[1999] NSWCA 408
Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356
Source
Original judgment source is linked above.
Catchwords
[2005] HCA 23
Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347(2016) 116 ACSR 566
Banque Commerciale SA (En liqn) v Akhil Holdings Ltd (1990) 169 CLR 279[1990] HCA 11
Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1[1999] NSWCA 408
Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356[2010] FCAFC 133
Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1[1996] HCA 57
Brookfield Multiplex Ltd v Owners SP61288 (2014) 254 CLR 185[2014] HCA 36
Canadian Aero Service Ltd v O'Malley (1973) 40 DLR (3d) 371
Chan v Zacharia (1984) 154 CLR 178[1984] HCA 36
Chew v The Queen (1992) 173 CLR 626(2000) 75 ALJR 312
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373[1975] HCA 8
Cook v Deeks [1916] 1 AC 554
Dare v Pulham (1982) 148 CLR 658[2005] HCA 78
Duncan v Independent Commission Against Corruption [2016] NSWCA 143
Friend v Brooker (2009) 239 CLR 129[1984] HCA 64
Howard v Federal Commissioner of Taxation (2014) 253 CLR 83[2010] HCA 19
Keech v Sandford (1796) Sel Cas t King 61[2008] HCA 26
Lifeplan Australia Friendly Society Ltd (ACN 087 649 492) v Ancient Order of Foresters in Victoria Friendly Society Ltd (ACN 087 648 842) [2017] FCAFC 74
[2013] FCAFC 16
Warman International Ltd v Dwyer (1995) 182 CLR 544
Judgment (73 paragraphs)
[1]
ung J, 10 November 1995, unrep)
Bray v Ford [1896] AC 44
Breen v Williams 91996) 186 CLR 71; [1996] HCA 57
Brookfield Multiplex Ltd v Owners SP61288 (2014) 254 CLR 185; [2014] HCA 36
Canadian Aero Service Ltd v O'Malley (1973) 40 DLR (3d) 371
Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36
Chew v The Queen (1992) 173 CLR 626; [1992] HCA 18
Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25
Colour Control Centre Pty Ltd v Ty [1995] NSWSC 96
Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8
Cook v Deeks [1916] 1 AC 554
Dare v Pulham (1982) 148 CLR 658; [1982] HCA 70
Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101
Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397
Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78
Duncan v Independent Commission Against Corruption [2016] NSWCA 143
Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21
Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 6
Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Grove v Flavel (1986) 43 SASR 410
Gunasegaram v Blue Visions Management Pty Ltd [2017] NSWCA 187
Hart Security Australia Pty Ltd v Boucousis [2106] NSWCA 307
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21
Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19
Keech v Sandford (1796) Sel Cas t King 61; (1796) 25 ER 223
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
Krupace Holdings Pty Limited v China Hotel Investments Pty Limited [2018] NSWSC 862
Kuringai Council v Chan [2017] NSWCA 226
Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26
Lifeplan Australia Friendly Society Ltd (ACN 087 649 492) v Ancient Order of Foresters in Victoria Friendly Society Ltd (ACN 087 648 842) [2017] FCAFC 74; [2017] 120 ACSR 421
Magill v Magill (2006) 226 CLR 551; [2006] HCA 51
Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987
Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68
Phipps v Boardman [1967] 2 AC 46
Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31
Queensland Mines Ltd v Hudson (1978) 52 ALJR 399
SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079
Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303; (2016) 114 ACSR 1
Tepko Pty Ltd v Water Board (2001) 206 CLR 1; [2001] HCA 19
The Queen v Byrnes (1995) 183 CLR 501; [1995] HCA 1
V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418; [2013] FCAFC 16
Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18
Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272
Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157
Texts Cited: J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (5th ed, Lexis Nexis Butterworths, 2015) at [5-055]
Category: Principal judgment
Parties: 2017/168664
Arun Gunasegaram (Appellant)
Blue Visions Management Pty Ltd (Respondent)
2017/168769
Mr J Giles SC / Mr A Byrne (Appellant)
Mr AJ McInerney SC / Ms EL Beechey (First and Third Respondents)
Mr MR Hall SC / Mr WH Wu (Second Respondent)
[4]
Solicitors:
2017/168664
Brown Wright Stein Lawyers (Appellant)
Somerville Legal (Respondent)
[5]
2017/168769
Somerville Legal (Appellant)
Fox & Staniland Lawyers (First and Third Respondents)
Brown Wright Stein Lawyers (Second Respondent)
File Number(s): 2017/1686642017/168769
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity Division
Citation: [2017] NSWSC 255
Date of Decision: 10 May 2017
Before: Ball J
File Number(s): 2014/192899
[6]
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
HEADNOTE
[This headnote is not to be read as part of the judgment.]
Blue Visions Management Pty Ltd ("Blue Visions") was engaged under a major contract with the West Australian Department of Treasury and Finance (via the Department of the Office of Strategic Projects) to provide it with programming services for the development of the Perth Children's Hospital. Mr Chidiac, the third most senior employee of Blue Visions, was responsible for the management of that project. Mr Gunasegaram, the second most senior employee, had national responsibility for Blue Visions' project and services area. In March 2014, Mr Chidiac and Mr Gunasegaram gave notice of their resignation.
On or about 25 March 2014, Mr Chidiac informed Mr Hamilton of Strategic Projects of his resignation. In response to Mr Hamilton's question, Mr Chidiac indicated that he would be "interested" to continue to provide services on the project after his employment with Blue Visions ended. Mr Hamilton said he would look into it. On 30 March, Mr Gunasegaram advised Mr Parkhouse against nominating himself a potential replacement.
On 31 March, Mr Hamilton presented three options to Blue Visions' managing director, Mr Khreich, to accommodate Mr Chidiac's resignation: his immediate replacement with a strategic programmer of at least equal ability; termination of the contract; or a novation of the strategic programming component of that contract to Mr Chidiac. Mr Khreich agreed to the third option. Mr Khreich then informed Mr Chidiac of that decision. On 3 April 2014, Mr Chidiac and Mr Gunasegaram incorporated Aspire, becoming its sole directors and shareholders. The novation occurred on 15 April 2014, before Mr Chidiac's notice period had expired.
Blue Visions commenced proceedings against Mr Chidiac and Mr Gunasegaram, alleging that by establishing Aspire and entering into the novation, they had breached their fiduciary duties, employment contracts and certain Corporations Act 2001 (Cth) provisions. Aspire was said to be liable as an accessory. Blue Visions also claimed that Mr Gunasegaram was liable for misrepresenting that he had secured a contract for Blue Visions to provide services to Woolworths for the rollout of the Masters hardware stores, leading it to unnecessarily retain staff and suffer loss.
The primary judge (Ball J) dismissed Blue Visions' claim against each defendant in relation to the novation; and upheld the misrepresentation claim against Mr Gunasegaram insofar as it related to the Masters project, and accordingly ordered him to pay damages. Blue Visions appealed against the dismissal of its claims, and Mr Gunasegaram against his liability for his misrepresentations, and the primary judge's quantification of damages.
The Court (Meagher and Gleeson JJA, Basten JA dissenting in part) dismissed each appeal:
Meagher JA and Gleeson JA dismissed Blue Vision's appeal against Mr Chidiac:
[7]
Judgment
BASTEN JA: The circumstances of this appeal are fully recounted in the judgment of Gleeson JA, and indeed in the judgment of the trial judge, Ball J. [1] In brief, they concern the circumstances in which a project management contract being carried out by the appellant ("Blue Visions") for the development of Perth Children's Hospital came to be novated in favour of a third party, Aspire Corporation Pty Ltd ("Aspire") established by two senior employees of Blue Visions, being Sam Chidiac and Arun Gunasegaram. Blue Visions claimed damages and an account of profits resulting from the novated portion of its contract. It invoked both breach of fiduciary duties owed by its senior employees to the company and improper use of position by each, in breach of s 182(1) of the Corporations Act 2001 (Cth). For the reasons set out below, in my view Aspire and Mr Chidiac were liable to account to Blue Visions for the profits derived from the novated contract. That was not the view taken by the trial judge; accordingly, I would allow Blue Visions' appeal. To the extent the claim was based on the separate conduct of Mr Gunasegaram, I agree with Gleeson JA that that basis of the claim was not made out.
There was a second appeal arising out of a finding that Mr Gunasegaram made misrepresentations to Blue Visions in relation to other matters, as a result of which Blue Visions incurred wasted expenditure. The trial judge upheld Blue Visions' claims in this regard and awarded Blue Visions damages of $1.4 million, in round figures. For the reasons given by Gleeson JA, I agree that Mr Gunasegaram's appeal should be dismissed.
[8]
Blue Visions appeal - background
Mr Chidiac and Mr Gunasegaram were the senior officers of Blue Visions responsible for programming management on a project for the construction of Perth Children's Hospital under the auspices of a Western Australian State Government agency referred to in the proceedings as "Strategic Projects". Although formally Mr Chidiac reported to the managing director and founder of Blue Visions, Adel Khreich, Mr Khreich was based in Sydney and was not active in the management of the project. It was common ground that Mr Chidiac was responsible for managing Blue Visions' team working on the Perth Children's Hospital project. In that capacity he worked closely with the senior officer in charge of the construction for Strategic Projects, John Hamilton.
On 20 May 2010 the State accepted Blue Visions' tender to provide programming services to Strategic Projects. The contract was for a period of three years with two options, each for a further year, both of which were exercised. Accordingly, the contract was due to expire on 20 May 2015, although work had not been completed at that time and a further tender was issued. [2] Although the contract in its original form provided for the employment of three consultants, up to six people worked on the project at any given time, and approximately 26 employees or consultants employed by Blue Visions worked on the project during the four years to March 2014. [3]
On 19 March 2014 Mr Chidiac gave Mr Khreich four weeks' notice of his resignation from Blue Visions which would occur on 15 April 2014. He informed Mr Khreich that he was tired of travelling from Sydney to Perth and wanted to start a new business in Sydney. Mr Chidiac informed Mr Hamilton of his resignation no later than 26 March 2014. As the trial judge found: [4]
"Mr Chidiac says that during the course of their conversation Mr Hamilton asked him whether he was interested in continuing to assist with the project. Mr Chidiac replied in effect that he was and Mr Hamilton said that 'I'll go and look into it'. I accept that evidence."
Mr Chidiac's response to Mr Hamilton was inconsistent with the reasons given to Mr Khreich for his resignation, namely that he was tired of travelling from Sydney to Perth.
On 28 March 2014, Mr Gunasegaram sent an email to Mr Khreich stating that Mr Hamilton, knowing of Mr Chidiac's resignation, had put three options to Blue Visions, namely: [5]
"1. Immediately produce a strategic programmer equal to or better than Sam [Chidiac].
2. He [Hamilton] immediately terminates Bluevisions engagement at NCH for breach.
3. Bluevisions agrees to novate the existing contract to remove strategic programming which he will give to another company and Bluevisions keeps the technical planning, design management and transition management roles."
[9]
Issues on appeal
In the form in which they went to trial, Blue Visions' claims were identified in a second further amended statement of claim filed on 2 February 2017. The defendants were Mr Gunasegaram, Mr Chidiac and Aspire. Relevantly for present purposes, Blue Visions sought damages or equitable compensation from all defendants, an account of profits from Aspire, or both Chidiac and Gunasegaram, and a declaration that Chidiac and Gunasegaram held on constructive trust for Blue Visions their shares in Aspire, together with any dividends or payments received from Aspire.
If the appellant is to succeed in its claim for relief in this appeal, it must do so in the following circumstances:
1. Blue Visions could not stop Mr Chidiac resigning from his employment;
2. nor could Blue Visions stop Mr Chidiac competing with Blue Visions after he left;
3. if Mr Chidiac left, Blue Visions had no equivalent strategic programmer to provide services under its contract with the State Government;
4. Mr Chidiac did not resign in order to take over Blue Visions' contract, and
5. the proposal for Mr Chidiac to carry on the contract through his own vehicle, in place of Blue Visions, came from Mr Hamilton.
The factors upon which Blue Visions must rely are that Mr Chidiac:
1. owed a fiduciary obligation to Blue Visions not to allow his personal interests to conflict with the interests of his employer;
2. was subject to a statutory obligation not improperly to use his position as an employee of Blue Visions to gain an advantage for himself or others;
3. enjoyed an advantage over any other candidate to carry on the project, arising from his knowledge of the project and his relationship with Mr Hamilton, both of which were acquired in the course of his duties as a senior employee of Blue Visions;
4. created the opportunity for obtaining an advantage by his resignation from his employment with Blue Visions, and
5. agreed to accept a continuing role as programming manager through his engagement by Aspire whilst still employed by Blue Visions, though during the period of his notice of resignation.
It is possible that a fiduciary may not breach his or her duties where a proposed course of conduct involving the pursuit of personal interests has the fully informed consent of those to whom the duty is owed. Such a defence was sought to be raised by the defendants at trial, but belatedly and was not allowed by the trial judge. That ruling was challenged in this Court but, for the reasons given by Gleeson JA, I agree the trial judge did not err. That meant that the defendants could not place reliance on Mr Khreich's acceptance of the novated agreement as satisfying this defence. The defence was, in any event, not available in relation to a breach of s 182 of the Corporations Act 2001 (Cth), though Blue Visions' conduct could be relevant in assessing impropriety.
[10]
Determination of appeal
Blue Visions' claims were pleaded by reference to contraventions of s 182 of the Corporations Act and of the fiduciary duty owed by Mr Chidiac to Blue Visions. The trial judge dealt with the matter primarily on the basis of a breach of fiduciary duty, finding that the reasons for rejecting that basis of liability resolved the statutory claim. [8] That will often be the case; however, as discussed below, s 182 is not in its terms constrained by principles delineating the scope of the fiduciary duty. [9] Nor is it limited to those who would owe a fiduciary duty to a corporation.
Section 182 provides:
182 Use of position - civil obligations
Use of position - directors, other officers and employees
(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
Note: This subsection is a civil penalty provision (see section 1317E).
(2) A person who is involved in a contravention of subsection (1) contravenes this subsection.
Note 1: Section 79 defines involved.
Note 2: This subsection is a civil penalty provision (see section 1317E).
Section 182 is a penalty provision identified in s 1317E(1), in respect of a contravention of which compensation may be claimed by a corporation for damage suffered as a result of the contravention, pursuant to s 1317H(1).
Blue Visions pleaded a case based on paragraph (a) in s 182(1); the advantage sought was, relevantly, for the benefit of Messrs Chidiac and Gunasegaram and Aspire. The critical question is whether Mr Chidiac "improperly" used his position as an employee of Blue Visions to gain such an advantage. That requires that his purpose was to gain the identified advantage. [10]
As Jacobs J said in Grove v Flavel, [11] in a passage cited with approval in The Queen v Byrnes, [12] "what is 'improper' for the purposes of [a predecessor to s 182] cannot be determined by reference to some common, uniform or inflexible standard which applies equally to every person who is an officer, but rather must be determined by reference to the particular duties and responsibilities of the particular officer whose conduct is impugned." The joint judgment in Byrnes continued:
"Impropriety does not depend on an alleged offender's consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case."
[11]
Conclusions
In the event that Mr Chidiac and Aspire were found liable, as in my view they should be, Blue Visions sought a judgment in the amount of $1,240,912, being the amount assessed by the trial judge against the event that he was wrong in rejecting the claim. [29]
Mr Chidiac and Aspire accepted that, in the event that Mr Chidiac was liable, Aspire would also be liable. [30] That approach reflected the relationship of Mr Chidiac and Aspire and should be accepted. [31] Relief based on contravention of s 182(1)(a) of the Corporations Act may include compensation for any damage suffered by the company resulting from the breach. [32] Damage may include profits made by any person resulting from the contravention. [33]
However, Mr Chidiac and Aspire further submitted that equitable compensation, or an account, should be limited to the period from 15 April 2014 (the date of the novation) to 10 July 2015 (the date when a fresh tender was issued). The limitation on the period should not be accepted. The trial judge found that, in the event that Blue Visions was entitled to an account of profits obtained by Aspire, it was entitled to the extended term. It is clear that, for the same reason that Mr Chidiac was able to obtain the benefit of the contract when he left Blue Visions, he was able to obtain the tender, in the face of a competitive tender from Blue Visions. As at the time of the novation, Mr Chidiac had the great advantage of incumbency, on which his relationship with Mr Hamilton and his knowledge of the project were based.
Blue Visions is entitled to the judgment it seeks, including pre-judgment interest.
I would propose the following orders in Blue Visions' appeal:
1. Allow the appeal in part and set aside orders 2, 3 and 4, and 5 in relation to the first and third defendants, made in the Equity Division on 10 May 2017 in matter 2014/192899.
2. In place thereof,
1. give judgment for the plaintiff (Blue Visions) against the first defendant (Chidiac) and third defendant (Aspire) in the sum of $1,240,912 plus interest in accordance with s 100 of the Civil Procedure Act 2005 (NSW);
2. order that the first and third defendants pay two thirds of the plaintiff's costs of the trial of matter 2014/192899 plus interest calculated in accordance with order 9 below.
1. Order that the first and third respondents pay two thirds of the appellant's costs of its appeal.
2. Direct that any disagreement as to the calculations required to give effect to orders 2(a) and (b) be determined by a judge in the Equity Division.
[12]
The conflict rule
It is not in issue that Mr Chidiac was a fiduciary. That status arose from the responsibilities and functions as a senior employee that he had undertaken to discharge in the interests, and on behalf, of Blue Visions. Those responsibilities and functions also defined the ambit of his fiduciary responsibility: Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 96-97, 103 (Mason J). As Lord Cranworth LC explained in Aberdeen Railway Company v Blaikie Brothers (1854) 1 Macq 461 at 471; [1843-60] All ER Rep 249:
A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such an agent has duties to discharge of a fiduciary character towards his principal, and it is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect.
The "representative" character in which the fiduciary acts and the concomitant vulnerability of the beneficiary or principal give rise to a specific liability to account for personal benefits or gains according to two "rules" extracted by Deane J in Chan v Zacharia (1984) 154 CLR 178 at 198-199; [1984] HCA 36 from "themes" in earlier cases. In Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557; [1995] HCA 18 in the unanimous judgment of the Court those rules were said to be:
A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position.
Importantly for the outcome of this appeal, Blue Visions relied before the primary judge and in its appeal only on the first rule above, described as the conflict rule (as distinct from the profit rule). In this respect, Blue Visions' claim was limited in the same way as that in Howard v Federal Commissioner of Taxation (2014) 253 CLR 83 at [33], [109], cf [58]; [2014] HCA 21.
Citing Mason J's influential dissent in Hospital Products Limited v United States Surgical Corporation at 103, the majority (McHugh, Gummow, Hayne and Callinan JJ) in Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at [78] adopted the following formulation of the conflict rule:
… the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is "a conflict or a real or substantial possibility of a conflict" between personal interests of the fiduciary and those to whom the duty is owed.
[13]
The claim against Mr Chidiac for breach of fiduciary duty
Blue Visions alleged that by engaging in discussions with Mr Hamilton in mid and late March 2014 and agreeing, whilst an employee, to continue to provide the strategic programming services to that time provided by Blue Visions, Mr Chidiac pursued an opportunity to obtain work from Strategic Projects in circumstances where his personal interest in doing so conflicted with his fiduciary obligation as a senior employee to preserve that opportunity for its benefit. The primary judge addressed this case at Judgment [136]-[144]. His Honour rejected an allegation that Mr Chidiac had pursued that personal interest before his resignation; rejected an allegation that Mr Chidiac had resigned so as to pursue the opportunity; and held that Mr Chidiac did not breach any fiduciary duty by pursuing and securing the opportunity for Aspire. Ground 1 of Blue Visions' appeal is directed to this last conclusion. The primary judge's rejection of the earlier allegations is not challenged.
Blue Visions' case depends on its establishing that at the time of Mr Chidiac's conversation with Mr Hamilton (on about 25 March 2014), or his agreement in principle to enter into the novation agreement (on 31 March 2014), there was a conflict, or real or substantial possibility of a conflict, between his pursuit of that opportunity and the discharge of a function or responsibility to which his fiduciary obligation attached.
Importantly, though Mr Chidiac was the third most senior employee of Blue Visions, he was not a director, in either name or substance; and he was not charged with the general management of its affairs. In that respect, his position was to be contrasted with that of Mr Khreich. Instead, Mr Chidiac's position as "Group Manager Planning" encompassed responsibility for the performance of a number of Blue Visions' contracts in Perth, including the Perth Children's Hospital project. His contract of employment included the following job description (Judgment [21]):
Manage the Business Unit assigned to you in accordance with the annual strategic and financial plans and the overall company business plans. To provide consulting services in the areas of planning & controls and any other project related services as required by the Employer from time to time. To contribute to company overall direction and strategy. To take overall responsibility for the technical quality of the company planning & controls services [emphasis added]
[14]
The conversation on or about 25 March 2014
It is said that Mr Chidiac's answer to Mr Hamilton's question, that he was "interested" in continuing to work on the Perth Children's Hospital project after his employment came to an end, and his subsequent failure to inform Mr Khreich of the conversation, engaged and breached the conflict rule: see Judgment [139]. That submission encounters difficulty at two levels.
First, Mr Hamilton's question merely sought to identify whether Mr Chidiac was at that time open to performing work for Strategic Projects at some time after the termination of his employment. It did not, for example, suggest any arrangement by which he might compete with Blue Visions in the provision of services to Strategic Projects. By itself, it carried no opportunity capable of being pursued by Mr Chidiac, let alone pursued inconsistently with some existing function or responsibility. Mr Chidiac's affirmative, and truthful, response took the matter no further. It was consistent with any number of wholly innocuous courses of action, including that noted by Gleeson JA at [195]. What Mr Hamilton chose to do with the answer given cannot make that answer any more concrete or untoward.
Secondly, the benefit which Mr Chidiac ultimately received by its nature depended on the concurrence of Blue Visions. Yet neither by his initial exchange with Mr Hamilton nor subsequently is Mr Chidiac said to have procured, or attempted to procure, that concurrence. Moreover, short of falsely representing that he was not interested in working with Strategic Projects in the future, Mr Chidiac could not preclude the possibility of that benefit accruing to him. Thus, in the events that in fact transpired, the circumstance of his answer was of no relevance to his later receipt of a benefit.
Whether considered alone or in the light of subsequent circumstances, the conversation with Mr Hamilton does not show Mr Chidiac to be pursuing any opportunity which could give rise to a real or substantial possibility of conflict.
[15]
The communication on 31 March 2014
Mr Hamilton advised Mr Chidiac on 31 March 2014 that Mr Khreich had agreed with Mr Hamilton's proposal that the strategic planning aspect of Blue Visions' contract be novated to a company associated with Mr Chidiac. Mr Chidiac's agreement to that course was then sought and given. By that point, the opportunity presented to him was one which was only available by reason of Blue Visions' agreement to surrender part of its existing contract, so that Strategic Projects could enter into a separate contract with him or his nominee. Mr Chidiac is not said to have participated in that decision in fact. Nor did his functions and responsibilities require, or even contemplate, his doing so.
The present circumstances are, therefore, fundamentally different from those in Cook v Deeks [1916] AC 555 and Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443. In each of these cases the fiduciaries had general responsibilities over their principal's affairs - in the former case as three executive directors and in the latter as the managing director. More to the point, they diverted for their own benefit business opportunities which they were authorised specifically to consider on behalf and for the benefit of their corporate principal. By contrast, although Mr Chidiac was responsible for "managing" the Children's Hospital contract, and doing so in Blue Visions' best interests, his functions and responsibilities did not extend to considering or deciding whether all or part of that contract should be surrendered, or the benefit of it made available to him. Even assuming that he and his principal had conflicting interests as to whether that surrender should come to pass, he did not exercise any power or discretion or otherwise act in a fiduciary capacity for the company in relation to that surrender. In these respects, his position is to be contrasted with that of the solicitor in Ex parte James (1874) 9 Ch App 609 who, whilst acting for the assignees of the bankrupt estate, purchased assets of the estate. That subject matter and dealing were within the scope of the solicitor's retainer and accordingly involved interests of the client which the solicitor had undertaken to protect and prefer. It follows in my view that there was no breach of the conflict rule by Mr Chidiac's pursuit of the novation agreement opportunity.
This conclusion is not undermined by the reasoning in Keech v Sandford (1726) Sel Cas 61; 25 ER 223 or decisions applying it, which presuppose a conflict and merely answer any attempt by the fiduciary to disclaim a liability to account by invoking the inevitability of the beneficiary's loss.
[16]
Contravention of s 182
Notwithstanding that ground 1 of Blue Visions' appeal also asserts the primary judge erred in not finding that Mr Chidiac breached his duty under Corporations Act 2001 (Cth), s 182(1)(a), the foregoing analysis deals only with its claim for breach of fiduciary duty, and specifically the conflict rule. It does so because, before the primary judge and in this Court, Blue Visions did not contend, if its claim for breach of fiduciary duty failed, that its claim under s 182(1) could nevertheless succeed. At [45] above, Basten JA concludes that Mr Chidiac's conduct was in breach of that section, and for that reason would allow Blue Visions' appeal on ground 2. On the basis that "s 182 is not in its terms constrained by principles delineating the scope of the fiduciary duty" (see [14] above), his Honour's consideration of whether that section was breached is not limited to whether Mr Chidiac pursued any opportunity in circumstances which involved a breach of the conflict rule.
In any event, as Gummow and Hayne JJ emphasised in Angas Law Services Pty Ltd v Carabelas (2005) 226 CLR 507 at [54]; [2005] HCA 23, a breach of s 182 "is not established by merely showing that the officer engaged in conduct that resulted in an advantage to himself, or a detriment to the corporation. There must be the element of impropriety." In R v Byrnes (1995) 183 CLR 501 at 514-515; [1995] HCA 1, the plurality (Brennan, Deane, Toohey and Gaudron JJ) described impropriety in this context as consisting in:
… a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case.
That impropriety in the performance of a duty, or exercise of a power or authority, must have been engaged in for the purpose of gaining an advantage or causing detriment to the corporation; thus the officer's state of mind is relevant: Chew v The Queen (1992) 173 CLR 626 at 632-633; [1992] HCA 18 (Mason CJ, Brennan, Gaudron and McHugh JJ). Here, as Gleeson JA notes at [216] below, the cross-examination of Mr Chidiac did not include that his purpose in responding to Mr Hamilton's first enquiry was to secure any personal gain or advantage.
In order to determine whether there has been impropriety, the conduct complained of must be considered by reference to the duties, powers and authority of Mr Chidiac at the time and in the circumstances in which it occurred. Mr Chidiac having earlier indicated that he would be "interested" in continuing to work on the Hospital project, his improper conduct is said to have been (see [43] above) "making himself available to continue working on the project, though not as an employee of Blue Visions", presumably a reference to the later conversation between Mr Hamilton and Mr Chidiac on 31 March 2014. For the reasons given above, on the earlier occasion there was no breach of duty or improper use of fiduciary power or authority by Mr Chidiac in his response to Mr Hamilton's inquiry. And what Mr Chidiac said on that occasion did not change in any way the nature or scope of his duties, powers or authority at the later time when Mr Hamilton approached him with a fully formed proposal of Strategic Projects and Blue Visions that he provide the former with services following the termination of his employment with Blue Visions.
[17]
Appropriate relief
Finally, had it been necessary to consider whether Blue Visions was entitled to an account of profits or to equitable compensation for the period after 11 July 2015, I would have agreed with the conclusion of the primary judge at Judgment [165]. In this scenario the opportunity pursued in breach of the conflict rule was the provision of programming services during the remaining two years of the existing contract, which in turn carried with it the possible opportunity of providing those services for any further period, in the event that the works were not completed on time. As Basten JA observes at [49] above, in any contest for the right to provide those further services, the existing providers would have the advantage of incumbency. That advantage, in the context of a competitive tender process such as that undertaken in July 2015, would have established a sufficient causal connection between the pursuit of the opportunity and the benefit received from a further extension of the contract. That outcome does not operate to undermine the undivided loyalty rule and its policy: as to which see Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1 at [63]-[64]; [2017] FCAFC 74 at [63]-[64].
GLEESON JA: Blue Visions Management Pty Ltd (Blue Visions) carries on business as a project management and specialised project planning services consulting firm. It was established in 2001 by Mr Adel Khreich, who is its managing director. At the time of the events the subject of the proceedings below, Blue Visions' clients included the West Australian Department of Treasury and Finance (the Department). Dealings between Blue Visions and the Department were administered on behalf of the Department by its "Office of Strategic Projects" (Strategic Projects). In May 2010, Blue Visions entered into a 3 year contract with the Department to provide programming services in respect of the development of the Perth Children's Hospital (the hospital project). That contract contained two options in favour of the Department to renew for a further year.
In mid-March 2014, two senior employees of Blue Visions, Mr Sam Chidiac and Mr Arun Gunasegaram, resigned. On 3 April 2014, they incorporated a company, Aspire Corporation Pty Ltd (Aspire), with Mr Chidiac and Mr Gunasegaram as shareholders and directors. Subsequently on 8 April 2014, the Department and Aspire, and on 15 April 2014, Blue Visions signed a partial novation of the strategic programming services component of the hospital project in favour of Aspire.
[18]
Facts
Blue Visions' head office is in Sydney where Mr Khreich was located. Its clients included businesses in the construction, mining, civil engineering and infrastructure, defence, communications and health industries. It seems that Blue Visions had a substantial number of employees at the time of the events in dispute, but the evidence is unclear as to the precise number. As at September 2015, Blue Visions had approximately 70 employees in Australia.
[19]
Mr Gunasegaram
Mr Gunasegaram was the second most senior employee of Blue Visions. He was initially engaged in August 2010 as regional manager in Western Australia. He was promoted to the position of executive general manager on 1 May 2012 and became responsible nationally for Blue Visions' project and services area. He was based in Perth. He resigned from Blue Visions on 20 March 2014, the day after Mr Chidiac resigned.
Mr Gunasegaram was involved in extensive work on a number of proposals to obtain major consulting work for Blue Visions. Prospective clients included Woolworths, in connection with the rollout of its "Masters" chain of hardware stores; Roy Hill Pty Ltd, in connection with the development of an iron ore mine owned by it in Western Australia; and Bulletin Resources, in connection with the Nicholson's Gold Mine project at Halls Creek in Western Australia.
[20]
Mr Chidiac
Mr Chidiac was the third most senior employee of Blue Visions. He was originally employed by Blue Visions under a written contract dated 26 March 2001. The primary judge found that Mr Chidiac had not signed and was not bound by the terms of the new contract prepared by Blue Visions in May 2010 which contained a 6-month restraint of trade clause: at [36] and [39]. There is no challenge to that finding. On 19 March 2014, Mr Chidiac gave four weeks' notice of his resignation.
From about mid-2010, Mr Chidiac was responsible for managing the hospital project, being one of Blue Visions largest contracts. Mr Chidiac lived in Sydney and commuted to Perth. He dealt with Mr John Hamilton who was the relevant person within Strategic Projects in charge of the hospital project. It is necessary to say a little more about that contract.
[21]
The hospital project
On 3 March 2010, Strategic Projects issued a request for tender (the Request) relating to the provision of programming services on the hospital project. The Request contemplated that the successful tenderer would provide the services of a director, senior time programmer and a time programmer over a 5-year period. Based on the estimated hours over five years, the contract had an indicative value of a little over $1 million.
Blue Visions' offer submitted on 9 April 2010 nominated Mr Chidiac as the director of the project, Mr Gavin White as senior consultant and Mr Gaspar Indaya as a consultant. The offer contained a "contingency plan for replacement of personnel" in the "unforeseen event that [a nominated] person has to be replaced". The person nominated to replace Mr Chidiac was Mr Khreich.
On 20 May 2010, Strategic Projects accepted Blue Visions' offer. The primary judge found that it purported to accept the services of the three people nominated by Blue Visions and stated that the contract was for a period of three years with two options for Strategic Projects to renew the contract for a further year: at [52]. The primary judge did not find it necessary to set out the terms of the contract in any detail other than to note that the contract was not performed strictly in accordance with its terms. Although the contract contemplated that Blue Visions would provide the services of three people, in fact, approximately 26 employees or consultants at Blue Visions worked on the project, although no more than six at any one time: at [53].
The primary judge found that the contract did not contain a right to terminate for convenience and that it was doubtful that the contract required Blue Visions to make available the services of Mr Chidiac. Rather, it required Blue Visions to provide services of a particular description and specifically contemplated that Mr Chidiac could be replaced by Mr Khreich. His Honour further found that Strategic Projects was only entitled to terminate the contract following Mr Chidiac's resignation if, as a consequence of his resignation, Blue Visions was no longer able to provide the contracted-for services: at [54].
On 19 December 2013, the scope of Blue Visions' engagement on the hospital project was varied to include "integrated programming, reporting and monitoring". The additional work was performed by Ms Rosalee Jensen. The terms of the variation were negotiated, and the decision to enter into the variation was made by Mr Chidiac in consultation with Mr Gunasegaram: at [56].
[22]
Resignations of Mr Chidiac and Mr Gunasegaram
Mr Chidiac decided to leave Blue Visions in January 2014. He initially contemplated a residential construction venture with his brother, who was a builder. Mr Chidiac mentioned his intentions to Mr Gunasegaram, who also said that he was contemplating leaving Blue Visions. In February 2014, they talked about the possibility of doing something together. One of the possibilities discussed was setting up a consulting firm: at [57]. On 27 February 2014, Mr Gunasegaram asked an employee of Blue Visions (Mr James Clarke) to check the availability of a number of domain names, including "aspire.com" and "endpoint.com". Mr Clarke later registered the domain name "endpointconsulting.com" for Mr Gunasegaram. The primary judge found that Mr Chidiac had accepted in cross-examination that he was aware of what Mr Gunasegaram was doing: at [58].
On 19 March 2014, Mr Chidiac sent an email to Mr Khreich and Mr Gunasegaram attaching a letter of resignation giving four weeks' notice. It seems that Mr Chidiac and Mr Khreich spoke on about 21 March 2014. Mr Chidiac told Mr Khreich that he was tired of travelling to Perth, that he wanted to spend more time with his family, and to work with his brother in Sydney in the building industry: at [59].
On 20 March 2014, Mr Gunasegaram sent an email to Mr Khreich attaching a resignation letter in which he said that the resignation was "with immediate effect" and that the decision to resign was taken with the advice of his family and doctors after receiving news concerning serious complications with a health condition relating to an episode of pneumonia and asthma in December 2013: at [60]. In the covering email, Mr Gunasegaram told Mr Khreich that he would "ensure that any ongoing work is appropriately handed over to the right people and I will do my best to mitigate any fall-out with customers whom I know personally, for past, present and future work over the coming weeks": at [60].
The primary judge doubted that anything in Mr Gunasegaram's email and letter could be believed, while noting that Mr Gunasegaram did not give evidence: at [61]. His Honour found that Mr Gunasegaram's resignation did not take effect immediately as he was required to give reasonable notice of termination of the contract. Mr Gunasegaram continued to do some work for Blue Visions, at least up until the end of March 2014: at [62].
[23]
Blue Visions pleaded claims
By its second further amended statement of claim, Blue Visions pleaded that Mr Chidiac and Mr Gunasegaram poached its employees and misused confidential information. Those claims were unsuccessful at trial and are not the subject of appeal. The appeal by Blue Visions is only concerned with the "diverting opportunities" claim. The pleaded claim was that Mr Chidiac and Mr Gunasegaram "caused or procured [Mr] Hamilton of Strategic Projects to demand that" Blue Visions take one of the three options set out in the email extracted at [106] above, incorporated Aspire and took up shareholdings and directorships in that company, and carried on business through Aspire in direct competition with Blue Visions and "effectively diverted the benefit of part of the WA project" from Blue Visions to Aspire.
Blue Visions alleged that by engaging in such conduct, Mr Chidiac and Mr Gunasegaram each breached the terms of his contract of employment, improperly used his position to gain an advantage for himself and thereby breached his duty as an officer under s 182 of the Corporations Act, and also breached his fiduciary duty (the conflict rule) not to prefer his interests to Blue Visions' interests and not to allow himself to be in a position where his interests and Blue Visions' interests conflicted. Blue Visions also pleaded an accessorial liability claim against Aspire. There was no pleading relying on the profit rule, to the effect that Mr Chidiac took advantage of an opportunity or information derived from his fiduciary position that was created by his employment to make a gain for himself.
[24]
The primary judge's findings
The primary judge commenced by noting that both parties accepted that Mr Chidiac and Mr Gunasegaram owed Blue Visions fiduciary duties, and that an aspect of those duties was not to pursue their personal interests in conflict with those of Blue Visions: at [134]. His Honour further noted that both parties also accepted that the precise scope of their duties was to be "moulded according to the nature of their relationship and the facts of their case", referring to the remarks of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 102; [1984] HCA 64 (Hospital Products).
[25]
Fiduciary duty claim
His Honour found that there was insufficient evidence to establish that Mr Chidiac and Mr Gunasegaram breached their duty in pursuing their personal interests in conflict with those of Blue Visions before they resigned: at [136]. This may be taken to be a reference to the period before the respective dates on which they each gave notice of resignation on 19 March 2014 (in the case of Mr Chidiac) and on 20 March 2014 (in the case of Mr Gunasegaram). His Honour gave two reasons. First, that while they did some preparatory work in anticipation that they would or might resign, this was not sufficient to establish a breach of their fiduciary duties. Second, although Mr Gunasegaram improperly asked an employee of Blue Visions (Mr Clarke) to search domain names and register the domain name "endpointconsulting.com", those breaches were minor and it was not suggested that any loss flowed from them or that Mr Gunasegaram or Mr Chidiac obtained any real benefit from them: at [136].
Blue Visions does not challenge the finding that Mr Chidiac and Mr Gunasegaram did not breach their duty in the period before they each gave notice of their resignation.
His Honour further found that the evidence was insufficient to establish that Mr Chidiac and Mr Gunasegaram resigned in March 2014 so as to be able to pursue an opportunity to obtain work from Strategic Projects that properly belonged to Blue Visions: at [137]. Again, that finding is not challenged however Blue Visions submits that this finding is directed to the wrong question because, on its case, the relevant opportunity with respect to the hospital project arose on 25 or 26 March 2014 during the conversation between Mr Chidiac and Mr Hamilton.
His Honour then turned to Blue Visions' principal case that Mr Chidiac breached his fiduciary duties in three ways: (a) by telling Mr Hamilton that he was interested in continuing to work on the hospital project after his contract with Blue Visions came to an end; (b) by failing to tell Mr Khreich of that conversation; and (c) by signing the novation agreement: at [139]. His Honour concluded that none of those matters amounted to a breach by Mr Chidiac of his fiduciary duties. It is appropriate to set out his Honour's reasons in full at [140]-[144]:
[140] The evidence is that Mr Chidiac only indicated that he was interested in continuing to work on the Perth Children's Hospital project in response to a question from Mr Hamilton and that he had not seriously considered that as an option before Mr Hamilton raised the possibility with him. As between Mr Chidiac and Blue Visions, Mr Chidiac was free to work on the Perth Children's Hospital project as soon as his employment with Blue Visions came to an end. It is difficult to see how Mr Chidiac breached his fiduciary duties to Blue Visions by telling Mr Hamilton that that was something that he was interested in doing. There is a degree of unreality in the submission that Mr Chidiac's fiduciary duties required him to mislead Mr Hamilton or answer the question he was asked evasively or to refuse to answer it at all.
[141] It is possible that if Mr Chidiac had not told Mr Hamilton that he was willing to work on the project following the termination of his contract with Blue Visions, Mr Hamilton would not have sought to re-negotiate the contract with Blue Visions. I say "possible" because it was always open to Mr Chidiac to approach Mr Hamilton once his contract with Blue Visions had terminated and tell Mr Hamilton that he was interested in continuing to work on the project. That point aside, in a sense, then, it can be said that in answering Mr Hamilton's question in the way that he did, Mr Chidiac preferred his interests to those of Blue Visions. However, the interest he had was a legitimate interest concerning what he would do after his contract with Blue Visions terminated, and it does not seem to me to be an illegitimate pursuit of those interests to answer honestly a question asked of him about what he was interested in doing once his contract terminated. The position would have been different if Mr Chidiac had sought to persuade Mr Hamilton to become a client of his new business while still an employee of Blue Visions. But that is not what happened.
[142] In my opinion, Mr Chidiac was not obliged to tell Mr Khreich of his conversation with Mr Hamilton. It is generally accepted that fiduciary duties are proscriptive, not prescriptive: Breen v Williams (1996) 186 CLR 71; [1996] HCA 57 at 113 per Gaudron and McHugh J; Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1; [2011] FCAFC 24 at [105] per Besanko J; Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37; (2016) 333 ALR 524 at [121]-[122] per Payne JA (with whom Gleeson and Leeming JJA agreed). Mr Chidiac's fiduciary duties did not oblige him to disclose to Mr Khreich his conversation with Mr Hamilton. A duty of disclosure only arose to the extent that Mr Chidiac relies on a defence of fully informed consent. However, the failure to disclose was not itself a breach of fiduciary duty; and if there was no other breach of fiduciary duty, the question of fully informed consent does not arise.
[143] It is also difficult to understand how it could be said that Mr Chidiac breached his fiduciary duties by signing the novation agreement. The novation agreement was proposed by Mr Hamilton. It was signed by Mr Khreich and could not have proceeded without Mr Khreich's agreement. It was open to Mr Khreich to refuse to sign the agreement and to propose alternatives to replace Mr Chidiac. He did not do so. Mr Khreich gave evidence that he felt pressured to sign the agreement. I accept that evidence. But all the pressure came from Mr Hamilton. It was the natural consequence of Mr Hamilton's desire to retain the services of Mr Chidiac, the fact, as was apparent from the evidence that he gave, that Mr Hamilton was a person used to getting his way and the fact that Mr Chidiac indicated that he was willing to continue to work on the project. How Mr Chidiac breached his fiduciary duties by agreeing to a proposal that was acceptable to Mr Khreich and Blue Visions is unclear.
[144] There is also a suggestion in Blue Visions' submissions that Mr Chidiac knew that Mr Hamilton regarded him as more or less irreplaceable on the project and that Mr Chidiac breached his fiduciary duties by failing to take steps to address what he knew to be a significant key person risk on the project. Again, however, that assumes that Mr Chidiac's fiduciary duties had a prescriptive element. They did not. Nor is it clear what Mr Chidiac could have done. Mr Hamilton believed that Mr Chidiac was an outstanding strategic programmer. Mr Hamilton gave evidence that he did not think other programmers from Blue Visions were as good. It is doubtful that if Mr Chidiac had introduced Mr Hamilton to other programmers, Mr Hamilton would have changed his mind.
[26]
Defences
His Honour rejected the defences raised by Mr Chidiac and Mr Gunasegaram to the breach of fiduciary duty claim based on release of any liability (having regard to the terms of the novation agreement) and the estoppel defence, which his Honour observed was not easy to follow: at [152].
His Honour also rejected the defence of fully informed consent (based on Blue Visions' entry into the novation agreement). His Honour found that this the defence was not properly pleaded and that Blue Visions would be unfairly prejudiced if the defendants were permitted to raise this defence. Relevantly, his Honour accepted that Blue Visions may have conducted the case differently had it appreciated that the defendants were relying upon this defence. His Honour considered that the defence raised factual questions concerning what was known by Blue Visions and what was disclosed by the defendants, and Blue Visions might have led additional evidence or cross-examined Mr Chidiac: at [151].
[27]
Alternative causes of action
His Honour did not find it necessary to deal with Blue Visions' alternative causes of action given that it was not seriously contended that Blue Visions could succeed on one of the alternative causes of action if it failed in its claim based on breach of fiduciary duties: at [153]. Nonetheless, his Honour made two observations with respect to the claim based on the statutory duties imposed, relevantly, on officers or employees of a corporation by the Corporations Act, ss 182 and 183, noting that the focus of the claim was s 182(1)(a).
First, he found that Mr Chidiac did not improperly use his position with Blue Visions to obtain work from Strategic Projects for Aspire; rather, Mr Chidiac simply indicated a willingness to continue to work for Strategic Projects which caused Mr Hamilton to do what he did: at [156].
Second, he found that the defence of fully informed consent does not specifically apply to a claim based on s 182 of the Corporations Act, although consent may be relevant to the question of whether an employee or other officer acts improperly: at [157].
[28]
Remedies
After observing that it was not strictly necessary to deal with the question of remedies, his Honour went on to make a number of findings.
First, had Blue Visions succeeded in its claim for breach of fiduciary duties it would have been entitled, at its election, to either equitable compensation or an account of profits, and the position under s 1317H of the Corporations Act was similar. On the other hand, the remedy for breach of contract was confined to damages suffered by Blue Visions as a consequence of the relevant breach: at [159].
Second, if an account of profits had been awarded, the amount of profits assessed by his Honour was $1,240,912.38: at [166]. That amount comprised $657,636.71 in respect of the period between 15 April 2014 (the date Aspire commenced work on the project) until 10 July 2015 (the approximate date on which Aspire performed work following its successful tender) and $583,275.67 in respect of the period was between 11 July 2015 and 31 August 2016 (the date on which Blue Visions ceased performing work on the project): at [160].
Third and alternatively, any award of compensation should be on the basis of loss of a chance, being the opportunity to continue to supply services to Strategic Projects following Mr Chidiac's departure: at [167]. However, having not found breach, his Honour did not make that assessment, because it was not possible in the absence of findings of breach of duty to formulate the relevant counterfactual.
[29]
Blue Visions' grounds of appeal
There are three parts to the appeal by Blue Visions. The first concerns the partial novation of the hospital project to Aspire and whether Mr Chidiac and Mr Gunasegaram had a conflict of interest in pursuing a gain in relation to that transaction by reason of their personal interests in Aspire. Blue Visions contends that his Honour erred in not finding that Mr Chidiac and Mr Gunasegaram each breached their fiduciary duties and statutory duty under s 182(1) of the Corporations Act by diverting part of the business of Blue Visions to Aspire (grounds 1 and 2).
The second and third parts of the appeal assume that Blue Visions succeeds on the first part. They concern the accessorial liability of Aspire for any breaches of fiduciary duty by Mr Chidiac and Mr Gunasegaram (ground 3), and the available remedies, in particular, the claim by Blue Visions for an account of profits or damages (ground 4).
[30]
Notice of contention
The notice of contention filed by Mr Chidiac and Aspire raises four issues. First, it is contended that the primary judge erred in holding that it was common ground that they owed fiduciary duties of the type alleged and that his Honour should have found that Mr Chidiac did not owe fiduciary duties to Blue Visions of the type alleged (notice of contention, grounds 1-3).
Second, it is contended that the primary judge erred in holding that the defence of informed consent was not pleaded and that it was too late to raise it at trial, and that his Honour should have found that Mr Chidiac had made out the defence of informed consent (notice of contention, grounds 4-6).
Third, it was contended that there was not a sufficient causal relationship between the alleged breaches of fiduciary duty and any profit earned by Mr Chidiac or Aspire or loss suffered by Blue Visions (notice of contention, grounds 7-10). Alternatively, it was contended that no account of profits would be recoverable after 11 July 2015 because of the absence of causation, after that date (notice of contention, grounds 11-13).
Fourth, it was contended that the primary judge erred in holding that Mr Chidiac could not give an explanation in cross-examination for why "discretion" concerning who owned the (new) business was important (notice of contention, ground 14).
[31]
Relevant principles: fiduciary obligations
It has been remarked that the principles governing fiduciary duties are easy enough to state in general terms, but often difficult to apply to concrete facts: Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347; (2016) 116 ACSR 566 at [130] (Bathurst CJ), citing R P Austin and I M Ramsey, LexisNexis, Ford, Austin & Ramsay's Principles of Corporations Law, Vol 2 (at Service 130) at [9.010]. Nonetheless, it is useful to recall some basic principles.
First, as Mason J explained in Hospital Products at 96-97, the critical feature of fiduciary relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. Thus, it is said that the other person is vulnerable to abuse by the fiduciary of his or her position.
Second, the scope of the fiduciary's duties must be accommodated to the particular circumstances of the underlying relationship that gives rise to the duties in the first place: Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 (Howard) at [34] (French CJ and Keane J); Hospital Products at 102 (Mason J). Thus, when explaining that contractual and fiduciary relationships can co-exist, Mason J remarked in Hospital Products at 97:
In these situations 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.
This statement of Mason J was referred to with approval in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [91].
Third, the basic principle was stated by Mason J in Hospital Products at 103:
[a fiduciary] is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he is bound to protect...
[32]
Relevant provisions of the Corporations Act
Blue Visions also relied upon breach of s 182(1) of the Corporations Act which provides:
182 Use of position--civil obligations
Use of position--directors, other officers and employees
(1) A director, secretary, other officer or employee of a corporation must not improperly use their position to:
(a) gain an advantage for themselves or someone else; or
(b) cause detriment to the corporation.
Where a person has contravened a corporation civil penalty provision, a court may order the person to compensate the corporation for damage suffered by the corporation if the damage resulted from the contravention: s 1317H(1). Section 182(1) is a corporation civil penalty provision: s 1317E(1).
Further, a person who is "involved" in a contravention of s 182(1) also contravenes the provision: s 182(2). The concept of being "involved" in a contravention is defined in s 79 of the Corporations Act which provides that a person is involved in a contravention if, and only if, the person, among other things, has aided, abetted, counselled or procured the contravention (sub-par (a)), or has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention (sub-par (c)).
The standards of conduct required by s 182 are to be determined objectively: The Queen v Byrnes (1995) 183 CLR 501 at 514-515; [1995] HCA 1 and Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18; [2005] HCA 78 at [35]-[37]. By "objectively" is meant the standards of conduct that would be expected of a person in the position by reasonable persons with knowledge of the duties, power and authority of the position, and the circumstances of the case, including the commercial context: Doyle at [35], citing Byrnes at 514-515 and Angus Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507; [2005] HCA 23 at [65] (Gummow and Hayne JJ), [72] (Kirby J).
To make out a contravention of s 182(1) it is also necessary to establish that, in engaging in the relevant conduct, the director's purpose was to gain a relevant advantage or cause detriment: Chew v The Queen (1992) 173 CLR 626 at 632-633; (Mason CJ, Brennan, Gaudron and McHugh JJ); [1992] HCA 18; Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307 at [85] (Meagher JA, Bathurst CJ and Beazley P agreeing). The pleading of Mr Chidiac's (and Mr Gunasegaram's) subjective purpose, as being to gain an advantage for himself or Aspire when using his position in the manner pleaded (see [121] above), was necessary to make out the alleged contravention of s 182(1); Hart Security at [85]. Although not pleaded (and no complaint seems to have been made at trial), it is tolerably clear from Blue Visions' written opening submissions at trial (pars 52 and 69) that this was the subjective purpose relied upon by Blue Visions.
[33]
(1) Preliminary matters: notice of contention, grounds 1-3
It is convenient first to address two preliminary matters: (a) grounds 1-3 of the notice of contention, and (b) the objection by Mr Chidiac and Aspire to Blue Visions raising a new case on appeal directed to a conflict of interest and duty.
[34]
Notice of contention, grounds 1-3
Grounds 1-3 of the notice of contention assert that the primary judge misunderstood what was common ground at trial concerning the type of fiduciary duties owed by Mr Chidiac and Mr Gunasegaram, relevantly, not to pursue their personal interests in conflict with those of Blue Visions, and that the precise scope of their duties must be accommodated to the particular circumstances of the underlying relationship that gives rise to the duties in the first place, referring to the remarks of Mason J in Hospital Products at [102].
This complaint directs attention to the way in which the case was conducted at trial. In this Court, Mr Chidiac and Aspire emphasised that the defendants' opening submissions at trial went no further than recognising that, as a matter of general principle, employees are capable of owing fiduciary duties to their employers, whilst noting that employees are not fiduciaries at all times and for all purposes.
The emphasis placed on the defendants' opening submission ignored that by the end of the trial, the issues in dispute had narrowed. Thus, in closing addresses, senior counsel who appeared for all the defendants submitted:
Now, there is, of course, no dispute between us that in some circumstances some aspects of the duties of a senior employee towards their employer can bear a fiduciary character. But we say, as the Courts and the texts always say, that conclusion is the beginning of the inquiry and not the end of it. The true inquiry is always, "Was this an aspect of the relationship which was fiduciary in character? And, if so, what is the precise content of the fiduciary duty that was owed?" Now, our primary position is that this was not an aspect, this relatively casual conversation which is alleged against us to have occurred between Mr Hamilton and Mr Chidiac at that early occasion, not an occasion in which fiduciary obligation does in any strong sense apply because there is no making of an arrangement for future provision of services. … (Emphasis added)
Plainly, by the end of the trial it was not in dispute that Mr Chidiac and Mr Gunasegaram were subject to fiduciary duties given their functions and responsibilities as senior employees of Blue Visions. Those fiduciary duties can be stated in shorthand as the duty not to obtain any unauthorised benefit from the relationship (the no-profit rule) and not to be in a position of conflict (the no conflict rule): Breen v Williams at 93-94, 113; Pilmer at [74], [78]; Friend v Brooker at [84]-[86]; Howard at [31]-[33], [56], [62]. As indicated, Blue Visions' case as pleaded and run at trial only relied upon the conflict rule.
[35]
New conflict of interest and duty case
As indicated, the breach of fiduciary duty case advanced by Blue Visions against Mr Chidiac in this Court was put in two ways. Blue Visions' primary emphasis on appeal was the alleged conflict between Mr Chidiac's personal interests and his duty as an employee in contract to act diligently in the interests of Blue Visions. The latter was said to reflect an employee's duty of due and faithful performance of the employee's employment: Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 (Concut) at [25] (Gleeson CJ, Gaudron and Gummow JJ).
According to the submission, Mr Chidiac's failure to report his conversation with Mr Hamilton was inconsistent with his contractual duty as an employee to Blue Visions. Blue Visions submitted that Mr Chidiac was bound by the contract to inform his employer of the approach from Strategic Projects so that Blue Visions could protect itself from that approach.
Mr Chidiac and Aspire objected to Blue Visions raising a new case on appeal alleging a conflict of interest and duty based on an employee's common law or contractual duties. Senior Counsel for Blue Visions accepted that a conflict of interest and duty case of this type was not pleaded by Blue Visions, and was not the way in which the primary judge had dealt with the fiduciary duty case.
Blue Visions did not point to any exceptional circumstances that would justify allowing it to raise a new argument on appeal that had not been put at trial, when it had an opportunity to do so: Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68 at 71.
In my view, Blue Visions should not be permitted to depart from its pleaded case and the way in which its case was advanced at trial and dealt with by the primary judge.
[36]
Blue Visions' submissions
Blue Visions submitted that, by his response to Mr Hamilton, and by his subsequent conduct, Mr Chidiac placed himself in a position of conflict and thereby breached his fiduciary duty. According to the submission, Mr Chidiac preferred his own interests to Blue Visions' interests by (a) not reporting what he learned, namely, Mr Hamilton wanted to and was taking steps to appoint Aspire or Mr Chidiac in place of Blue Visions, (b) setting up Aspire, while an employee, and (c) signing the novation agreement on 8 April 2014.
Blue Visions submitted that, for the same reasons, Mr Chidiac breached the statutory duty in Corporations Act, s 182 because, by his response to Mr Hamilton, and by not speaking to Mr Khreich, he used his position, in effect, to defeat the purpose of the notice of his resignation to benefit himself and Mr Gunasegaram through Aspire. That conduct was said to constitute an improper use of his position.
Blue Visions pointed to his Honour's finding that Mr Khreich felt pressured to sign the novation agreement, and submitted that Mr Khreich could have been protected from that pressure if he had been warned by Mr Chidiac about the approach from Mr Hamilton, if Mr Chidiac had not accepted the novation while employed by Blue Visions, if Mr Khreich was not misled by Mr Gunasegaram (or at least did not have conflicting advice from Mr Gunasegaram) in relation to Mr Parkhouse and his advice to agree to the novation, and if Mr Hamilton did not have an assurance that Mr Chidiac would accept his offer.
Blue Visions submitted that, absent knowing Mr Chidiac's position, Mr Hamilton had little option but to accept another qualified strategic programmer supplied by Blue Visions because Strategic Projects had no right to terminate the contract. Blue Visions argued that it was immaterial that Mr Khreich signed the novation agreement on 15 April 2015 because when Mr Chidiac signed the agreement on 8 April 2015, he had not spoken to Mr Khreich about the novation and did not know if Mr Khreich would agree to the novation.
In oral argument in reply, Blue Visions submitted that by 28 March 2014, Mr Chidiac (and Mr Gunasegaram) had a prospective interest in Aspire as a 50 percent shareholder in the company and unitholder in the trust to be established, by reason of their conversation with Mr Rodrigues, the accountant, on 26 March 2014. According to the submission, on a fair reading of Mr Rodrigues' email of 26 March 2014, Mr Chidiac and Mr Gunasegaram "were certainly both going to have an interest at that time". Blue Visions described that interest as being "in the equitable sense".
[37]
Mr Chidiac and Aspire's submissions
Mr Chidiac and Aspire submitted that an employee has a right to resign his or her employment and to take steps in preparation of that possibility, such as by interviewing for another job or establishing a corporate structure through which to carry on business, or even taking preliminary steps to compete with the employer after the employment comes to an end. Reference was made to Blackmagic Design at [102]; and Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987 at [77].
Mr Chidiac and Aspire also submitted that it is not the case that a departing employee must refuse to answer an enquiry from a customer regarding future work. Reference was made to Weldon & Co Services Pty Ltd v Harbinson at [77]. According to the submission, given Blue Visions' ongoing relationship with Strategic Projects, it was in Blue Visions' interest that Mr Chidiac gave a helpful and non-evasive answer to Mr Hamilton.
Mr Chidiac disputed Blue Visions' contention that he, with Mr Gunasegaram, set up Aspire "to take over part of the hospital project". Mr Chidiac pointed to the primary judge's findings at [137] that he and Mr Gunasegaram contemplated when they gave notice of their resignations in March 2014 that, following their departure from Blue Visions, they would engage in some business activity together but that there was no evidence of what that activity was. Mr Chidiac emphasised that this finding is not challenged on appeal.
Mr Chidiac submitted that he was not in a position of conflict when he agreed to Mr Hamilton's proposal to novate part of the hospital project, arguing that there was no actual conflict or "real sensible possibility of conflict" between his personal interest in having the strategic programming component of the work for Aspire and the interests of Blue Visions to whom he owed his duty. The submission continued that both Blue Visions and Mr Chidiac's own interests were best served by the partial novation of the contract for the hospital project, in circumstances where Mr Hamilton was not going to accept a replacement strategic programmer and the only other option was the termination of the whole contract.
Mr Chidiac submitted that it is not to the point that he signed the novation agreement (on behalf of Aspire) prior to Mr Khreich signing it, because as the primary judge found at [66], Mr Khreich had earlier told Mr Hamilton on 31 March 2014 that Mr Khreich would do it (the novation), if Mr Hamilton could get Mr Chidiac to agree to it.
[38]
Reasoning
The starting point is to identify the precise nature of the breach of fiduciary duty advanced by Blue Visions against Mr Chidiac and Mr Gunasegaram. Although the relevant part of Blue Visions' pleading appeared under the heading "Diverting opportunities", the pleading conflated two separate concepts: the misappropriation of company property without lawful authority and the diversion of corporate opportunities. The misappropriation rule can be stated relatively easily: a director may not apply company property either for the director's personal benefit or for the benefit of any other person without the authority of the company. On the other hand, the diversion of the opportunity to make a contract, before it comes into existence, should be understood as properly one for the application of the conflict and profit rules.
This case concerned an existing contract, and Blue Visions' claim as pleaded was that Mr Chidiac and Mr Gunasegaram diverted (part of) the benefit of the hospital project from Blue Visions to Aspire. That pleading might be thought to invoke the misappropriation rule, but the partial novation of the hospital project was approved by Blue Visions and no claim was advanced based on the misappropriation rule. Instead, Blue Visions' claim was advanced by reference to the principles relating to the diversion of a business opportunity which the employer is actively pursuing, relying solely on the conflict rule. (Of course, in this case, Blue Visions was not pursuing a business opportunity, it already had the benefit of the hospital project).
The essential question raised at trial and again on appeal is whether there was a real or sensible possibility of conflict between Mr Chidiac's personal interests and the interests of Blue Visions to whom he owed his duties when he responded to Mr Hamilton's enquiry in the way in which he did on about 26 March 2014, and thereafter in causing Aspire to enter into the partial novation of the hospital project on 8 April 2014.
In this regard, it is important to keep in mind the commercial and legal context. Blue Visions' ability to provide the contracted-for services to Strategic Projects was affected by two matters. One is that Mr Hamilton considered Mr Chidiac to be in effect irreplaceable. The other is that Mr Chidiac was not subject to any post-employment restraints or obligations.
[39]
Conversation between Mr Chidiac and Mr Hamilton on about 26 March 2014
In his affidavit evidence Mr Chidiac deposed that after he informed Mr Hamilton that he was resigning from Blue Visions, the conversation continued in the following terms:
Hamilton: Well, would you be interested in continuing to assist us in the project?
Chidiac: Thank you. I do really enjoy the project and the challenge of it. I enjoy working with the people involved in it.
Hamilton: Alright, I'll go and look into it.
Mr Chidiac adhered to his affidavit evidence in cross-examination. When asked why he did not tell Mr Khreich what Mr Hamilton told him, Mr Chidiac replied that "Mr Hamilton said he was going to speak to Adel [Mr Khreich] or leave it with him". Two things should be said about this answer. First, Mr Chidiac had not previously given evidence-in-chief (in his affidavit) that Mr Hamilton said he would speak to Mr Khreich. Mr Chidiac seems to have drawn an inference when giving this answer in cross-examination. Second, the primary judge was not asked and did not make a finding that Mr Hamilton actually said that he would speak to Mr Khreich. Nor did Mr Chidiac and Aspire seek such a finding on appeal. Later, in cross-examination, Mr Chidiac also gave the following answer:
I just said I was interested to his question to me essentially.
This answer seems to be the basis of the primary judge's finding at [65] that Mr Chidiac replied to Mr Hamilton in effect that he was interested in continuing to work on the hospital project.
Mr Chidiac rejected the cross-examiner's proposition that he immediately went about setting up a new corporation with Mr Gunasegaram to take on the strategic programming work on the hospital project. He accepted that he did not tell Mr Khreich about his conversation with Mr Hamilton at that point and he explained that Mr Hamilton had said to him "Leave it with him".
Four observations can be made. First, the inquiry by Mr Hamilton of Mr Chidiac was directed to the point in time when Mr Chidiac's employment with Blue Visions had concluded. That provides the context for the primary judge's observation that while in a sense in answering Mr Hamilton's question in the way that he did, Mr Chidiac preferred his interests to those of Blue Visions, Mr Chidiac had a legitimate interest concerning what he would do after his contract with Blue Visions terminated. That finding reflected the commercial context that Mr Chidiac was not subject to any post-employment restraints.
[40]
Assuming breach of fiduciary duty on 26 March 2014
Against the possibility that the above conclusion is wrong, I will deal with what flows from the assumed breach of fiduciary duty by Mr Chidiac's answer to Mr Hamilton's enquiry.
Blue Visions submitted in this Court that it lost the opportunity over the five days between Mr Chidiac's conversation with Mr Hamilton (on about 26 March 2014) and Mr Khreich's conversation with Mr Hamilton (on 31 March 2014) to avoid a financial detriment of losing part of the hospital project by taking action to pre-empt the three options presented by Mr Hamilton. That action was identified as the opportunity to nominate a suitable replacement for Mr Chidiac for the strategic programming function under the hospital project. In response to Mr Chidiac and Aspire objection that such a case had not been raised at trial, Blue Visions pointed to references in its oral submissions at trial to damages being assessed on the basis of a loss of chance or loss of opportunity, including its reply submissions (pars 14-19) dated 17 February 2017.
In support of their objection to Blue Visions raising this point, Mr Chidiac and Aspire submitted that if this case had been raised at trial, it would have most likely been the subject of cross-examination of at least Mr Khreich. They submitted that the references at trial to loss of opportunity were in a different context: namely, whether or not the contract with Strategic Projects would have been terminated in any event and, if not, what other factors would have been relevant to the relationship between Blue Visions and Strategic Projects going forward.
Having reviewed the relevant transcript references and Blue Visions' reply submissions at trial, it is plain that the references at trial by Blue Visions to loss of opportunity principles were in a different context, as Mr Chidiac and Aspire contended, namely, whether there should be an allowance in assessing damages for the possibility that the contract for the hospital project would have been terminated by Strategic Projects in any event. At trial, Blue Visions characterised the loss of the chance of retaining the contract as the "risk of loss of the contract", and submitted that there was no evidence to suggest that Blue Visions was at risk of this occurring in any event. Mr Chidiac and Aspire responded that there was some risk of that occurring.
[41]
Aspire's entry into the novation agreement
The next question is whether Mr Chidiac preferred his personal interests to the interests of Blue Visions by entering into the partial novation of the hospital project in the presence of a real or sensible conflict. Blue Visions accepted that the question of a real or sensible possibility of conflict had to be addressed was at the time the novation agreement was signed by Mr Chidiac on behalf of Aspire on 8 April 2014.
It is useful to recall the circumstances in which Mr Chidiac signed the partial novation agreement. Following their conversation on about 26 March 2014, Mr Chidiac next spoke with Mr Hamilton after Mr Hamilton spoke to Mr Khreich on 31 March 2014. Mr Hamilton told Mr Chidiac of the terms of his conversation with Mr Khreich, including the three options that he saw available to Mr Khreich going forward, and that Mr Khreich had chosen the option that would mean that part of the arrangement which Strategic Projects had with Blue Visions involving Mr Chidiac would be novated so that Mr Chidiac would continue working on the project. Mr Chidiac formed the view correctly (based on what he had been told by Mr Hamilton), that Mr Khreich had no problem with him remaining involved in the hospital project.
Although Mr Chidiac did not speak directly to Mr Khreich in relation to the novation agreement, Mr Hamilton effectively acted as the intermediary between Mr Chidiac and Mr Khreich. That explains the statements contained in the third paragraph of the covering letter sent by Mr Hamilton to Mr Khreich on 3 April 2014 (which were repeated in the covering letter dated 8 April 2014, extracted at [114] above):
Discussions have been had with John Hamilton, Adel Khreich and Sam Chidiac to resolve this issue. All parties have verbally agreed that partial novation of the abovementioned contract would be the appropriate solution.
Having spoken with Mr Hamilton on 31 March 2014 or the following day, Mr Chidiac determined to set up a corporate entity to have the work involving himself novated to the entity, which would employ him and that he needed to involve another person in the new business in order to operate successfully. That other person was Mr Gunasegaram. As Besanko J observed in Blackmagic Design at [102], there is no absolute prohibition on an employee making arrangements during his employment to compete with his employer after his employment has terminated.
[42]
Statutory claim - s 182(1)
It was not suggested by Blue Visions that if the fiduciary duty claim failed there would be any different outcome on the Corporations Act claim under s 182(1). For completeness, however, I would mention four matters. First, the submissions by Blue Visions in this Court in support of the statutory claim were directed to the alleged misuse by Mr Chidiac of his position in the five-days between 26 March and 31 March 2014. According to the submission, "by his response to Mr Hamilton, and by not speaking to Mr Khreich, [Mr Chidiac] used his position, in effect defeating the purpose of his notice of resignation which he gave, to benefit himself and Mr Gunasegaram, through Aspire". There are a number of difficulties with this submission. One is that the s 182(1) claim was not pleaded in these terms. Another is that the proposition that Mr Chidiac's subjective purpose when acting in the manner alleged in the submissions, was to gain an advantage for himself (and Mr Gunasegaram), through Aspire, was not put to Mr Chidiac in cross-examination. That is unsurprising given that Blue Visions' claim was not pleaded in those terms. A further difficulty is that, for the reasons given above (see [206]-[209]), Blue Visions should not be permitted to raise a new case on appeal based on a loss of opportunity to avoid a financial detriment by taking action to nominate a suitable replacement for Mr Chidiac during the five days between 26 March 2014 and 31 March 2014.
Second, I do not consider that there was any impropriety in Mr Chidiac honestly responding to Mr Hamilton's enquiry as to whether he might be interested in continuing to work on the hospital project, in circumstances where Mr Chidiac made no commitment but had only expressed an interest, he was not subject to any post-employment contractual restraints, and the matter was left by Mr Chidiac on the basis that Mr Hamilton would discuss that possibility with Mr Khreich.
Third, there is no finding by the primary judge, and I would not make a finding in the absence of cross-examination, that Mr Chidiac's subjective purpose when he responded to Mr Hamilton's enquiry was to make a gain for himself, or through Aspire, or to cause detriment to Blue Visions. The enquiry by Mr Hamilton was unexpected and, as his Honour found, Mr Chidiac had not seriously considered that as an option before Mr Hamilton raised the possibility with him: at [140]. Mr Chidiac's response did not involve any commitment to Mr Hamilton, and, as I have said, the possibility of his continuing to work on the hospital project was left for discussion between Mr Hamilton and Mr Khreich. Nor was Mr Chidiac privy to Mr Hamilton's intended negotiation strategy with Mr Khreich.
[43]
Other matters
Given that Basten JA would allow Blue Visions' appeal based on the conduct of Mr Chidiac and the accessorial liability of Aspire, it is appropriate that I briefly address why I respectfully disagree with the reasons for his Honour's conclusion.
[44]
(a) Fiduciary duty
His Honour's conclusion with respect to breach of fiduciary duty proceeds upon the reasoning that Mr Chidiac diverted the benefit of part of the contract to himself, through Aspire because "by advising Mr Hamilton of his resignation, Mr Chidiac triggered Mr Hamilton's offer, which in turn he accepted, whilst still working for Blue Visions". However, the relevant question, raised by the case as pleaded, is whether Mr Chidiac preferred his own interests to the interests of Blue Visions in the presence of a real or sensible possibility of conflict.
That directs attention to how it is said that Mr Chidiac preferred his own interests to those of Blue Visions. The following observations can be made in that regard. First, it was not Blue Visions' case that Mr Chidiac could not inform Mr Hamilton of his resignation. Hence, it is not to the point that Mr Chidiac's resignation may have "triggered" Mr Hamilton's enquiry of Mr Chidiac.
Second, Mr Hamilton's enquiry of Mr Chidiac on about 26 March 2014 was no more than an enquiry; it was not an offer. Given that he was not subject to any post-termination restraints, and that his functions and responsibilities did not include considering or deciding whether to surrender part of the contract, Mr Chidiac did not misuse his position or prefer his interests to Blue Visions' interests in honestly answering that enquiry which went no further than indicating an interest, and was left on the basis that Mr Hamilton would discuss the possibility with Mr Khreich.
Third, at the point in time when Mr Chidiac accepted an offer by Mr Hamilton there was no real or sensible possibility of a conflict, given that Mr Khreich had agreed to the partial novation, which he saw as in Blue Visions' interests when faced with the possibility of losing the entire contract.
Fourth, I do not consider that this case is analogous to cases such as Keech v Sandford (1796) Sel Cas t King 61; (1796) 25 ER 223 and Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36. Those cases are distinguishable on the ground that they involved a diversion of a business opportunity by a fiduciary, who was in a position of conflict.
In Keech v Sandford, the trustees' interest in obtaining a renewal of the lease for themselves was in conflict with their duty to do their best to obtain a renewal of the lease for the trust. Here, as I have said, the functions and responsibilities of Mr Chidiac did not include considering or deciding whether Blue Visions should surrender part of the contract or otherwise respond to the options given by Mr Hamilton to Mr Khreich on 31 March 2014. That was within Mr Khreich's functions and responsibilities as managing director. Faced with an inability to nominate a suitable replacement for Mr Chidiac, and the threat by Mr Hamilton to terminate the whole contract, Mr Khreich made a commercial decision to surrender part of the contract so as to retain the balance.
[45]
S 182(1) - misuse of position
His Honour's conclusion that Mr Chidiac breached s 182(1) proceeds upon the basis that it was Mr Chidiac's willingness to continue to work on the hospital project (for Strategic Projects), that had the practical effect of forcing Mr Khreich to relinquish part of the contract in order to retain the balance. That reasoning accepts that Mr Chidiac could properly refuse to continue to work for Blue Visions, but asserts that he could not properly continue to execute the contract for his own benefit. And it is said, Mr Chidiac's clear purpose in accepting Mr Hamilton's offer was to gain the identified advantage.
Three observations can be made. First, while it can be accepted that a course of conduct can give rise to a breach of the statutory duty, it is necessary to avoid reasoning back from an advantage obtained at a later point in time, to attribute to earlier conduct (impugned as misuse of one's position), the subjective purpose to gain the identified advantage at the earlier point in time.
Second, that a third party takes advantage of a perceived weakness in the bargaining position of a contracting party, who cannot nominate a suitable replacement for the services provided under the contract by a valued employee who has given notice of his resignation, does not mean that the employee has used - or misused - his position if he honestly answers an enquiry by the third party as to his willingness to work for the third party, in circumstances where the employer's functions and responsibilities do not include considering and deciding whether to surrender part of the contract and there are no post-contractual restraints on the employee.
Third, to say that Mr Chidiac could not properly execute the benefit of the contract for his own personal benefit, is not to describe what occurred in this case. That Aspire obtained the partial novation agreement, while obviously for Mr Chidiac's own benefit, was not a misuse of his position as an employee of Blue Visions, given that his employer had agreed to that course on 31 March 2014 and signed the partial novation agreement on 15 April 2014.
[46]
Blue Visions' submissions
Blue Visions submitted that Mr Gunasegaram breached his fiduciary duty and s 182 of the Corporations Act (a) by his conduct in connection with the novation arrangements requested by Mr Hamilton and (b) by his conduct along with Mr Chidiac in setting up Aspire whilst still employed by Blue Visions.
In its written submissions, Blue Visions focused attention on five matters. The first challenged the primary judge's finding that the preparatory work by Mr Gunasegaram, in anticipation that he and Mr Chidiac might resign, was not a breach of fiduciary duty. Blue Visions submitted that what was done was not mere preparatory steps, but involved active competition.
The second matter is related to the first and concerned the obtaining of advice from the accountant, Mr Rodrigues, concerning a corporate structure which might be utilised by Mr Gunasegaram and Mr Chidiac.
The third, fourth and fifth matters were that Mr Gunasegaram preferred his own interests to that of Blue Visions in giving advice to Mr Khreich in his 28 March 2014 email and in the statement at about the same time to Mr Parkhouse, as well as in assisting Mr Chidiac in setting up Aspire.
Blue Visions also challenged the primary judge's finding that there was no evidence of reliance by Mr Khreich on the email which Mr Parkhouse sent to him on 30 March 2014 recording Mr Gunasegaram's advice that Mr Parkhouse not be put forward as a replacement for Mr Chidiac. Reference was made to Mr Khreich's affidavit evidence to the effect that he considered Mr Parkhouse suitably qualified to replace Mr Chidiac.
[47]
Mr Gunasegaram's submissions
Mr Gunasegaram sought to uphold his Honour's finding that each of the three matters relied upon by Blue Visions - the preliminary steps taken towards setting up Aspire, his prompt and accurate reporting to Mr Khreich of a conversation he had had with Mr Hamilton without disclosing his interest in Aspire and the email to Mr Khreich regarding Mr Parkhouse - was not causative of any loss to Blue Visions.
Mr Gunasegaram submitted that he did not have an interest in Aspire at the time of his 28 March 2014 email to Mr Khreich because it was only after Mr Khreich had spoken with Mr Hamilton on 31 March 2014 that Mr Chidiac determined, following discussions with Mr Gunasegaram, to pursue a new business providing services to Strategic Projects through Aspire, which was registered on 3 April 2014. According to the submission, Mr Gunasegaram was not under any obligation to disclose to Mr Khreich in his 28 March 2014 email that he had an interest in Aspire, when that was not the case.
In oral argument, Mr Gunasegaram emphasised that Mr Khreich did not give direct evidence that the 31 March 2014 email from Mr Parkhouse was a matter which he had in mind when dealing with Mr Hamilton. And insofar as Blue Visions relied upon an inference that this email was something that Mr Khreich had in his mind, Mr Gunasegaram pointed to the evidence of Mr Khreich that he did not suggest alternative people to Strategic Projects to provide programming services as he believed it would be futile and that Mr Hamilton had already made up his mind that Mr Chidiac could not be replaced. Mr Gunasegaram submitted that Mr Khreich's decision not to put forward persons as replacements of Mr Chidiac, such as Mr Parkhouse, was not motivated by any view he held as to the qualifications of such persons to fill that role.
[48]
Reasoning
It is convenient to address the attack on the primary judge's rejection of the claim against Mr Gunasegaram by reference to the five matters identified in Blue Visions' submissions.
First, the complaint that the work by Mr Gunasegaram in anticipation that he and Mr Chidiac might resign was not mere preparatory steps goes nowhere given the unchallenged finding by the primary judge at [136] that Mr Gunasegaram (and Mr Chidiac) did not pursue their personal interests in conflict with those of Blue Visions before they resigned (in March 2014).
Another difficulty with this complaint is that although his Honour found that Mr Gunasegaram's conduct in improperly asking Mr Clarke to search domain names and register the domain name "endpointconsulting.com" was a breach of duty, Blue Visions did not challenge his Honour's finding at [136] that those breaches by Mr Gunasegaram were minor and it was not suggested that any loss flowed from them or that Mr Gunasegaram or Mr Chidiac obtained any real benefit from them.
Second, that Mr Gunasegaram and Mr Chidiac met Mr Rodrigues, the accountant, no later than 26 March 2014 to discuss establishing a corporate structure, did not involve a breach of fiduciary duty. For the reasons given above, in this case, the act of obtaining advice concerning a corporate structure which may be utilised on the expiry of the employee's period of notice was a preparatory step to carrying on a business post-employment which did not amount to a breach of fiduciary duty.
Third, insofar as complaint is made about the advice Mr Gunasegaram gave to Mr Khreich on 28 March 2014 concerning the three options outlined by Mr Hamilton, the primary judge did not find, and no finding was sought by Blue Visions at trial, that the advice given by Mr Gunasegaram to Mr Khreich in that email involved a breach of fiduciary duty.
Fourth, the primary judge found that Mr Gunasegaram's statement on about 31 March 2014 to Mr Parkhouse advising against putting himself forward for the hospital project role, which Mr Parkhouse conveyed in an email to Mr Khreich on 31 March 2014, although not specifically pleaded, was a breach of his fiduciary duties. What is in dispute is his Honour's finding that this this breach did not cause any loss to Blue Visions. At issue is whether the primary judge erred in finding that there was no evidence that Mr Gunasegaram's advice had any effect on Mr Khreich's conduct. That finding is to be considered in the light of the whole of Mr Khreich's evidence.
[49]
(5) Defence of fully informed consent: notice of contention, grounds 4, 5 and 6
The primary judge concluded that the defence of fully informed consent was not properly pleaded and that it was too late for the defendants to raise it at trial. Mr Chidiac and Aspire challenged this conclusion by pointing to two matters. First, the particulars of the estoppel defence included that Blue Visions was aware of the novation agreement. Second, the defendants' outline of opening submissions (par 38) at trial alleged that Blue Visions gave its informed consent.
Blue Visions responded by pointing to the way in which the defence was pleaded and conducted at trial. In particular, in closing submissions at trial, senior counsel for Blue Visions objected to Mr Chidiac and Aspire raising the defence of informed consent in their written closing submissions (par 27). In response, senior counsel for the defendants contended that the informed consent defence had been pleaded and referred to the particulars given under the estoppel defence. Counsel also submitted that the defendants had opened on that basis. In reply, counsel for Blue Visions emphasised that there had been no oral opening by the defendants and no warning drawing attention to par 38 of the defendants' written opening that mentioned fully informed consent.
[50]
Reasoning
The function of pleadings is "to state with sufficient clarity the case that must be met"; this reflects "the basic requirement of procedural fairness that a party should have an opportunity of meeting the case against him or her": Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286; [1990] HCA 11 (Banque Commerciale); Dare v Pulham (1982) 148 CLR 658 at 664; [1982] HCA 70.
A party is entitled to have the opposing party confined to that party's pleadings because parties are entitled to come to trial to meet only the issues raised on the pleadings. However, pleadings are but a means to an end and not an end in themselves: Banque Commerciale at 293 (Dawson J). Thus, a case may be decided on a basis different from that disclosed by the pleadings where the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities: Banque Commerciale at 287.
Here, the defendants' pleadings did not adequately put Blue Visions on notice that they were contending that Blue Visions had given informed consent to the alleged breaches of fiduciary duties. The particulars given under the estoppel defence are not fairly to be read as asserting a defence of informed consent. There is no error in the primary judge's analysis of the defendants' case as disclosed on the pleadings.
In Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356; [2010] FCAFC 133 at [52], the Full Court of the Federal Court referred to the remarks of Isaacs and Rich JJ in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 at 517:
Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest. (Emphasis added)
[51]
Liability of Aspire: Ground 3
Aspire accepted that its liability stands or falls with the liability of Mr Chidiac and Mr Gunasegaram. In light of the conclusions above that the breach of fiduciary duty and Corporations Act claims have failed against them, it is not necessary to address ground 3 concerning the accessorial liability of Aspire.
[52]
Causation and remedies: ground 4, notice of contention, grounds 7-10, 11-13
Similarly, in light of the conclusions above with respect to the breach of fiduciary duty and Corporations Act claims, it is not necessary to address ground 4, or the notice of contention (grounds 7-10, 11-13) in relation to causation and the appropriate remedy, including the period for any account of profits or equitable compensation.
Nonetheless I would briefly indicate my view that if it were necessary to decide, I would uphold the causation argument advanced by Mr Chidiac and Aspire in grounds 11-13 of the notice of contention. This argument had been raised at trial by the defendants but not addressed in terms by the primary judge. The argument was that there was no loss accruing after 11 July 2015.
In support of this contention, Mr Chidiac and Aspire pointed to the term of the contract between Blue Visions and Strategic Projects which commenced on 20 May 2010 and ran its full 3 year term and that both options to extend the contract for a further year were exercised. On about 5 June 2015, more than a year after the partial novation, Strategic Projects issued a new request for tender for the provision of programming services for the hospital project. As indicated both Blue Visions and Aspire tendered for that work and Blue Visions was unsuccessful. The evaluation report by Strategic Projects dated 10 July 2015 stated that only Aspire had the demonstrated experience relevant to the Request's requirements and that all other responses rated poorly against the qualitative criteria. On about 13 July 2015, Aspire was awarded the public tender contract and commenced work under that contract.
The primary judge made no express finding of a causal connection between the (assumed) breach of fiduciary duty in March and April 2014 (by obtaining the work from Strategic Projects that had previously been performed by Blue Visions) and the gain made by Aspire in respect of the new contract obtained in June 2015 in a competitive government process in which Blue Visions participated. Blue Visions sought to meet this difficulty by submitting that by mid-2015 Aspire had the advantage of incumbency, which placed Blue Visions at a disadvantage in the tender. That Aspire had the advantage of incumbency can be accepted. Blue Visions next submitted that the new contract in June 2015 came about because of the (earlier) breach of fiduciary duties (in March and April 2014). I do not agree. Although not put in terms of a "springboard" argument, that seems to be the effect of its submission.
[53]
Explanation for "discretion": notice of contention, ground 14
The primary judge found that Mr Chidiac could not give an adequate explanation for why "discretion" concerning who owned the business was important. This was in reference to a remark in the email dated 26 March 2014 from Mr Rodrigues to Mr Chidiac and Mr Gunasegaram recommending use of the structure of a corporate unit trust. In that email, Mr Rodrigues observed that if a search was done on the business (ie, the trust) it would not show who the trustee is and therefore its directors or who the unitholders were. The email concluded: "This will give you the discretion you want".
In cross-examination, the explanation given by Mr Chidiac for this reference to "discretion" was that he and Mr Gunasegaram wanted the option to run the business that way. As Blue Visions submitted at trial and again on appeal, the answer given by Mr Chidiac was circular. It was open to the primary judge to find that Mr Chidiac could not give an adequate explanation for why "discretion" concerning who owned the business was important.
Ground 14 of the notice of contention should be rejected. I would add that neither party suggested that the outcome of this contention would affect the result of the appeal by Blue Visions.
[54]
Grounds of appeal
There are two parts to the appeal by Mr Gunasegaram. The first concerns a challenge to the liability findings on the misrepresentation claim concerning the prospects of Blue Visions obtaining work relating to the rollout of the Masters stores by Woolworths. Ground 1 asserts that his Honour erred in the identification of the representations founding Mr Gunasegaram's liability in deceit. Ground 2 asserts that his Honour erred in finding that Mr Gunasegaram owed Blue Visions a duty of care not to cause pure economic loss.
The second part concerns various challenges by Mr Gunasegaram to some of the integers in the award of damages (grounds 3, 5, 6 and 7). Ground 4 is not pressed.
It is convenient to deal separately with the issues of liability and damages.
[55]
Facts
In late 2011 or early 2012, Mr Gunasegaram informed Mr Khreich that Woolworths was planning to rollout a chain of stores under the brand name Masters to compete with Bunnings and that he wanted Blue Visions to do the project management consulting work. The primary judge found that Mr Gunasegaram told Mr Khreich that Blue Visions would not need to lodge a tender because he had connections with key people on the board (of Woolworths) and would be able to negotiate the terms of Blue Visions engagement directly. He also told Mr Khreich that the project was very large and that Blue Visions would need to think about a strategy to put the project together: at [91].
His Honour further found that Mr Gunasegaram and Mr Khreich had a number of conversations to the same effect in the first part of 2012 and there were extensive discussions and correspondence relating to the Masters project up until the time Mr Gunasegaram resigned in March 2014: at [92]. While none of his Honour's findings concerning those communications are challenged on appeal, it is of assistance to set out those findings in full (at [93] - [118]), in view of the pleading point raised by Mr Gunasegaram in ground 1:
[93] Following Mr Gunasegaram's initial discussions with Mr Khreich, Mr Gunasegaram included a reference to the Masters project in the draft financial plan which he sent to Mr Khreich on 23 April 2012 and the updated financial plan for the 18 month period up to 30 June 2012, which he sent to Mr Khreich on 13 June 2012. Those plans showed Masters as a pending project which was forecast to earn $41,800 per month starting in November 2012 and increasing to $83,600 per month from February 2013.
[94] On 8 October 2012, Mr Gunasegaram sent an email to Mr Khreich stating that he had spoken to Mr Peter Horton, the General Counsel of Woolworths, privately that morning, that he was sending Mr Horton a copy of Mr Sujit Dutt's CV and that he would "lock him in as the PM [project manager] for the whole rollout rather than just WA". Mr Gunasegaram added:
I have not detailed additional supporting resources for either project [the email dealt with another project as well], as they are both happy with the PM [project manager] deciding on that once they commence. (Those are the joys of working with your friends.)
[95] On 7 February 2013, Mr Gunasegaram sent Mr Khreich an email saying that he had met with "my friend from Woolworths" who had provided him with information concerning the project. Mr Khreich gave evidence that during 2013 he asked Mr Gunasegaram if he could meet with Woolworths' staff, but Mr Gunasegaram replied that they were only comfortable meeting with him because he knew Mr Horton.
[96] On 21 February 2013, Mr Gunasegaram sent Mr Khreich an email attaching a draft paper for the Woolworths board. Attached to that draft was a "Masters Project Staffing Plan", which showed the expected staffing of the project for the first three months. The plan indicated a staff of eight in the first month, rising to 46 in the third month. Other iterations of the staffing plan were sent to Mr Khreich. The last one was sent on 27 January 2014. It still indicated a staff of eight in the first month, rising to 46 in the third month.
[97] On 26 February 2013, Mr Gunasegaram wrote to Mr Khreich saying that he had "unofficial news after the audit & risk committee meeting at Woolworths". In an email later that day, Mr Gunasegaram said that the news was that "instead of allowing us to trial on 1 state which I suggested, the recommendation to the board is going to be for us to manage the rollout as currently defined in the business plan for 24 months and to do an audit of progress after 21 months to decide on awarding the balance of works".
[98] By about this stage, Blue Visions was facing financial difficulties. In response to Mr Gunasegaram's emails, Mr Khreich said that:
We need the work urgently and we have senior people with capability.
I am at the stage of sacking people in 2 days' time. Current status is very serious from my point [of] view.
[99] On the same day, Mr Khreich wrote to his bank manager saying that "I need the cash and I need it now". The email set out various alternatives to obtain that cash. Mr Khreich explained that since 14 January 2013 "I have had 9 people on my books with nothing to do" awaiting a number of opportunities Blue Visions had to come to fruition. He identified four opportunities, although not by name. I accept Blue Visions' submission that one of those was the Masters project (described as "A large rollout of a property portfolio") and another was the Roy Hill project (described as "A large mining project").
[100] The following day, Mr Khreich asked Mr Gunasegaram to put two employees in Brisbane on leave, in one case without pay until work became available and in another case on annual leave of 2-3 days per week "until Masters kicks in". Mr Gunasegaram then sent an email to a number of employees saying that "[i]n the last few weeks we have been able to get some real long term commitment from clients, but the paperwork has not arrived" and asking the employees to take leave without pay.
[101] On 24 April 2013, Mr Gunasegaram sent Mr Khreich an extensive draft of an engagement letter in relation to the Masters project.
[102] On 28 April 2013, there was further email correspondence between Mr Khreich and Mr Gunasegaram in relation to the Masters project. Mr Khreich asked "When do we start the masters handover?". Mr Gunasegaram responded "Just waiting until you are happy with the agreement and I will confirm it with Peter [Horton]. They need to send a letter to ASIC for stock market announcement." Mr Khreich replied "I am starting to think this is taking too long and we will not have a meaningful start this year". He also asked whether there were "any more documents", to which Mr Gunasegaram replied "Just the scope of works but I have agreed with them that this has to be a work in progress as we will not be held to it until after 3 months of engagement." Mr Khreich took offence to other statements made in Mr Gunasegaram's email and wrote a long response back in which he praised Mr Gunasegaram's ability "to bring these large projects in" but complained, among other things, about the fact that Mr Gunasegaram "[refused] to ask for help from me until the work is final (like you did with Masters)."
[103] On 30 April 2013 and 6 May 2013, Mr Khreich sent Mr Gunasegaram comments (in mark-up) on the draft Masters contract. Mr Gunasegaram responded on 9 May 2013, saying:
I have sent the Masters PMC document in draft yesterday without scope (as to be defined within 3 months) and hope to hear back by Monday next week.
[104] On 17 May 2013, Mr Khreich wrote to Mr Gunasegaram saying "Need to find a way to kick start Masters. We lost a lot of money in April again", to which Mr Gunasegaram responded "Almost There."
[105] On the same day, Mr Gunasegaram sent Mr Khreich a "Masters Project Staffing Plan" which showed that Blue Visions would earn $485,233.10 in the first month of the Masters project, $1,676,245.35 in the second month and $2,271,991.24 in the third month. The document indicated that a large number of people would be employed on the project.
[106] On 7 June 2013, Mr Gunasegaram sent an email to Mr Khreich saying that "Our customer will need to make an announcement to market (ASX) in the near future regarding any engagement and we have the opportunity to shape an up to four line statement such as the one below as an introduction". Mr Khreich responded by asking on the same day whether Blue Visions ever got a marked-up contract from Woolworths to which Mr Gunasegaram responded:
Not yet, they have some of their own performa [sic] to add and he is circumventing some areas we don't meet due to size and turnover, so Peter is trying to get us on and agree the contract during the engagement if it can't be done before. We may have to work under an LOI [presumably, letter of intent] in the initial phase under the same conditions. Big company, just like a government department.
[107] On 4 July 2013, Mr Gunasegaram provided Mr Khreich with some information about potential employees, including Mr Tom Usia. Mr Khreich replied by asking:
Is Masters slowness because of Tom taking so long or something else? Because we need that job to start soon to save us as a company to be honest about it. There are many Toms out there.
Mr Gunasegaram replied:
Tom is a big part of it, as once we lock him or someone else in, I want get [sic] them into the client's office as soon as possible.
[108] On 17 October 2013, Mr Gunasegaram sent Mr Khreich an email saying:
I spoke with Peter Horton from Woolworths this afternoon and he wants me to start attending the steering committee meeting for the Masters Program Store Rollout starting from next week. It occurs every Wednesday …
…
I don't mind attending every second one in person if they let me do some of them on the phone, but would also like to introduce you after the first couple of meetings as an alternate for myself if I can't attend if that's ok.
[109] On 28 October 2013, there was an email discussion between Mr Khreich and Mr Gunasegaram concerning staffing. The email chain started with Mr Khreich saying:
Awaiting your plan for Masters startup and ramp up with realistic figures. and how are we going to avoid another disaster like September please?
I need to cut overheads please. It simply is not sustainable. Think of reducing at least 3 salaries on your team who are either pure overhead or regularly under billed.
Any Ideas please?
Mr Gunasegaram responded with the names of three people he thought could be terminated. There was then further correspondence about terminating an HR person, which ended with Mr Gunasegaram saying:
My view is that we cannot engage on large projects without a defined organisation structure which needs to encompass most importantly for these organisations, a good HR and Recruitment system in place with qualified people managing these. It gives them confidence that we are not a backyard operation with low level systems and policies. …
[110] On 29 October 2013, Mr Gunasegaram sent Mr Khreich an email saying that he had been to his first Woolworths Project Steering Committee meeting on 23 October 2013 and purporting to give an account of what happened at the meeting. Later emails referred to subsequent committee meetings.
[111] There was further correspondence between Mr Khreich and Mr Gunasegaram in November 2013 concerning a ramp-up plan for the Masters project. In an email dated 15 November 2013, Mr Khreich reminded Mr Gunasegaram that he had asked for a plan and expressed concern about "people still sitting around not fully utilised". In an email dated 17 November 2013, Mr Khreich said in relation to the plan that he was looking for "accuracy not fantasy please" and that there were "Many things on hold in the business because of concern about future profitability".
[112] On 29 November 2013, Mr Gunasegaram sent Mr Khreich a final draft of the engagement letter asking him to sign it. The covering email said "Once I get the letter back from you, I will go through getting it signed by Woolworths. I believe that Peter is signing it, but it might be Grant."
[113] Mr Gunasegaram was unwell in December 2013 and was admitted to hospital for a few days with asthma.
[114] On 8 January 2014, Mr Gunasegaram sent Mr Khreich an email saying that "[w]e can start Masters as of next week" and on 23 January 2014 he sent an email saying:
- Handover of the office at 3 City View Road, Pennant Hills is forecast during week of 3 Feb 2014. People are moving out between now and then.
- I am doing some pre start work and will charge for my time.
…
- I will be doing a forecast for February in our invoice and will include as many people … as possible.
[115] On 4 February 2014, Mr Gunasegaram sent Mr Khreich a revised draft invoice (he had sent an earlier version on 30 January 2014) addressed to Hydrox Nominees, the entity through which Woolworths was carrying out the Masters project. The invoice suggested that Blue Visions had carried out $28,891.80 worth of work in January 2014 and was forecast to carry out $425,769.62 worth of work in February 2014. On the same day, Mr Gunasegaram sent Mr Khreich a draft letter he proposed to send to Mr Horton saying that Blue Visions was able to commence work on 10 February 2014 at the Masters project office at Pennant Hills.
[116] On 7 February 2014, Mr Gunasegaram sent an email to "Everyone in BV" saying:
I am pleased to advise that we commenced our role on the Masters rollout in January this year. As most of you know this will be a highly challenging yet exciting role for our team at Blue Visions and will involve the rollout of new property assets nationally for several years.
We have client approval to announce this internally but not approved for an external announcement yet. Over the next few weeks, some of you will start joining this project and we will be hiring externally as well.
[117] There was further correspondence between Mr Khreich and Mr Gunasegaram in February and March 2014 concerning the start date of the Masters project and the fact that Blue Visions had extra staff that should have been terminated if the Masters project was not going ahead. A feature of the correspondence is that Mr Gunasegaram offered explanations for the delay in the start date while at the same time insisting that the project was going ahead. As late as 20 March 2014, Mr Khreich asked if Masters was "dead because you resigned" to which Mr Gunasegaram replied "No it's not".
[118] Following Mr Gunasegaram's resignation, on 13 May 2014, Mr Ron Turner of Blue Visions sent an email to Woolworths including a copy of the engagement letter dated 28 November 2013, the letter dated 4 February 2014 to Mr Horton regarding commencement and a copy of its invoice dated 30 January 2014. Woolworths' internal communications following receipt of that email and subsequent correspondence between Blue Visions and Woolworths demonstrate that prior to 4 February 2014, there had been no communications between Blue Visions and Woolworths concerning the Masters Project.
[56]
Blue Visions' pleaded claims
Blue Visions pleaded that the representations by Mr Gunasegaram between April 2012 and March 2014 in relation to the Masters project involved misleading or deceptive conduct in contravention of the Competition and Consumer Act 2010 (Cth), Sch 2 - Australian Consumer Law, s 18; alternatively, the representations were false; alternatively, by making the false or misleading representations Mr Gunasegaram breached his duties under his contract of employment, the statutory duties under ss 181 and 182 of the Corporations Act, his fiduciary duties and his duty to exercise reasonable skill and care in performing his functions as an employee.
Blue Visions further pleaded that in reliance upon such representations it retained staff when there were no other projects for those staff members to work on and thereby suffered loss and damage.
It is not necessary to refer to the pleading with respect to the misrepresentation case concerning Blue Visions obtaining work in relation to the Nicholson's Gold Mine project and the Roy Hill project. While his Honour found that the representations made by Mr Gunasegaram in relation to those projects were also false, he found that no loss flowed from any of those representations. That finding on causation is not challenged by Blue Visions.
[57]
Deceit claim
After referring to the well-known elements of a claim in deceit stated in Magill v Magill (2006) 226 CLR 551; [2006] HCA 51 at [114], the primary judge found that it was not seriously disputed, nor could it be, that Mr Gunasegaram made a number of false statements to Mr Khreich (and therefore Blue Visions) concerning the Masters project and that Mr Gunasegaram must have known that those representations were false: at [183]. Nor was it seriously disputed, his Honour found, that Mr Gunasegaram intended Blue Visions to rely on those representations by engaging or retaining additional staff: at [183].
His Honour observed (at [193]) that while the pleading of the deceit case could have been better, it was not so defective that it should fail altogether, giving the following reasons (at [194]-[196]):
[194] It is plain from the pleading that what is alleged is that, over an extended period of time commencing on or about 23 April 2012 and ending on 28 February 2014, Mr Gunasegaram made a substantial number of representations to the effect that (1) he had a close relationship with one or more key people at Woolworths; (2) as a result of that close relationship, Blue Visions had good prospects of being retained by Woolworths (or its relevant subsidiary) to project manage the rollout of Masters stores throughout Australia; (3) and later, that Blue Visions had been retained by Woolworths to do that work. It is alleged that those representations, to Mr Gunasegaram's knowledge, were false. It is also alleged that, as a consequence of those representations, Blue Visions hired and retained staff that it would not otherwise have hired or retained. The pleading gives particulars of the precise representations on which Blue Visions relies. In my opinion, that was an adequate pleading of a claim in deceit.
[195] It is not specifically pleaded that Mr Gunasegaram intended Blue Visions to rely on the representations. However, the case was clearly conducted on that basis and it is not alleged that the pleading was defective for that reason.
[196] The pleading was not defective because it alleged that certain specific representations were false when they were true. The mere fact that each representation relied on was not false does not make the pleading defective. Nor was the pleading defective because it failed to plead specific acts of reliance on each representation. In my opinion, Blue Visions was not required to put its case in that way, and there would have been a degree of unreality in the case had it done so. The substance of the case is not that each statement made by Mr Gunasegaram caused Mr Khreich to do a particular thing, but rather that the specific representations conveyed the representations set out above and those representations caused Mr Khreich to agree to employ staff and to retain staff who otherwise would not have been employed or retained. It is true that nowhere is the case pleaded in precisely that way. However, that was the way the case was run and in my opinion that case fell within the scope of the pleading, since the relevant representations and acts of reliance were pleaded. Moreover, the purpose of the pleading was to identify precisely the conduct engaged in by Mr Gunasegaram which is said to have been deceitful so that Mr Gunasegaram was given an opportunity to answer those allegations. By pleading each representation on which Blue Visions relied on its claim, the pleading did that. (Emphasis added)
[58]
Alternative causes of action
For the purposes of the appeal, it is only necessary to refer to some of his Honour's findings dealing with the other causes of action relied on by Blue Visions. His Honour found that Mr Gunasegaram was also liable for breach of his statutory duty of good faith under s 181(1) of the Corporations Act, given that he occupied a senior position with Blue Visions; he effectively ran the Perth office and was largely unsupervised by Mr Khreich; he played a substantial role in determining the staff levels of the company and in doing so participated in making decisions that affected a substantial part of the business and had the capacity to affect significantly Blue Visions' financial standing; and his conduct in misleading Mr Khreich in relation to the prospects of obtaining work from Woolworths could not be said to have been conduct undertaken in good faith in the interests of the corporation: at [221].
His Honour also found that Mr Gunasegaram owed Blue Visions a duty of care (in tort) at [222].
However, his Honour did not go on to make a finding of negligence on the part of Mr Gunasegaram.
[59]
The parties' submissions
Mr Gunasegaram's essential complaint is that he was denied natural justice because he was never given an opportunity to meet or answer the version of the representation case upon which he was found liable. According to the submission, the primary judge substituted a radically recast set of representations, as set out in [194] of his reasons, and found Mr Gunasegaram liable in deceit in respect of representations that were neither pleaded, nor opened upon, nor the subject of evidence or address by the parties. Reference was made to Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 576 for the proposition that when pleading a claim in deceit, fraud must be pleaded distinctly and with particularity and clearly proved.
Blue Visions responded that the premise of Mr Gunasegaram's argument was incorrect, and submitted that the primary judge had correctly focused on the sense of the representations, in accordance with the approach by the majority in the High Court in Krakowski v Eurolynx at 576-577. Blue Visions further submitted that his Honour's summary of the representations made by Mr Gunasegaram in relation to the Masters project reflected the way that Blue Visions had opened and run its case at trial and also Mr Gunasegaram's defence.
[60]
Decision
The starting point is to observe that the pleading by Blue Visions included a claim in deceit (in pars 75-77 2FASC), and claimed relief by way of damages for deceit (in par 6A 2FASC). It is not necessary to set out the terms of the pleading. The substance of the case, as his Honour found, was not that each statement made by Mr Gunasegaram caused Mr Khreich to do a particular thing, but rather that the specific representations conveyed those summarised by his Honour (at [194]), and those representations caused Mr Khreich to agree to employ staff and to retain staff who otherwise would not have been employed or retained. After observing that the case was not pleaded in precisely that way, his Honour found that was the way the case was run. That finding is consistent with Blue Visions' opening at trial relying on the deceit claim and its written closing submissions. There was no error in his Honour's conclusion that case fell within the scope of the pleading, since the relevant representations and acts of reliance were pleaded.
The complaint that the primary judge reformulated the deceit claim and thereby denied Mr Gunasegaram natural justice should be rejected. On a fair reading of the whole of his Honour's reasons dealing with the misrepresentation claim in relation to the Masters project, it is plain that his Honour set out (at [194]) a summary of what he took to be the gist or sense of the pleaded representations which he had earlier found (at [91]-[122]) had been made by Mr Gunasegaram. As indicated, none of those specific factual findings are challenged by Mr Gunasegaram.
The first category of representations was to the effect that Mr Gunasegaram had a close relationship with one or more key people at Woolworths. This reflected the representations pleaded at pars 55, 56, 60 and 64 of the second further amended statement of claim.
The second category of representations was to the effect that as a result of that close relationship, Blue Visions had good prospects of being retained by Woolworths (or its relevant subsidiary) to project manage the roll out of Masters stores throughout Australia. This reflected the representations pleaded at pars 53-55, 56(g)-(i) and 57-61 of the 2FASC.
The third category of representations was to the effect that Blue Visions had been retained by Woolworths to do the work. This reflected the representations pleaded at pars 61-67 of the 2FASC.
[61]
Negligence claim: ground 2
The issue raised by ground 2 does not arise in view of the conclusion on ground 1. While it is generally desirable to deal with non-dispositive issues: Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12], it is appropriate not to do so in the present case.
First, the primary judge did not finally determine the alternative cause of action in tort (there being no finding of negligence). Second, this issue is of much lesser importance given the absence of any appeal ground challenging the finding of breach of s 181(1) of the Corporations Act being the alternative cause of action to the deceit claim and the lack of merit in the oral submission by Blue Visions, which I have rejected, that His Honour found a different breach of s 181(1) to that pleaded by Blue Visions.
[62]
(2) Damages
In support of its claim for damages Blue Visions relied on evidence given by Mr Khreich and a report from an accountant, Mr Wynand Mullins. Mr Khreich gave evidence which included a spreadsheet listing the staff kept on for the Masters project (and the other fictitious mining projects described as the Nicholson's Gold Mine and Roy Hill projects), who he referred to as the "unrequired group" and the staff not kept on specifically for those projects, whom he referred to as the "required group", before calculating the average billable and non-billable hours generated by both groups between January 2012 and September 2014.
Mr Mullins performed calculations based on those assumptions, including calculating the cost of employing the unrequired staff during the period for which Mr Khreich said they were not required, with allowances made for the cost of terminating employees who were required for some portion of their employment and would therefore have been hired regardless of the representations.
[63]
The primary judge's reasons
The primary judge rejected the contention by Mr Gunasegaram that Blue Visions only needed to retain at most eight additional staff to work on the Masters project, since that is all that was required in the first month. His Honour also rejected the suggestion that those staff only needed to be employed shortly before the work started on the project with the result that Blue Visions' damages claim should be limited to the cost of employing eight additional staff for a limited period of time: at [201].
His Honour identified the relevant question as being how many additional staff were employed and how many were retained and over what period of time as a consequence of the representations made by Mr Gunasegaram and what other adjustments should be made to the damages claim to take account of the points made by Mr Gunasegaram. His Honour continued at [201]:
However, from at least April 2012, Mr Gunasegaram made statements to Mr Khreich to the effect that there was a real prospect that Blue Visions would get the Masters project based on his relationship with people at Woolworths. Those statements were false and they undoubtedly led Mr Khreich to accept statements from Mr Gunasegaram concerning staffing requirements for the project that he would not have accepted if he knew that Mr Gunasegaram had no connection with Woolworths and no reason to believe that Woolworths was looking for a consultant to project manage the roll-out of Masters stores. As I have said, the representations continued over an extended period of time and, as a result of those representations, Mr Khreich permitted the staffing levels to remain as high as they were in the expectation that the staff were necessary to prepare for the Woolworths project and to work on the project once it started.
After noting that the assessment of damages involved a degree of estimation and approximation because it depended on a hypothetical scenario, namely what Blue Visions would have done if Mr Gunasegaram had not made the representations in relation to the Masters project that he did, his Honour accepted that the approach taken by Blue Visions to calculate damages provided a reasonable starting point: at [202].
His Honour found that Mr Khreich was an honest and reasonable witness, and accepted Mr Khreich's assessment of which staff were required and which were not for Blue Visions to be able to do the work it had, including the expected work in relation to the Masters project: at [202]. However, he also found that some adjustment needed to be made to Mr Khreich's assessment to take account of the fact that the additional staff were engaged or retained, not just in anticipation of the Masters project, but in anticipation of obtaining other work, including the Nicholson's Gold Mine and Roy Hill projects: at [202].
[64]
Mr Gunasegaram's submissions
Mr Gunasegaram contends that his Honour erred in including in the award of damages (a) the salary and other benefits paid to Mr Gunasegaram himself either at all, or prior to February 2013, or without allowance for billable and non-billable work which was of direct benefit to Blue Visions (ground 3), and (b) the salary or other benefits paid to any person at any time prior to June 2013, or alternatively February 2013 (ground 5).
Mr Gunasegaram also contends that the 30 percent discount in the award of damages is inappropriate and that a reduction of at least 85 percent should have been made (ground 6). Finally, Mr Gunasegaram contends that the quantum of damages awarded was manifestly excessive (ground 7).
It is convenient first to deal with ground 5, concerning the appropriate date for commencing the damages calculation.
[65]
Commencement date of damages calculation: ground 5
As indicated, his Honour found that the appropriate period for calculating damages was 1 July 2012 to 31 March 2014. Mr Gunasegaram contended that the appropriate starting date was either June 2013, or alternatively February 2013. According to the submission, given that the primary judge had recast Blue Visions' representations case, the damages case should have been confined to the period after which those "new" representations were conveyed to Blue Visions and relied upon. Mr Gunasegaram contended that the second representation (that Blue Visions had good prospects of being retained by Woolworths) was made no earlier than February 2013, and that the third representation (that Blue Visions had been retained) was made no earlier than June 2013.
The essential difficulty with ground 5 is that it proceeds upon an incorrect premise. For the reasons given above in relation to ground 1, the primary judge did not reformulate the representations relied upon by Blue Visions.
The detailed factual findings of the primary judge (which have been extracted at [280] above), amply support his Honour's finding at [201] that from at least April 2012, Mr Gunasegaram made statements to Mr Khreich to the effect that there was a real prospect that Blue Visions would get the Masters project based on his relationship with people at Woolworths: at [201]. That finding is not challenged. The primary judge further found that Mr Gunasegaram included references to substantial income from the Masters project in draft financial plans for Blue Visions, which he provided to Mr Khreich in April 2012 and June 2012: at [93]. Those plans showed "Masters" as a pending project. That the income recorded in those financial plans was forecast, rather than certain, does not diminish the falsity of the representations made by Mr Gunasegaram.
Mr Gunasegaram submitted that the updated financial plan, which was sent to Mr Khreich on 13 June 2012 did not contain a quantification of the prospects of success of the Masters project as "strong" or otherwise. That may be accepted, but as the primary judge found, the document showed Masters as a "pending" project and forecast to earn over $40,000 per month in November 2012 and increasing to over $83,000 per month from February 2013: at [93].
The updated financial plan is not to be viewed in isolation. Mr Khreich gave evidence that Mr Gunasegaram told him in June 2012 that he had spoken with Mr Peter Horton of Woolworths who had said that Woolworths would be agreeable to a cash flow neutral agreement (for the Masters project). That meant that Blue Visions would be able to invoice Woolworths at the beginning of a month and be paid in advance, enabling Blue Visions to pay the salaries of the additional staff without having to fund that cost itself. In my view, there was no error by the primary judge in finding that by mid-2012, Mr Gunasegaram had made representations to the effect of the first two representations summarised at [194] of his Honour's reasons.
[66]
Mr Gunasegaram's wages as damages: ground 3
Mr Gunasegaram submitted that his Honour erred by including Mr Gunasegaram's wages in the assessment of loss. In support of this contention, Mr Gunasegaram submitted that as a matter of principle in an action between an employer and employee, the employer cannot recover as damages the wages paid to the employee during the period of employment.
According to the so-called general rule, whether damages are assessed for breach of contract or in tort, the assessment of damages involves the employer being liable to pay the employee his or her wages. With respect to claims for damages for work diverted by an employee to his or her own company or new employer, Mr Gunasegaram submitted that the award of damages is the net profit the employer would have made had the work been retained by it, and one of the elements which must be netted off is the cost of retaining the employee to perform the work. Reference was made to Colour Control Centre Pty Ltd v Ty [1995] NSWSC 96 at [38] (Santow J). It was submitted that the employer recovers the difference between a complying performance and a non-complying one, not the difference between employing or not employing the person at all.
Alternatively to the submission based on the so-called general rule, Mr Gunasegaram submitted that damages are awarded in this case to put Blue Visions in the position it would have been had Mr Gunasegaram been dismissed or made redundant on 1 July 2012. However, since the representation case necessarily assumed that Mr Gunasegaram was employed and continued to be employed throughout the period of the misleading conduct, it was inconsistent with that assumption to treat Blue Visions as if it had not employed him at those times or at all.
In my view, the analogy which Mr Gunasegaram seeks to draw with the employment cases is inapt because the assumption underlying those submissions, that he would have been employed and continued to be employed throughout the period of his impugned conduct, is flawed.
Blue Visions' damages case is based on the finding by the primary judge that, but for the misrepresentations made by Mr Gunasegaram, Blue Visions would have reduced its staffing levels to a level commensurate with the work then available, plus a margin for excess capacity to pick up new work. The finding that fewer staff would have been required by Blue Visions is not challenged. That finding included that Mr Gunasegaram, among others, would not have been employed and the work he did would have been done by other employees: at [218].
[67]
30 percent discount: ground 6
The primary judge found that while the majority of the staff who fell within the unrequired category were retained by Blue Visions because of the representations in relation to the Masters project, it was appropriate to discount Blue Visions damages claim by 30 percent to take account of the fact that additional staff were engaged or retained by Blue Visions for other projects which did not eventuate: at [218].
Mr Gunasegaram contended that the 30 percent reduction applied by the primary judge to the damages calculation was inadequate and should have been at least 85 percent. Blue Visions sought to uphold the 30 percent discount arguing that it was an evaluative judgment open to the primary judge and no error has been shown.
It is common ground that the 30 percent discount was applied across the board to all of the not required staff that fell within the damages calculations performed by Mr Mullins, irrespective of whether those staff had any involvement in other projects that also did not eventuate, such as the Nicholson's Gold Mine project and the Roy Hill project. To that extent, the allowance by his Honour for the not required staff doing other work was somewhat generous to Mr Gunasegaram.
Nevertheless, Mr Gunasegaram pointed to five matters which he submitted justified a larger discount. First, that the whole "not required" group of employees had not been retained for the Masters project (or Masters plus the mining projects) for the whole loss period. Second, that Blue Visions' policy was to keep some additional staff employed to provide capacity to start new projects quickly. Third, that Blue Visions acknowledged that it required staff for many other non-billable tasks besides covering for annual leave, such as tender writing. Fourth, that all of the "not required" staff did some work for projects for which Blue Visions charged and (presumably) received payments. Fifth, that the 12.5 percent deduction for leave addressed only annual leave and there was evidence that Blue Visions frequently asked employees to take additional unpaid leave when things were quiet and that the employees often agreed.
Blue Visions responded that the first four matters relied upon by Mr Gunasegaram are directed to the counter-factual analysis undertaken by his Honour but did not directly challenge that analysis or his Honour's reasons for accepting that analysis and were made without reference to the evidence or his Honour's findings.
[68]
Manifest excess: ground 7
If ground 6 fails, Mr Gunasegaram contends in ground 7 that the same factors identified as justifying an increase in the 30 percent discount, justified setting aside the award of damages entirely as being manifestly excessive.
Blue Visions responded that the damages awarded by the primary judge cannot properly be characterised as "excessive", much less so "manifestly excessive". Blue Visions also contended that Mr Gunasegaram's submissions in support of this ground did not identify error by the primary judge.
Since no oral submissions were advanced by Mr Gunasegaram in support of ground 7, it may be taken not to have been pressed. If I am wrong in this regard, then the manifestly excessive ground fails for want of identification of any error by the primary judge beyond the submissions in support of ground 6, which, for the reasons given above, have not been made out.
[69]
Conclusions and Orders
Blue Visions' appeal has failed. There is no reason why costs should not follow the event: Uniform Civil Procedure Rules 2005 (NSW), r 42.1.
Mr Gunasegaram's appeal has also failed. Again, there is no reason why costs should not follow the event.
Blue Visions also sought consequential relief in relation to certain interlocutory orders made by Leeming JA on 24 July 2017 pending the determination of the appeal: Gunasegaram v Blue Visions Management Pty Ltd [2017] NSWCA 187. Relevantly, Blue Visions submitted that the stay of the enforcement of the judgment in par 7 and the orders in pars 8, 9 and 13 of the orders made on 10 May 2017 should be discharged, and that the money ($400,000) paid into court by Mr Gunasegaram by way of security for the judgment debt in favour of Blue Visions be paid out to Blue Visions. Mr Gunasegaram did not make any submissions to the contrary, if the appeal was unsuccessful. Those orders should be made.
Accordingly, I propose the following orders:
[70]
CA 2017/168664 (Mr Gunasegaram's appeal)
1. Appeal dismissed.
2. Appellant to pay the respondent's costs.
3. Discharge orders (1) and (2) made by Leeming JA on 24 July 2017, staying the enforcement of the judgment in par 7 and the orders in pars 8, 9 and 13 of the Orders made on 10 May 2017 in proceedings 2014/192899.
4. Order that the amount of $400,000 paid into court by Mr Gunasegaram pursuant to order (3) made by Leeming JA on 24 July 2017 be paid out to Blue Visions Management Pty Ltd.
5. Grant liberty to apply, if necessary, to a single Judge of Appeal on 3 days' notice in respect of the implementation of order (4) above.
[71]
CA 2017/168769 (Blue Visions' appeal)
1. Appeal dismissed.
2. Appellant to pay the respondents' costs.
[72]
Endnotes
See Blue Visions Management Pty Ltd v Chidiac [2017] NSWSC 255 ("Blue Visions Management").
Blue Visions Management at [72].
Blue Visions Management at [53].
Blue Visions Management at [64].
Blue Visions Management at [65].
Blue Visions Management at [7].
Blue Visions Management at [7].
Blue Visions Management at [156].
Cf Manildra Laboratories v Campbell [2009] NSWSC 987 at [131]-[133] (McDougall J); SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079 at [38] (Wigney J); Krupace Holdings Pty Limited v China Hotel Investments Pty Limited [2018] NSWSC 862 at [97] (Rein J).
Chew v The Queen (1992) 173 CLR 626 at 632-633 (Mason CJ, Brennan, Gaudron and McHugh JJ); [1992] HCA 18.
(1986) 43 SASR 410 at 420.
(1995) 183 CLR 501 at 514 (Brennan, Deane, Toohey and Gaudron JJ); [1995] HCA 1.
(2005) 226 CLR 507; [2005] HCA 23 at [55]-[64].
Angas Law Services at [65].
Cf Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 2 at [36] (Tamberlin, Finn and Sundberg JJ).
[1916] 1 AC 554 (Privy Council).
Cook v Deeks at 559.
[1967] 2 AC 46.
Boardman at 106-107.
(1726) 25 ER 223; (1726) Sel Cas t King 61.
J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (5th ed, Lexis Nexis Butterworths, 2015) at [5-055].
Chan v Zacharia (1984) 154 CLR 178 at 181 (Gibbs CJ), 200-202 (Deane J); [1984] HCA 36.
Chan at 186.
(1854) 1 Macq 461 at 471.
Chan at 198-199.
Chan at 200.
First and Third respondents summary of argument, 7 November 2017, par 44.
See Warman International Ltd v Dwyer (1995) 182 CLR 544 at 556 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ); [1995] HCA 18.
Blue Visions Management at [162]-[166].
First and third respondents' summary of argument, par 75.
Cf Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [21] (Finn, Stone and Perram JJ).
[73]
Amendments
15 August 2018 - Typographical errors amended in the following pars: [1]; [26]; [29]; [43]; [180]; [255]; Catchwords.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 15 August 2018
Mr Chidiac did not pursue any particular interest which could give rise to a real or sensible possibility of a conflict. His functions and responsibilities did not extend to considering whether all or part of the contract should be surrendered, or its benefit made available to him: at [72], [74] (Meagher JA); [222]-[224] (Gleeson JA);
Mr Hamilton's question posed on or about 25 March 2014 did not carry an opportunity capable of being pursued by Mr Chidiac. His truthful response did not advance the matter. Further, the benefit ultimately received depended on the concurrence of Blue Visions, which Mr Chidiac did not procure, or attempt to procure: at [70]-[71] (Meagher JA);
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8; Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; Cook v Deeks [1916] AC 555; Keech v Sandford (1726) Sel Cas 61; 25 ER 223, considered.
Mr Chidiac did not solicit work from, or make any commitment to, Mr Hamilton. Mr Chidiac left him to speak to Mr Khreich about the possibility that he would continue to work on the project. His answer reflected the commercial context that there were no post-employment restraints. He did not cause Aspire to enter into the novation until Blue Visions had agreed to it: at [194]-[196], [201]-[202] (Gleeson JA);
Cook v Deeks; Industrial Development Consultants Ltd v Cooley; Ex parte James (1874) 9 Ch App 609; Keech v Sandford; Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18; Weldon & Co Services Pty Ltd v Harbinson [2000] NSWSC 272, considered.
Mr Chidiac did not breach Corporations Act, s 182(1). He did not misuse his position as an employee in responding to Mr Hamilton's enquiry or in causing Aspire to enter into the novation: at [216]-[219], [228]-[231] (Gleeson JA), [80] (Meagher JA).
Basten JA held, in dissent:
Mr Chidiac was in breach of his fiduciary duty and Corporations Act, s 182. He obtained the benefit of the very contract under which he had established the relationship with the third party, whilst a senior manager for his employer. Mr Chidiac's conduct in making himself available to continue working on the project, though not as an employee of Blue Visions, resulted in Blue Visions losing that part of the contract which he was obliged to execute: at [27], [43] (Basten JA).
Cook v Deeks; Industrial Development Consultants Ltd v Cooley; Keech v Sandford, considered.
Gleeson JA (Basten and Meagher JJA agreeing) dismissed Blue Visions' appeal against Mr Gunasegaram:
Whilst advising Mr Parkhouse against proposing himself as a replacement for Mr Chidiac was a breach of fiduciary duty, there was no evidence that it had any effect on Mr Khreich's actions. His act of obtaining advice concerning a corporate structure which may be used after his notice period expired did not amount to a breach of fiduciary duty: at [243], [245]-[247] (Gleeson JA).
Gleeson JA (Basten and Meagher JJA agreeing) dismissed Mr Gunasegaram's appeal:
The primary judge did not find Mr Gunasegaram liable in respect of misrepresentations that were not pleaded or raised at trial. Mr Gunasegaram was not denied natural justice; he was on notice in the pleading of the particular allegations of deceit and acts of reliance which he had to meet: at [298] (Gleeson JA).
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, applied.
The primary judge did not err in his assessment of damages: at [316]-[351] (Gleeson JA).
After setting out the full content of the email, and expressing some doubts as to aspects of its contents, the trial judge found:
"The likelihood is that Mr Hamilton formulated the three options after speaking to Mr Chidiac and put those three options to Mr Gunasegaram, as the most senior executive in Perth, only to be told that Mr Gunasegaram had resigned. It was then that Mr Hamilton said that he wanted to speak to Mr Khreich."
The trial judge continued:
"[66] Mr Hamilton and Mr Khreich spoke on 31 March 2014. They give somewhat different accounts of the conversation. However, both agree that Mr Hamilton made it clear that he wanted Mr Chidiac to continue to work on the project and that he thought that Mr Chidiac's departure would cause significant problems for the project. Both agree that Mr Hamilton put forward a proposal in which the strategic planning aspect of the contract would be novated to a company associated with Mr Chidiac. … Both agree that Mr Khreich said 'If you can get [Mr Chidiac] to agree I will do it'. … At the time, [Mr Khreich] says that he did not believe that Mr Chidiac would accept what was proposed and he said so to Mr Hamilton. Mr Khreich accepts that he did not put forward any alternatives."
On 3 April 2014 Mr Chidiac and Mr Gunasegaram incorporated Aspire. [6] Aspire was identified by the trial judge as "the entity through which Mr Chidiac and Mr Gunasegaram provide their services to clients." [7]
On 8 April 2014 there was a partial novation of Blue Visions' contract in favour of Aspire. In the result Aspire agreed to provide Mr Chidiac to continue the services he had performed for Blue Visions. When the contract came up for renewal, in May 2015, both Blue Visions and Aspire tendered for a new contract. The incumbent service provider, Aspire, was successful.
The legislative history of s 182 was considered by Gummow and Hayne JJ in Angas Law Services Pty Ltd (In liq) v Carabelas, [13] leading to acceptance of the passage from Byrnes set out above. [14]
Subject to a notice of contention, there was no dispute that Mr Chidiac owed fiduciary obligations to Blue Visions, nor as to the facts set out above. Accordingly, Mr Chidiac was under an obligation not to prefer his interests to those of Blue Visions. That included an obligation not to profit from his relationship with Blue Visions' contractor. The duties of a fiduciary require that, within the scope of the fiduciary relationship, the fiduciary is required to act solely in the interests of the person to whom the duty is owed and not to obtain a profit or advantage from the relationship. Although there are circumstances in which it will be helpful to distinguish between the proscription on a fiduciary placing himself or herself in a position where his or her own interests will conflict with the duties owed to the other party to the relationship (the no conflict principle) and the situation where the fiduciary obtains a benefit or advantage from the exercise of powers or functions arising within the scope of the relationship (the no profit principle), the present case does not fit squarely within one principle or the other. Further, s 182(1) of the Corporations Act is not based on such a distinction.
No doubt the engagement of s 182(1)(a) will depend in part on the scope of the general law principles of fiduciary obligations. Thus, it seems unlikely that conduct of a company officer in breach of his or her fiduciary obligations to the company would not constitute improper use of his or her position for the purposes of s 182(1). [15] On the other hand, s 182(1) potentially extends to employees who may not be fiduciaries. The challenge to the finding of the trial judge that Mr Chidiac owed fiduciary obligations to Blue Visions is thus of limited significance; if indeed Mr Chidiac was not a fiduciary, there was no submission that conduct which would have been a breach of duty had he been a fiduciary would not involve an improper use of his position contrary to s 182(1).
With respect to claims involving the conduct of senior employees, it will often be important to identify the scope of the fiduciary relationship. That may well involve functional and temporal elements.
The functions which were the subject of the relationship are simply stated. Blue Visions had a contractual relationship with the entity responsible for constructing the Perth hospital. Mr Chidiac's role was to supervise an important aspect of the construction. His duty of loyalty to Blue Visions did not concern any putative obligation not to compete in relation to other contracts or other clients, but only to execute Blue Visions' obligations under the contract then on foot. Had he attempted, during the course of his employment with Blue Visions, to divert the benefit of the contract to an entity in which he had a personal interest, there would have been a clear breach of an obligation of loyalty and the obtaining of an improper advantage for himself.
On one view, that is precisely what he did; on another view, the only step he took in the course of his employment was to resign, in circumstances where the resignation was not intended to be the vehicle for diverting the benefit of the contract to himself.
The latter approach engages the temporal element of the relationship. Thus, Mr Chidiac was under no contractual obligation to remain with Blue Visions until the Perth hospital contract was completed; with appropriate notice, he was entitled to resign at any stage. Once he had resigned, he was not under any obligation not to compete with Blue Visions in relation to other work. On the other hand, he entered into the arrangement involving a novation of Blue Visions' contract to his company, Aspire, whilst he remained an employee of Blue Visions, albeit pending his resignation of which he had given notice. The relevant questions are whether that conduct breached his fiduciary duty to Blue Visions, or contravened s 182(1)(a) of the Corporations Act.
There were similarities between the circumstances in this case and those of the defendants in Cook v Deeks. [16] The plaintiff Cook was a shareholder in the Toronto Construction Company, of which the respondents were directors. As directors, the respondents had established a favourable relationship with the Canadian Pacific Railway ("CPR"), for which the Toronto Construction Company had undertaken a number of projects. There was a falling out between the plaintiff and the respondents, as a result of which the respondents tendered for a further construction contract with the CPR, but expressly not in the name of the Toronto Construction Company. Having obtained confirmation of their successful tender, they informed the plaintiff of the outcome, but ignored his protests, instead setting up the Dominion Construction Company to which the contract was duly assigned. The Privy Council was satisfied that the Dominion Construction Company and the directors could not obtain the benefit of the contract for themselves, but ought to have dealt with it as an asset of the Toronto Construction Company. They were required to account to the Toronto Construction Company for the profits made out of the transaction.
In explaining the Privy Council's reasons, Lord Buckmaster LC stated: [17]
"The management of [the respondents] of the affairs of the construction company was eminently satisfactory; but so far as railway construction was concerned the whole of their reputation for the efficient conduct of their business had been gained by them while acting as directors of the Toronto Construction Company. … There was nothing to compel them to work with or for the plaintiff, and it is impossible to see that they were bound to continue their relationship with him by any legal or moral consideration. They were, however, involved with him in different reciprocal duties, by reason of their relationship in connection with the Toronto Construction Company, and if they desired freedom to act, without regard to the restrictions that those relationships imposed, it was necessary that they should terminate their position as directors and shareholders in the company and place it in dissolution. … While still retaining their positions as directors, while still actually acting as managers of the company, and with their duties to the company of which the plaintiff was a shareholder entirely unchanged, they proceeded to negotiate [the new contract], in reality on their own behalf, but in exactly the same manner as they had always acted for the company, and doubtless with their claims enforced by the expeditious manner in which they, while acting for the company, had caused the last contract to be carried through."
There were two significant points of distinction between the position of Mr Chidiac and that of the two Mr Deeks. The first point of distinction is not favourable to Mr Chidiac. Mr Chidiac did not obtain a contract for a new project by exploiting his relationship with the contractor, based on work done with the party to which he owed a fiduciary obligation; rather, he obtained the benefit of the very contract under which he had established the relationship with the third party contractor, whilst a senior manager for his employer. By doing so, he deprived his employer of the benefit of an extant contract, whilst in the course of his employment.
On the other hand, it can be said that what led to Blue Visions' loss of the contract was not the negotiation of a novated contract with Mr Chidiac, but Mr Chidiac's resignation, which was not a breach of any contractual or fiduciary obligation owed by Mr Chidiac to Blue Visions. Further, Mr Chidiac had not initiated the negotiation of the novated agreement on behalf of himself or Aspire. Rather, the offer came from Mr Hamilton. Nevertheless, by advising Mr Hamilton of his resignation, Mr Chidiac triggered Mr Hamilton's offer, which he in turn accepted, whilst still working for Blue Visions.
The use of an advantage gained as a fiduciary may lead to an obligation to account for the profits thus acquired, even though there is no loss to the beneficiary of the relationship, and even potentially a gain. So much is established by Boardman v Phipps. [18] Two persons standing in a fiduciary relationship to the beneficiaries of a distributed trust had used their own funds to make an investment in a company (Lester & Harris Ltd ) partly owned by the trust, so as to take control of the company and achieve a significant profit, which both they and the beneficiaries shared. The House of Lords held that they had to account to the beneficiaries for the profit made from their own investments. As explained by Lord Hodson, [19] Mr Boardman, the solicitor appointed by the trustees, had obtained "knowledge of a most extensive and valuable character …, which was the foundation upon which a decision could [be] and was taken to buy the shares in Lester & Harris Ltd". Lord Hodson continued:
"This information was obtained on behalf of the trustees, most of it at a time during the history of the negotiations when the proposition was to divide the assets of the company between two groups of shareholders. This object could not have been effected without a reconstruction of the company and Mr Boardman used the strong minority share holding which the trustees held …, wielding this holding as a weapon to enable him to obtain the information of which he subsequently made use.
… I agree with the learned judge and with the Court of Appeal that the confidential information acquired in this case which was capable of being and was turned to account can be properly regarded as the property of the trust. It was obtained by Mr Boardman by reason of the opportunity which he was given as solicitor acting for the trustees in the negotiations with the chairman of the company …. The end result was that out of the special position in which they were standing in the course of the negotiations the appellants got the opportunity to make a profit and the knowledge that it was there to be made."
The present case differed in that Mr Chidiac did not exploit confidential information which was the property of a trust.
Shortly stated, the respondents' contention in the present case is that once Mr Chidiac gave notice of his resignation (which he was legally entitled to do) Blue Visions, as Mr Khreich realised, was in danger of losing its contract for the hospital project. At least that was so unless Mr Chidiac could be persuaded to stay with Blue Visions (he refused even a two week extension of the notice period) or a replacement could be found (Mr Khreich in effect accepted he had no alternative key person to carry out the contract). In those circumstances, the respondents submitted, there could be no breach of any fiduciary duties owed by Mr Chidiac to Blue Visions.
Acceptance of that contention would be inconsistent with the principle stated in Keech v Sandford. [20] As concisely explained in Meagher, Gummow and Lehane's Equity: Doctrines and Remedies: [21]
"The great case of Keech v Sandford involved a lease held on trust. Upon the expiration of the lease, the trustee sought a renewal of it for the benefit of the beneficiary. The lessor refused. The trustee then sought and obtained a renewal of the lease for his own benefit. Lord King LC held that the trustee, notwithstanding that the lessor had refused to renew for the benefit of the beneficiary, held the new lease upon the same trust as the old:
'Though I do not say there is a fraud in this case, yet he should rather have let it run out than to have the lease to himself. This may seem hard, that the trustee is the only person of all mankind who might not have the lease; but it is very proper that the rule should be strictly pursued, and not in the least relaxed; for it is very obvious what would be the consequence of letting trustee have the lease on refusal to renew to cestui que use.'
If trustees might, on refusal to renew for the benefit of their beneficiaries, apply to have new leases themselves, their interest in obtaining leases for themselves would be in conflict with their duty to do their best to obtain a renewal for the trust. The trustee was therefore under a duty which is now (though not in the time of Lord King LC) described as fiduciary, not to seek a lease for himself, whether he could obtain one for the trust or not. And the trustee, having obtained a lease in breach of that duty, was deemed to hold it on constructive trust for the beneficiaries."
Keech v Sandford involved a trustee, whose position cannot necessarily be equated with that of other classes of fiduciary. [22] Nevertheless, in Chan v Zacharia, a case dealing with the renewal of a lease of partnership premises held by two medical practitioners, Brennan J stated: [23]
"A new lease of the Mansfield Park premises could be obtained only if the partnership's option of renewal were not exercised. Though Dr Chan was not bound to join in the exercise of that option, he could not take advantage of his refusal to secure the benefit of a renewal of the lease for the partnership in order to secure the benefit of a new lease for himself. There was a misuse of his position as a former partner to obtain a personal benefit and that, as Deane J points out, was a breach of his fiduciary duty."
Deane J in Chan stated:
"The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement 'in which he has, or can have, a personal interest conflicting … with the interests of those whom he is bound to protect' (per Lord Cranworth LC, Aberdeen Railway Co v Blaikie Brothers [24] ) or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed."
Thus, Mr Chidiac, (a) owed a duty of loyalty to Blue Visions to execute its contractual obligations, through his position as a senior employee, and (b) could not accept a contract to stand in the shoes of his employer without being liable to account to his employer for the benefits under the newly acquired contract.
Importantly, this position avoids any nice question as to whether the fiduciary in fact sought to obtain a benefit at the expense of his employer or merely accepted the benefit; the requirement to avoid conflicts of self-interest and the duty to one's principal involves a deliberate deterrent. As explained by Deane J in Chan v Zacharia: [25]
"There is a wide variety of formulations, of the general principle of equity requiring a person in a fiduciary relationship to account for personal benefit or gain. …
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."
One point of distinction from the present case is that Mr Chidiac had already tendered his resignation when offered the position personally; however, he also declined to delay his resignation to allow Mr Khreich time to find an alternative supervisor.
Deane J applied the themes so identified to a number of cases, including Keech v Sandford. He noted that Keech involved renewal of trust property by a trustee, which is not the present case, but continued: [26]
"The rule has been extended, either in its strict or in a modified form, to persons under obligations arising from certain other fiduciary relationships (eg, executor or agent) and to certain other relationships which are not fiduciary but are said to be special …."
Deane J also stated that "[t]he principle is not … completely unqualified"; however, the examples of qualification are not readily applied in the present case. In particular, the defence of fully informed consent was not available, for the reasons noted above.
The respondents' case addressed the matter by isolating the specific elements of Mr Chidiac's conduct and concluding that none involved a breach of his fiduciary duty. The submissions then asserted that "[i]f none of the steps individually involve[s] a breach of fiduciary obligation, then collectively they will not do so." [27]
In principle, there is no reason why a course of conduct may not give rise to a breach of duty, although individual steps taken in isolation were not themselves breaches. The separate elements identified by the respondents were as follows:
1. after telling Mr Hamilton that he had given notice of his resignation, answering Mr Hamilton's question by indicating that he was interested in continuing to work on the project;
2. not telling Mr Khreich about his conversation with Mr Hamilton;
3. telling Mr Khreich that he was unable to extend the period of his notice due to other commitments;
4. setting up Aspire, and
5. signing the novation agreement whilst employed by Blue Visions.
Two points which appear to be implicit in the appellant's case may readily be rejected. First, there was no breach of duty on the part of Mr Chidiac in setting up a corporate vehicle through which he could undertake work after his resignation from Blue Visions. Whatever work he had in mind at that stage, his preparation for his resignation was a neutral activity. That activity could only have involved a breach of duty if the sole (or perhaps, primary) purpose for setting up the new vehicle was to take over Blue Visions' contract; the evidence did not establish that purpose.
Secondly, there was no necessary breach involved in telling Mr Khreich that he did not wish to continue working in Perth, whilst contemporaneously telling Mr Hamilton that he would be happy to keep working on the project in Perth. Even assuming that his statement to Mr Khreich was less than the whole truth, he was under no obligation to give a truthful reason for his resignation. Nor was he under any obligation to extend the period of his notice, nor to give a truthful explanation for his refusal to do so.
However, the appropriate inferences from the events, taken in combination, do not end there. The critical conduct to be assessed involved the following elements, namely that:
1. Blue Visions' contract had two years to run at the date of Mr Chidiac's resignation;
2. Mr Hamilton wanted Mr Chidiac to continue to work on the project;
3. Mr Khreich had no person available with equivalent qualifications and experience to compete with Mr Chidiac in the eyes of Mr Hamilton, so that Blue Visions had no way of retaining that part of its contract for the execution of which Mr Chidiac was responsible.
The counterfactual situation involved Mr Chidiac not making himself available to Mr Hamilton to continue working on the project. What Mr Hamilton would have done in that situation is not known, but he had no apparent basis for terminating part or all of Blue Visions' contract. It follows that it was Mr Chidiac's willingness to continue to work on the project, though not for Blue Visions, which had the practical effect of forcing Mr Khreich to relinquish part of the contract in order to retain the balance.
Viewed in the totality of the circumstances at the relevant time, it was Mr Chidiac's conduct in making himself available to continue working on the project, though not as an employee of Blue Visions which resulted in Blue Visions losing that part of the contract which it was Mr Chidiac's obligation to execute. The circumstances in which Mr Khreich agreed to novate Blue Visions' contract resulted in reluctant acceptance of what he saw as inevitable. Although Mr Chidiac was under no contractual obligation not to compete with Blue Visions after the termination of his employment, he put in train the events leading to the novation in the course of his employment. [28] In my view those circumstances involved a breach of the fiduciary duty owed by him to Blue Visions. There is no reason why equity should hold its hand in such circumstances and withhold the protection of a constructive trust.
If the foregoing analysis involves an extension of general law principles, it is nevertheless relevant to the question of improper use of position under s 182(1) of the Corporations Act. That requires that the court place itself in the shoes of the reasonable person with knowledge of the duties, powers and authority of Mr Chidiac, and the circumstances of the case, and ask whether his conduct was a breach of the standards that would be expected of such a person.
Mr Chidiac could properly refuse to continue to work for Blue Visions, but he could not properly continue to execute the contract for his own personal benefit. It is clear that his purpose in accepting Mr Hamilton's offer was to gain the identified advantage. In my view that conduct was an improper use of his position with Blue Visions and thus a contravention of s 182(1)(a).
Further, although it is significant that the new contract was entered into during the term of Mr Chidiac's employment with Blue Visions, the obligation not to benefit from the advantages he had acquired in the course of his employment would extend beyond the termination of the employment in circumstances where the novated contract was obtained in breach of duty. So much was accepted by the trial judge in assessing compensation.
MEAGHER JA: I have had the benefit of reading in draft the judgments of Basten JA and Gleeson JA. There are two appeals from a decision of the primary judge (Ball J) in the Equity Division of the Supreme Court: Blue Visions Management Pty Ltd v Chidiac [2017] NSWSC 255. The appeal brought by Mr Gunasegaram relates to his misrepresentations to Blue Visions. Like Basten JA, I agree for the reasons given by Gleeson JA that it should be dismissed with costs, and consequential orders made as proposed by Gleeson JA.
Blue Visions' appeal, on the other hand, agitates claims to equitable relief for alleged breaches of fiduciary duty by Mr Chidiac and Mr Gunasegaram in diverting business (specifically, the strategic programming part of Blue Visions' contract with Strategic Projects) to their company, Aspire, which was also said to be liable by reason of those breaches. The primary judge held that no breach of fiduciary duty was established against Mr Chidiac and that the only established breach by Mr Gunasegaram did not result in any loss to Blue Visions or gain to the fiduciaries or to Aspire. Ground 2 challenges the latter conclusion but, for the reasons given by Gleeson JA, is not made out. Ground 1 presses the allegations of breach of fiduciary duty by Mr Chidiac. Like Gleeson JA, I would dismiss this ground, for the reasons appearing below, which also consider Basten JA's conclusion otherwise.
Grounds 3 and 4, concerning the scope of relief, do not arise. Nevertheless, ground 4 is addressed, assuming a different outcome to ground 1, at the conclusion of these reasons.
As Deane J emphasised in Chan v Zacharia at 198, the principle of equity underlying the conflict rule is concerned:
… not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement "in which he has, or can have, a personal interest conflicting … with the interests of those whom he is bound to protect" (per Lord Cranworth L.C., Aberdeen Railway Co. v. Blaikie Brothers) or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed. (Footnote omitted)
But the rule is not unlimited in its operation. Lord Upjohn (dissenting on the facts but not on the law) observed in Phipps v Boardman [1967] 2 AC 46 at 127 that the analysis required to identify a breach of the conflict rule in particular circumstances includes the following:
2. Once it is established that there is such a [fiduciary] relationship, that relationship must be examined to see what duties are thereby imposed upon the agent, to see what is the scope and ambit of the duties charged upon him.
3. Having defined the scope of those duties one must see whether he has committed some breach thereof and by placing himself within the scope and ambit of those duties in a position where his duty and interest may possibly conflict. It is only at this stage that any question of accountability arises.
In this context, as the Full Court of the Federal Court (Finn, Stone and Perram JJ) explained in Grimaldi v Chameleon Mining NL (No. 2) (2012) 200 FCR 296 at [179]; [2012] FCAFC 6, in a passage cited by Gageler J in Howard v Commissioner of Taxation at [110]:
The concept of "duty" in the "conflict of duty and interest" formula of the first of these is convenient shorthand. It refers simply to the function, the responsibility, the fiduciary has assumed or undertaken to perform for, or on behalf of, his or her beneficiary. What that function or responsibility is, is a question of fact. It may be narrow and circumscribed, as is often the case with specific agencies; it may be broad and general, as is characteristically the case with the functions of company directors; its scope may have been antecedently defined or determined; it may have been ordained by past practice; it may be left to the fiduciary's discretion to determine; and it may evolve over time as is commonly the case with partnerships.
In Grimaldi at [181] the Court noted the overlap between the conflict and profit rules but continued:
Importantly, though, misuse of position has an area of independent operation - an area which does not require it to be shown that the fiduciary has assumed some responsibility to his or her beneficiary in relation to the matter in issue. Its concern, as Deane J indicated, is to preclude the misuse of the position the fiduciary has, or of knowledge or opportunity derived from it.
The significance for this appeal of Blue Visions' reliance only on a breach of the conflict rule is that it must establish that Mr Chidiac undertook faithfully to perform, for or on behalf of Blue Visions, some function or responsibility engaged in the circumstances in which he pursued a relevant opportunity with Strategic Projects.
The facts in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8 supply two examples of the application of these principles. Grey was an employee and director of DPC, a company engaged in property development, which was in turn controlled by a solicitor, Walton. Grey's duties involved advising the company on the availability and acquisition of properties. At the same time, Clowes, whose family owned company, Consul, was engaged in property development, was an articled clerk employed in Walton's law practice. Grey and Clowes agreed that Grey would make recommendations to Clowes as to properties for purchase and development by Consul, and that in return they would share equally any profits or losses from the projects undertaken by Consul. In the proceedings, DPC claimed that properties acquired in this way were held by Consul on trust for it. Gibbs J's analysis of Grey's breaches of the conflict rule was as follows (at 394-395):
… a person who though irregularly appointed assumes the position of director and on behalf of the company performs the tasks of finding, investigating and reporting upon properties suitable for purchase by the company owes a fiduciary duty to the company with which his private interests cannot be allowed to conflict. I consider, therefore, that it was a breach of the duty which was owed by Grey to D.P.C. to buy for himself properties suitable for purchase by that company and which the company might have wished to purchase.
His Honour also dealt with the alleged breaches by Clowes of the conflict rule with respect to DPC, and his solicitor employer, Walton (at 395):
Clowes owed no fiduciary duty to D.P.C. and any fiduciary duty which he may have owed to his employer Walton was not broken by his taking part in the purchase of the properties: his employment did not extend to finding properties for purchase and no conflict between his interest and his duty to Walton was involved if he acquired a property for himself.
That proposal did not come to him as a person bound or empowered to consider it on behalf, or in the interests, of Blue Visions. It was the outcome of negotiations and considerations on the part of Blue Visions directed to its best interests in the commercial circumstances then prevailing; and made for his consideration acting in his own interests. Mr Chidiac did not participate in Blue Visions' considerations and his functions and responsibilities did not extend to, or require, his doing so. Accordingly, there was no impropriety in his agreeing to the proposal made, and no breach of s 182(1).
On 30 June 2014, Blue Visions commenced proceedings against Mr Chidiac, Mr Gunasegaram and Aspire making various claims of breach of fiduciary duty, breach of analogous duties under the Corporations Act 2001 (Cth), as well as an accessorial liability claim against Aspire and claims of breach of the terms of their employment contracts arising from their conduct in establishing Aspire and entering into the partial novation of the hospital project. Blue Visions also made a separate claim for damages against Mr Gunasegaram for misrepresentations allegedly made by Mr Gunasegaram to Mr Khreich of Blue Visions concerning the prospects of Blue Visions obtaining work in respect of other projects. Mr Gunasegaram brought a cross-claim against Blue Visions in respect of unpaid leave entitlements.
The primary judge (Ball J) found that the claims against Mr Chidiac and Mr Gunasegaram of breach of fiduciary duty and analogous duties under the Corporations Act failed, as did the claims of breach of contract. It followed that the accessorial liability claim against Aspire also failed. The misrepresentation claim against Mr Gunasegaram succeeded, but only in respect of the prospects of Blue Visions obtaining project management work relating to the rollout of "Masters" hardware stores by Woolworths. Mr Gunasegaram succeeded on his cross-claim in respect of his leave entitlements in the sum of $31,596.48 plus GST: Blue Visions Management Pty Ltd v Chidiac [2017] NSWSC 255.
On 10 May 2017 Ball J made final orders including entering judgment for Mr Chidiac and Aspire against Blue Visions, judgment for Blue Visions against Mr Gunasegaram in the sum of $1,443,709.67 (inclusive of interest), and judgment for Mr Gunasegaram against Blue Visions (on the cross-claim) for $40,753.60 (inclusive of interest), and ordered that the judgment sums be set off against each other.
There are two appeals. Mr Gunasegaram appeals from that part of the primary judge's decision finding him liable for misrepresentations and the quantification of damages payable by him to Blue Visions. Blue Visions appeals from that part of the primary judge's decision dismissing its claims of breach of fiduciary duty and analogous Corporations Act duties against Mr Chidiac and Mr Gunasegaram and its claim of accessorial liability against Aspire. Blue Visions does not challenge the dismissal of its breach of contract claim against Mr Chidiac and Mr Gunasegaram.
Mr Chidiac and Aspire have filed a notice of contention seeking to uphold the primary judge's decision (dismissing the claim against them) on various grounds: see [140]-[143] below.
Shortly after their resignations, Mr Chidiac and Mr Gunasegaram sought advice from an accountant, Mr Stewart Rodrigues, about setting up a new business venture and its structure. In an email to both of them dated 26 March 2014, Mr Rodrigues recommended a unit trust with a corporate trustee, explaining "[t]his will give you the discretion that you want": at [63]. The primary judge found that Mr Chidiac could not give an explanation in cross-examination for why "discretion" concerning who owned the business was important: at [63].
The primary judge found that Mr Chidiac was the first person to tell Mr Hamilton that he had resigned. Although it was not clear precisely when that occurred, Mr Chidiac accepted in cross-examination that it was before he and Mr Gunasegaram sought advice from Mr Rodrigues on about 26 March 2014: at [64].
The primary judge accepted Mr Chidiac's evidence that during the course of his conversation with Mr Hamilton, Mr Hamilton asked him whether he was interested in continuing to assist with the hospital project and Mr Chidiac replied in effect that he was and Mr Hamilton said that "I will go and look into it": at [64]. His Honour found that Mr Hamilton wanted Mr Chidiac to continue to work on the project, that he regarded Mr Chidiac as an outstanding strategic programmer, and thought that he was more or less irreplaceable on the job: at [64]. Mr Chidiac gave evidence that he did not tell Mr Khreich about what Mr Hamilton had told him during their conversation because Mr Hamilton had said to "leave it with him".
The primary judge observed (at [65]) that it is unclear what happened next, but referred to an email sent by Mr Gunasegaram to Mr Khreich on 28 March 2014 which stated:
I received a call from a very irate John Hamilton today. He told me that he had met with Punit, who told him he was returning to the US. After telling me the critical stage that the project is at, he proceeded to ask me for a guarantee that Sam [Mr Chidiac], Rosalee, Mimoune and I are committed to Bluevisions until the end of the project. I had to answer him honestly as I have known John a while, and had to inform him of Sam and my resignations. After expressing some unhappiness about the situation, he proceeded to tell me that as I have resigned, he wants you to contact him directly and to discuss the three options he gives Bluevisions.
1. Immediately produce a strategic programmer equal to or better than Sam.
2. He immediately terminates Bluevisions engagement at NCH for breach.
3. Bluevisions agrees to novate the existing contract to remove strategic programming which he will give to another company and Bluevisions keeps the technical planning, design management and transition management roles.
Looking at the options, we know that Sam is definitely not easily replaced so item 1 would be difficult unless you have a friend who is just as good or better. Item 2 is not something the business needs at present. Item 3 would lose one role from the current engagement of 4 people.
Please remember to give him a call. He wants to speak with you as he feels that I am not in a position to make decisions such as this on behalf of the company due to my resignation.
Importantly, it was not suggested and there is no finding that Mr Chidiac saw this email.
The primary judge found that it was likely that Mr Hamilton formulated the three options (referred to in Mr Gunasegaram's 28 March 2014 email) after speaking to Mr Chidiac and put those three options to Mr Gunasegaram, as the most senior executive in Perth, only to be told that Mr Gunasegaram had resigned. It was then that Mr Hamilton said that he wanted to speak to Mr Khreich: at [65].
Mr Khreich sent an email to Mr Chidiac on 30 March 2014 urgently requesting "a few dot points" describing Mr Chidiac's role with respect to the hospital project, "as I have to call the client on Monday morning". Mr Chidiac replied by email that evening of 30 March 2014 providing a concise statement explaining his role with respect to the hospital project.
On 31 March 2014, Mr David Parkhouse (another Blue Visions' employee in Perth) sent Mr Khreich an email at 12:07pm (Sydney time) in which he said:
[Mr Gunasegaram] just called in and I managed to have a few words with him.
He strongly advises against putting me forward for the hospital role, believing that it is more of a technical position and requires more government & hospital experience. He suggested that BV [Blue Visions] would not benefit by putting me forward, indeed that this would be inadvisable.
His Honour found that this email was sent probably in anticipation of the conversation between Mr Khreich and Mr Hamilton, which took place on 31 March 2014: at [67]. The telephone records for Mr Khreich's mobile phone showed that he dialled Mr Hamilton's mobile number on 31 March 2014 at 12:15 pm.
While Mr Hamilton and Mr Khreich gave somewhat different accounts of their 31 March 2014 telephone conversation, his Honour found (at [66]) that both agreed that Mr Hamilton made it clear that he wanted Mr Chidiac to continue working on the hospital project and that he thought that Mr Chidiac's departure would cause significant problems for the project. Further, both agreed that Mr Hamilton put forward a proposal in which the strategic planning aspect of the contract would be novated to a company associated with Mr Chidiac. His Honour found that it was likely that Mr Hamilton said to Mr Khreich "unless you have any resources that I am not aware of, I can't see any other way forward" and that Mr Khreich replied, "If you can get [Mr Chidiac] to agree I will do it". There was a difference of view between Mr Hamilton and Mr Khreich as to whether the conversation was an amicable one. Mr Hamilton said it was. Mr Khreich said that the conversation was one in which he was being told what would happen, rather than one in which he was being asked.
Mr Khreich deposed in his reply affidavit that he was concerned that if he showed any resistance to the proposal, Mr Hamilton may follow through with his threat to terminate the contract.
Mr Khreich accepted in cross-examination that he never suggested to Mr Hamilton that the proposal he was offering was unfair. He also accepted that he did not put forward any alternatives to Mr Hamilton. Although Mr Khreich suggested in his affidavit in chief that Mr Parkhouse could have fulfilled the role of Mr Chidiac, he acknowledged in his reply affidavit that he did not suggest any alternative people to Mr Hamilton as he believed to do so would be futile. Mr Khreich also deposed that he formed the view that Mr Hamilton's mind was already made up, that Mr Chidiac could not be replaced, and there was no option for him to put forward alternative persons or provide alternative solutions. Mr Khreich viewed the option to novate as the lesser of "two bad options".
Mr Chidiac deposed that Mr Hamilton told him a day or so after 30 March 2014 that Mr Khreich had chosen the partial novation option, and that would mean that Mr Chidiac would continue working on the project. When cross-examined as to the timing of the instructions given to Mr Rodrigues to set up Aspire, Mr Chidiac denied that he went about setting up a new corporation with Mr Gunasegaram immediately upon his conversation with Mr Hamilton on about 26 March 2014. Mr Chidiac gave evidence that no structure was put in place to set up Aspire until after the agreement between Strategic Projects and Blue Visions to novate part of the contract. That may be taken to be a reference to what was agreed in the conversation between Mr Hamilton and Mr Khreich on 31 March 2014, which was relayed by Mr Hamilton to Mr Chidiac on either 31 March 2014 or the following day.
As mentioned, Aspire was registered on 3 April 2014. Also on that date, a draft novation agreement was sent by Strategic Projects to Mr Khreich. The name of the proposed novatee was left blank. A final agreement (substantially in the same terms) was sent by Strategic Projects to Mr Khreich on 8 April 2014 identifying Aspire as the proposed novatee. The covering letter said:
The Department of Treasury awarded a contract to BlueVisions Management Pty Ltd (ABN 93 095 779 972) 20 May 2010 for the provision of Programming Services for the Perth Children's Hospital Project. This contract includes provision of strategic programming services which have been undertaken by Mr Sam Chidiac to date.
On 31 March 2014 Blue Visions notified John Hamilton, Principal Project Director, that Mr Chidiac had resigned from Blue Visions effective 16 April 2014. Mr Chidiac's resignation has resulted in a gap in the service provision Blue Visions is able to deliver the Project.
Discussions have been had with John Hamilton, Adel Khreich and Sam Chidiac to resolve this issue. All parties have verbally agreed that partial novation of the abovementioned contract would be an appropriate solution. This would have the effect of partially novating the strategic programming services component of contract D10011 to Aspire Corporation Pty Ltd ATF End Point Unit Trust trading as End Point Consultants.
This partial novation shall be deemed accepted on the date all parties have signed and returned this letter to the undersigned. If you have any queries please contact Ms Valencia De Costa.
On 8 April 2014, Mr Chidiac signed an acceptance at the end of the letter on behalf of Aspire in the following terms:
Aspire Corporation Pty Ltd ATF End Point Unit Trust trading as End Point Consultants hereby agrees to provide strategic programming services to the Perth Children's Hospital in accordance with contract D10011 and all subsequent variations to date.
Mr Khreich signed an acceptance at the end of the letter on behalf of Blue Visions on 15 April 2014 in the following terms:
Blue Visions Management Pty Ltd hereby agrees to partially novate the strategic programming services component of contract D10011 to Aspire Corporation Pty Ltd ATF End Point Unit Trust trading as End Point Consultants. Blue Visions Management Pty Ltd will not have any rights, obligations or liabilities relating to any strategic programming services provided by End Point Consultants once all parties have agreed to the partial novation.
Following signing of the partial novation agreement, Aspire supplied the services of Mr Chidiac in respect of the strategic programming functions of the hospital project. Blue Visions continued to supply other services in respect of the hospital project. After correspondence between Mr Chidiac and Mr Hamilton on 21 May 2014, Aspire agreed to provide additional resources on the project: at [71].
On 25 June 2014, Blue Visions' solicitors sent a letter to Mr Chidiac's solicitors asserting that Mr Chidiac was subject to confidentiality obligations and post-employment restraints. In that letter, Blue Visions' solicitors stated:
Our client does not challenge the validity of the novation agreement and that your client is entitled to provide strategic planning services pursuant to it.
Strategic Projects exercised both options to extend the contract with Blue Visions with the result that the contract was due to expire on 20 May 2015. The contract was then extended for a further two months. As work on the hospital was still not complete by that time, Strategic Projects put the remaining work out to tender. Blue Visions and Aspire both tendered for that work. Aspire was successful: at [72].
With respect to the claim against Mr Gunasegaram, his Honour found that Mr Gunasegaram's conduct on 31 March 2014 in strongly advising Mr Parkhouse against putting Mr Parkhouse's name forward as an alternative to Mr Chidiac's (which Mr Parkhouse passed onto Mr Khreich), was in breach of his fiduciary duties. That was because, his Honour found, the only explanation for Mr Gunasegaram's conduct was that he was seeking to dissuade Blue Visions from putting Mr Parkhouse forward as an alternative to Mr Chidiac to increase the likelihood that the work would be given to a company (Aspire) in which Mr Gunasegaram had an interest: at [145].
After observing that this conduct was not specifically pleaded as a breach by Mr Gunasegaram of his fiduciary duties his Honour found that, in any event, there was no evidence that Mr Gunasegaram's advice had any effect on Mr Khreich's conduct. His Honour was not satisfied that any loss flowed to Blue Visions as a result of that breach or that any of the defendants made any gain as a consequence of that breach: at [145].
The principle was affirmed and restated by the High Court in Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557-558; [1995] HCA 18 (Warman v Dwyer):
A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. 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". 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. (Footnotes omitted)
See also: Breen v Williams (1996) 186 CLR 71 at 93-94 (Dawson and Toohey JJ), 113 (Gaudron and McHugh JJ); [1996] HCA 57; Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165 (Pilmer); [2001] HCA 31 (McHugh, Gummow, Hayne and Callinan JJ) at [74], [78]; Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 (at [84]); Howard at [31]-[33] (French CJ and Keane J), [56], [62] (Hayne and Crennan JJ).
Third, the conflict rule is directed to "a real sensible possibility of a conflict"; it is not enough to identify "some conceivable possibility" in events not contemplated which might result in a conflict. In Boardman v Phipps [1967] 2 AC 46 at 124 Lord Upjohn said:
In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you can imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.
This passage was cited with approval by the Privy Council in Queensland Mines Ltd v Hudson (1978) 52 ALJR 399 at 400G and in Hospital Products at 103 (Mason J). See also Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408 at [425].
More recently, in Pilmer (at [78]), the plurality in the High Court described the conflict rule as encompassing "a conflict or a real or substantial possibility of a conflict" between personal interests of the fiduciary and those to whom the duty is owed, referring to the remarks of Mason J in Hospital Products at 103. The rule also applies where the alleged conflict is between conflicting duties: Pilmer at [78].
In Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd, Bathurst CJ observed at [4], with reference to the remarks of the plurality in Pilmer at [79] and by Hayne and Crennan JJ in Howard at [60]:
[D]ifferent minds may reach different conclusions as to the presence or absence of a real possibility of conflict between duty and interest or duty and duty and the fiduciary doctrine cannot be inexorably applied without regard to the particular circumstances of the relationship.
Sackville AJA wrote to similar effect: at [133].
Fourth, it is necessary to focus on the actual functions or responsibilities assumed by the fiduciary to determine the subject matter over which his or her obligations extend, at least for the purposes of deciding whether there is a conflict of interest and duty or a conflict between duties: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 (Grimaldi) at [179].
Fifth, assuming a conflict of interest, the orthodox view is that "there is no duty to disclose a conflict and when judges refer to a duty to disclose in this context it is no more than a shorthand way of referring to the defence of fully informed consent by the principal": Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1; [2011] FCAFC 24 (Blackmagic Design) at [105] (Besanko J, Finkelstein and Jacobson JJ agreeing). On this view, disclosure of a conflict by the fiduciary is simply a means of avoiding a breach, not a duty: Blackmagic Design at [105].
Sixth, the disclosure required for the defence of fully informed consent is all material information of which the fiduciary "is aware or which he has deliberately refrained from acquiring": BLB Corporation of Australia Establishment v Jacobsen (1974) 48 ALJR 372 at 378, where the High Court also remarked that the (so-called) duty of disclosure "does not extend to matters of which the fiduciary was unaware notwithstanding that prudent inquiry would reveal their existence".
The defendants' case at trial was ultimately confined to the proposition that the scope of their fiduciary duties did not extend, on the facts of the case, to the circumstances of the so-called "casual" conversation between Mr Chidiac and Mr Hamilton on about 26 March 2014, because Mr Chidiac did not agree to any arrangement with Mr Hamilton during that conversation.
In this Court, senior counsel for Mr Chidiac and Aspire (who did not appear at trial) acknowledged that the communication between Mr Chidiac and Mr Hamilton of Strategic Projects was not outside the scope of Mr Chidiac's fiduciary obligations as a senior employee. That concession was properly made. The contention which Mr Chidiac and Aspire advanced on appeal is that there was no real or sensible conflict of interest between Mr Chidiac's interests and the interests of Blue Visions at the time of Mr Chidiac's conversation with Mr Hamilton on about 26 March 2014. That argument is addressed below.
That Mr Chidiac (and Mr Gunasegaram) owed fiduciary duties to Blue Visions of the type alleged in relation to their dealings with Strategic Projects in relation to the hospital project, is consistent with the scope of their respective functions and responsibilities as senior employees: Grimaldi at [179]. Mr Chidiac as the third most senior employee was directly responsible on behalf of Blue Visions for the hospital project. He was the point of contact between Blue Visions and the client, Strategic Projects, in particular Mr Hamilton. He had responsibility for resourcing under and negotiating variations to the contract with Strategic Projects. As Mr Chidiac acknowledged in his evidence, Blue Visions had to trust him (in his dealings with Strategic Projects). Blue Visions was vulnerable to abuse by Mr Chidiac of his position when dealing with Mr Hamilton in relation to the hospital project: Hospital Products at 96-97.
Mr Gunasegaram as the second most senior employee of Blue Visions was responsible nationally for Blue Visions' project and services work. Mr Hamilton first turned to Mr Gunasegaram after Mr Chidiac told him that he had resigned from Blue Visions, and it was Mr Gunasegaram who informed Mr Khreich in his 28 March 2014 email of the three options outlined by Mr Hamilton in relation to the hospital project, including Mr Gunasegaram's advice with respect to those options. It was also Mr Gunasegaram who advised Mr Parkhouse not to put himself forward to replace Mr Chidiac for the hospital project. Given his functions and responsibilities, Blue Visions was also vulnerable to abuse by Mr Gunasegaram of his position when dealing with matters concerning the hospital project.
Grounds 1, 2 and 3 of the notice of contention are not established.
Blue Visions accepted that the fiduciary duties to which Mr Chidiac was subject as a senior employee are proscriptive in nature only: Breen v Williams at 93-94 (Dawson and Toohey JJ), 113 (Gaudron and McHugh JJ); Pilmer at [74], [78]; Friend v Brooker at [84]; Howard at [31]-[33] (French CJ and Keane J), at [56], [62] (Hayne and Crennan JJ); cf Westpac Banking Corporation v Bell Group Ltd (No 3) (2012) 44 WAR 1; [2012] WASCA 157 (Westpac v Bell Group (No 3)) at [895]-[900] (Lee AJA), [1962]-[1970] (Drummond AJA); Duncan v Independent Commission Against Corruption [2016] NSWCA 143 (Duncan v ICAC) at [623] (Basten JA). Accordingly, it is not necessary to consider the views expressed in Westpac v Bell Group (No 3) concerning prescriptive fiduciary duties, or the remarks of Basten JA in Duncan v ICAC [2016] NSWCA 143 at [623], that the dichotomy between proscriptive and prescriptive obligations does not apply to the obligations of fiduciaries at general law (including under statute).
Insofar as Blue Visions suggested that Mr Chidiac's conduct should be analysed in combination with Mr Gunasegaram's conduct, Mr Chidiac objected that such a case was not pleaded. In particular, there was no allegation that Mr Chidiac knew of or participated in Mr Gunasegaram's alleged breaches or conspired in them, nor was such a case put to Mr Chidiac in cross-examination.
Second, contrary to Blue Visions' submission, Mr Hamilton did not have an assurance that Mr Chidiac would agree to continue to work on the hospital project. While Mr Chidiac indicated an interest in continuing to work on the hospital project, he made no commitment to Mr Hamilton when the matter was first raised with him. It can be inferred from the terms of their conversation, which relevantly concluded with Mr Hamilton saying that he would "look into it", that both Mr Chidiac and Mr Hamilton recognised that, whilst Mr Chidiac remained an employee of Blue Visions, he could not take up the opportunity raised with him by Mr Hamilton.
Third, that Mr Chidiac did not report his conversation with Mr Hamilton to Mr Khreich is explained by the circumstance that Mr Hamilton told Mr Chidiac that he would "look into it". And that is what occurred a few days later when Mr Hamilton spoke with Mr Khreich on 31 March 2014. Presented with three options by Mr Hamilton, Mr Khreich agreed to the partial novation of the hospital project, conditional on Mr Hamilton convincing Mr Chidiac to agree to that course.
Fourth, Mr Chidiac's functions and responsibilities as the manager responsible for the hospital project did not include considering or deciding how Blue Visions should respond to the three options given by Mr Hamilton to Mr Khreich on 31 March 2014. That was a decision for Mr Khreich, as managing director of Blue Visions.
Did Mr Chidiac prefer his personal interests to the interests of Blue Visions in the presence of a real or sensible conflict: Warman v Dwyer at 557? Blue Visions submitted that he did, because Mr Chidiac expressed an interest in the opportunity with Strategic Projects, when, according to the submission, his fiduciary duty required him to answer Mr Hamilton's enquiry with words to the effect: "I can't talk to you about the topic".
It may be accepted that the information concerning the opportunity to work with Strategic Projects came to Mr Chidiac in the course of his employment, albeit he had already given notice of his resignation. But, unlike many of the cases in this area, Mr Chidiac did not pursue his personal interests while still an employee of Blue Visions in the presence of a real or sensible conflict. As indicated, Mr Chidiac was not responsible for considering or deciding whether Blue Visions should agree to the partial novation of the hospital project, and he waited until after Mr Khreich on behalf of Blue Visions, had agreed with Mr Hamilton to a partial novation of the hospital project to Mr Chidiac, before he pursued and took up that opportunity. Does that make a difference? In my view it does.
This case is not like Cook v Deeks [1916] 1 AC 554, where directors who were negotiating a new contract on the company's behalf entered into the contract in their own names, thereby diverting that opportunity to themselves at a time when their personal interests conflicted with their duty to the company of which they were directors. At the time of the conversation between Mr Chidiac and Mr Hamilton on about 26 March 2014, Mr Chidiac did not seek to persuade Mr Hamilton to take any course with respect to the hospital project, let alone seek to obtain the benefit of part of the contract with respect to that project.
The scope of the fiduciary obligations owed by Mr Chidiac as a senior employee of Blue Visions with responsibility for managing the hospital project did not preclude him from informing Mr Hamilton of his resignation. That was no more than common courtesy, given the length of time they had worked together. Nor do I consider that as a departing employee, Mr Chidiac was required to refuse to answer an enquiry from a customer regarding future work: Weldon & Co Services Pty Ltd v Harbinson at [77]. Mr Chidiac did not solicit work from Mr Hamilton. He merely expressed an interest in continuing to work on the hospital project in response to Mr Hamilton's enquiry; he was not prevented by any legal obligation from doing so, after his notice period expired, which would occur on 15 April 2014; and he made no commitment to Mr Hamilton, when they first spoke about his resignation on about 26 March 2014.
Mr Chidiac did not prefer his personal interests by making or pursuing a gain when Mr Hamilton first raised with him the opportunity to work with Strategic Projects. He left it to Mr Hamilton to speak with Mr Khreich about that possibility.
The submission by Blue Visions that Mr Chidiac's conduct should be analysed in combination with Mr Gunasegaram's conduct, in particular, the finding by the primary judge that Mr Gunasegaram breached his fiduciary duty when advising Mr Parkhouse on about 31 March 2014 not to put himself forward for the hospital project role, must be rejected for the reasons advanced by Mr Chidiac. No case that Mr Chidiac knew of or participated in Mr Gunasegaram's alleged breaches or conspired in them was either pleaded or put to Mr Chidiac in cross-examination.
In my view, there was no error by the primary judge in finding that Mr Chidiac did not breach his fiduciary duties to Blue Visions by telling Mr Hamilton in effect that he was interested in working on the hospital project once his employment with Blue Visions came to an end.
The primary judge did not make any relevant findings directed to a loss of opportunity to avoid a financial detriment by Blue Visions taking action in the five day window between 26 March 2014 and 31 March 2014 which might have been avoided the partial novation of the hospital project if it had nominated a suitable replacement for Mr Chidiac in that period (and Strategic Projects had accepted that replacement, which on Blue Visions case it was required to do). Nor did Blue Visions suggest that it sought any relevant findings directed to this issue. If such a case had been raised by Blue Visions at trial, I accept that it is most likely that at least Mr Khreich would have been cross-examined on this issue. Given the prejudice to Mr Chidiac and Aspire, Blue Visions should not be permitted to raise this new point on appeal: Metwally v University of Wollongong at [71].
The contemporaneous documents support Mr Chidiac's oral evidence that no structure was put in place until after the agreement between Mr Hamilton and Mr Khreich on 31 March 2014 concerning the partial novation of the hospital project. Relevantly, Mr Gunasegaram forwarded the unit trust application in respect of EndPoint to Mr Rodrigues on 2 April 2014; and on 3 April 2014 Mr Chidiac and Mr Gunasegaram entered into the trust deed and also set up Aspire, which was registered on that day. The steps taken by Mr Chidiac after 31 March 2014 to establish Aspire occurred in the context where Mr Khreich had already agreed with Mr Hamilton that there would be a partial novation of the hospital project, conditional on Mr Hamilton obtaining Mr Chidiac's agreement to that course.
Given that Mr Khreich had verbally agreed with Mr Hamilton on 31 March 2014 to the partial novation of the hospital project, there was no real or sensible possibility of conflict between Mr Chidiac's personal interests in obtaining the work for Aspire and Blue Visions' interests (in keeping the work), either at the time Mr Chidiac established Aspire on 3 April 2014 or signed the novation agreement on 8 April 2014. There was no error by the primary judge in rejecting the breach of fiduciary case against Mr Chidiac.
Fourth, there was no impropriety in Mr Chidiac causing Aspire to be incorporated on 3 April 2014 (after Mr Hamilton had informed him that Mr Khreich agreed on 31 March 2014 to the partial novation of the contract in respect of the hospital project), or in causing Aspire to thereafter enter into the partial novation agreement with Blue Visions and Strategic Projects. As indicated, Mr Khreich was responsible for considering and deciding on behalf of Blue Visions whether to surrender part of the contract to Mr Chidiac. Mr Khreich considered that course to be in the best interests of Blue Visions, given the options presented to him by Mr Hamilton, and the likelihood that in the absence of being able to nominate a suitable replacement for Mr Chidiac (which Mr Khreich was not in a position to do so), Strategic Projects would terminate the whole contract. The obtaining by Aspire of the benefit of the partial novation agreement did not involve any use by Mr Chidiac of his position as a senior employee to obtain that benefit, let alone any impropriety on his part.
In Chan v Zacharia, following dissolution of a medical partnership, one partner obtained the benefit a new lease of the premises used by the practice, before the affairs of a partnership had been wound up. Plainly, the opportunity to obtain a renewal of the lease was property of the former partnership. Dr Chan preferred his own interests to the interests of the partnership to whom he owed his fiduciary duties, pending completion of the winding-up of the partnership. As Deane J said (at 204), "Dr Chan was introduced to the premises through the partnership and he obtained any rights in respect of a new lease of the premises through use - or misuse - of his position as a trustee of the former tenancy and as a former partner." That is not the present case. Mr Chidiac was not in a position analogous to that of a trustee of the contract for the hospital project. He did not use - or misuse - his position as a manager of Blue Visions to obtain the benefit of the partial novation agreement. He only obtained that benefit after Blue Visions had agreed to that course with Strategic Projects.
In his affidavit-in-chief, Mr Khreich deposed that he considered Mr Parkhouse appropriately qualified to fulfil the role of Mr Chidiac. The email from Mr Parkhouse to Mr Khreich (containing Mr Gunasegaram's advice to Mr Parkhouse not to put himself forward for the hospital project role) was sent at 12:07pm (Sydney time) on 31 March 2014. Mr Khreich's mobile phone records indicate that he had a telephone conversation with Mr Hamilton shortly thereafter at 12:15pm. In his affidavit in reply, Mr Khreich deposed that he did not suggest to Mr Hamilton alternative people to provide strategic programming services because he believed it would be futile to do so.
Mr Khreich did not say that in forming that view he took into account Mr Gunasegaram's advice to Mr Parkhouse. Rather, Mr Khreich deposed that he formed the view based on an earlier conversation he had with Mr Hamilton in which Mr Hamilton indicated that he considered Mr Chidiac irreplaceable and had already made his mind up that Mr Chidiac could not be replaced. Contrary to Blue Visions' submissions, there was no error by the primary judge in addressing the evidence of causation referable to this breach of fiduciary duty by Mr Gunasegaram.
Fifth, the complaint concerning Mr Gunasegaram's conduct in relation to the novation agreement, relevantly that he was a shareholder and director of Aspire from 3 April 2014, ignores that for the reasons already given in relation to Mr Chidiac there was no real or sensible possibility of a conflict between Mr Gunasegaram's interests (through Aspire) and the interests of Blue Visions, either on 3 April 2014 when Aspire was registered, or on 8 April 2014 when Aspire signed the novation agreement.
In this context, the submission by Blue Visions that Mr Gunasegaram (and Mr Chidiac) had a prospective interest in Aspire by 28 March 2014 should be rejected. As I have said, the contemporaneous documents support Mr Chidiac's oral evidence that no structure was put in place until after the agreement between Blue Visions and Strategic Projects in the conversation between Mr Hamilton and Mr Khreich on 31 March 2014.
In my view, Blue Visions has not established error in the primary judge's findings rejecting the breach of fiduciary duty case.
With respect to the alleged breach by Mr Gunasegaram of s 182 of the Corporations Act, Blue Visions did not advance any different arguments to those addressed above. Nor did Blue Visions suggest that the result of the statutory claim would be any different to the fiduciary duty claim.
Grounds 1 and 2 are not established.
Viewed in these terms, the question is whether Blue Visions knew the nature of the case it had to meet. In my view, absent an oral opening by the defendants expressly drawing attention to their reliance upon the informed consent defence (which had not been pleaded), the fleeting reference in par 38 of the defendants' written opening that mentioned informed consent was insufficient to put Blue Visions on notice that the defendants intended to depart from their pleadings and raise such a defence. Nor do I consider that it should be inferred from the way in which the trial was conducted that Blue Visions acquiesced in the defendants advancing their case at trial as including the informed consent defence.
Grounds 4, 5 and 6 of the notice of contention should be rejected.
Let it be assumed, that Mr Chidiac and Mr Gunasegaram breached their fiduciary duties by entering into the novation agreement in April 2014, in the presence of a real and sensible conflict between their personal interests and the interests of Blue Visions as to whom they owed their duties.
In Lifeplan Australia Friendly Society Ltd (ACN 087 649 492) v Ancient Order of Foresters in Victoria Friendly Society Ltd (ACN 087 648 842) [2017] FCAFC 74; [2017] 120 ACSR 421 (Lifeplan), the Full Court of the Federal Court (Allsop CJ, Middleton and Davies JJ) noted that the causal relationship between the breach and the profit has been variously expressed in the authorities: "profits made attributable to the breach" (Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 at [42]-[43]; approved in Dart Industries Inc v Décor Corporation Pty Ltd (1993) 179 CLR 101 at 120-121); "profits obtained by the infringement" (Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 407, approved in the High Court at 120); "the particular benefits which flowed … in breach of … duty" (Hospital Products at 110 (Mason J)); "by reason of (the breach)" (Warman v Dwyer at 557); "by reason or by use of (the breach)" (Howard at [62]).
That the remedial rules concerning breaches of fiduciary duty are structured to enforce, not undermine, the strictness of the duty was emphasised by the High Court in Warman v Dwyer at 557 (in the passage extracted at [148] above) where the two purposes of the stringent rule that a fiduciary cannot profit from his trust were identified.
As the Full Federal Court emphasised in Lifeplan at [64], the expression of the causal connection between the breach and the profit in Warman v Dwyer at 557 was a profit obtained by reason of the fiduciary position or by reason of taking advantage of opportunity or knowledge derived from the fiduciary position, is not a narrow causal connection. The facts should be examined to ascertain the causal relationship between the breaches and the profits to assess whether it is sufficient to conform with the policy of the rule to attribute a liability to account for those profits.
Blue Visions did not contend for the identification of a breach of fiduciary duty with any greater particularity than that stated by the primary judge at [165], namely, obtaining the work from Strategic Projects that had previously been performed by Blue Visions, which is to be understood (on the present assumption) as having occurred in the presence of a conflict between the interests of Mr Chidiac and Mr Gunasegaram and the interests of Blue Visions to whom they owed their duties.
Assuming that Aspire obtained the benefit of the novation agreement in April 2014 as a consequence of such a breach of fiduciary duty by Mr Chidiac and Mr Gunasegaram, the question is whether the profit obtained by Aspire in respect of the new contract entered into with Strategic Projects in July 2015, following a competitive tender process in which Blue Visions was unsuccessful, was a profit obtained by reason of the fiduciary position or by reason of taking advantage of opportunity or knowledge derived from the fiduciary position. Accepting that there is nothing narrow in this causal connection, I do not consider that the profits obtained by Aspire under the new contract post-11 July 2015 have that causal connection between the breach and the profit.
By June 2015, Blue Visions' original contract with Strategic Projects, as extended, had concluded. There were no restraints of trade preventing Mr Chidiac or Mr Gunasegaram competing with Blue Visions. Accepting that Aspire had the advantage of incumbency that reflected the advantage that it was able to provide the services of Mr Chidiac, among others, who Mr Hamilton considered the best person for the work. That Blue Visions failed to obtain a new contract in a competitive tender process was a consequence of competition by persons not the subject of any restraint of trade. If it were necessary to decide, I would uphold the contention of Mr Chidiac and Aspire that Blue Visions did not demonstrate a causal connection from 11 July 2015 with respect to the new contract to justify either an account of profits or equitable compensation after that date.
In finding that Blue Visions relied upon the representations, his Honour accepted the evidence of Mr Khreich that relying on what Mr Gunasegaram had said to him in the first part of 2012, he agreed for Mr Gunasegaram "to put together a team of specialists within the plaintiff's organisation to strategise and develop detailed planning for the Masters project": at [197].
His Honour further found that it was plain from the correspondence between Mr Khreich and Mr Gunasegaram, that by February 2013 Blue Visions was facing significant financial difficulties and Mr Khreich was looking at terminating staff, however, he was reluctant to do so because he was being told, in effect, that Blue Visions had good prospects of getting the Masters project and, later, that it had been successful in doing so: at [197]. His Honour accepted the evidence of Mr Khreich that he was led to believe that within about three months of the project starting, approximately 46 staff would be working on it. His Honour found that Mr Khreich had been reluctant to terminate staff in those circumstances: at [197].
His Honour concluded that Blue Visions had established its claim in deceit against Mr Gunasegaram in respect of representations he made concerning the Masters project which caused Blue Visions to engage or retain an excessive number of staff, which in turn, caused it loss.
The summary given by his Honour (at [194]) was a convenient way of grouping what was conveyed by the pleaded representations. In my view, Mr Gunasegaram was not denied natural justice; he was on notice in the pleading of the particular allegations of deceit and acts of reliance which he had to meet: Krakowski v Eurolynx. As his Honour also found (at [196]), each of the relevant representations and acts of reliance was pleaded.
Insofar as the same conduct of Mr Gunasegaram was relied upon by Blue Visions in support of its claim that Mr Gunasegaram breached his statutory duty of good faith under s 181(1) of the Corporations Act, there is no merit in the complaint that the primary judge found a different breach of duty to that pleaded.
Ground 1 is not established.
As to the specific criticisms advanced by Mr Gunasegaram to Blue Visions' approach to the assessment of damages, his Honour:
1. rejected Mr Gunasegaram's submission that there was no evidence of what staffing levels were needed, noting the evidence of Mr Khreich, where he compared the non-billable (and therefore available) hours of the "required" staff and the billable hours generated by the "unrequired" staff, and accepting that that was a reasonable approach to take: at [204];
2. rejected Mr Gunasegaram's contention that there was no evidence that the unrequired staff could not have done other work: at [205];
3. found that a reduction in the damages of 12.5 percent would be appropriate as an allowance for the additional staff who would have had to be employed to cover leave taken by required staff: at [207];
4. accepted the evidence of Mr Khreich that the required staff could have performed the work that had been undertaken by the unrequired staff: at [208];
5. rejected Mr Gunasegaram's contention that credit should have been given for the benefits received by Blue Visions for work done by unrequired staff: at [209];
6. found that, to the extent that the unrequired staff did billable work, such work could have been done by required staff, with the result that Blue Visions would have got the benefit of that work without any of the cost; and, to the extent that the unrequired staff did non-billable work, that work should only be taken into account to the extent that it produced a financial benefit for Blue Visions, but Mr Gunasegaram (who had the onus) had failed to identify how Blue Visions obtained a financial benefit from non-billable work: at [209];
7. found that the appropriate period for calculating damages was 1 July 2012 to 31 March 2014: at [210]-[211].
His Honour concluded that the approach taken by Mr Mullins to the calculation of Blue Visions' loss on the basis of the evidence given by Mr Khreich was reasonable, and observed that Mr Gunasegaram had not produced evidence to suggest that it was not: at [212].
His Honour also made findings at [213] - [214] in relation to other specific adjustments which Mr Gunasegaram submitted should be made to the damages calculations. It is not necessary to refer to the detail of these matters as they are not the subject of challenge by Mr Gunasegaram.
His Honour then applied a discount of 30 percent to the damages claim to make allowance for the fact that the additional staff were employed and retained by Blue Visions, not just in the expectation that they would work on the Masters project, but that they would work on other projects that also did not come to fruition, relevantly, the Nicholson's Gold Mine project and the Roy Hill project: at [218].
The finding of reliance (at [201] of the judgment) is to be read together with the finding (at [210]) that it was shortly after Mr Khreich received the revised financial forecast on 13 June 2012 that "he agreed to Blue Visions devoting resources to the Masters project, no doubt in the expectation that Blue Visions had good prospects of obtaining the work in light of what he had been told by Mr Gunasegaram". That finding, which is based on Mr Khreich's affidavit evidence (par 243), is not challenged. Nor is there any challenge to his Honour's finding (at [210]) that it was natural for Blue Visions (through Mr Khreich) "to agree to or to permit the investment of substantial time and money into attempting to obtain that work, and later, in anticipation that the work would commence shortly". His Honour accepted Mr Khreich's evidence that it was shortly after he received the revised financial forecasts on 13 June 2012 that he agreed for Mr Gunasegaram to put together a team of specialists within Blue Visions to pursue the Masters project: at [210]. That team involved seven identified employees, including Mr Gunasegaram and Mr Khreich. In addition, Mr Khreich gave evidence of the work that the project team undertook commencing with the preparation of a services delivery plan in April 2012.
Mr Gunasegaram submitted that the evidence of Mr Khreich upon which the reliance finding was based should be taken as referring to the period 26 or 27 February 2013, not at an earlier point in time. I do not agree. On a fair reading of Mr Khreich's affidavit evidence his reference (in par 253) to keeping on staff and sub-contractors in the expectation that the Masters project would be obtained, was not limited to the period from February 2013. The evidence of Mr Khreich (in par 253) that staff and sub-contractors were kept on "after the project the staff and subcontractor was associated with had concluded" is to be read together with his evidence (in par 254) that Blue Visions kept on staff that were not producing enough income to warrant their employment in the expectation of being used on the Masters project and the Schedule of Salaries Costs Wasted compiled by Mr Khreich. That Schedule established that particular staff were engaged or retained by Blue Visions after April 2012 upon finishing another project when they would not have been engaged or retained but for Mr Khreich's belief that Blue Visions would secure the Masters project.
There was also evidence from Mr Gunasegaram that employees had been retained even though Blue Visions' workload had dropped off significantly due to a downturn in the mining industry. In his email sent to Mr Khreich on 27 February 2013, Mr Gunasegaram referred to the steps taken to protect the employment of nine employees of Blue Visions in circumstances where there had been a significant reduction in the company's workload. Blue Visions submitted that the truthfulness of that email should be accepted because it was against Mr Gunasegaram's interests to have made that assertion. That may be accepted.
Mr Gunasegaram also submitted that the earliest representation that Blue Visions had good prospects of being retained by Woolworths to manage the rollout of the Masters stores "throughout Australia" as opposed to Western Australia, was in the 8 October 2012 email to Mr Khreich, referred to at [94] of the primary judge's reasons. That Mr Gunasegaram's October 2012 email referred to locking in a particular person as project manager "for the whole rollout rather than just WA" does not detract from the inducement caused by the earlier representations which his Honour found had been made from at least April 2012.
Given the finding of reliance as from July 2012 in relation to the first and second group of representations, it is not to the point that the third group of representations (that Blue Visions had been retained by Woolworths), were first made in June 2013 when Mr Khreich was shown a draft announcement to the Stock Exchange on 7 June 2013 regarding the engagement of Blue Visions. Mr Gunasegaram's argument in seeking to defer the date from which reliance was established by Blue Visions ignores the earlier finding of inducement with respect to the first and second group of representations from July 2012.
Mr Gunasegaram also complained that the primary judge side-stepped the evidence at trial as to when Blue Visions took particular actions in reliance upon the representations found to have been made in terms of holding onto employees who would otherwise have been terminated and retaining new employees. His Honour found that, having regard to the way in which Blue Visions put its case, this point was relevant to the assessment of damages, but did not establish the absence of reliance: at [199]. There is no error in that approach.
The criticism of his Honour's approach to the evidence of reliance is unwarranted. There was evidence before his Honour identifying the periods of time staff were not required but otherwise kept on or hired because Mr Khreich believed, based on Mr Gunasegaram's representations that Blue Visions had good prospects of obtaining and later believed that it had obtained the Masters project.
Given that there is no challenge to his Honour's finding that Mr Khreich was an honest and reasonable witness and his Honour's acceptance of Mr Khreich's assessment of which staff were required and which were not, the challenge by Mr Gunasegaram to the starting date of July 2012 for the calculation of damages has not been made out.
That it was part of Blue Visions' case that Mr Gunasegaram was one of the members of staff falling into the "not required" category is evident from the Schedule of Salaries Costs Wasted compiled by Mr Khreich. Contrary to the premise of Mr Gunasegaram's submissions, the damages awarded to Blue Visions did not put it in the position that it had the use of Mr Gunasegaram's services throughout the period of his employment but paid him no wages. Damages were awarded on the counterfactual that Mr Gunasegaram, among others, would not have been employed and the work he did would have been done by other employees of Blue Visions absorbing some of the excess capacity of those persons.
Ground 3 has not been made out.
Blue Visions further submitted that, in any event, each of those four matters was taken into account by the primary judge in reaching the figure in respect of the amount of damage, from which his Honour made the 30 percent deduction. That submission should be accepted.
First, that some people in the "not required" group of employees would have been retained by Blue Visions even if the Masters project was not a prospect, was a matter taken into account by his Honour. At [202] of the judgment, his Honour accepted the assessment of Mr Khreich of which staff were required and which were not, subject to the need to make an adjustment to take account of the fact that the additional staff were engaged or retained not just in anticipation of the Masters project, but also for obtaining other work including the Nicholson's Gold Mine project and the Roy Hill project.
Second, that Mr Khreich would have retained some extra staff anyway for some period so that they could be quickly deployed on new client projects was a matter recognised by his Honour (at [186] of the judgment).
Third, that some non-billable work was necessary and Blue Visions retained staff for non-billable tasks was taken into account by his Honour. At [209] of the judgment his Honour found that, to the extent that the unrequired staff did non-billable work, such work should only be taken into account to the extent that it produced a financial benefit for Blue Visions and that Mr Gunasegaram had the onus to identify how Blue Visions obtained a financial benefit from non-billable work and had not done so. That finding is not challenged.
Fourth, that the "not required" staff did some billable work over the counterfactual period was taken into account by his Honour. At [209] of the judgment, his Honour found that to the extent that the unrequired staff did billable work, that work could have been done by required staff, with the result that Blue Visions would have got the benefit of that without any of the cost. That finding is not challenged.
As to the fifth matter (that staff were sometimes placed on unpaid leave when things were quiet, and staff often agreed), Blue Visions correctly points out that a version of this argument was advanced by Mr Gunasegaram and rejected by the primary judge (at [187] of the judgment) in relation to one particular employee, Mr Amir Roudbari. Insofar as Mr Gunasegaram sought to make a broader submission, he did not identify with any precision the number of employees who were sometimes placed on annual leave.
There is a further difficulty with this last submission. The fifth matter relied upon by Mr Gunasegaram is a quite different circumstance to that found by the primary judge, namely that Blue Visions was in a difficult financial position given the large number of staff it employed who were not producing income to warrant their employment, that Mr Khreich wanted to reduce staff numbers significantly, but was persuaded not to do so by Mr Gunasegaram's representations. There was no error by the primary judge in not making a specific allowance for this matter.
In my view, the challenge to the 30 percent discount to the damages award has not been made out.
Corporations Act, s 1317H(1).
Corporations Act, s 1317H(2); Grimaldi v Chameleon Mining at [635], [640]; V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418; [2013] FCAFC 16 at [54]-[58] (Emmett, Edmonds and Rares JJ).