licence was about to be obtained and that, when that happened, FRC could reactivate its licence. There was uncertainty about whether and when Mr Dawson might obtain a licence. More to the point, a decision for FRC to operate as a finance broker with Mr Dawson as the person in bona fide control would have required a board decision. Mr Coombs was one of two directors. The directors were deadlocked. Mr Coombs had applied for the appointment of a provisional liquidator. No agreement between the directors would have been forthcoming, at least without the successful negotiation of an agreement for Mr Dawson to buy out Mr Coombs' interest in FRC.

523 In those circumstances, any prospect of competition between Crystal and FRC in the conduct of finance broking business was remote and insubstantial. There was no real or sensible possibility that Crystal would compete with FRC.

524 Further, there was nothing secret or surreptitious about Mr Coombs' conduct in setting up Crystal and preparing to enable it to begin commencing business in January 2006. To the contrary, he was entirely open with Mr Dawson about his intentions and conduct in these respects. In its written opening, the plaintiff submitted that, without disclosure to Mr Dawson, from mid2005, Mr Coombs commenced preparations to operate a new finance broking business through Crystal: POS [18]. I reject that submission. Mr Dawson may not have been aware of Crystal's name, but through the later months of 2005 he was well aware that Mr Coombs was taking steps to operate a new separate finance broking business through Mr Coombs' own company.

525 Further, in Cook v Deeks, in Mordecai and in Fitzpatrick v Cheal, the defendants' decision to end the company's business was made for purposes extraneous to the company's interest, and was part of the defendants' wrongdoing. As I have explained, that is not the case here. The Board imposed the 31 December 2005 condition on FRC's licence. No wrongful conduct on the part of Mr Coombs caused the Board to do so.

526 For these reasons, I reject the plaintiff's claim that Mr Coombs breached his duties in late 2005 by setting up Crystal, causing it to acquire property and become prepared to conduct business by January 2006.

527 As I have said, the plaintiff abandoned its pleaded claim that Crystal commenced finance broking business in 2005.

528 Insofar as the plaintiff complains that Crystal commenced finance broking business in January 2006 while a director of FRC, there is no substance in that complaint. Mr Coombs had not agreed to any restraint of trade. As I have said, he was free to leave FRC and start a new business. He had given ample notice of his intention. Moreover, FRC was unable to conduct finance broking after 31 December 2005.

529 The plaintiff claims that Mr Coombs breached his fiduciary and other duties in that he solicited employees of FRC to leave the employ of FRC and to commence employment with Crystal (SC 14.1C, POS [61]). The plaintiff submits that Mr Coombs' conduct was in conflict with his duties to FRC and resulted in a gain to Crystal and to him.

530 The plaintiff's claim of breach of duty by its solicitation of employees must be viewed in the context of what had been said at the staff meeting in August 2005, and in the context that FRC's business certificate, and consequently its ability to conduct finance broking business, was coming to an end on 31 December 2005.

531 At the staff meeting, both directors said that the business would be splitting and they would each be talking to staff. That is what happened. Like Mr Coombs, Mr Dawson spoke to staff. See section 2.13 above.

532 The evidence is that Mr Coombs gave notice of termination of employment to employees of FRC. There is no plea or submission that that step was wrongful or a breach of any duty. I am not satisfied that it was, in circumstances where FRC could not continue, after 31 December 2005, to conduct any finance broking business, given that it did not have a business certificate. As I have said, in December 2005, no realistic prospect had emerged for FRC obtaining a business certificate after 31 December.

533 Consequently, I do not accept that Mr Coombs 'solicited' FRC's employees to leave the employment of FRC. Their employment was terminated.

534 In my view, in the circumstances of this case, Mr Coombs' conduct in December 2005 in talking to staff about future employment with Crystal, after FRC's business came to an end, and in offering them employment with Crystal, did not involve a breach of any fiduciary or other duty owed by Mr Coombs to FRC.

535 If, contrary to my view, Mr Coombs' conduct involved a breach of duty, I am not satisfied that any such breach gave rise to any identifiable gain on the part of Crystal or Mr Coombs, or to any identifiable loss on the part of FRC. On or after 1 January 2006, when the employment of FRC's staff had come to an end, and when FRC could not conduct finance broking business, Mr Coombs was free to offer employment to FRC's former employees. It is to be inferred that such offers would have been accepted.

6.1.4 Breach in seeking and obtaining accreditation with The Investors Club?

536 The plaintiff pleads that Mr Coombs used FRC's Property (as defined in the statement of claim), its premises, staff, Victorian operations, and its goodwill, including FRC's relationship with The Investors Club, to secure accreditation with The Investors Club.

537 In its written opening, the plaintiff put its case in relation to accreditation with Crystal somewhat more broadly. The plaintiff submits that accreditation with The Investors Club was a profitmaking opportunity of FRC which Mr Coombs diverted to Crystal while he was employed as a director of FRC (POS [59], [74], [75]).

538 I do not accept these broader contentions of the plaintiff in its written opening. Accreditation with The Investors Club was not a profitmaking opportunity that belonged to FRC. It was open to others. By December 2005, FRC was not in a position to continue to conduct finance broking after 31 December 2005. As I have said, Mr Coombs was not bound to remain with FRC. Mr Coombs was free to leave FRC, to set up Crystal and to cause Crystal to apply for accreditation with The Investors Club. In this respect, by December 2005, there was no real or substantial possibility of conflict between the interests of FRC and the interests of Crystal (or Mr Coombs). Mr Coombs was not required to resign as a director, upon deciding to leave FRC and set up a new broking business, or upon seeking accreditation for Crystal. As I have found in section 6.1.2, there was no reasonable contemplation that FRC would be competing with Crystal, since they would not both have a licence at the same time. Thus I do not think that, in submitting an application for accreditation of Crystal by The Investors Club, Mr Coombs was in a position where there was a real sensible possibility of conflict between his duties to FRC (and FRC's interests) and his or Crystal's interests.

539 For those reasons, in my view it was not impermissible, in the abstract, for Mr Coombs to seek accreditation of Crystal, in December 2005, with The Investors Club.

540 However, in my view, Mr Coombs was not entitled to use his position as a director and senior employee of FRC, or property of FRC, in support of Crystal's application for accreditation. His fiduciary duties to FRC precluded him from using his position, or property of FRC, to gain a benefit or profit for himself or Crystal.

541 For the reasons that follow, I find that Mr Coombs used his position as director of FRC, and property of FRC, in making Crystal's application for accreditation with The Investors Club.

542 Mr Coombs made Crystal's application for accreditation to The Investors Club by the document he sent to The Investors Club on or about 21 December 2005 (exhibit A88). That document:

(a) referred to staff continuity and the absence of disruption, saying that Crystal would provide a 'more professional and efficient service to clients';

(b) stated that The Investors Club can be assured that current commission structures, payments and performance standards will remain consistent;

(c) referred to 'stability and business continuity throughout the transition period';

(d) stated that Crystal is a company that has had the opportunity to take the best of the old and incorporate the new;

(e) stated that Crystal will manage the business of FRC when its licence expires on 31 December 2005;

(f) included a heading 'FRC transitional arrangements';

(g) stated that Crystal recognised that under FRC there were areas that required upgrading and modernising;

(h) stated that FRC, although not licensed to process new business, will remain as a company and will continue to receive trail income. FRC will continue to make payments to Club Loans under current arrangements and timeframes. Crystal is able to take up all submissions in progress and new business under the standard payment structure to the Club of 50% upfront and trail commissions received by Crystal;

(i) stated that the team has 'designed an information strategy to inform the existing member network of the impending changes, complete with new contact details';

(j) stated that FRC phones will be diverted to Crystal as of 31 December 2005; and

(k) stated that PLAN accreditation is approved and a finance brokers licence has been issued so that Crystal is geared to start business on 3 January 2006.

543 In my view, the following features of the document Mr Coombs sent to The Investors Club sustain the conclusion that he used his position as a director of FRC, and some of FRC's Property, in Crystal's application to The Investors Club.

544 First, the document stated that Crystal would manage FRC's business when FRC's licence expired on 31 December 2005. That conveys the impression that that position is adopted with FRC's authority. Secondly, the same is true of the statement in the document that FRC's phones and facsimile numbers would be diverted to Crystal.

545 Thirdly, the document referred to FRC's Melbourne office, saying it would be used as the model for Crystal's development of remote offices. Contrary to Mr Coombs' evidence (ts 1073), which I reject, this plainly reveals Mr Coombs' intention, at the time he wrote this document, to use FRC's Melbourne office as part of the operations of Crystal. Further, again, this statement in the document conveys an impression that this is happening with FRC's authority.

546 Fourthly, the document refers to Crystal taking up all of FRC's submissions in progress. More generally, the document speaks of a transition from FRC to Crystal. Further, in the document Mr Coombs purports to speak for FRC's intentions. It states that FRC will continue to receive trail income and continue to make payments to Club Loans under current arrangements and timeframes.

547 Notwithstanding that FRC would not be in a position to conduct finance broking business, and therefore to conduct further work for Club Loans' members, in my view, Mr Coombs was not entitled to use his position as a director of FRC in these ways to support Crystal's application for accreditation with Club Loans. If Mr Coombs made a profit by reason of that conduct, he will be liable to account for it under the profit rule.

548 That invites attention to whether that conduct caused a relevant profit or gain.

549 The plaintiff's case proceeds on the footing that it is entitled to all commissions earned on work referred to Crystal from The Investors Club. On my findings, I see no basis for a claim of such width.

550 I have rejected the plaintiff's contention that accreditation with Club Loans was a profitmaking opportunity belonging to FRC that was wrongly diverted by Mr Coombs to Crystal. As I have said, in my view Mr Coombs was entitled to cause Crystal to apply to Club Loans for accreditation, so long as he did not use his position as a director of FRC, or property of FRC, in doing so. He could have done that in late December 2005, or in early January 2006. I am satisfied that had he caused Crystal to make such an application, without using his position as director of FRC, or using any property of FRC, the result would have been the same. Crystal would have been accredited by Club Loans. I find that would have occurred, given Mr Coombs' considerable experience and his relationship with The Investors Club, as well as the experience and relationships enjoyed by other staff who were to work for Crystal.

551 Although that experience, and those relationships, had been built up in working for FRC, FRC did not own it or have rights over it once someone left FRC. There were no restrictive covenants in FRC's employment contracts. Mr Coombs and other staff were free to leave FRC, work elsewhere and exploit that experience and those relationships.

552 For these reasons, I am satisfied that Crystal's accreditation with Club Loans is not by reason of or attributable to Mr Coombs' use of his position as a director of FRC (or from knowledge derived from it) in the respects I have identified. For corresponding reasons, referrals of individuals from The Investors Club to Crystal cannot be said to be attributable to or by reason of Mr Coombs' conduct in this respect.

553 I find that Mr Coombs' conduct in this respect did not cause any profit to Crystal or to him. Nor did it cause any loss to FRC.

554 In those circumstances, Mr Coombs' conduct did not amount to a breach of the profit rule, because it did not lead to any benefit or profit. (This conduct might have been argued to be a breach of the duty not to use the position as director for an improper purpose or other than in FRC's best interests, but the plaintiff's case was not put on that basis. That is understandable, since in the absence of causing profit or loss, a conclusion that the conduct was a breach of duty would not give rise to any substantive remedy for the plaintiff.)

6.1.5 Breaches in taking FRC's property, telephone and fax numbers and Victorian premises?

555 There is no dispute about some aspects of what Mr Coombs did. The following conduct is alleged by the plaintiff to constitute a breach of fiduciary and other duties, and the conduct (but not the breach) is admitted by Mr Coombs:

(1) on 31 December 2005, he took all the filing cabinets containing FRC client files and containing completed files and active work in progress applications to his Canning Vale office;

(2) on or about 23 December 2005, Mr Coombs took a copy of the FRC application register;

(3) Mr Coombs arranged for the diversion of the FRC telephone and fax numbers, and email addresses to the Crystal telephone and fax numbers, and the personal email addresses of the staff who had joined Crystal; and

(4) he arranged for Crystal to take over the occupation of the premises in Victoria leased by FRC, and to maintain possession of FRC's property and equipment there.

556 The intention with which Mr Coombs did these acts is relevant, but by no means decisive, in determining whether this conduct amounts to a breach of fiduciary duty. The intention with which Mr Coombs acted in these respects was in issue at trial.

557 Mr Coombs' evidence as to his intention may be summarised as follows.

558 Mr Coombs considered that, because FRC's business certificate and finance brokers licence was expiring on 31 December 2005, it could not operate in WA after 1 January 2006. He considered that he had continuing obligations under the FBC Act and the Code of Conduct in respect of the applications and loans that were on foot through FRC but incomplete by 31 December 2005. He wanted all FRC files under his control so that he could discharge his obligations in respect of the ongoing WIP files. Further, he did not want Mr Dawson to hold himself or FRC out as being engaged in any finance broking work. Thus, he did not want Mr Dawson to have access to the files (exhibit 1A [474] [480]). Mr Coombs arranged for the diversion of telephone and fax numbers and email addresses in order to allow the continuing management of the FRC WIP. There would likely be no one in FRC's offices after 2 January 2006. Further, in any case, FRC was not permitted to undertake finance broking work and, as a director of FRC, he could be responsible if that had occurred. He thought that the steps he had taken 'protected the clients and FRC and ... it could all be sorted out when the liquidator was appointed' (exhibit 1A [499]).

559 The plaintiff submits (PCS [95] [97]) that this evidence of Mr Coombs should not be accepted because:

(a) setting up the business of Crystal was not at all based on looking after the business of FRC (ts 1096);

(b) when he decided to apply for the appointment of a provisional liquidator to FRC, he knew there was no assurance that he would personally take over the FRC files once a provisional liquidator was appointed, as that would be the liquidator's choice (ts 1096 1097); and

(c) after the liquidator appointed him, he was willing to walk away from servicing the FRC clients, as demonstrated by his solicitors' correspondence in February 2006 in negotiating an agreement, and by his solicitors' letter of 20 March 2006 (exhibit A194; see also ts 1097).

560 For the following reasons these facts, which I accept, do not lead me to reject Mr Coombs' evidence about why he acted as he did at the end of December 2005.

561 First, I find that, both in Mr Coombs' mind and objectively, the following circumstances loomed large in determining what should be done:

(1) after 31 December 2005, FRC's business certificate would expire, with the consequence that FRC could not undertake finance broking business in WA;

(2) the application for appointment of a provisional liquidator would be heard in midJanuary 2006;

(3) in the meantime, clients of FRC had ongoing loan applications and pending proposals for loan applications that required attention. (The concern for clients of FRC with pending loan applications was one shared by all parties. It was reflected in letters written on behalf of Mr Dawson in December 2005. See, for example, his solicitors' letters of 13 December 2005 (exhibits A81 and A84), and 23 December 2005 (exhibit A94);

(4) Mr Coombs and FRC had obligations under the Code of Conduct made under the FBC Act to the clients of FRC with ongoing loan applications and pending proposals (see cl 3.6 and cl 3.8); and

(5) apart from Mr Coombs taking control of the files and FRC's work, no practical alternative option was proposed by anyone as to how ongoing work for FRC clients would be done.

562 The position in relation to the Victorian office is somewhat different. There was no statutory impediment to FRC continuing to conduct business in Victoria. I will return to this topic.

563 Secondly, he agreed that there would be no assurance, when a provisional liquidator was appointed, that he would personally continue to service the FRC files, and that that would be the liquidator's choice. Mr Coombs says, and I accept, that he would have liked a liquidator to be able to step in on 3 January 2006 to determine what should happen (ts 1097). Mr Coombs was faced with the position that, as at the end of December 2005 and the beginning of January 2006, the provisional liquidation application was pending, but something needed to be done in the meantime. As Mr Coombs put it, something had to be done, and no one was offering him any solutions (ts 1097).

564 Thirdly, I am not persuaded that the approach taken on behalf of Mr Coombs in correspondence with the provisional liquidator in February and March 2006 undermines the weight to be attributed to his evidence about his intentions in late December 2005 and early January 2006.

565 However, in my view, Mr Coombs' intentions, in acting as he did in late December 2005, were not as entirely altruistic as his evidence might suggest. I accept that he intended to service existing loan applications on behalf of FRC, and to pay commissions to FRC for that work. I also accept that he intended to discharge his and FRC's statutory obligations to his principals, FRC's clients. Further, I accept that he intended to ensure that FRC did not breach its statutory obligation not to conduct any finance broking business after 31 December 2005. In my view, however, Mr Coombs also saw the significant commercial opportunities for Crystal presented by the circumstances that had arisen.

566 Mr Dawson did not have a finance broking licence. Mr Coombs was well aware of this. He took the opportunity to inform clients of this. For example, in his email of 10 January 2006 to a client, he (rather insincerely) described it as 'unfortunate' that Mr Dawson did not have a finance broking licence (exhibit A106). Both Ms Ivankovich and Mr Blaxill sent a large number of emails to clients referring to the fact that Mr Dawson did not have a finance broking licence (exhibit A107). I infer that that was done with Mr Coombs' knowledge and authority.

567 The evidence establishes that repeat work, from persons for whom FRC had previously done work, was likely, and that Mr Coombs knew that that was so.

568 I find that Mr Coombs intended for Crystal to take advantage of Mr Dawson having no finance broking licence, and to obtain as much of what had been FRC's business as it could, and, so far as possible, in the eyes of clients and The Investors Club, to step into FRC's shoes, taking advantage of the strong relationships and client connections that FRC had had, for the benefit of Crystal.

569 I think these conclusions are supported by a consideration of some of the documents written by Mr Coombs at or around this time (exhibits A88, A101A, A105 and A106). To my mind, Mr Coombs' attempts to explain relevant parts of these documents as being 'badly worded' and 'done by the marketing people' were unsatisfactory and unconvincing (see, for example, ts 1069 1072 and 1114 1115). I do not accept that evidence of Mr Coombs.

570 In section 6.1.4 (dealing with accreditation), I have set out a number of features of the document Mr Coombs sent to The Investors Club on or about 21 December 2005 (exhibit A88). One of the central themes of the document is the idea of a smooth transition from FRC to Crystal. I think the document was intended to encourage those at The Investors Club to treat Crystal as stepping into the shoes of FRC. For example, it stated that Crystal would manage all of FRC's business and that FRC's phones and faxes would be diverted to Crystal. It referred to the absence of disruption in service, and to transitional arrangements.

571 On 3 January 2006, Mr Coombs' solicitors' letter attached a letter that, it said, had been or soon would be sent to all FRC clients (exhibit A101A). That letter stated that Mr Coombs was 'pleased to announce that Crystal will manage all finance enquiries, applications, submissions, work in progress and established portfolios as of 1 January 2006 [on behalf of FRC]'.

572 The same statement was made in exhibit A105, the document sent to The Investors Club branch managers and support members (ts 1112 1114). That document stated that Crystal had what was needed to 'continue with all your financial needs'. It invited queries regarding any FRC application that was in place or a loan application that was pending. See also exhibit A106.

573 In my view, these statements by Mr Coombs in documents he prepared support the conclusion I stated in [568].

574 Mr Coombs later agreed with the liquidator that for any active but not yet completed loan application on FRC's books at 31 December 2005, Crystal would complete the work and remit the commission to FRC. I infer that that reflects the intention which Mr Coombs had at the end of December 2005. In other words, I find that he intended that any active application would be treated as FRC work and performed on behalf of FRC and the commission remitted to it. Any new work that came in would be Crystal's work.

575 If a client called, expecting to talk to FRC, staff were instructed to tell them that Crystal was handling the work on behalf of FRC (exhibit 1A [517]). If the caller did not mention FRC, nothing would be said about FRC (ts 1086 1087). In that way the effect and, I infer, part of the intention of diverting FRC's telephones to Crystal was that Crystal would receive contact from people, especially those already clients of FRC, who intended to contact FRC, enabling Crystal in many cases to obtain new work.

576 In early January 2006, Mr Coombs told staff in the WA office, and in the Victorian office, not to use any FRC documentation in respect of any new deals, that is, work they were doing for Crystal (see the findings in section 2.21). I infer that in December 2005 when he took FRC's files, Mr Coombs intended that they be used in respect of FRC matters, and not in respect of Crystal matters.

577 In summary, I find that in late December 2005 and early January 2006, Mr Coombs' intentions in taking FRC's files and other property, taking a copy of the application register, and in diverting the telephone and fax numbers and email addresses, were:

(1) to deal with the situation until the application for a provisional liquidator was heard and determined;

(2) to enable Crystal and Mr Coombs to complete FRC's pending work, in circumstances where FRC could not do it, and where there were no other practical alternatives, and for Crystal to account to FRC for commissions received for that work;

(3) in so doing, to protect the interests of clients of FRC with pending work and to discharge Mr Coombs' and FRC's obligations under the FBC Act and the Code of Conduct;

(4) to prevent FRC and Mr Dawson from doing any finance broking work when not licensed to do so;

(5) to treat any application for finance that was active as at 31 December 2005 as part of FRC's work in progress, for which Crystal would account to FRC for any commissions received, and to treat any new work as Crystal's;

(6) the diversion of telephone numbers would also enable Crystal to receive the benefit of calls from those who had been clients of FRC, and others intending to speak to FRC, enabling Crystal in many cases to obtain that new work; and

(7) to use FRC's loan files only for the purpose of doing work on behalf of FRC, and not for any new work to be done for Crystal's benefit.

578 That brings me to the question of whether in taking FRC's files and other property, taking a copy of the application register, and in diverting the telephone and fax numbers and the email addresses, Mr Coombs breached his fiduciary duties to FRC. I will deal in turn with the conflict rule and the profit rule.

579 In my view, for the reasons that follow, by the conduct referred to Mr Coombs did not breach the conflict rule. He did not act in circumstances where there was a real or substantial possibility of a conflict between his interests (and those of Crystal) and the interests of, or his duties to, FRC. That is essentially because FRC had no ability to do any finance broking work after 31 December 2005. That meant that FRC did not have any interest of substance in preserving its then relationship with The Investors Club and with its clients, with a view to obtaining more referrals and work from them. It was unable to do further work, and thus unable to derive any further income from doing such work. It did not have rights of value which it could sell to a third party. It did not have any exclusivity in relation to The Investors Club, or in relation to those who had been its clients.

580 The cessation of its licence meant that, contrary to a central plank of the plaintiff's case, FRC did not have goodwill, because it had no reasonable expectation of being able to earn further income.

581 In the circumstances as at the end of December 2005, FRC's interests and opportunities were restricted to its interests in realising the commissions payable or potentially payable under its then pending work. Mr Coombs' conduct advanced that interest. No other satisfactory proposal to advance that interest existed.

582 In all the circumstances, in my view, any interest of FRC in ongoing client connections and the ability to obtain future work through referrals from The Investors Club or existing clients, or through repeat work from existing clients, was too remote and insubstantial to support the application of the conflict rule.

583 The profit rule requires a fiduciary to account for a profit if it was obtained by reason of his fiduciary position or by taking advantage of an opportunity or knowledge derived from the fiduciary position. As explained in section 5, it is clear from the terms of the profit rule that there must be a causal connection between the profit and the use of the fiduciary office: Streeter [75]. In this case, I find that Mr Coombs used his fiduciary office as director and senior employee, and knowledge and information derived from that office, in that he:

(1) diverted the telephone and facsimile numbers as well as the email addresses of FRC to Crystal;

(2) took the FRC client files, and a copy of FRC's application register, to Crystal's office; and

(3) allowed Crystal to take over the premises in Victoria that were leased by FRC, and to maintain possession and use FRC's property and equipment there.

584 Thus, on the face of it, if it is demonstrated that Mr Coombs obtained a profit by reason of this conduct, it would seem to follow that Mr Coombs will be liable to account for that under the profit rule.

585 The defendants submit that Mr Coombs' conduct does not involve any breach of fiduciary duty. Rather, they submit he stepped in as an 'agent of necessity' when circumstances demanded that he do so (ts 1188 1189).

586 As I have said, I accept that the combination of the need for further work to be done for ongoing clients, and Mr Coombs' and FRC's statutory obligations, created a compelling need for and justification for the steps taken by Mr Coombs. (I will deal with the position in Victoria, where FRC was free to continue to do broking work, later in this section of my reasons.)

587 The question is whether those circumstances mean that Mr Coombs is not obliged, by the law of fiduciaries, to account for any profits that he has made in consequence of his use of his position as a director of FRC or information or knowledge derived from that office.

588 As Phipps v Boardman [1966] UKHL 2; [1967] 2 AC 46 illustrates, the profit rule may be applied against a fiduciary who acts in good faith and who, in so acting, increases the value of the beneficiaries' assets, and earns a profit which the beneficiaries could not have earned. See also the passages from Warman cited in section 5 above [419].

589 The law of fiduciaries is prophylactic. Moreover, part of what Mr Coombs intended was to obtain a benefit from Crystal, see [577] above. Nevertheless, I am not satisfied that Mr Coombs' conduct, in the circumstances in which he acted, amounted to or involved a breach of fiduciary duty. As explained in section 5.1, the question of whether conduct is a breach of fiduciary duty must be assessed in light of all the circumstances. In my view, the circumstances in late December 2005 and early January 2006 meant that the need to protect the interests of FRC's clients with pending work, and Mr Coombs' and FRC's statutory obligations under the Code of Conduct, created a compelling need and justification for Mr Coombs' conduct.

590 In December 2005 and early January 2006, all parties shared the view that protecting the interests of FRC's clients with pending work was of paramount importance. In December 2005, the only proposals by Mr Dawson for the protection of those clients' interests were:

(1) for Mr Coombs to agree to stay at FRC and to seek an extension of FRC's licence; or

(2) for a third party broker to be appointed to conduct and complete FRC's pending work.

These proposals were floated only belatedly and in rather vague ways, without necessary detail. At trial there was no complaint or submissions by the plaintiff about the failure of Mr Coombs to adopt either of these proposals. Nor, in my view, would any such complaint have substance.

591 In my view, the absence of any identified reasonably realistic alternative option for protecting the interests of FRC's clients with pending applications, and for discharging Mr Coombs' and FRC's statutory obligations is a fatal obstacle to the plaintiff's claim that, in acting as he did, with the purpose and effect of protecting those interests and discharging those obligations, Mr Coombs breached his fiduciary obligations.

592 A fiduciary may breach his duty even though he acts honestly and reasonably. But in my view, Mr Coombs' conduct was not simply honest and reasonable; it was necessary. Mr Coombs' response to the circumstances was not just reasonable. It was the only realistic means of meeting the interests of FRC's clients with pending applications, and discharging his and FRC's statutory obligations.

593 That brings me to the question of whether Mr Coombs breached his fiduciary obligations in acting as he did in relation to the Victorian office and files of FRC. As I have said, there was no statutory licensing regime in Victoria, and thus no statutory impediment to FRC continuing to do finance broking work in Victoria.

594 Mr Coombs' conduct must be viewed in light of the imminent hearing of his application for the appointment of a provisional liquidator to FRC. There was a deadlock between the directors of FRC. Mr Coombs' hope and expectation was that decisions about FRC's business would soon be in the hands of an independent third party.

595 The evidence does not satisfy me that from January 2006 FRC could have conducted a finance broking business in Victoria, notwithstanding that it ceased to conduct any business in Western Australia. The Victorian part of FRC's business was considerably smaller in scale than the Western Australian business. It was by no means conducted as a separate business, capable of standing on its own feet. The Victorian arm of the business was ancillary to the Western Australian business. Mr Sheppeard sent all the paperwork to the Perth office of FRC. Attending to the administrative and recordkeeping is and was an important element of the business of finance broking.

596 For these reasons, I am not persuaded that in acting as he did in relation to the Victorian office and files of FRC, Mr Coombs breached his fiduciary duties.

597 If I am wrong in relation to these conclusions, in my view, any liability under the profit rule would be limited to the period before 16 January 2006. The provisional liquidator was aware from the outset of the steps taken by Mr Coombs. The provisional liquidator first raised the telephone diversion in his solicitor's letter of 13 March 2006, to which Mr Coombs' solicitor replied the next day (exhibits A190 and A191). I think the provisional liquidator must be taken to have consented to the continuation of the telephone diversion and Crystal's use of FRC's premises and property in Victoria, with the result that there is no breach of the profit rule after 16 January 2006.

598 In case I am wrong in the conclusions I have just expressed in [591] and [596], I will make some general observations on the question of the extent of any liability of Mr Coombs that might arise from a breach of the profit rule.

599 As I understand the position, unlike the conflict rule, the profit rule is not breached unless and until the fiduciary obtains a profit.

600 As explained in section 5, a claim based on an account of profit depends on:

(a) use of the fiduciary position or knowledge or information derived from it;

(c) a causal connection between (a) and (b) - that the profit was obtained 'by reason of' (a).

601 In relation to each of the Transactions, the question must be asked whether Mr Coombs made a profit by reason of his use of his fiduciary office, or knowledge, or information derived from it, in the way already identified.

602 It is for the plaintiff to prove that the profit it claims is attributable to Mr Coombs' breach of fiduciary duty.

603 The plaintiff's primary submission is that the defendants must account for all profits made by them from 1 January 2006, as all the profits made by the defendants from that time were the result of Mr Coombs' breach of fiduciary duty up to that time (POS [92]). That submission is evidently premised on acceptance of all of the plaintiff's claims of breaches of fiduciary duty in the period to 31 December 2005. Even on that basis, there would seem to me to be very considerable difficulties with a claim of such breadth. In any event, I have rejected a number of the plaintiff's claims of breach of fiduciary duty. The breaches that I am dealing with in this section 6.1.5 would fall well short of providing a foundation for a claim for an account of all of Crystal's profits from 1 January 2006.

604 Crystal's business was not acquired or established in breach of fiduciary duty, or as a result of a breach of fiduciary duty (see section 6.1.2). This is not a case like Warman, where the new business would not have been set up without the breach of fiduciary duty. As I have said, Mr Coombs was free to set up a new business and to work for anyone who contacted him in the new business on the contact details of that new business. That included those who had formerly been clients of FRC. FRC had no exclusive rights, and Mr Coombs had not entered into any restrictive covenants.

605 The question of whether Mr Coombs' conduct in diverting the telephone and facsimile numbers of FRC to Crystal, taking the FRC client files and a copy of FRC's application register to Crystal's office and causing Crystal to take over the premises in Victoria and the lease by FRC, and to maintain possession and use FRC's property and equipment there, caused Mr Coombs to obtain a profit falls to be determined by reference to the facts and circumstances of each of the Transactions. If and only if it is found that Mr Coombs obtained a profit by reason of that conduct in relation to a particular transaction, Mr Coombs would be liable to account for that profit under the profit rule (assuming, contrary to my finding, that liability under the profit rule were made out).

606 The plaintiff also claims that Mr Coombs solicited clients of FRC, or persons referred from The Investors Club or Interstar or associated people, or did work arranging or rearranging loans for them (SC 8, 14.2). Apart from sending emails seeking authority to use information on FRC files, there is no evidence of any soliciting by Crystal or Mr Coombs. The evidence is to the contrary (ts 1085; exhibit 5 [22]).

607 In any event, for the reasons that I have just given [604], I am not satisfied that such conduct, to the extent that it occurred, involved any breach of fiduciary duty or other duty on the part of Mr Coombs. Mr Coombs was entitled to seek work from those for whom FRC had previously done work. As I have said, FRC had no exclusive rights in relation to those clients; there were no restrictive covenants.

608 That is subject to one qualification. In my view, in taking things into his own hands, in acting as he did and taking and using FRC's property in late December 2005 and early January 2006, Mr Coombs and Crystal impliedly undertook and became obliged to FRC to use FRC's property only for the purposes of doing work for FRC's benefit, and to account to FRC for all commissions and other benefits received in consequence of that work. Mr Coombs and Crystal had fiduciary duties to this effect. Mr Coombs was not entitled to use information that he held for the purpose of doing FRC WIP work to solicit clients for Crystal.

609 Whether the defendants used information they held for the purpose of doing FRC WIP work in order to write letters to former clients of FRC to solicit work will be considered in the context of the Transactions.

610 Similarly, the plaintiff's claim that the defendants sent out letters to clients in FRC's database requesting that they consent to Crystal conducting all their existing and future finance requirements, and then when signed authorities were received, transferred the clients from FRC to Crystal (SC 19.10, 19.11) will be considered in the context of the Transactions.

611 Finally, in relation to the period from 1 January 2006 to 16 January 2006, the plaintiff claims that by its conduct, the defendants effectively appointed themselves as agent for FRC in conducting FRC's work, with the result that the defendants owed FRC the usual fiduciary duties of an agent.

612 The defendants take issue with the characterisation of agency.

613 It is not necessary to focus on the question of whether the defendants became 'agents' of FRC. That question may be asked for a variety of purposes and, depending upon the purpose, the answer may be different.

614 As I have said, arising from Mr Coombs' and Crystal's conduct, fiduciary duties arose that he and Crystal use FRC's property only for the purposes of doing work for FRC's benefit and that he account for all commissions received in consequence of that work.

615 The defendants' case is that they complied with those duties.

616 Whether any of these duties were breached will fall for determination in considering the Transactions.

617 Given that the provisional liquidator was appointed on 16 January 2006, and that shortly thereafter he entered into an agreement with the defendants, it is not necessary to give more detailed attention to the precise scope of the duties arising in the period 1 January 2006 to 16 January 2006.

618 That brings me to the question of whether Mr Coombs breached his duties in the period after 16 January 2006.

6.2 Breaches from 16 January 2006 to 21 December 2006

619 During this period, the company was in provisional liquidation or liquidation.

620 The plaintiff appears to make some complaint that the defendants retained possession of FRC's property during this period. However, that occurred with the consent of the provisional liquidator (later liquidator).

621 From January 2006, the position between the provisional liquidator or liquidator and the defendants was regulated by an agreement.

622 Apart from the question of remuneration, the terms of the agreements were materially identical.

623 From 16 January 2006 until midFebruary 2006, the position was regulated by an agreement reached on 31 January 2006. The agreement is reflected in what is set out in the liquidator's solicitors' letter of that date (exhibit A151). At the meeting on 31 January 2006 it was agreed that:

(a) by 6 February 2006, Mr Coombs would 'provide the liquidator an up to date list of FRC's work in progress as at 31 December 2005 (WIP), ie a list of all active but not yet settled finance applications'. The list was to set out the state of the various finance applications; and

(b) Crystal would continue until 10 February 2006 to service the FRC WIP files in its possession, pay to FRC all commissions derived from that work, and bear the administrative costs of doing that work.

624 By letters of 14 February 2006, it was agreed that Crystal would continue to do the WIP work for a fee of $5,000 per week. In March 2006, it was agreed that the fee would be $5,500 per week.

625 Otherwise, these agreements provided for Crystal to continue to do work on the same terms as the January agreement.

626 Similarly, when the provisional liquidator was appointed as liquidator, the agreement continued on the same terms.

627 There is an issue between the parties as to the proper construction of the Liquidator's Agreements. On the plaintiff's construction, advanced in closing submissions although not pleaded, Crystal and Mr Coombs agreed to service and remit commissions on all of FRC's active but not yet settled finance applications as at 31 December 2005. The defendants contend that on a proper construction, they agreed:

(a) that Mr Coombs would provide a list of all files that were active but not yet settled finance applications being handled by FRC as at 31 December 2005; and

(b) the defendants obligations were to service those files that were included on the list.

628 I prefer the plaintiff's construction of the Liquidator's Agreements. Crystal's obligation was to continue to service 'the FRC WIP files in its possession' and to pay commissions to FRC. The term 'WIP' had been defined earlier in the letter, as 'active but not yet settled finance applications being handled by FRC as at 31 December 2005'. Mr Coombs was to provide a listing of FRC's WIP, but I do not read the letter as defining Crystal's obligations by reference to the WIP listing that was to be provided.

629 The defendants submit that given that it was FRC's obligations to keep accurate records, and given that Mr Coombs would evidently use those records to prepare the WIP list, the defendants' construction makes more commercial sense. Mr Coombs should not be responsible for errors in FRC's records.

630 I do not accept that that submission sustains the defendants' construction. First, Mr Coombs was the person primarily responsible at FRC for the accuracy of FRC's records. Secondly, and in any event, I do not think that, objectively, the parties intended that Crystal could retain commission earned on a loan application if it was omitted from the WIP list, and it subsequently emerged that the application had been active at FRC as at 31 December 2005. If necessary, I think a term that in those circumstances Crystal would remit the commission to FRC can be implied in the Liquidator's Agreements.

631 The plaintiff complains that on various dates from 16 January 2006 to 21 December 2006 Crystal arranged or rearranged loans for people on FRC's database as at 31 December 2005, and others associated with those persons; people who had made inquiries of FRC, people referred by The Investors Club, Interstar or other providers. The plaintiff claims (SC 24) that doing work for such persons was a breach of the Liquidator's Agreements and a breach of Mr Coombs' duties as a director and senior employee of FRC. For the reasons that follow, I do not accept that such conduct was a breach of the Liquidator's Agreements, or of any fiduciary or other duty owed by Mr Coombs.

632 Paragraph 13.1.5 of the statement of claim pleads that there was an implied term, implied as a matter of law, that the defendants could not solicit clients of FRC for the term of the Liquidator's Agreements. No submissions were advanced in support of this plea. As I have said, there is no evidence of solicitation by Crystal or Mr Coombs. Further, I am not persuaded that any such term is to be implied. The alleged term goes substantially beyond the scope of the engagement of the defendants under the Liquidator's Agreements.

633 The obligations of Crystal and Mr Coombs under the Liquidator's Agreements were confined to work on FRC's WIP files. Although the letter of 31 January 2006 made some reference to FRC's finance inquiry, name and address database, nothing in the Liquidator's Agreements gave rise to any obligation, negative or positive, on the part of the defendants relating to that database.

634 The scope of any fiduciary duties arising from the Liquidator's Agreements has to be consistent with the terms of that agreement. See [429] above. Where a term to like effect as the suggested fiduciary obligation cannot be implied, it will be very difficult to superimpose the suggested fiduciary obligation on the contract that does not include the implied term: John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 [92].

635 The plaintiff claims that by reason of their position as agents of FRC pursuant to the Liquidator's Agreements, the first and second defendants owed to FRC the fiduciary duties pleaded in par 11. Those are the general fiduciary duties outlined in section 3.3 of these reasons. I do not accept that under the Liquidator's Agreements the defendants owed fiduciary duties of this broad scope. The defendants had duties in performing their role in relation to FRC's WIP work. But it was only in that specific sphere of conduct that their general freedom to act in their own interest was constrained. Otherwise in my view, nothing in the Liquidator's Agreements or in any fiduciary duties arising under them constrained the freedom of Crystal and Mr Coombs to pursue Crystal's finance broking business, including by doing work for persons who had been previously in contact with FRC or on its database, or who were referred to Crystal by The Investors Club.

636 For these reasons I reject the claims in par 24 of the statement of claim.

637 Paragraph 27A of the statement of claim pleads that in breach of the Liquidator's Agreements the defendants failed to manage FRC's work in progress by failing to cause to be paid to FRC payments received that should have been for and on behalf of FRC. The question of whether and to what extent the defendants breached the Liquidator's Agreements in this way will be dealt with in considering the Transactions.

7. The liability of Crystal - legal principles and general observations

638 The question of whether Crystal has any liability to the plaintiff will be considered in the context of the Transactions in section 8. In this section I set out some principles of law and make some general observations.

639 The two limbs of Barnes v Addy are not an exhaustive statement of the circumstances in which, and bases on which, a third person's participation in another person's breach of fiduciary duty or breach of trust could render that person accountable in equity: Farah Constructions Pty Ltd v SayDee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [161]; Grimaldi [242] [247].

640 One independent basis for liability, not relied on in this case, is where a third party knowingly induces or immediately procures a breach of trust or breach of fiduciary duty. In that context, there is no need to show the existence of a dishonest or fraudulent design: Farah Constructions [161]; Grimaldi [245]; Nicholson v Morgan (No 3) [2013] WASC 110 [33].

641 Another basis of potential liability for third party participants is where the third party is the corporate creature, vehicle or alter ego of the wrongdoing fiduciary who uses it to secure the profits of their breach of duty: Grimaldi [243] and the cases there cited. However, as I have said, the plaintiff's case is pleaded squarely on the basis of the two limbs of Barnes v Addy.

642 The statement of claim pleads that Crystal knowingly assisted Mr Coombs and was in knowing receipt of benefits obtained in breach of Mr Coombs' fiduciary duty (SC 16, 17, 21, 22, 26, 27, 29). The plaintiff's written opening submissions asserted that the actions and intentions of Mr Coombs, as the sole director of Crystal, were Crystal's actions and intentions (POS [55]). However, at no stage in oral or written submissions did the plaintiff identify that it proposed a basis for liability on the part of Crystal beyond that which was pleaded in the statement of claim. To the contrary, the plaintiff confirmed that it relied on the two limbs of Barnes v Addy and no other basis (ts 452 453, 1256). That is the basis on which the plaintiff's case was put at trial, and, consequently, on which it must be decided.

643 Both limbs of Barnes v Addy give rise to personal liability on the part of the third party: Grimaldi [253].

644 I turn to the first limb of Barnes v Addy: knowing receipt.

645 In a trust case, the first limb of Barnes v Addy makes liable a third party who, with sufficient notice, receives trust property.

646 A recipient will have sufficient notice if he has any of the first four species of knowledge or notice identified in Baden v Societe General [1993] 1 WLR 509: Grimaldi [268] [270]; Westpac Banking Corporation v The Bell Group Ltd (No 3) [2128] [2130] (Drummond AJA, Lee AJA agreeing [1100]).

647 The principle extends to a breach of fiduciary duty by the director of a company. It applies to company property received by a third party with sufficient notice of the breach of fiduciary duty: Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 [152] [159]; Grimaldi [254], [275]; Westpac Banking Corporation v The Bell Group Ltd (No 3) [2136], [1100].

648 Information, even confidential information, is not property for the purposes of the first limb of Barnes v Addy: Farah Constructions [118] [120]; Westpac Banking Corporation v The Bell Group Ltd (No 3) [2155]. Nor is property acquired by using information obtained from the fiduciary: Farah Constructions [120].

649 Only proprietary benefits can constitute 'trust property' for the purposes of the first limb of Barnes v Addy: Farah Constructions [117] [120]; Westpac Banking Corporation v The Bell Group Ltd (No 3) [2152].

650 Intangibles, including a chose in action, can be property for this purpose: Westpac Banking Corporation v The Bell Group Ltd (No 3) [2156] and following.

651 A mining licence held by the company to which the fiduciary obligations are owed is property for the purposes of the first limb of Barnes v Addy: Diamond Hill Mining Pty Ltd v Huang Jin Mining Pty Ltd [2011] VSC 288 [93] [98].

652 Whether Crystal received any property of FRC, for the purposes of the first limb of Barnes v Addy, must be considered in the context of the determination of what, if any, breach of fiduciary duty is established for of each of the Transactions.

653 It is not necessary to address questions that would have arisen about the application of the first limb of Barnes v Addy to breaches of duty alleged by the plaintiff which I have rejected. It is sufficient to observe that, on the face of it, in relation to a number of the alleged breaches it is difficult to identify any relevant company property for the purposes of the first limb of Barnes v Addy.

654 I now turn to the second limb of Barnes v Addy: knowing assistance.

655 The second limb of Barnes v Addy makes a third party liable if it assists a trustee or fiduciary in a breach of trust or fiduciary duty, with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary: Farah Constructions [160].

656 A dishonest or fraudulent design on the part of the trustee or fiduciary is a necessary element of liability under the second limb of Barnes v Addy: Farah Constructions [160], [163], [179] [185].

657 An allegation that a third party is liable as a knowing participant in a dishonest or fraudulent design is of such seriousness as to require that it be pleaded and particularised: Farah Constructions [170].

658 When a court comes to determine whether it is satisfied that a third party is liable as a knowing participant in a dishonest or fraudulent design, the court should apply the approach explained in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336: Farah Constructions [170].

659 In Westpac Banking Corporation v The Bell Group Ltd (No 3), Drummond AJA (Lee AJA, agreeing [1099]) said that it is not necessary to show moral reprehensibility in order to establish a fraudulent or dishonest design on the part of the trustee or fiduciary [2119]. There may be a question as to whether that is consistent with what the High Court decided in Farah Constructions but given my findings, it is unnecessary to consider that for the purposes of this action.

660 In this action, no form of dishonesty was pleaded. In my view, there is nothing pleaded in the statement of claim of anything that amounts to a dishonest or fraudulent design on the part of Mr Coombs. As Edelman J recently explained in Nicholson v Morgan (No 3) [61] [68], the knowledge of the alleged assistant must relate to a dishonest and fraudulent design on the part of the trustee or fiduciary. The statement of claim does not plead knowledge, actual or constructive, on the part of Crystal of any dishonest and fraudulent design on the part of Mr Coombs. That being so, liability under the second limb of Barnes v Addy is not available.

661 Further, and in any event, I have not made a finding of any breach of fiduciary duty that involved a dishonest or fraudulent design on the part of Mr Coombs.

662 For these reasons, I find that there is no scope for liability for Crystal under the second limb of Barnes v Addy as a knowing assistant.

8.1 Introduction; review of findings already made

663 Using the nomenclature adopted in Plaintiff's Transaction Submissions (PTS), I will match the summary in PTS with my analysis of the plaintiff's claim and my findings in section 6. The 'PreEmptive Claim' and the 'Crystal Business Certificate Claim' reflect the claims considered and dismissed in section 6.1.1 and 6.1.2. The 'Investors Club Claim' is founded on the breach rejected in 6.1.4. In that section I found that Crystal's accreditation and referrals from The Investors Club to Crystal were not attributable to any use by Mr Coombs of his position as a director of FRC.

664 The 'Misappropriation of the Victorian business of FRC Claim' and the 'FRC Contact Details Claim' were rejected in section 6.1.5. Further, I found that those claims, if established, would fail in respect of the period after 16 January 2006 by reason of the provisional liquidator's consent.

665 For the sake of completeness, in case I am wrong in rejecting the last two mentioned claims, I will identify any transactions in respect of which such claims would succeed, namely transactions 25, 27, 35 and 67.

666 I reject the centrepiece of the 'FRC Database and Appropriation of FRC Files Claim', namely the proposition that the fact that a client was listed on the FRC database in itself made any work done thereafter by Crystal or Mr Coombs for such a client a breach of fiduciary duty for which Mr Coombs (or Crystal) must account to FRC. The reasons should be apparent from what I have said in section 6.1.5 and 6.1.6. FRC had no exclusive rights in relation to people who had been clients, or whose names appeared on the FRC database. The plaintiff accepted in closing submissions that there was no evidence that Crystal or Mr Coombs had used the FRC database (ts 1276). Whether the defendants used information on FRC files for the defendant's benefit will be considered in relation to the Transactions individually.

667 The position is similar in relation to the 'FRC Application Register'. I have rejected the plaintiff's claim that simply because a client was on FRC's Application Register the client 'belonged' to FRC, and any new work for that client must be accounted for to FRC. If it is proved that the defendants used information obtained from the FRC Application Register or loan progress report for the defendants' benefit, liability would arise. But that must be shown. In closing submissions, counsel for the plaintiff accepted that he could not point to any direct evidence in that regard. I reject his submission that it is not incumbent on the plaintiff to prove actual use.

668 In section 6.2, I rejected the 'Liquidator's Agreements (breach of fiduciary duty) Claim' and said that I would deal with the 'Liquidator's Agreements (breach of contract) Claim' and the 'FRC (work in progress) Claim' in the context of each individual Transaction.

669 In section 6.1.6, I said in effect that I would deal with the 'Agency Claim' and the 'Authority to Act as Agent Claim' in the context of the individual Transactions.

670 I turn to consideration of the individual Transactions.

671 For most of the Transactions the plaintiff relies on a number of claims, many of which I have rejected in section 6. In dealing with each individual Transaction, I will deal only with those of the plaintiff's claims relating to the Transaction that have not been rejected in section 6.

672 In this section of the reasons, I will state my conclusions on whether Mr Coombs and Crystal would be or were liable to FRC or the liquidator. Whether any such liability is now owed to the plaintiff depends on the effect of the assignment by the liquidator of FRC's causes of action against Mr Coombs and Crystal. I will deal with assignment questions in section 9.

673 In essence, this is a claim in relation to new work brokered by Crystal for a client who was listed on the FRC database as at 31 December 2005.

674 Mr and Mrs Cook were not WIP clients of FRC as at 31 December 2005.

675 There are a number of agreed facts in the Transactions Document March 2013. Many of them do not seem to me to be relevant to questions of liability. I do not propose to recite all of the agreed facts.

676 I find that Mr and Mrs Cook were listed on the FRC database as at 31 December 2005. I infer that the database on that date mirrored FRC's database as at 16 January 2006, on which Mr and Mrs Cook were listed (exhibit A121, B310).

677 On 20 January 2006, Mr Van Proctor, of The Investors Club sent an EOI by facsimile (exhibit B317, B318). The facsimile transmission identified FRC as the financier. I accept Mr Van Proctor's evidence that the reference to FRC on the facsimile cover sheet was a mistake (exhibit 2 [21] [22]). The EOI itself identified Crystal as the club broker (exhibit B318).

678 Loan applications were submitted on 6 February 2006 and approved on 15 February 2006. The transaction settled on 27 and 28 March 2006.

679 The defendants managed the transaction as finance broker, through to settlement, and received commissions for doing so.

680 As already explained, the fact that the Cooks were listed on the FRC database is, in itself, insufficient to sustain a claim by FRC against the defendants.

681 Even if, contrary to the findings I have made in section 6, I accepted the FRC Contact Details Claim generally, I would not accept that claim in relation to this transaction. Mr Van Proctor of The Investors Club intended that this new work go to Crystal. Crystal did not obtain the work by reason of the diversion of FRC's telephone number or facsimile number.

682 The plaintiff also claims that the fact that 'FRC paper' was used in relation to this transaction gives rise to a liability on the part of the defendants. I reject that claim. To characterise this transaction as involving the use of 'FRC paper' involves a misleading overstatement. One of the proforma documents used for the purposes of keeping records had copyright FRC at the foot (exhibit B319). The commission for this transaction can in no way be said to have been derived by the use of this proforma document.

683 For these reasons, I reject the plaintiff's claims in relation to the Cook transaction.

684 Like Cook, the essence of this claim is that it involved a new deal brokered by Crystal for a client on the FRC database as at 31 December 2005. For reasons already given, that claim fails.

685 The borrower made contact with Mr Coombs at Crystal on 4 January 2006 (exhibit B326). There is no evidence as to the means of contact. I infer that the client initiated the contact and did so by telephone. Crystal had separate telephone and fax numbers from what had been previously FRC's numbers. Mr Coombs had a mobile number. The evidence does not give any indication of which number the client called. Particularly given the prospect of the use of Mr Coombs mobile number, I am not prepared to infer that the client initiated contact by using the diverted FRC phone number.

686 An application for finance was completed on 4 January 2006 (exhibit B328).

687 The application was lodged by Mr Coombs on behalf of Crystal on 5 January 2006 (exhibit B329). Contrary to the plaintiff's submissions (ts 764), the telephone number shown on that document is Crystal's, not FRC's.

689 The FRC Database Claim and FRC Application Register Claim fail for reasons already given.

690 The FRC Contact Details Claim fails on the ground that I have found that there was no breach of fiduciary duties. Further and in any event, as I have explained, I am not satisfied that the client made contact through use of any of FRC's contact details.

691 The plaintiff also relies on the fact that, on 18 January 2006, an officer of Crystal sent a letter to the client asking the client to sign an authority to transfer personal information to Crystal Finance. I am not persuaded that that gives rise to any liability on the part of the defendants. The client had contacted Crystal in January 2006. Crystal was in the course of performing finance broking services for the client. The evidence does not establish that Crystal used any FRC property or information in sending the email of 18 January 2006 (exhibit B330).

692 For these reasons, the plaintiff's claim in relation to Transaction 3 (Seiku) fails.

693 Like the previous two transactions, in essence this transaction was a new deal brokered by Crystal after 1 January 2006 for a client who was on the FRC database.

694 An EOI was received by Crystal on 14 February 2006. An application was lodged on 7 April 2006.

695 The defendants contend that the application first lodged in April 2006 later lapsed and that a second application was submitted in October 2006 (referring to exhibit B333 and exhibit 1B [13]). It is unnecessary to determine whether that is a correct characterisation of events. Even assuming that there was no second application, I am not persuaded that the transaction gives rise to any liability on the part of the defendants. That is so for the reasons given in relation to the two previous transactions.

696 In essence, this client was on the WIP list and on Mr Coombs' FRC loan progress reports. A loan application had been lodged in July 2005 for funding to purchase a property on Short Street, Boronia Heights, Queensland. In December 2006, the client settled on the acquisition of that property. The issue is whether the loan in relation to the transaction settled is to be treated as the same loan application or a separate one for the purposes of Crystal accounting to the Liquidator under the Liquidator's Agreements.

697 This involves applying the Liquidator's Agreements, on their proper construction, to the events that happened. The obligation of Crystal under the Liquidator's Agreement was to service the WIP files and to remit all commission derived from performing that work. Thus, the question is whether the commission is derived from the performance of Crystal's obligation to service the WIP files, that is the files relating to active but not yet settled finance applications held by FRC as at 31 December 2005. That will not be so if at a later time, Crystal made what was in substance a new application.

698 The parties agreed that the question was whether in substance the later application was the same or a new application (ts 753, 914 916, 1217).

699 I accept that, in considering that question, it is relevant to consider whether the later application involves obtaining substantial further information or devising a new strategy (see Mr Coombs' evidence ts 1105 1107).

700 In July 2005, Mr Dawson, on behalf of FRC, sent the Bertinat's loan application to Westpac. The loan application included a proposed 'financial clause expiry date' of 15 August 2005. The application sought a loan of $254,000.

701 The loan application was unconditionally approved in August 2005 (exhibit B347, B343). The loan approval letter contemplated that the loan documentation would be forwarded shortly for signature (exhibit B343).

702 On 14 April 2006, Mr Coombs made a file note saying that the Bertinat file was unable to be located, and the application was shown as lapsed on the website (exhibit B342). That is a reference to the lender's website. Mr Coombs spoke with the client who said that he would not proceed with the purchase of the Short Street property, rather he wanted to sell his home in Thornlie and purchase a display home (exhibit 1B [18]).

703 On the diary note on the FRC file for Bertinat, there was an entry on 4 May 2006 of NPW (meaning not proceeded with). The entry immediately before that is for September 2005 (exhibit B337).

704 It appears that the next thing that occurred was in November 2006 when Mr Coombs received an email from the Bertinats. Their email of 15 November 2006 forwarded an email from their settlement agents advising them that settlement of the Short Street property was imminent (exhibit B345A).

705 Mr Coombs says that Crystal then prepared a 'fresh' application supported by a 'complete set of documents' (exhibit 1B [21]).

706 It is clear that the bank treated the new application as a separate one, giving it a different identification number. However, as the defendants accept, that is not decisive.

707 The defendants have not produced any documents relating to the second application that reveal whether and to what extent new information was required or any fresh strategy adopted. In the absence of that evidence, I am not satisfied that what occurred in 2006 was in substance a new or different application involving a new strategy by the broker, or a need to obtain substantial new information. The inference to be drawn from the client's email of 15 November 2006 was that their acquisition of Short Street had been on hold and was now going ahead substantially in its original form. To my mind, there is insufficient evidence to sustain a conclusion that any new strategy or substantial new information was involved. I do not think that the fact that, for a period from April or May 2006, the transaction was noted as not proceeded with determines the position.

708 For these reasons, in my view Crystal would have been liable to the liquidator of FRC under the Liquidator's Agreements in respect of the commission earned on this transaction.

709 I note that although the commission was not paid to Crystal until January 2007, the transaction settled on 19 December 2006 and thus before settlement of the Sale Agreement between the liquidator and the plaintiff.

710 The claim in relation to this transaction raises issues of the same character as the previous transaction. The question is whether commission admittedly earned by Crystal was earned on a loan application that was in substance the same application as was pending for FRC as at 31 December 2005.

711 In mid2004, FRC received an EOI from this client. The intended purpose of the loan was to acquire a unit to be constructed in Seaforth Avenue, Gosnells. Finance approval was given for a loan of $135,000.

712 In 2005, the building of the unit, as part of a development, was in progress. There were some delays and disputes between the developer and the builder.

713 An FRC diary note of 12 December 2005 records that upon an inquiry by FRC, the lender advised that the loan was still current and that settlement was due for April 2006 (exhibit B374).