The Delta Electricity fee
91 Shaw maintains that, on or about 26 June 2002, BPCF (ie, Cartesian) entered into an agreement to provide financial advice to Delta Electricity in relation to a proposed debt capital raising, that certain work was undertaken by Mr Martin and Mr Wellham on that assignment between 22 July 2002 and 31 July 2002, that BPCF (ie, Cartesian) issued invoices for a total of $331,772.80 to Delta for work undertaken up to and including 31 July 2002 and that, by about 30 September 2002, Delta had paid these invoices to BPCF (ie, Cartesian) or E8 or in part to one and in part to the other. Shaw further says that $13,681.25 of the total related to the work done by Mr Martin and Mr Wellham between 22 July 2002 and 31 July 2002.
92 E8 does not dispute these basic allegations. A mandate had been entered into by BPCF (ie, Cartesian) with Delta on 26 June 2002 and had been amended on 5 July 2002. Cartesian's billings to Delta included some time recorded by Mr Martin and Mr Wellham between 23 July 2002 and 30 July 2002. Mr Martin explained in evidence that, in accordance with his usual business practice, he waited for a natural break point in work before issuing an invoice.
93 In the case of the PPK assignment, it was significant that it was Shaw Corporate that was represented as the provider of the work product, with consequent responsibility, apart altogether from the question of when the actual work was done. There was no such apparent allocation of responsibility to Shaw Corporate in the Delta Electricity case. The allegation of diversion of money to Cartesian or E8 can depend only on the fact that some of the time covered by the billings fell after the complementation of the transfer to Shaw. That, to my mind, is a sufficient basis, given the nature of the commitment E8 undertook.
94 It was inconsistent with E8's contract with Shaw for any of the services of any personnel to be supplied to clients otherwise than on the footing that the remuneration generated by the services belonged to Shaw Corporate.
95 Mr Martin referred in his affidavit to conversations with Mr Shapiro at the time of transition in which he told Mr Shapiro that he and another were continuing to work at the Bell Potter office in Melbourne finishing off some mandates. He said that Mr Shapiro accepted this. However, it was put to Mr Martin that he did not tell Mr Shapiro that Cartesian would receive the fees for this, Mr Martin said, "Probably correct"; and that he could not recall having so informed Mr Shapiro. The conclusion must therefore be that Mr Shapiro was unaware that the "finishing off" work being performed by Mr Martin and another after commencement of the E8-Shaw arrangement was remunerative work for which Cartesian would be paid.
The CGC fee
96 It is common ground that on or about 31 January 2003 Consolidated Gaming Corporation Ltd ("CGC") lodged with ASIC a prospectus in relation to an offer of shares at an issue price of 50 cents per share. On or about 24 February 2003, E8 forwarded an application for 200,000 shares in CGC at 50 cents per share. The application was made on behalf of Cartesian (then called "Corporate Finance Counsel Pty Limited").
97 The application form and a covering letter are in evidence. The letter is on E8 letterhead and is signed by Mr Wookey. It begins, "I wish to apply for shares as part of the placement being made by CGC" and goes on to specify "Corporate Finance Counsel Pty Ltd" as "Name shares to be registered in". The application form itself refers to the applicant as "Corporate Financial Counsel P/L". It gives details of an accompanying cheque for $100,000, saying that the cheque was drawn on National Australia Bank, 271 Collins Street, Melbourne by "Bell Potter Corporate Fin". The cheque itself is also in evidence and is drawn by "Bell Potter Corporate Finance Limited" on account No. 540363195 (BSB 083-091).
98 It is necessary to refer also to certain email correspondence. On 6 February 2003, Mr Wookey wrote to Ms Huckel of Shaw (with a copy to Mr Shapiro) noting registration of the CGC prospectus and the likelihood that CGC shares would "re-list early next week". Mr Wookey then said:
"Subject to price, it is my intention to acquire an interest in CGC shares over the course of the next month."
99 Mr Wookey continued:
"As we have no current mandate, and given re-listing of the shares and the currency of the prospectus I do not foresee any impediment in [sic] my dealing in the stock, but I would welcome your comments and advice."
100 Ms Huckel replied on the same day expressing a view that Mr Wookey was "clear to buy or sell shares in the company". Her accompanying comments show that she had addressed the matter principally from an insider trading perspective.
101 Mr Wookey emailed Ms Huckel again on 19 February 2003 saying:
"I expect that part of my interest may be taken up in Corporate Finance Counsel Pty Ltd which is wholly owned by Equity 8 Pty Ltd. Ross Martin and I are the only ordinary shareholders in Equity 8, but David Mackey, Simon Kidston and Nic Dacres Mannings have a beneficial interest in Equity 8, by virtue of preference share holdings.
Could you please amend your records to reflect the relevant interests noted above. We will open SHAW accounts in the name of Equity 8 and Corporate Finance Counsel in due course."
102 Ms Huckel passed this message to Mr Shapiro who, on the same day, emailed Mr Wookey as follows:
"Dear Bruce
Further to our discussion this morning and your emails to Michelle.
We need to resolve the CGC outstanding amounts by close of business tomorrow or we will be handing the matter over for collection.
You confirmed this morning that you have no position in CGC at this stage and under the circumstances I cannot give you permission to acquire any CGC shares on market as per your request to Michelle.
Once all outstanding issues are resolved with CGC we will reconsider the position."
103 To that point, the email correspondence had contemplated an on-market transaction. That was reflected in Mr Shapiro's email just quoted. Indeed, Mr Wookey's email of 19 February 2003 had contemplated that Cartesian would open a Shaw Stockbroking account for the purpose. An account with a stockbroker would have been necessary for an acquisition on-market, but not for an application for allotment. In addition, Mr Wookey's first notification had contained the words "subject to price" - something that would not have applied to an already issued prospectus and could only have contemplated the price fluctuations that the market produces.
104 In the events that happened, BPFC took an issue of shares in the way already mentioned. This had implications under Shaw's compliance manual which contained provisions to the following effect:
"… all staff dealing must be conducted through accounts opened with the appropriate Group of SHAW Stockbroking ….
It is stressed that this requirement applies to all share transactions on the Australian Stock Exchange.
However, it should be noted that staff will continue to be able to invest in shares other than through SHAW Stockbroking, where the investment is made under the terms of a prospectus."
105 If matters had been left there, the only question arising would be whether the acquisition of shares by Cartesian by subscription and allotment was consistent with the compliance manual. But an added dimension comes from the fact that E8 subsequently invoiced CGC for, and was paid, a "placement fee". The invoice was dated 12 May 2003 and was for a sum of $5,000.00 described as follows:
"Placement Fee due and payable for subscription of fully paid ordinary shares in Consolidated Gaming Corporation Limited in accordance with our letter of 24 February 2003 (copy attached).
Placement Fee @ 5%X $100,000"
106 The invoice was issued by E8 and indicated that the cheque in payment was to be payable to E8.
107 The charging of the fee was something that had been foreshadowed from the beginning. On 21 February 2003 (some three days before the application was made), Mr Kidston (a member of the team) emailed Mr Wookey as follows:
"Bruce
· $22,000 was transferred from SHAW to E8 yesterday (20/2/03)
· Spoke to Nick Tysing and confirmed we would lodge an application and cheque for $100k on Monday
· Fee is 5% Price is $0.50
· Several parties are working on the remaining $250k but it is still available at this stage.
· Share price was a bit soft for most of the day (around $0.55)
SK"
108 The application by Cartesian was not made under any prospectus. This appears from the application form itself. It carries this form of acknowledgment:
"By lodging this application form, I/We declare that the application is completed and lodged according to the Exempt Offer and the declarations/statements on the reverse of this application form and declare that all details and statements made by me/us (including the declarations on the reverse of this form) are complete and accurate. I/We agree to be bound by the Constitution of Consolidated Gaming Corporation Limited and agree to the issue to me/us of any number of ordinary shares equal to or less than the number of ordinary shares and the applicable number of options indicated in Section A above which may be issued to me/us pursuant to the Excluded Offer."
109 The expression "excluded offer" used in this form of acknowledgment formerly found a place in corporations legislation. It had a particular relevance to underwriting and sub-underwriting of issues of securities. Thus, ASIC's Policy Statement 61, as updated to December 2003, referred to provisions placing "excluded offers" of securities beyond the rules with respect to prospectuses. An offer or invitation to enter into an underwriting agreement was identified as a species of "excluded offer".
110 The "excluded offer" and "exempt offer" references in the form of acknowledgment executed by Cartesian show that the transaction took place outside the confines of a prospectus. It was, as the invoice confirmed, a placement.
111 Mr Wookey's original representation to Shaw was that he himself intended to acquire shares in CGC. He made that representation on 6 February 2003 in a context where CGC had recently obtained registration of a prospectus and it was expected that CGC shares would "re-list early next week". Some 13 days later, Mr Wookey informed Shaw of an expectation that "part of my interest" might be taken up "in" BPCF (ie, Cartesian), a wholly owned subsidiary of E8. Mr Shapiro, when he emailed Mr Wookey on 19 February 2003, assumed that the acquisition Mr Wookey had foreshadowed would be "on market". That was not surprising, in view of what Mr Wookey had said (see paragraph [103] above. Mr Shapiro expressly declined to give "permission" for any such transaction.
112 Five days later, on 24 February 2003, BPCF (ie, Cartesian), at the behest of Mr Wookey, made an application to CGC for an issue of 200,000 at 50 cents each. The application form referred expressly to "excluded offer" and "exempt offer", thus making it clear that it was not made under a prospectus. Three days before the application was made, Mr Kidston had told Mr Wookey that the fee was 5%. And E8 in due course received from CGC a "placement fee" of $5,000 in respect of the $100,000 subscription for the 200,000 shares.
113 Mr Wookey never disclosed to Shaw the true nature of the transaction. As far as Shaw was concerned, the chain of communication stopped at the point where Mr Shapiro refused permission for what he thought, understandably, was to be an on-market purchase. The Shaw compliance manual contained rules about "staff dealing". There is no suggestion that the rules did not apply to dealings by companies controlled by staff members. Indeed, only a cynical disregard for the spirit of the rules could warrant any such view. The rules were clear enough. All dealing was to be through accounts opened with Shaw, except where an investment was made under a prospectus.
114 The 24 February 2003 subscription contravened these rules. In addition, it was, in truth, a subscription for a placement for which a fee or commission was paid. The fee was an integral part of the arrangement from the beginning, as is made clear by Mr Kidston's email. As a placement, it was a transaction that lay within the ordinary course of the business of a stockbroking or corporate finance organisation accustomed to participating in underwriting and sub-underwriting, either for itself or for clients. A draft internal document of 28 August 2002 headed "Fees For Corporate Deals" makes it quite clear that Shaw Corporate, under the then new arrangements, was to be an active participant in underwritings and sub-underwriting. An employee of such an organisation who, for personal gain, took advantage of such an opportunity that came his way by reason of his contact with a client of his employer would clearly breach the duties owed by him as an employee.
Client representations
115 Shaw makes complaint about certain notifications given by Mr Martin and Mr Wookey to clients about the move to Shaw.
116 On 31 July 2022, a circular was sent by email to several people at Delta Electricity. The thrust of the message was that BPCF (ie, Cartesian) was continuing in business, having "decided to strengthen a relationship with a second stockbroking group known as the Shaw Group". The circular then said:
"BPCF and the stockbroking arm of the Bell Group will continue to work on corporate transactions as in the past, however, BPCF will now also be working with the Shaw Group and their stockbroking business."
117 The message cast Cartesian in an independent role, drawing on contracts with both Bell and Shaw. Hence:
"… we will now be able to take our capital market offers to an enhanced distribution network of stockbrokers in both the Bell Potter network of offices and the Shaw Group's network of offices around Australia."
118 On 1 August 2002, Mr Wookey and Mr Martin sent an email to another client, Ebetonline, conveying essentially the same message.
119 On 3 September 2002, Mr Martin emailed Mr Welch of NSW Sugar (with a copy to Mr Malena of Delta Energy) saying that a "key shareholder in our Bell Potter Corporate Finance business recently sold down and the Shaw Group was introduced as a new shareholder". He also said that "we are the same business entity but some of our logistic details have changed to accommodate our new ownership structure". He gave "new bank account details" and asked that "current invoices" (detailing them) be paid into that account. The details given were those of the BPCF (ie, Cartesian) account with the National Australia Bank at 271 Collins Street Melbourne on which the cheque for the acquisition of the CGC shares was drawn in February 2003 (see paragraph [97] above). There was a concluding note that BPCF (ie, Cartesian) was "trading as Shaw Corporate Finance from August 2002".
120 Also on 3 September 2002, Mr Martin emailed Mr Sayers of Delta Electricity informing him of a change to "some of our logistic details" and identifying the Cartesian account with NAB in Melbourne as the desired destination for payment of "current invoices for work done for Delta Electricity by Bell Potter Corporate Finance", that being represented at the ongoing advisory entity into which Shaw had been "introduced as a new shareholder". There was a concluding note:
"Bell Potter Corporate Finance will be trading as Shaw Corporate Finance from August 2002".
121 These emailed messages were deceptive. They did not reflect the true substance and effect of the July 2002 agreement under which Shaw Corporate was to be the sole corporate arm of Shaw, with "Team's company, Equity 8" providing "the services of Team's personnel" in the way the July 2002 agreement required.
122 The representations to the several clients sought to portray BPCF (Cartesian), after its sale by Bell to E8 and E8's commitment to the July 2002 agreement, as some sort of free and independent intermediary capable of delivering the services of Mr Wookey, Mr Martin and others on a basis warranting the payment of fees to and retention of fees by Cartesian as an independent operator.
123 Having regard to my findings as to the true nature and content of the July 2002 agreement, Cartesian was in no such position. The services of the relevant personnel were committed exclusively to Shaw Corporate by and through E8.
124 It was submitted on behalf of E8 that the impact of the several client communications to which I have referred was negated by a Shaw notice to clients dated 5 August 2002 and sent on a Shaw Corporate Finance letterhead over the signature of Mr Wookey. This, on the evidence, was sent to "the Team's key clients", including Delta Electricity and Ebetonline and its terms were approved by Mr Shapiro.
125 That circular may have dulled the impact of the messages of 31 July 2002 and 1 August 2002. More likely, it confused matters in that I am not satisfied that a recipient of the 5 August 2002 would have been disabused altogether of the misleading impressions created by the earlier messages. And, of course, whatever message of adherence to Shaw may have been conveyed by the notice to clients of 5 August 2002 was, in the case of NSW Sugar and Delta Electricity, contradicted by the subsequent emails of 3 September 2002 not only portraying BPCF (Cartesian) as an ongoing and independent operation but also giving details of the Cartesian bank account with NAB Melbourne for the payment of invoices.
126 Even after the general circular the clients of 5 August 2002, Mr Martin was at pains to emphasise to the client contacts to which the emails of 3 September 2002 were sent that BPCF - now Cartesian - was (and was to continue as) the provider of services. Those clients were led to believe that there was a shareholding connection with Shaw and that, while BPCF (Cartesian) would be "trading as" Shaw Corporate Finance, it was still Cartesian that was active - and active in a way that required the client to know of the NAB bank account for invoice payment purposes.
127 The reference to "new bank account details" (referring to the NAB account) in conjunction with the changes to "some logistic details" following introduction of Shaw "as a new shareholder" clearly implied that that bank account was to be used for invoice payment purposes as a consequence of the new connection with Shaw. In reality, of course, the bank account was not connected with Shaw. It was, as the CGC transaction shows, used as the repository for moneys to be kept outside Shaw's domain by E8, the owner of the share capital of Cartesian.
128 It is significant that it was E8, the party contracted to Shaw, that owned Cartesian following the separation from Bell Potter. The decision-makers within E8 were, by definition, the decision-makers within Cartesian. They, in September 2002, deliberately led clients to think that the BPCF (Cartesian) bank account with NAB - which had nothing to do with Shaw and E8's connection with Shaw - was the proper destination of payments for services rendered by BPCF "trading as Shaw Corporate Finance from August 2002".
129 Even allowing for the dulling by means of the general circular of 5 August 2002 to which I have referred, Mr Martin and Mr Wookey, knowing of the July 2002 agreement and its implications, led clients to believe in late July, in August and, in particular, in September 2002 that BPCF (Cartesian) was an operative service provider and that payments of its fees should be directed to a bank account which had nothing to do with Shaw and, in a corporate sense, was one place removed from E8.
130 Another matter should be mentioned in this connection. On 9 August 2002, Mr Wookey signed a letter on E8 letterhead addressed to ASIC concerning the dealers licence No 171251 held by BPCF (Cartesian). He explained that E8 had purchased the shares in that company and gave some background information about E8. He represented that the name of the company had been changed to Corporate Finance Counsel Ltd ("CFC"). He also said:
"It is our intention to continue with CFC's established business of providing advice on capital formation, fund raising and equity advice and general corporate advice to companies and government and semi-government enterprises. We wish to continue to use the current dealer licence in the transitional phase before moving to an Australian financial services licence."
131 It is thus clear that the messages given to clients to the effect that BPCF (Cartesian) would remain an operative service provider was consistent with a description of projected activities given to the regulatory authority after the general circular of 5 August 2002 had been sent.
The "proper responses" issue - letter of 26 August 2003
132 It is now necessary to traverse a chain of correspondence between Shaw and Mr Wookey (and, to a certain extent, Mr Martin) that began after Shaw had come to have doubts about the propriety of actions of and within E8.
133 On 26 August 2003, Mr Coleman, General Counsel of Shaw, wrote to "The Managing Director, Equity 8 Pty Ltd and Corporate Finance Counsel Ltd". The letter was marked for the attention of Mr Wookey and began "Dear Bruce". Mr Coleman sought clarification of a number of matters, having referred to "Shaw's obligations as licensee", including "the supervision and monitoring of internal compliance policies and procedures in relation to its proper authority holders".
134 The first matter covered by Mr Coleman was a letter of advice on the letterhead of Corporate Finance Counsel (now Cartesian) and signed by Mr Wookey. The letter was to the managing director of Pracom. Mr Coleman asked for a copy of the letter and to be informed of the basis on which the company that is now Cartesian (then CFC) was engaged by Pracom. After requesting certain other information, Mr Coleman asked question 4:
"Please advise whether or not since 17 July 2002, CFC, Equity 8 Pty Ltd ('Equity 8'), or any SHAW Proper Authority holder employed or engaged by Equity 8 has received either directly or indirectly and fee, commission or other remuneration that has not been disclosed to SHAW."
135 Mr Coleman next referred to PPK. He mentioned the mandate of 29 July 2002 between PPK and BPCF (Cartesian) and to the invoicing of PPK of the same date. Certain particulars were requested.
136 Mr Coleman then moved on to CGC. He referred to the correspondence of February 2003 about proposed dealing in CGC shares. He then asked whether any fees had been paid by CGC in relation to the application for 200,000 shares by Cartesian (then Corporate Finance Counsel) or on any other application.
137 Finally, Mr Coleman asked whether Mr Wookey and E8 or either of them had opened dealing accounts with J B Were. If "yes", further particulars were sought.
The "proper responses" issue - letter of 28 August 2003
138 Mr Wookey responded to Mr Coleman on 28 August 2003. He accepted that he had written a letter of advice to the managing director of Pracom on BPFC letterhead but said there had been no fee. He also said that BPFC had not undertaken any business activities beyond investing in listed shares since 17 July 2002. In further response to Mr Coleman's question 4 he said:
"I have made enquiries of the associates and employees of Equity 8, and believe that if they or myself have received any income which should have been disclosed to Shaw it has been so disclosed. Unfortunately your question at 4, as framed is nonsense. For example, I generate income from yachting, trading motor vehicles, investing and real estate but do not believe Shaw requires disclosure of this income."
139 In relation to PPK, Mr Wookey represented that the report had been prepared by Mr Wellham and himself (ie, Mr Wookey) and, "while available around the middle of July, was not passed on to the client in the absence of a signed mandate letter". He further represented that the mandate was signed "at the end of July, at which time, the report was handed over and the associated $10,000 fee for this advisory work billed". He said further:
"As the work was done by Bell Potter Corporate Finance … the moneys were received into that company's bank account."
140 In relation to CGC, Mr Wookey said:
"CFC merely subscribed for shares in a placement, the subject of a Prospectus. Beyond publicly available information we have no knowledge as to the questions you raise. At the AGM of CGC we became aware that subscribers not introduced by Terrain securities were receiving a 5% rebate on their subscription.
At the time of subscribing we believed that all of these fees accrued to Terrain, which was consistent with Shaw's original and subsequently aborted mandate. CFC sought and received this rebate on the shares it subscribed for in July of this year."
141 In relation to staff dealing, Mr Wookey said that he had made inquiries of the associates and employees of E8 and "believe that neither Equity 8 or [sic] any of its associates or employees operate any accounts with an ASX Participating Organisation other than Shaw".
The "proper responses" issue - letter of 24 September 2003
142 Mr Coleman wrote at length to Mr Wookey on 24 September 2003. In relation to the Pracom matter, he alleged that Mr Wookey had, by his actions, misrepresented to Pracom that Shaw or Shaw Corporate was associated with Cartesian (then Corporate Finance Consultants, or CFC). Mr Coleman also said that Mr Wookey had acted as a representative of CFC without any proper authority from CFC and that this appeared to involve breach of statutory provisions and might have constituted unprofessional conduct under ASX business rules. It might, he said, also have caused Shaw to breach those rules. Mr Coleman also alleged breach of the July 2002 agreement. Finally, he alleged that certain responses in Mr Wookey's letter were incomplete and invited further particulars.
143 On the subject of PPK, Mr Coleman's letter of 24 September 2003 began by referring to the agreement for the sale of the shares in BPCF (Cartesian) by Bell Potter to E8. He drew attention to a provision stating, in effect, that E8 had no right to use the names "Bell", "Potter" and "Bell Potter". Mr Coleman went on to question two propositions: first, that the work done by Mr Martin on the PPK assignment was done while Mr Martin was on leave from Bell Potter and was not acting as a Bell Potter employee; and, second, that Mr Martin and Mr Wellham undertook advisory work for PPK on behalf of BPCF (Cartesian) while it was still owned by Bell Potter without being paid by PPK. Mr Coleman then made the point that Mr Martin was a Shaw proper authority holder when he signed the mandate of 29 July 2002, so that the financial adviser could only have been Shaw Corporate acting under Shaw's proper authority and licence. Mr Coleman alleged that breaches of the July 2002 agreement and Shaw's compliance manual were involved in the taking of the mandate by BPCF (Cartesian), as well as misrepresentation. He made the point that, in reality and in substance, the fee belonged to Bell Potter or Shaw.
144 In relation to CGC, Mr Coleman set out the email of 21 February 2003 from Mr Kidston to Mr Wookey (see paragraph [102] above). He then challenged Mr Wookey's statement in the letter of 28 August 2003 that it was at the annual general meeting of CGC (held, as the evidence shows, on 30 May 2003) that he became aware of the availability of a 5% rebate on subscriptions. Mr Coleman further pointed out that the CGC prospectus did not refer to rebates for subscribers but did refer to broker fees as an expense of the issue. Mr Coleman concluded, in relation to CGC, by observing that Cartesian "appears to have received a secret commission in the amount of $5,000 in July 2003". He communicated a demand by Shaw for that sum to be accounted for.
145 Mr Coleman next moved on to the matter of "staff dealing" and referred to information received from J B Were that accounts for Wokoey Pty Ltd and E8 were opened by J B Were on 1 August 2003 and closed by it on 15 August 2003. Mr Coleman also referred to an email from a person at J B Were to Mr Wookey on 20 June 2003 saying that J B Were would "send through some account opening forms and wholesale investor certificate this afternoon". Mr Coleman observed that no permission was sought from Shaw for the opening of the accounts on 1 August 2003 and that a breach of Shaw's compliance manual, policies and procedures appeared to have occurred. He then asked for specific information by way of five questions, adding that Mr Wookey did not appear to have correctly answered questions on the subject put to him in Mr Coleman's earlier letter.
146 Mr Coleman then turned to a new subject, so far as the correspondence commencing with his letter of 26 August 2003 was concerned. He referred to and set out in full clause 6 of the July 2002 agreement (see paragraph [61] above). He then referred to the Clarification of 18 July 2002 between Bell and E8 (see paragraphs [8] and [63] above) and to the correspondence and discussions involving Mr Wookey, Mr Martin, Mr Coleman himself and others concerning the claim for $98,182.48 claimed by E8 under clause 6. Having drawn attention to those matters, Mr Coleman asserted that, according to the revised arrangement with Bell (concerning 65%/35% split of receivables) no bonus was due to E8 under the Bell arrangement. Mr Coleman then dealt with an alternative proposition, namely, that the agreed 35% of receivables was in reality to be the bonus. On that basis, he said that, having regard to receivables identified in the modifying agreement of 18 July 2002 and others independently identified, the recovery by E8 under the 35% arrangement agreed with Bell would have yielded to E8 more than Shaw had paid in the belief that it was required by clause 6 to do so. Mr Coleman demanded repayment by E8.
The "proper responses" issue - letter of 4 November 2003
147 The response to Mr Coleman's letter of 24 September 2003 took the form of a letter dated 4 November 2003 on E8 letterhead signed by both Mr Wookey and Mr Martin and addressed to the managing director of Shaw, with a copy to Mr Coleman. It began by referring to Mr Coleman's letter of 24 September 2003, Mr Coleman's letter of 26 August 2003 and "our response of 28 August 2003". After preliminary comments about finding "the entire process offensive and unprofessional" and about alleged breaches of contract and confidentiality, Mr Wookey and Mr Martin turned to the particular issues that had been raised.
148 In relation to Pracom, Mr Wookey enclosed a letter from the managing director of that company describing Mr Wookey as "a source of knowledge and personal advice to myself and Bruce Carter" over a period of ten or more years. Mr Wookey's assistance was said to have been without financial reward. The particular letter of advice that had prompted Mr Coleman's initial inquiry (see paragraph [134] above) was said by the writer to have been "an extension of our historical relationship", with no fee-paying professional assignment having been offered to Shaw or Mr Wookey. Mr Wookey and Mr Martin said that "the character of the relationship and advice was clearly known to both Shaw and the Pracom directors and was very clear from the outset". They went on to say that there were no misrepresentations by Mr Wookey or Cartesian to Pracom, its directors or its managing director as alleged.
149 Regarding the PPK matter, the essential message conveyed by Mr Wookey and Mr Martin in the letter of 4 November 2003 was that they had nothing to add to what had been said in the letter of 28 August 2003.
150 In relation to the CGC matter, the letter referred to the transaction as a "placement" attracting a fee and said:
"Given the decision of the Shaw board to withdraw from the CGC mandate, we did not seek subscribers from Shaw advisers which may have attracted this fee, and none was receivable by Shaw …"
151 Regarding the matter of staff dealing, Mr Wookey enclosed a letter to him from an executive director of J B Were saying:
"I can confirm that we received no express authority from you to open accounts at J B Were for either E8 or Wokoey Pty Ltd."
152 In relation to the matter of the Bell bonus, the first statement of Mr Wookey and Mr Martin was:
"Equity 8 and Shaw have settled this matter (refer Harold Shapiro letter of 8 August 2003). In these circumstances, there would seem no point in further debate with Cameron. We understand - meeting with Harold on 24 October 2003 - that Harold is keen to get a response from us on the issues raised by Cameron."
153 There followed a long series of statements about invoices and work in progress, as dealt with in the agreements between Bell and E8. Then, having said that "[t]o our mind, the claims by Cameron for payments at 5 have no foundation in law or contract", Mr Wookey and Mr Martin referred to the claim for $41,026.46 in a way that related it to an expected discussion about bonus for "the 2003 profitable year".
154 After some passages not responsive to the issues Shaw had raised, Mr Wookey and Mr Martin said:
"In summary, in response to the allegations against Equity 8 and its personnel it is clear that:
(i) Pracom : there has been no conduct which constitutes a breach of the law.
(ii) PPK : there has been no conduct which constitutes contract with SHAW or the law, and there is no basis for claim by either Bell Potter or SHAW.
(iii) Consolidated Gaming : SHAW is not entitled to any fees, and there has been no conduct that would constitute a breach of law.
(iv) Staff Dealing : there has been no conduct that would constitute a breach of duties."
The "proper responses" issue - memorandum of 11 November 2003 (and reply)
155 On 11 November 2003, Mr Coleman wrote to Mr Wookey and Mr Martin asking for information about postal addresses and telephone numbers shown on BPCF (Cartesian) letterheads before 17 July 2002 and in the period 17 July 2002 to September 2002. He made it clear that he wished to know whose addresses and numbers they were.
156 By email sent on 3 December 2003, Mr Martin said that the combined knowledge of four named members of the Team was to the effect that neither of two postulated "scenarios" was valid: first, that the phone number did not exist and E8 knew it did not exist; and, second, the phone number was not at Shaw's premises and one or more E8 employees "could have been, while holding proper authorities from Shaw, providing corporate finance advice using premises other than" Shaw's premises.
157 This, of course, did not answer the questions asked by Mr Coleman.
The termination letter
158 On 10 December, 2003, Mr Shapiro, managing director of Shaw, wrote to Mr Wookey as managing director of E8 in these terms:
"Dear Bruce
TERMINATION OF HEADS OF AGREEMENT ('CONTRACT FOR SERVICES') BETWEEN SHAW STOCKBROKING LTD ('SHAW'), SHAW CORPORATE FINANCE PTY LTD ('SCF') AND EQUITY 8 PTY LIMITED ('E8')
We refer to Cameron Coleman's letters to you of 26 August and 24 September 2003 and his memorandum dated 11 November 2003.
In our opinion, your responses of 28 August, 4 November and 3 December 2003 have failed to satisfactorily address our concerns (which have been supplemented by considerable additional material documentation and information we have obtained) and you have not provided us with acceptable reasons why we should not terminate the Contract for Services as foreshadowed in Cameron Coleman's letter dated 24 September 2003.
In the circumstances, you have left us with no option but to terminate the Contract for Services, effective immediately. Consequently, the Proper Authorities issued by SHAW to Equity 8 employees will be cancelled forthwith.
With the termination of the Contract for Services, E8 should take immediate steps to ensure its employees vacate SCF's premises. You are not permitted to remove anything from the premises, except under the supervision and with the approval of Cameron Coleman, Allan Zion or myself.
The decision has not been taken lightly but has been forced upon us by your failure to adequately respond to our concerns.
You may rest assured that we have ample evidence to substantiate the position we have taken.
Yours faithfully
SHAW Stockbroking Limited
(sgd)
HAROLD SHAPIRO
Managing Director"
Assessment
159 I now proceed to an assessment of the conduct of E8 in the context of the July 2002 agreement, including its implied terms (both the terms (a) to (f) at paragraph [17] above and the term as to summary termination referred to at [39]).
160 The assessment also covers matters relevant to the fiduciary duties of Mr Wookey and his duties as an office of Shaw Corporate.
Specific conclusions - bonus representation
161 Mr Wookey and Mr Martin caused E8 to breach its contract with Shaw. Virtually from the beginning, they conducted themselves in a way that entailed breach by E8 of the implied terms set out at paragraph [17] above.
162 E8, through Mr Wookey, made to Shaw the misleading or deceptive representations on the Bell bonus issue to which I have referred at paragraph [74]. The true position was that the bonus entitlements or expectations as against Bell had been waived. E8, no doubt for what it regarded as good commercial reasons (among them certainty, one would infer), took instead the benefit of the arrangement under which it was to have 35% of receivables.
163 The misleading or deceptive representation by E8, through Mr Wookey, was that, having regard to clause 6 of the July 2002 agreement and the events that had actually happened, there had been a "shortfall on the due bonus" of $98,182.48 for the purposes of that clause. Shaw paid out $98,182.48 on the faith of that misrepresentation. When Shaw pursued the matter later, Shaw was told that E8 could only verify the sum of $98,182.42 to the extent of $57,156.02.
164 The true position is that, for the reason stated by Mr Coleman in his letter of 26 August 2003, E8 never had any entitlement to payment under clause 6. The expectation of bonus from Bell had been waived. There was therefore, as of 18 July 2002, no longer any such expectation. It was a breach of implied term (d) for E8 to represent that the expectation continued to exist when the claim for $98,182.42 was made. The representation was made in trade or commerce. The making of it was therefore conduct proscribed by s.52(1) of the Trade Practices Act 1975.
165 Shaw suffered loss or damage by reason of the breach of contract and the statutory misconduct. The loss or damage is the sum of $98,182.42 paid by it on the faith of the misleading or deceptive conduct, together with recompense for being kept out of that sum from the date of payment.
Specific conclusions - Park Plaza fee
166 Mr Martin brought about a situation where personnel whose services E8 had agreed to provide to the Shaw Group pursuant to the July 2002 agreement committed Shaw Corporate to responsibility and liability for a scoping report issued in August 2002 and in respect of which a fee of $11,000 was received by Cartesian, a wholly owned subsidiary of E8, and not accounted for the Shaw Corporate.
167 This entailed a breach by E8 of the implied terms (d) and (e).
168 Shaw is accordingly entitled to recover from E8 as damages the fee of $11,000 together with recompense for having been denied that fee since the time it was received by Cartesian.
Specific conclusions - Delta Electricity Fee
169 The basic conclusion here is as stated at paragraphs [94] and [95] above.
170 Shaw is entitled to recover from E8 as damages for breach of contract the sum of $13,681.25 referable to the period 22 July 2002 to 31 July 2002 together with recompense for having been denied that remuneration since the time it was received by Cartesian.