81 So far as the ownership of the client files and computer databases is concerned, any express contractual term with respect to property in particular documents is determinative ( Zeus Chemical Products Pty Ltd v Jaybee Design & Marketing Pty Ltd (1998) 41 IPR 491 at 495). Since I have found it was a term of the arrangements between HBF and the brokers that material contained in client files and in the HBF computer databases belonged to HBF, the plaintiff has established its ownership of these materials.
12 Gzell J. stated the remedies which he decided to award in respect of the breaches by the brokers of their obligations in respect of the terms in judgment [72(e)], [72(g)] and [72(h)].
83 I will order that there be an Inquiry as to damages for breach of contract for removal of the client files and for the downloading and use of information on the HBF computer databases before a Master. Material to that inquiry will be the circumstance that the client files were returned in a short space of time and, after the transfer of the electronic data to separate files for Messrs Ennis, Flanagan and Sky respectively, the remainder of the downloaded information was destroyed. It will be a matter for investigation whether or not the defendants used the information to contact clients of HBF after the termination of their respective engagements. A former employee is not entitled to use company records for that purpose ( Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317, Forkserve Pty Ltd v Pacchiarotta (2001) 50 IPR 74 at 78). I see no relevant distinction between that situation and the present position of the brokers. I will also order that the Master enquire as to damages for breach of contract by HBF with respect to its failure to pay commissions to the brokers.
13 The matters referred to in judgment [83] are the subject of the Inquiry in Order 1 of 3 April 2003.
14 Order 2 for damages against Mr Flanagan related to breach of the contractual terms in judgment [72] (a) and (b) breaches of which were found in [73]. Gzell J.said:
84 HBF claimed that Mr Flanagan was in breach of the terms in par 72(a) and par 72(b) that the brokers were to place applications for finance for clients exclusively in the name of HBF utilising its accreditations with financiers unless HBF agreed to the contrary and were not to carry out work that conflicted with HBF.
15 After dealing with these issues the Trial Judge said:
88 In my view, there was no breach of contract on Mr Flanagan's part with respect to regulated mortgage transactions placed by him otherwise than through HBF after his conversation with Mr Ball who agreed to the contrary for the purposes of the term set out in par 72(a). Furthermore, until Mr McMahon's appointment, there was no conflict with HBF in the placement of non-regulated mortgage transactions elsewhere for HBF lacked accreditation and Mr Ball chose not to utilise his sole accreditation. In my view, therefore, HBF has established a breach of contract with respect to Mr Flanagan's placing of mortgage transactions otherwise than through HBF prior to the introduction of the credit code on 1 November 1996 and with respect to any non-regulated mortgage transactions placed outside HBF following the appointment of Mr McMahon. The Master will enquire as to damages with respect to this breach of contract as well.
16 The decision in judgment [88] relates to breach of the term in [72(a)]. Gzell J expressly decided not to order an Inquiry as to damages for breach of the terms in [72(b)-(c)]:
89 HBF alleged that Mr Flanagan was in breach of the term in par 72(b) that he should not carry out work that conflicted with HBF by providing HBF clients with advice as to income tax variations. The defendants denied that the information passed on by Mr Flanagan amounted to the giving of advice nor that it constituted a breach of the undertaking contained in the acknowledgment and warranty. I have already rejected those submissions. In my view, the communications constituted a breach of the undertaking in the acknowledgment and warranty and a breach of the term in par 72(b). However, HBF failed to establish any loss or damage as a result of the breach and it would be pointless, in my view, to have an enquiry as to damages with respect to that issue.
17 Findings which bear on the manner in which the defendants were in breach of terms [72(e)], [(g)] and [(h)] include these:
60 The structure of activity at HBF was consistent with it conducting the business and the brokers providing their services to it. All applications for finance were made by HCF on HCF letterhead. All commissions were paid to HBF and it accounted to the brokers for their shares.
62 The manner in which client files were kept was also consistent with them being the property of HBF rather than the property of each individual broker. If the latter had been the case, one would have expected each broker to maintain his own filing system. Instead, all client files were kept by HBF staff alphabetically by client name.
18 Gzell J. also found:
64 After Mr Ennis had decided to leave HBF, he commenced to compile a database by photocopying the contents of files of persons he had introduced to HBF. He did this when neither Mr Ball nor Mrs Ball were in the office. He said he did it in their absence because Mr Ball was in the habit of switching off the photocopier and air conditioner to save power. Later he said there would be a dispute if Mr Ball knew. He compiled his database in order to conduct activities with APF after he left HBF. When confronted by Mr Ball who asked him if he was planning on leaving, Mr Ennis affected indignation and said he had been with Mr Ball for 10 years, there had never been a need to distrust or doubt his honesty in the past and if he was planning on doing anything he would not have done it in front of the whole office. That incident is damaging of Mr Ennis's credit. If the arrangement with Mr Ball was that Mr Ennis was conducting his own business, there was no need to hide from him the copying of the files. I do not accept the original explanation that Mr Ball would have objected to the expense.
19 His Honour also found:
68 Mr Flanagan decided to leave HBF in August 2000. ACEF was originally to start in July 2000 but the commencement date was put back to 15 October 2000 and then to Monday 17 October 2000, the day Mr Flanagan left HBF. ACEF was registered with Mr Ennis and Mr Flanagan as directors on 11 October 2000. In September 2000 Mr Flanagan obtained an ethernet card for his lap top computer. That enabled him to download data from the HBF computer. This he did without reference to Mr Ball for the purpose of the activities he intended to carry out under the auspices of ACEF. If Mr Flanagan regarded the files as his, there was no need to carry out the downloading in a covert manner.
20 When in judgment [83] Gzell J. said "It will be a matter for investigation whether or not the defendants used the information to contact clients of HBF after the termination of their respective engagements" his Honour spoke of the most obvious way in which breach by the defendants of their contractual obligations in [72(e)], [(g)] and [(h)] might cause loss to HBF; but he was not speaking exhaustively so as to exclude any other manner in which those breaches might have caused loss. The words I have quoted are to be understood in the context of other findings, including the finding in [81]. I confine my decision to the matter referred for Inquiry; I have no authority to do anything else. I confine myself to damages for breach of contract for removal of the client files and for the downloading and use of information on the HBF computer databases. I have no authority to assess damages for any other breach of contract, or on any basis other than common law damages for breach of contract. It is not my concern to consider or establish whether there were other breaches of contract, or whether the contractual terms referred to were broken in any other respects than those upon which Gzell J. based his order. Gzell J. decided against all other claims for remedies made by the plaintiff. Among other things, Gzell J. decided not to award any equitable remedy in respect of the claims for abuse of confidential information, nor any equitable remedy in support of the common law contractual right for breach of which he had awarded damages; see [78], [79] and [82].
21 In Order 1 of 3 April 2003 the assessment is to relate to breaches for different periods. In the case of Mr Ennis and Belfolex, assessment is required of damages for breach of contracts for Mr Ennis and Belfolex for the period up to 28 September 1994 and for the period thereafter. Of course none of the breaches of contract to which Order (1) relates occurred before the year 2000 when the brokers left the plaintiff's organisation and began to act together in their own business arrangements, so the only reasonable reading of Order (1) is that the dates referred to are dividing lines for classes of clients. 28 September 1994 is the point at which, according to allegations in the Statement of Claim which were not the subject of specific findings, the contract between Mr Ennis and the plaintiff was varied so as to introduce Belfolex Pty Ltd, a company associated with him. In a similar way the references to Mr Flanagan, Mr Sky and their companies are broken up into periods. Observations by Gzell J. on 25 March 2003 and more particularly on 3 April 2003 show that his Honour decided to reserve to himself questions whether the arrangements introducing the companies into the relationship between the brokers and the plaintiff constituted novations of those arrangements, and whether the novations had any impact on the liability of the brokers and of the companies for damages for breaches of contract which occurred in the year 2000. Allegations in the pleadings which might be thought to relate to the subject of novation - a word not found there - do not raise such questions. It appears to me from these observations that Gzell J's mind was to some degree open to the possibility that he might investigate a question relating to novation, but he had not done so, and had given no decision on a question relating to novation; the pleadings did not create any clear issue about novation. In my interpretation Gzell J. thought that some question of novation was potentially important: whether the companies as distinct from or as well as the brokers themselves incurred liability to the plaintiff, and whether a distinction should be drawn in respect of contractual obligations relating to persons who became clients before and persons who became clients after the introduction of the companies into the arrangements; Gzell J. wished to know whether there were any significant differences in the assessments of damages in these contingencies before he embarked on decision of whatever merits underlie the concept of novation and whatever issues might yet be raised, to do which the plaintiff's claim would first need to be amended.
22 Counsel accepted and it appears clearly to me that the evidence does not enable assessment of damages to be divided so as to relate to clients who became clients of the plaintiff only in one or other of the periods referred to; or to clients who became clients of the plaintiff in some way in association with one or other of the brokers. There is to my reading no indication in the reasons of 19 March 2003, in [83] or in the reasons generally, that Gzell J. contemplated that there would or could be different awards of damages against each of the three brokers, or against each of the three companies. Although each broker had his own contractual arrangements with the plaintiff, and broke that contract for himself, they acted together, the separate impact on the plaintiff of their actions taken separately cannot be assessed, and the terms used by Gzell J show contemplation that the assessment of damages would relate to all of them.
23 There are some important boundaries to what the plaintiff is in a position to complain of and to recover damages for. One important boundary is that the plaintiff has not recovered any equitable relief, and is not entitled to recover damages or equitable compensation on the wide basis on which remedies are awarded against trustees and fiduciaries, associated with Re Dawson [1966] 2 NSWR 211 at 215-216. Another is that the defendants have not broken any contractual term or covenant which restricts their participation in trade, restrains their carrying on business as finance brokers or protects the plaintiff from competition. They are liable to damages for the breaches referred to in [83] but otherwise they are entitled to the general freedom to compete. They are entitled to use in competition the general knowledge in their minds about the identity of customers or clients who had been and might in the future be sources of finance broking business; they are entitled to the contents of their own memories. This entitlement is well established in the case of former employees, and the defendants are not in any worse position. Indeed they are in a somewhat better position than former employees, because the breach of contract and the damages awarded relate to removal of files and use of information on the HBF computer databases: and other recorded information which it is clear that they had while they worked in the plaintiff's organisation and continued to have after they left was not the subject of the plaintiff's complaints in the litigation, nor of adverse findings or award of damages.
24 There was elaborate investigation before Gzell J. relating to the removal of client files and the circumstances in which they were removed. The client files were returned to the plaintiff early in this litigation, in December 2000. The information on the HBF computer databases which Mr Flanagan downloaded and which was available to the defendants could cause damage to the plaintiff arising from breach of contract according to the way the defendants used the information; it is to this that Gzell J. referred by saying in [83]: "It will be a matter for investigation whether or not the defendants used the information to contact clients of HBF after the termination of their respective engagements." There was a considerable body of evidence before me about whether and how defendants used this information and how contacts with clients were made after termination of the brokers' respective engagements with HBF.
25 It is not enough to show that advantages accrued to defendants from use of information in client files and information on the HBF computer databases. The plaintiff must show that the breaches of contract caused loss to the plaintiff. A business advantage to defendants is not necessarily a disadvantage to plaintiffs; if there is some adverse effect causing loss to the plaintiff, it is necessary to show by evidence what that loss is, and how it should be quantified. Evidence which endeavoured to deal with this was very elaborate. At the most basic level the fact that these defendants took information in usable form tends to show that the information had some value: it was worth the trouble of taking it. What this suggests is more that the information was of value to the defendants than that use of the information by the defendants caused loss to the plaintiff; but the inference that there was some such loss is one which I cannot resist, although its quantification is not easy to see.
26 Each of the brokers had an ACT database, a compilation of contact information relating to clients, names, addresses and other contact details, in a laptop computer which he owned. This was considerably less information than the details of clients and transactions which were in the removed files and downloaded databases. The information in the ACT databases was used by brokers after they left HBF's organisation and is not within the terms of the adverse findings. In confining his findings in this way Gzell J. did not disregard any part of the plaintiff's case or any entitlement which the plaintiff claimed to establish. The terms of the pleadings support indications in the terms of Gzell J's findings that the ACT databases and the contact information in them were not the subject of complaint or adjudication; the findings of breach of contract relate only to removal of client files, downloading and use of information on the HBF computer databases. See Amended Statement of Claim para 48.
27 Mr Flanagan and Mr Sky created their ACT databases progressively over some years; Mr Ennis created his within a short period before he left the plaintiff's organisation. He did not do so by one of the means referred to in [83] - removal of client files, and downloading and use of information on the HBF computer databases. He did it by photocopying the contents of files and then using the photocopies to compile the database, referred to in [64] in the context of Mr Ennis' credit. The opening address for the plaintiff by Mr Stevens QC in the trial before Gzell J. did not refer to this conduct of Mr Ennis or to the use of the ACT databases among the breaches complained of. Gzell J. did not refer to this obviously unsatisfactory behaviour of Mr Ennis in the context of addressing breaches of essential terms or of assessing damages, and this part of Mr Ennis' behaviour was not within the terms of allegations in the pleadings about breaches and loss. It is even more clear that the absence of reference in the judgment to Mr Sky's and Mr Flanagan's databases is explained by the absence of any allegation in the pleadings or in the conduct of the case that maintaining and later using them was a breach of contract.
28 Each of the brokers gave evidence before me to the effect that he did not use the information from removed client files and the HBF computer databases to contact clients of HBF. Their evidence is to the effect that soon after leaving the plaintiff's organisation they contacted clients by mail, using in the case of Mr Flanagan and Mr Ennis contact information in the ACT databases, and in the case of Mr Sky a list of 28 people compiled from his memory, by consulting the phone book, and also by consulting his ACT database. Many clients found their own ways of contacting brokers, and there are affidavits from many clients showing how they did. The evidence of the brokers is to the effect that they used the information referred to in [83] in other ways, which I would summarise by saying that the resources of information contained in it assisted them in carrying on business with such clients as did bring business to them.
29 I approached the evidence of the brokers to the effect that they did not use the confidential information to contact clients with considerable wariness. It was highly self-interested evidence and it did not, in any clear way, explain their going to the considerable trouble of wrongfully removing information from the plaintiff's organisation. However their evidence about not having used the information to contact clients was not the subject of challenge in cross-examination. This was a difficult subject to the plaintiff to deal with, in cross-examination or otherwise, as knowledge is wholly in the hands of the brokers themselves. However that may be, my consideration has led me to conclude that there are grounds for suspicion of what the brokers say about this, but not for anything higher than suspicion; there is no substantial disproof of what they say, and it is plain enough that all the information they would need to contact clients was readily available in the ACT databases, or from the sources which Mr Sky says he used, and could be easily extracted. They led evidence to show that contact information could much more easily be extracted from the ACT databases and used to contact clients than from the downloaded information. The brokers bore some forensic burden but the onus of proof that the plaintiff incurred damage through some use by them of the confidential information rests on the plaintiff. My conclusion on the facts is that the plaintiff has not shown that the defendants used the information they wrongfully obtained in breach of contract to contact clients after they left the plaintiff's organisation.
30 The principal means of assessing damages offered in the plaintiff's case was elaborate and indirect. It related to calculations by Mr Crane of the income derived by the defendants from dealings with clients; and with persons identified in the confidential information as referrers of clients. The connection between establishing what the defendants earned through dealings with clients and referrers who can be identified from the confidential material, and proving what loss was caused to the plaintiff by the breaches of contract referred to in [83] is extremely attenuated.
31 Earnings by the defendants from dealings with persons who had been clients and referrers of the plaintiff cannot be equated with earnings which the plaintiff would have made from dealings with those persons if there had not been any breaches of contract. If there had not been any breaches of contract, clients and referrers or some of them would have taken their work to the defendants when they left the plaintiff's organisation, as they were entitled to do. With the findings I have made about the downloaded information not being used to contact clients, a causal link between breaches of contractual obligations and a client taking business to the defendants or responding to an approach for business by them cannot really be seen. All the information to which the breaches related continued to be available to the plaintiff to use in contacting clients and to facilitate dealings with such clients as brought business to the plaintiff.
32 Defendants' counsel contended that use by brokers of wrongfully obtained information when dealing with clients did not cause loss to the plaintiffs for several reasons; the principal being that when the client had made the decision to come to the broker, the custom had already been lost to the plaintiffs. I do not accept that for this reason no loss was caused to the plaintiffs; facilitation of the business relationship between the client and the broker would have enhanced the prospect that the client and the business would stay with the broker and that the client would not go back to the plaintiffs.
33 The fact that the defendants had the confidential information available to them and that they used it (as they say they did) when conducting business with those clients who came to them was, it can fairly be inferred, a commercial advantage; it facilitated to some degree their conduct of business with those clients. As a causative element in their earning revenue from those clients it cannot have been slight, but in my opinion it cannot have been a very large factor; it was a minor facilitation in their doing business which is too large to be disregarded, but which it would not be correct to regard as the source of their earnings, except to a small degree. It is not the earnings of the defendants which are the object of Inquiry; nor is the contribution to those earnings which arises from their breach of contract; the object of Inquiry is the loss imposed on the plaintiff by these defendants' having that assistance as a result of their breach of duty. Between ascertaining how much earnings the defendants gained from dealings with clients and how much loss the plaintiff suffered involves many steps, including some which can only be addressed on a broad basis. There is no ground on which to infer that enhanced earnings of the defendants by an ascertainable amount caused earnings of the plaintiff to be diminished by a corresponding amount that would be no more than speculation. Clients and referrers might have liked to do business with the brokers and not liked to do business with anybody else; they may not have been much influenced by the facilitation of the conduct of business presented by the brokers' having access to earlier history. So far as the task of the brokers was eased, clients would be largely but not completely indifferent to the advantage thereby conferred on the brokers. The clients were there for the plaintiff to contact and solicit business with, just as much as they always would have been there if the brokers had left the plaintiff's organisation but had not committed breaches of contract.
34 In cross-examination Mr Ball identified or agreed to there being four significant competitive advantages which he contended the defendants obtained by taking the files and the electronic information. These advantages were: (i) access to contact details for clients; (ii) information about the clients' transactions, particularly when an arrangement would terminate, which would be useful for contacting the clients to see whether the clients wanted to roll over the loan or make another arrangement; (iii) financial information about the client's commitment schedules that could be overwritten in new business; (iv) in-depth knowledge of the client and of all the confidential information required when applying for a loan, including who they dealt with, who they had contracts with, their trade references, their equipment supplier and dealer, their accountant and general personal information, full names, birth dates, driver's licence numbers and similar kinds of information. Mr Ball did not agree that where a client undertook repeat business it was necessary to obtain up-to-date financial information from the client, or that it was necessary to do so in a different financial year; he said that depending on the lender's requirement there was generally a window of anything up to 18 months or two years, and it was not necessarily the practice to get the most up-to-date information.
35 Findings elsewhere show that the defendants did not actually take the first and second of these advantages. The third and fourth appear to be much the same. The defendants' evidence tended to belittle the time-saving advantage of having information available, and they gave in evidence estimates to the effect that preparing an application from the beginning would on average take approximately 10 minutes on the first transaction. I regard this time estimate as improbably low, but whatever time it took, the advantage of having detailed information on record about the client or the client's earlier transactions, usually extending to financial information, commitment schedules and other more general matters giving a picture of the client's affairs, is considerable and cannot be minimalised by treating it as only saving about 10 minutes of time and attention. Having the information available would in a recognizable and significant way facilitate dealing with a client who did bring further business to the defendants. With this advantage the defendants were in a position to confer a good business experience on the client, with relative speed and efficiency, enhancing other advantages of dealing with someone with whom they have dealt before. Possession of the information did in my finding confer a springboard advantage on the defendants, and what should be understood as the loss imposed on the plaintiff is the disadvantage to the plaintiff of having competitors in business who had that springboard advantage. In as much as the defendants had the information, the plaintiff was faced by relatively more efficient competitors than it would have faced if the defendants had not had that information.
36 A large imponderable step is the question for how long advantage would have accrued to the brokers, and hence disadvantage would have accrued to the plaintiff, from the availability of the information to these defendants. Mr Crane concluded that advantage would persist for up to 4 years and 7 months; in the defendants' case as supported by illustrations by counsel, but little supported by evidence, the advantage if there were any would not have persisted after the first contact and the conduct of the first new business on behalf of any client: counsel suggested, not after three months. I regard it as clear that the advantage could have a quite limited lifetime, and 4 years or more is altogether excessive. There is no clear way in which this element can be rendered concrete, and the best I can make of it is that after a year or eighteen months the advantage of having information about a client's earlier business from old files would be fading away to nothing as the information became obsolete.
37 To the clients, 10 minutes going over old ground and facts which the client had told the broker a few months or a year or two before would seem quite a long time; and in any event I have no confidence the process would take as little as 10 minutes. On the other hand, significant parts of the information would become obsolete; the passage of a financial year and the availability of later financial statements would with fair certainty lead to reconsideration and restatement of significant parts of stored information. Mr Ball did not appropriately acknowledge the factor of obsolescence of information. When the next financial year was complete on 30 June 2001 and thereafter when financial statements became available, the material in the files would begin to become obsolescent. After about 18 months, by early in 2002, the advantage would be slight, in my finding.
38 To my mind it is altogether clear that the plaintiff, which was exposed to competition by the brokers when they left its organisation, incurred a competitive disadvantage because the defendants had information available to them from the downloaded material. Quantification in money terms of that competitive disadvantage is not a process which is open to mathematical reasoning, or to any cogently expressed reasoning at all. The value of the confidentiality of the material is obvious; its value is testified by its being the subject of a contractual protection, and also by the defendants' going to the trouble of removing it in breach of their obligations. They would not have put themselves to that trouble if they would not gain some advantage; the plaintiff would not have taken contractual protection if there had not been some advantage to it from the information being unavailable to others. The conclusion produced in my mind by the elaborate attempts which have been made to reduce the assessment of damages to calculation and mathematics has been that it has been demonstrated that precision, or even the most general mathematical or other logical demonstration of the loss in money is not available; while on the other hand it is altogether clear that a loss has been inflicted.
39 The concept of the plaintiff's loss on which I act is that its business opportunity to earn profits in the continued carrying on of its business was damaged or diminished (but not lost) by the defendants' having the competitive advantage of having information in the removed client files and from the downloaded information on the computer databases available to them to facilitate conduct of the new business which they set up. In forming a concept of a loss caused by a breach of contract, and in considering whether any loss has been proved, the basal consideration is always the terms of the particular contract which has been broken and the nature of the breach which occurred. This basal concern qualifies proceeding from any earlier judicial statement of principle to a conclusion in the instant case; all judicial statements must necessarily be understood as directed to the breach of contract then under consideration. It is for judgment whether the analogy is sufficiently close to be useful.
40 Observations in the High Court of Australia in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 on the approach to the assessment of damages for deprivation of a commercial opportunity are usefully analogous to the present case, where there was not deprivation of a commercial opportunity but diminution of a commercial advantage. Evaluation of a loss of chance is a well-established element in the assessment of damages both in contract and in tort and was discussed and employed in the context of tort personal injury damages in Malec v J.C. Hutton Pty Ltd (1990) 169 CLR 638. In Sellars which related to "loss or damage" within s 82(1) of the Trade Practices Act 1974, in a passage which should be understood as taking a somewhat different direction to Norwest Refrigeration Services Pty Ltd v Bain Dawes WA Pty Ltd (1984) 157 CLR 149, the leading judgment reviewed recent High Court, English and New Zealand authority at pp 349-355 and said, at 355-356:
Notwithstanding the observations of this Court in Norwest, we consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s. 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognized in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind. On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable. The conclusion which we have reached on this question finds support in other considerations. The approach results in fair compensation whereas the all or nothing outcome produced by the civil standard of proof would result in the vast majority of cases in over compensation or under compensation to an applicant who has been deprived of a commercial opportunity. Furthermore, it is an approach which conforms to the long-standing practice of taking into account contingencies in the assessment of damages.
41 Transposing these observations to the present circumstances, the task before me is assessment of the prospect that the plaintiffs would have earned profits which they did not earn because the brokers were operating with the benefit of the information. In so far as it is proved that the defendants earned the profits by using information which they should not have had, it is proved that the plaintiff lost an opportunity to earn profit; but the profits earned by the defendants are not a direct indication of the amount of the plaintiff's loss; they are an indication that the commercial opportunity available to the plaintiff from the exclusiveness of the information was of some value, and that value is to be ascertained by reference to the degree of probability or possibility that the plaintiff would have gained the profits which the defendants gained or some of them.
42 The defendants' counsel pointed to the approach taken by Young J. in Dalysmith Corporation(Aust) Pty Ltd v Cray Personnel(No 2) (Unreported 18 September 1999) for an example of the practical application of these principles. That case related to a covenant restricting the defendant's activities in a field of business after termination of employment with the plaintiff. The plaintiff's loss in that case was much more clearly defined than in the present case; and the defendant should not have been operating in the field of activity at all. On the other hand in this case the defendants were entitled to act in the field of activity, but when they did so they did with an advantage which they should not have had.
43 I respectfully say that I regard Young J.'s approach as correct. Young J. referred to Sellars at 355; and to a passage in Ogus on Damages:
I have found what Ogus on Damages (Butterworths London 1973) says at p 257 of value in resolving this case. He says of injury to a business interest resulting in loss of profits, "The amount of profits made by the defendant may usefully be taken as the starting point in the quantification process. But the court must then reduce the sum of an appropriate part to represent the fact that the plaintiff would not have procured all of the defendants custom either because a certain proportion of the successful dealing resulted from the defendant's own special exertions, or because he could have made part of the sales without committing a tort, or because other competitors would have captured a share of the market. The scales may be tipped in the reverse direction by other factors: for example, that as the result of the defendants on unlawful competition the plaintiff had to lower his prices in order to minimize his loss of profits …".
One must keep, however, clearly in mind that there are two questions to be addressed, (a) has it been shown on the balance of probabilities that any loss was caused to the plaintiff by the defendant's breach? and (b) if the answer to (a) is yes, how much? The passage from Ogus really deals only with the second question.
44 Principles relating to evaluation of loss of chance deal only with the second of those questions. Counsel contended that in application of those principles profits ascertained by reference to Mr Crane's calculations which the defendants earned were the starting point: that there should then be applied a factor for the chance of the plaintiff earning those profits, and a factor representing the period during which the availability the information can be thought to have had a relevant operation.
45 The process which the defendants' counsel contended was correct suffers from considerable disadvantages. The profits earned by the defendants may appear to be concrete but the contentions of the parties and the series of questions relating to them which the parties put before me for decision show that there are compounding uncertainties. The assessment of the chance of the plaintiff earning those profits, including the chance that the business would have come to the plaintiff, the period during which the breach of contract would have had any relevant operation and the selection of adjustments accordingly are highly indeterminate. Factors of uncertainty compound when a purported arithmetical exercise is carried out, in which several factors which are themselves products of non-mathematical assessment are applied. The end result is unlikely to be better than a much more general approach based on a broad view of the scale of the profits involved and an application of judicial wisdom so as to produce an assessment. Juries do this and so should I.
46 A factor of great importance which it is not possible to reduce to mathematics is the strength of the association between clients and individual brokers themselves. Each broker had an array of clients with whom he had particular connections, at a personal level based on family or business relationships, or long-standing social interaction, or based on having done business for the client earlier. Regardless of what information the brokers had wrongly taken from the plaintiff, many clients would have followed the brokers when they set up separate business, as they were entitled to do; this is a factor of considerable importance when assessing loss of chance. It was common for clients to have contact details which led them directly to the broker and not to Hunter Business Finance. A number of clients gave evidence of the circumstances in which they came to take their business to the brokers; by inference, based on the reasoning and experiences of these clients, a large proportion of the clients would have left the plaintiff and gone to the brokers irrespective of whether the brokers had any particular recorded information which they were not entitled to have, or any additional facility in their dealings created by ready access to information. Whether a particular client would follow a broker or stay with the plaintiff is imponderable, but it is probable that more of the clients would regard their business connection as being with an individual broker than would regard their business connection as being with the organisation out of which the broker worked.
47 The departure of the defendants from the plaintiff's organisation prompted energetic activity on the part of the plaintiff directed to retaining its custom with existing clients and referrers. Although many clients and referrers went to the defendants, the plaintiff's activities produced a degree of success, and a significant proportion of the clients and referrers who had previously done business with one of the brokers brought further business to the plaintiff. The endeavours which the plaintiff made in these ways were legitimate and appropriate competitive responses to the appearance of new competition; they are not exemplifications of loss imposed upon the plaintiff by breach of contract. Measures taken by the plaintiff included a normal regular advertising mail-out, followed up by telephone marketing, and in particular a project in which Mr Mark Hall, a broker employed by the plaintiff, telephoned clients one by one with the object of reassuring the clients and retaining their business. Mr Hall's project commenced within a few days after 6 November 2000; Mr Hall was active, and to a significant extent he was successful.
48 The plaintiff's advertising, communications and circulars and of the activities of Mr Hall can be taken to have been effective within a few months, probably about three months after the brokers left. The facts that the defendants had left the organisation and that the plaintiff continued to be in business and seek business from clients and referrers were clear to any client or referrer who took notice. Once clients had adequate information and were in a position to make a choice (if they wished to make a choice, although it is likely that many of them acted out of habit) the influence on the flow of business from clients and referrers of availability to the defendants of information which had been wrongly obtained was probably more or less spent. For any particular client who did take business to the defendants, the influence of the breach of contract which is the subject of this Inquiry on the business relationship between the customer and the defendants was probably spent by the time of completion of the first new transaction which the client brought to the defendants. Once that transaction had taken place, the influence of any facilitation of business causally related to the defendants having information which they wrongfully obtained should be taken to have worked itself out fully. These considerations led me to find earlier that by early 2002 the advantage would be slight. Mr Crane's adoption of a period longer than four years appears to me to have been quite wrong on any reasonably available view.
49 Counsel for the defendants presented an elaborate critique of Mr Crane's calculations. A number of elements in Mr Crane's calculations of the revenue derived by the defendants were the subject of debate, and I was presented by the parties with a schedule of questions relating to particular classes of earnings, which the parties joined in asking me to rule on, saying that they would then be able to make further calculations with the results. I do not regard this as useful, as too many elements in the process between ascertaining what revenue is relevant and ascertaining what loss the plaintiff incurred are imponderable or speculative. I will express an opinion on the questions which the parties asked me to deal with, as the parties may wish to make some use of my rulings in some challenge to my decision. For myself however I am not able to make any use of them.
50 I do not adopt Mr Crane's method in any respect. I see no significant line of reasoning reliably connecting the total revenue earned by the defendants from dealing with clients and referrers with the loss occasioned to the plaintiff by the defendants' having the advantage, when dealing with clients, of the information made available to them from the removed files and the downloaded material. Mr Crane's approach seems to me to have no good basis when it is seen that the defendants were not in breach of contract simply by dealing with clients and referees who had been clients and referees of the plaintiff, and were not in breach of contract in contacting clients and referees because they did not use the wrongfully obtained information in doing so. There are so many steps of assessment and conjecture between the amounts of the commissions earned by the defendants and the loss suffered by the plaintiff that the exercise has no utility: any apparent precision it produced would be spurious.
51 In my finding then the breach of contract found by Gzell J. did cause loss to the plaintiff. Extensive endeavours to reduce assessment of this loss to defined processes of reasoning or to mathematics have not succeeded. Compared with the figures discussed, particularly those put forward by Mr Crane, the actual loss is very small; in no way in the scale of the figures, in the order of hundreds of thousands of dollars and in excess of $1 million, which Mr Crane discussed. On the other hand it is clear to me that the loss and damage were more than nominal. Wrongfully taking information was a thing which the defendants thought it worth their while to do; they must have perceived this as a competitive advantage, and it is objectively clear that there really was a competitive advantage. Competitive advantage to them implies a competitive advantage to the defendants; the inference is extremely strong. I act on the basis that the advantage was small but real.
52 Under court orders of 21 December 2000 the parties maintained registers of transactions processed with existing clients, and in the case of the defendants the register dealt with transactions processed with new clients from existing referrers. The records relate to the period from about December 2000 until about the beginning of the hearing before Gzell J. in February 2003. Defendants' counsel offered in submissions an analysis of the share of transactions associated in this way with existing clients or existing referrers; the analysis was prepared by counsel and was not the subject of evidence. Counsel's analysis suggested that, of a total of 235 transactions which one party or the other carried out with persons who before his departure could be identified as clients of Mr Ennis, the plaintiff conducted 131 and the defendant conducted 137; for 137 transactions with clients associated with Mr Flanagan, the plaintiff conducted 28 and the defendants 109; for 123 transactions with clients associated with Mr Sky the plaintiff conducted 35 transactions and the defendant conducted 88. It was contended that overall the plaintiff conducted about 40% of such transactions and the defendant conducted about 60% of such transactions. I am not able to base a finding in high detail on counsel's analysis; in the circumstances where a very large mass of written material was put forward in submissions, the absence of countervailing analysis by opposing counsel does not have much force. It does however appear that while the majority of clients who had earlier been associated with the brokers took their future business to the defendants, a significant proportion, according to counsel's calculations 39.19% but in my formulation a significant proportion remained with the plaintiff.
53 My reading of the plaintiff's financial statements shows that, if legal fees and receipts related to the litigation and settlement of the litigation are disregarded, the plaintiff's operating profit in the year 2000/2001 (during which the defendants left its organisation) and in the following years were very significantly greater than they had been in the year 1999/2000; if the impact of special factors relating to the litigation are disregarded, the plaintiff's financial statements would show very significant improvements in the course of the years in which the breaches of contract occurred and in the following two years over the previous experience.
54 Defendant's counsel contended that the plaintiff had failed to adduce evidence relating to the proportion of customers and referees who would have brought business to the plaintiff but for the breaches of contract which have been established. In this connection counsel referred to observations of Hayne J. in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 77 ALJR 768 at para 38:
[38] It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed. 18 References to mere difficulty in estimating damages not relieving a court from the responsibility of estimating them as best it can 19 may find their most application in cases of the former rather than the latter kind. This case did not invite attention to such questions. Placer sought to calculate its damages precisely.
55 I am of the opinion that this is a subject on which adduction of precise evidence is impossible, and that this criticism of the plaintiff's case was not correct. The supposition of this criticism is that the evidence of persons who have taken their business away from the plaintiff was available to the plaintiff to call. The suggestion is fanciful, in my opinion. There is no evidence which the plaintiff could have adduced which would tend to show what proportion of its clients would have continued to bring business to it if the defendants had left its organisation and set up in competition, but had not downloaded material from the files and had not had the advantage of ready availability of information about the clients' earlier dealings and other particulars about the clients. It is open to me (and indeed no other means are available) to make as good an estimate as I can, on the basis indicated by observations in Malec and Sellars.
56 In the Inquiry under Order 1, the best assessment I am able to make is that the amount of the loss was $10,000. For the purpose of calculation of interest the loss should be attributed to 1 November 2000.
57 Although there were many adjustments, the principle on which the plaintiff's claim and Mr Crane proceeded starts from the view, expressed in his report at Para 17(e): "The loss suffered by the plaintiff is the loss caused to the plaintiff because it did not effect the transaction itself, not the gain to the defendants." Mr Crane's method of calculating the loss is explained in his affidavit of 23 November 2006 and accompanying documents. His affidavit and the second report which accompanied it was prepared after the parties had under the Court's directions prepared a Scott Schedule showing the losses claimed by the plaintiff and the defendants' responses.
58 When Mr Crane dealt with leasing finance, the loss was assessed by reference to the brokerage fees of all business conducted by the defendants with clients. There are many assumptions and adjustments which formed part of Mr Crane's process. He treated the loss as beginning from 1 November 2000 and ceasing on 30 June 2004 with some adjustment relating to business thereafter. The core of his reasoning was "the loss suffered by the plaintiff should be calculated as the sum of the brokerage fee and document fees less any referral fee paid." His adjustments included what he described as "an appropriate discount of the vicissitudes of business", and reduction back to the present value of the loss as at 1 November 2000 of losses occurring over the whole period. Mr Crane also brought into account a volume discount on the view that the plaintiffs would have obtained volume discount in relation to additional business had it written it. He calculated that the total of brokerage in all transactions, including transactions the relevance of which the defendants disputed was $1,345,395.08. His calculations produced a range of loss, on minimal assumptions $554,981.81, and on the maximal assumptions (including, among other things, favourable decisions of all the disputed categories, and maximum volume rebate loss) $1,160,037.48. In my understanding Mr Crane's calculations relate to brokerage income and volume discount, not to profit derived as a result of conducting the business in which they were earned.
59 Mr Crane's reasoning includes taking the defendants' earnings in dealing with clients and referrers who had earlier dealt with the plaintiff, making an allowance of 10% discount for vicissitudes, and otherwise treating the whole of the commission derived by the defendants over some years from these sources as a measure of the plaintiff's loss. I do not think that this approach is correct; there are many reasons underlying my opinion, but the principal one is that I do not think that the approach addresses the highly particular nature of the breaches of contract which have been found and does not appropriately relate loss to those breaches. Mr Crane's approach would be appropriate in a case in which was a breach of contract for the brokers to do business with people who had been clients or referrers of the plaintiff; to do business with them at all. The approach taken in Dalysmith Corporation v Cray Personnel could be applied in such a case. Mr Crane's approach does not deal adequately, and hardly deals at all with the important circumstance of the freedom of the brokers to set up business, the freedom of clients and referees as to go to them, or with the limited nature of the advantage conferred on the brokers by having the information, with consequential close limitations on the relevant disadvantage and loss imposed on the plaintiff.
60 Defendants' counsel contended, on the basis of analysis by counsel of the plaintiff's financial statements in evidence, that its profit ratio, when relating profit to total income, was 10.51% in the financial year 2000/2001, and 10.64% when taken on an average over six financial years from 1999/2000-2004, 2005. I am not confident in this analysis, which was not supported by expert evidence, but was based on counsel's reading of the financial statements. According to counsel's analysis, the profit ratios vary very greatly from year to year, from a low of 2.88% to a high of 16.29%; this diminishes confidence in reliance on the average. However that may be, the profit factor was an element which the plaintiff should have included in the exercise which Mr Crane set out to demonstrate, and the analysis based on the balance sheets is the best figure available to me; if I were to act on this analysis the figure I would adopt would be one of approximately 10% based on the plaintiff's experience in the year 2000/2001. As appears more generally from my observations, I do not adopt Mr Crane's method or any variant of it.
61 Incremental extra business gained in an existing operation is usually more profitable than other business because the costs of the operation have largely been paid. There may be a corresponding effect in the other direction or decremental business; business which is lost. I would have been assisted by expert evidence on the subject.
62 The question whether persons falling within a number of different categories were appropriately treated as clients for Mr Crane's purpose emerged from the definition of disputes in the Scott Schedule. The parties achieved agreement on a number of these categories, but left some on which they sought my decision; four categories in the Scott Schedule related to disputed leasing transactions, and four categories in the Scott Schedule relating to mortgage transactions. The parties put before me "Agreed issues for determination by the Court" in these terms:
Hunter Business Finance Pty Ltd v Ennis & Ors
SC Eq 5022 of 2000
AGREED ISSUES FOR DETERMINATION BY THE COURT
[Expert reports of Peter Crane dated 23.11.06 and 10.9.07]
1. The plaintiff relies on two affidavits of Peter Crane, chartered accountant, sworn on 23 November 2006 and 10 September 2007.