WAS THAT DUTY BREACHED?
Submissions
33 Mr. Burnside QC for the plaintiffs referred to Mr. Phillips' evidence that the first three invoices were for work unrelated to Glenmore Park, including designing a duplex at Alfreds Point, two housing schemes at Kariong, landscape work, Narellan Exhibition Homes, and planning and use of land at East Gosford, Bayview and Penrith Lakes; and that the remaining invoices were also for work performed for Mr. Chow, not being work associated with the plaintiffs. Mr. Burnside submitted that these explanations should be rejected: no documents were produced evidencing the work allegedly performed; and in relation to the later invoices, there was no proper explanation for the invoices being addressed to Glenmore Park Realty, for the services being described commissions on lot sales, or for why Mr. Chow wanted invoices which were admittedly false. The only reasonable conclusion were that the payments were made to Mr. Phillips by virtue of his office and in connection with his duties in relation to Glenmore Park.
34 Mr. Burnside next submitted that the purchases and re-sales by Osaka involved a clear breach of fiduciary duty. The only defence suggested was that Mr. Kennedy was aware of the purchases and had not objected to them. In fact the evidence did not demonstrate that Mr. Kennedy was aware of the transactions.
35 Similarly, in relation to the sponsorship of go-kart racing, there was no suggestion that the promotional value of the sponsorship justified these payments: the only inference that could be drawn was that the payments were received by reason of Mr. Phillips' position in relation to the joint venture and in order to place him under an obligation to Mr. Chow.
36 Mr. Burnside submitted that Mr. Phillips was accordingly obliged to account for these benefits, as being obtained where there was a conflict or possible conflict between his fiduciary duty and his personal interest, or by reason of his fiduciary position. This liability did not depend on evidence of detriment to the plaintiffs, or even upon dishonesty or lack of bona fides: see Hospital Products Limited v. United States Surgical Corporation (1984) 156 CLR 41 at 68; Warman International Limited v. Dwyer (1995) 182 CLR 554 at 557; Chan v. Zacharia (1984) 154 CLR 178 at 199; Consul Developments Pty. Limited v. DPC Estates Pty. Limited (1975) 132 CLR 373 at 394.
37 In so far as Mr. Kennedy sought to rely on informed consent, on any view the level of disclosure concerning the payments to Mr. Chow and the Osaka transactions were insufficient. I should accept Mr. O'Grady's evidence that Mr. Kennedy had power to reject consent for transactions involving a conflict of interests, but not to approve them. There was no evidence from Mr. Phillips that he believed Mr. Kennedy had authority or relied on any such belief, or as to any grounds which could support such a belief.
38 Mr. Ellison for Mr. Phillips submitted first that, in relation to the sponsorship for go-kart racing, Mr. Chow was entitled to spend money on advertising, and it could not be misconduct on the part of Mr. Phillips that he agreed to spend it in part through an entity associated with Mr. Phillips.
39 As regards the Osaka transactions, Mr. Ellison submitted that these transactions were known to Mr. Kennedy, who had all actual and implied authority to approve of them. Mr. Kennedy was a senior executive. His knowledge and authority was confirmed by the memoranda of October 1992.
40 As regards the invoices to and payments by Mr. Chow, there was no indication that Mr. Phillips absented himself from his duties and obligations to the joint venture. Mr. Chow was entitled to use the skills and talents of Mr. Phillips in a manner that both saw appropriate, so long as there was no conflict.
41 Mr. Ellison pointed out that Mr. Phillips was not cross-examined on his assertions that his work for Mr. Chow had nothing to do with the Glenmore Park project, or, in relation to the later invoices, that it was Mr. Chow who established and continued this particular regime. Although Mr. Phillips' employment was full-time employment, this did not prevent him working in his spare time. Mr. Ellison submitted that I should infer that the evidence from Mr. Kennedy and Mr. Chow would not have assisted the plaintiffs. It was never put to Mr. Phillips that the payments from Mr. Chow were a reward for favouring Mr. Chow in relation to his tenders and accounts.
Decision
42 In my opinion, the suggestion that the payments by Mr. Chow to Mr. Phillips were connected with his employment by the plaintiffs, and with his dealings with Mr. Chow in relation to the Glenmore Park project, was sufficiently raised and put to Mr. Phillips in cross-examination. The Statement of Claim alleged that the payments were dishonest and improper, or else reckless. The cross-examination suggested that Mr. Phillips did no work apart from his work connected to Glenmore Park which justified the payments. Mr. Phillips was questioned in relation to the later invoices, which Mr. Phillips admitted, after some prevarication, were deliberately false. It was put to Mr. Phillips that his job included reviewing Mr. Chow's construction tenders and his monthly accounts.
43 Although I am not affirmatively satisfied that Mr. Phillips did no work for Mr. Chow outside his duties in connection with Glenmore Park project, and while I accept Mr. Phillips' evidence that he would charge his time for such work as he may have done at $100.00 per hour, I am affirmatively satisfied that the performance of any such work was not the substantial reason or basis for the payments made by Mr. Chow to Mr. Phillips.
44 In coming to this view, I rely on the circumstance that Mr. Phillips was unable to produce any records or documents which evidenced such work for Mr. Chow, and gave no satisfactory explanation for the complete absence of such records or documents. In my opinion, in relation to this matter it was for Mr. Phillips to call Mr. Chow or to subpoena Mr. Chow to produce documents evidencing such work; and Mr. Phillips' failure to do so in my opinion suggests that those steps would not have assisted Mr. Phillips' case. The preparation of deliberately false invoices further supports the conclusion I have reached. I note that Mr. Phillips gave evidence to the effect that Mr. Chow said "rather than try and maintain precise records, he would pay (Mr. Phillips) a reasonable amount for (his) services"; but in my opinion this evidence further confirms that the payments were not in substance related to or based upon work done by Mr. Phillips for Mr. Chow unconnected with the Glenmore Park project. My conclusion is also supported by Mr. Phillips asserting that the receipt of these payments did not create any conflict of interests, because the issues with Mr. Chow were entirely separate: in the absence of further explanation, it is difficult to see how Mr. Phillips could honestly hold such an opinion.
45 I accept Mr. O'Grady's evidence that he knew nothing of the payments by Mr. Chow, and also his evidence that Mr. Kennedy did not have the plaintiffs' authority to approve of transactions involving a conflict of interest.
46 In support of a defence of informed consent, Mr. Phillips gave evidence that his work for Mr. Chow was openly discussed in the presence of Mr. Kennedy; although he accepted that he did not tell Mr. Kennedy that he was getting something like $1,250.00, and later $2,000.00, per month, or that Mr. Chow had asked for false invoices. In my opinion, this could not amount to informed consent by the plaintiffs. Mr. Kennedy was not sufficiently informed about the matter. He did not have any actual authority to give consent on behalf of the plaintiffs. There is no evidence from Mr. Phillips that he believed Mr. Kennedy had such authority. There is no evidence of any reasonable grounds for any such belief, such as might support a case of ostensible authority.
47 In those circumstances, in my opinion the receipt of the payments from Mr. Chow did involve breaches of Mr. Phillips' fiduciary duties. In my opinion, Mr. Phillips is now bound to account to the plaintiffs for those payments, with interest from the time of their receipt. In my opinion, no basis is shown for any "just allowance" deduction from those payments: the evidence about work performed by Mr. Phillips which might in part justify the payments is too tenuous.
48 As regards the Osaka transactions, in my opinion there was a clear conflict of interest in relation to those transactions, and that in such transactions, Mr. Phillips benefited himself to the detriment of the plaintiffs. In my opinion, Mr. Phillips is obliged to account to the plaintiffs for one-third of the profit made in each of those transactions. In relation to Lot 3208, this was subdivided before re-sale, and there is some evidence that Mr. Phillips did professional work in relation to that subdivision. On that matter, I would make provision for just allowances. Otherwise, the plaintiffs are entitled to the whole of the one-third of the profits, plus interest.
49 As regards the go-kart sponsorship, this seems to me to be a borderline case. The evidence does not suggest any monetary profit by Mr. Phillips, but rather that certain expenses associated with go-kart racing involving his son were paid by Glenmore Park Realty. It seems also that the Glenmore Park project received the benefit of some publicity from this sponsorship. Ultimately, having regard to the smallness of the amounts involved, the difficulty of assessing just allowances, and the borderline nature of the conflict of interest, I am not satisfied that relief is justified in relation to these transactions.