Hunter Business Finance v Australian Business and Equipment Finance and Ors

JUDGMENT OF : Gzell J DECISION : Order that enquiries as to damages for breach of contract by plaintiff and defendants be held before a Master

CATCHWORDS : EQUITY - Equitable Doctrines and Presumptions - Whether relief against abuse of confidential information should be granted when a contractual term exists - Whether commission-only agents owe fiduciary obligations to principal - Whether it is appropriate to order an account in aide of common law rights - CONTRACTS - General Contractual Principles - Implied terms - Breach of contract - PROCEDURE - Miscellaneous procedural matters - Enquiry as to damages for breach of contract before a Master Consumer Credit Act 1995 Consumer Credit Code Fair Trading Act 1987 LEGISLATION CITED : Trade Practices Act 1974 (Cth) Corporations Act 2001 (Cth) Evidence Act 1995 Income Tax Assessment Act 1936 (Cth) CH Magill v National Australia Bank Ltd [2001] Aust Contract Reports 91,601 Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Codelfa Constructions pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Hawkins v Clayton (1987-1988) 164 CLR 539 Commonwealth Bank of Australia v Spira [2002] NSWSC 905 Breen v Williams (1995-1996) 186 CLR 71 Securities and Exchange Commission v Chenery Corporation 318 US 80 (1942) at 85 Maguire v Makaronis (1996-1997) 188 CLR 449 Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 Moorgate Tobacco Co Ltd v Philips Morris Ltd (No. 2) (1984) 156 CLR 414 Vokes Ltd v Heather (1945) 62 RPC 135 CASES CITED : Faccenda Chicken Ltd v Fowler [1987] Ch 117 Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at 47-48 Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 Zeus Chemical Products Pty Ltd v Jaybee Design & Marketing Pty Ltd (1998) 41 IPR 491 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Forkserve Pty Ltd v Pacchiarotta (2001) 50 IPR 74 at 78 Winterton Constructions Pty Ltd v Hambro Australia Ltd (1992) 39 FCR 97 Barnes v Addy (1874) 9 Ch App 244 Briginshaw v Briginshaw (1938) 60 CLR 336 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Commissioner for Corporate Affairs v Bracht [1989] VR 821 Re HIH Insurance; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 Meagher, Heydon, Leeming, "Equity: Doctrines and Remedies" 4th ed Lexis Nexis Butterworths, Australia, 2002, par 25-020 Hunter Business Finance Pty Limited - Plaintiff Australian Commerical & Equipment Finance Pty Limited - 1st Defendant Garry Francis Ennis - 3rd Defendant PARTIES : David John Flanagan - 4th Defendant Errol Sky - 5th Defendant Belfolex Pty Ltd - 6th Defendant Optimal Finance Pty Ltd - 7th Defendant Egras Pty Limited - 8th Defendant FILE NUMBER(S) : SC 5022/00 COUNSEL : Mr C J Stevens QC/ Mr R K Eassie for the Plaintiff Mr D J Fagan SC/ Mr H Stowe for the Defendants SOLICITORS : Sparke Helmore Solicitors Mason Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5022/00 HUNTER BUSINESS FINANCE PTY LTD V AUSTRALIAN COMMERCIAL & EQUIPMENT FINANCE PTY LTD AND OTHERS JUDGMENT 1 The plaintiff, Hunter Business Finance Pty Ltd ("HBF"), conducted a finance broking business. The third to fifth defendants, Garry Francis Ennis, David John Flanagan and Errol Sky, performed broking services from the premises of HBF. At a later stage, Messrs Ennis, Flanagan and Sky became employees of companies controlled by each of them respectively, Belfolex Pty Ltd, Optimal Finance Pty Ltd and Egras Pty Ltd, the sixth, seventh and eighth defendants. From that time their services were provided through those companies. 2 Later still, Messrs Ennis and Flanagan established Australian Commercial & Equipment Finance Pty Ltd ("ACEF"), the first defendant, and they together with Mr Sky ceased to operate from the premises of HBF and commenced to operate under the auspices of ACEF. 3 Files and copies of the contents of files were removed from the offices of HBF. Information stored on the HBF computer database was downloaded. The files and stored information were helpful in the efficient creation of a new application for finance on behalf of a person for whom previous finance had been arranged. The files and stored information were perused by each of Messrs Ennis, Flanagan and Sky after they left HBF. They transferred the information with respect to persons introduced by each of them respectively to HBF to new files in the names of each of them and they utilised that information in the conduct of their activities under the auspices of ACEF. 4 HBF claimed that the clients were its. Messrs Ennis, Flanagan and Sky claimed that they were, respectively, clients of theirs or clients of their companies. HBF sued for breach of contract, breach of fiduciary duty, misleading and deceptive conduct under the Fair Trading Act 1987 and the Trade Practices Act 1974 (Cth), unconscionable conduct under the Trade Practices Act 1974 (Cth), fraud, the use of confidential information and breaches of officers' duties under the Corporations Act 2001 (Cth). HBF had claimed relief against six other defendants. Those proceedings were compromised during the trial. 5 At the time Messrs Ennis, Flanagan and Sky left HBF, finance transactions had been progressed by each of them respectively to the stage that their companies would have been entitled to a share of commissions had they remained with HBF. By way of cross-claim, Messrs Ennis, Flanagan and Sky and their respective companies sought an account of those commissions. A number of heads of claim were abandoned during the trial. I refused a late application to amend to include a claim for an account of a share of bonuses received by HBF. 6 Central to the dispute are the terms of the contracts between HBF and Messrs Ennis, Flanagan and Sky. Those contracts were constituted partly orally and partly by conduct. There is little dispute about the bulk of what was said. Ian Rodney Ball and his wife Karen Ball were the shareholders and directors of HBF. Mr Ennis was the first broker to be engaged by HBF. 7 HBF had a number of accreditations with relatively large finance houses and a number of accreditations with smaller financiers. Accreditation meant that HBF was regarded by the finance house in question as a reliable introducer of customers. It enabled HBF to negotiate with those financiers terms of finance for clients. 8 In his discussion with Mr Ennis, Mr Ball said that HBF would make available its computer, secretary, office space, administrative and secretarial support and Mr Ennis could use HBF's accreditations for a split of commission: 70%/30% for the first $4000 per month and 80%/20% thereafter, Mr Ennis getting the lion's share. Mr Ball also said that if a client that he had dealt with came in for repeat business, Mr Ennis was not to deal with him. Likewise, if a client that Mr Ennis had attracted to HBF sought repeat business, Mr Ball would not try to poach the client from Mr Ennis. There was no fixed term for the engagement and no requirement as to notice. In cross-examination, Mr Ball agreed that either party could end the relationship forthwith. There was no restraint of trade provision following the termination of the relationship. 9 HBF had a number of referrers, accountants and suppliers, who referred potential borrowers to HBF. Mr Ball said that the non-poaching rule applied equally to referrers. Mr Ennis was not to approach Mr Ball's referrers and try to take away clients referred by them. Equally, the clients referred by a referrer developed by Mr Ennis were not to be poached by Mr Ball. Conversations in like terms were had by Mr Ball with Mr Flanagan and later with Mr Sky when they were engaged by HBF. 10 Mr Ennis gave evidence that in the course of the conversation with him he said to Mr Ball: "The files must be mine otherwise I might as well go and get myself a job". Mr Flanagan gave evidence that Mr Ball said: "You would be working for yourself to generate your own clients and your own referral sources". Mr Sky's evidence was that during the conversation with him, Mr Ball said that HBF's fee was "based on the brokerage fees generated by your clients". 11 Mr Ball denied that he had said these things. He regarded persons whose applications for finance were made by HBF at the instance of Messrs Ennis, Flanagan and Sky to be HBF clients. Mr Ball said he invariably applied a practice and had done so during his previous engagement by different financial institutions. When he opened his own business he said he invariably informed persons engaged in the business that all clients were confidential to HBF and no information relating to them was to be disclosed to anybody outside the office. Based on his practice, Mr Ball said he believed he told this to Messrs Ennis, Flanagan and Sky on their appointment and neither Mr Ennis nor Mr Flanagan nor Mr Sky demurred to this requirement. Mr Ball said that on different occasions during their relationship he believed he said to Messrs Ennis, Flanagan and Sky that clients with whom they dealt were clients of HBF and their files belonged to HBF. He said there was never any disagreement. 12 The dispute between the parties will be resolved by a decision whether or not persons introduced to HBF by Messrs Ennis, Flanagan and Sky or their respective companies were clients of those companies or clients of HBF. If they were clients of HBF, Messrs Ennis, Flanagan and Sky were not entitled to utilise the information removed from HBF in the interests of ACEF. If they were the clients of the companies of Messrs Ennis, Flanagan and Sky, the information could be used for the benefit of ACEF. 13 Mr Fagan SC, who with Mr Stowe appeared for the defendants, submitted that Mr Ball's evidence of these conversations should not be accepted. Mr Ball had not mentioned such conversations in his first two affidavits and in his third affidavit he said that given the passage of time he could not be categorical that he said to the brokers the information in the files belonged to HBF and was confidential. I struck out portion of his fourth affidavit relating to this issue. In the balance of that affidavit he said that on a number of occasions which he believed included the initial interviews he said: "The clients with whom you deal with (sic) are clients of HBF and their files belong to HBF". In evidence in chief for which I gave leave, Mr Ball said he had a practice that he universally applied to inform people he engaged: "As you are aware, we are in the finance industry. All clients are confidential. No information relating to these particular files should be disclosed to anybody outside the office". He said he followed that practice with respect to each of Messrs Ennis, Flanagan and Sky. 14 These matters do not cause me to reject the evidence of Mr Ball. The conversations with the brokers were not the subject of the first two affidavits. It is not, as was submitted, a case of an opportunity not taken. The fourth affidavit was not inconsistent with the third. Mr Ball could not be categorical but he believed he had spoken about confidentiality during the engagement conversations with each of the brokers. In evidence in chief he was more confident that his universal practice had been applied to each of the brokers. I reject the submission that the two versions of what was said are inconsistent. The initial conversation with Mr Ennis took place in about July 1990. Exact recollection of precise verbiage cannot be expected. 15 It was submitted that Mr Ball's evidence should not be accepted in preference to that of the defendants because he strove to "push" HBF's case. I reject that submission. I did not form the view during the extensive cross-examination of Mr Ball that he sought to advance his case at the expense of the defendants. In my view he was open-handed in giving his evidence. It was further submitted that his fraudulent conduct with respect to borrowers from Macquarie Leasing Pty Ltd should cause me to disregard his evidence where it was in conflict with that of the brokers. Mr Ball was quite open about that matter. He had built on to pay-out figures obtained from Macquarie Leasing an administration charge to which HBF was not entitled, obtained an augmented pay-out sum from clients and retained the extra amount. Upon being questioned about it by Macquarie Leasing he admitted his culpability, tendered a letter of termination of the principal and agency agreement HBF had with Macquarie Leasing and made reparation to all clients. Reprehensible though that conduct was, it did not cause me to change the impression I gained of him as a truthful witness. 16 It was submitted that in a later affidavit, Mr Ball gave a version of his engagement conversation with Mr Sky that added an element to an earlier version of the conversation as an unconvincing afterthought. In the later affidavit, Mr Ball said his recollection of the effect of the conversation included his statement: "The idea is that you will go out and generate business for HBF". It was submitted that the addition of the words "for HBF" was an attempt to embellish the plaintiff's case. It is too much to expect a witness to recall exactly the wording that was used in a conversation that took place in January 1997. In any event, the earlier version of the effect of the conversation included: "Any client you bring into HBF you have the responsibility to manage". I fail to see the conflict. 17 Mr Ball's previous practice in announcing confidentiality of files was limited to his appointment of employees. He said that made no difference when he came to appoint the brokers. I agree with him. 18 Paul Benson swore an affidavit that was read by the defendants. He said he answered an HBF advertisement and spoke with Mr Ball. Mr Benson was already in the finance broking business and Mr Ball proposed that he put leasing deals through HBF on a commission share basis. Mr Benson did not recall Mr Ball raising the issue of ownership of client files or confidentiality of the information in them. Mr Benson has an on-going relationship with HBF. He said that on more than one occasion Mr Ball said that Mr Benson's clients were his. He would not be trying to take them off him. In cross-examination, Mr Ball explained the difference between Mr Benson on one hand and the defendants on the other. Mr Benson was a finance broker in his own right operating from his own premises. He had personal accreditations for mortgage finance but he had no accreditation for commercial lease finance and in relation to such finance Mr Ball agreed to a split of commission and Mr Benson's retention of his clients. 19 Andrew John Licata also swore an affidavit read by the defendants. He was engaged by HBF as a broker. He said that at no time during the course of his initial interview or during the period of his engagement did Mr Ball inform him that information contained in the files maintained for clients belonged to HBF or was confidential to HBF. Mr Licata was not cross-examined. Mr Ball, in his cross-examination, said he could not recall what he said to Mr Licata but his practice was as he had stated it to be. 20 Mr Ball was cross-examined at length as to the occasions when he repeated his assertion of confidentiality and ownership of client files. It was submitted that in their context there was no occasion for the issue to be raised. For example, when Mr Ennis spoke to Mr Ball about acquiring a business, Paragon Plant Hire, and Mr Ball spoke about a conflict, he also said that he informed Mr Ennis that all the clients and the information contained in the files were confidential. It does not seem to me that context or the context on the other occasions specified by Mr Ball was such as to make it unlikely that the issue was discussed. 21 These matters do not cause me to doubt that, with respect to Messrs Ennis, Flanagan and Sky, Mr Ball adopted his practice. I am assisted in arriving at this conclusion by my rejection of the evidence of Messrs Ennis, Flanagan and Sky where it conflicts with Mr Ball because of the unsatisfactory aspects of their testimony dealt with below. I accept Mr Ball's recollection of the effect of what was said initially and what was said thereafter based upon his practice. 22 Mr Fagan, correctly in my view, submitted that acquiescence by silence to an assertion of ownership and confidentiality with respect to files could not constitute a variation of the contract of engagement. In my view, however, the reiteration of the requirement during the course of the relationship and its being greeted by silence makes it more likely that the requirement was stated by Mr Ball during the engagement conversations and constituted a contractual term. 23 Mr Fagan further submitted that the phrase "all clients are confidential" was meaningless and the prescription that no information relating to them was to be disclosed to anybody outside the office did not purport to assert that any information was confidential as between HBF and the brokers. I reject those submissions. The meaning was clear and was put beyond doubt by later discussion. Persons introduced to HBF became its clients, the client files were the property of HBF and the information in those files was confidential as between HBF and the brokers. 24 On the defendants' case, they conducted their own businesses developing goodwill of those businesses in the form of satisfied clients. HBF merely provided services to the defendants in the conduct of their businesses in consideration for the retention of a small portion of commissions. Those services included the compilation of files on clients for the defendants and the development of computer databases for the businesses of the defendants. There was no compulsion to place finance applications in the name of HBF. If one of the defendants chose to place a finance application elsewhere and did not utilise the services of HBF, it was not entitled to share in any commission received by that defendant. 25 I reject that characterisation of the arrangements between the parties. In my view HBF conducted the business of finance broking. The defendants were engaged to develop that business. They were obliged to place finance applications in the name of HBF and were obliged to assist in developing its goodwill. The client files and computer databases were developed in furtherance of the business of HBF and were its property. HBF provided that property and administrative and secretarial assistance and its accreditations to the defendants to assist them in the development of the HBF business. The defendants provided their services to HBF in consideration for the lion's share of the commission. For the efficient conduct of its business, HBF laid down a rule that the brokers should not conduct repeat business with clients introduced to HBF by Mr Ball and, correspondingly, Mr Ball should not conduct repeat business with clients of HBF introduced by the defendants. 26 It follows from the defendants' characterisation of the relationship that they were at liberty to place business in direct competition to HBF provided they did not utilise HBF's facilities. That non-commercial result is unlikely to have been the agreement and Mr Ball denied that it was. In my opinion, persons introduced to HBF by any of the brokers became clients of HBF. 27 In his submissions, Mr Fagan pointed out that Mr Ball agreed in cross-examination that Mr Ennis was running his own business. It was argued that this admission when coupled with the non-poaching rule meant that HBF respected the goodwill of each broker arising from his establishment of relationships with clients and referrers. 28 Mr Ball clearly did not regard Messrs Ennis, Flanagan and Sky as employees. HBF did not deduct PAYE income tax instalments nor make superannuation contributions with respect to them. Mr Ball told Mr Flanagan after some changes to the Income Tax Assessment Act 1936 (Cth) in 1996 that unless Mr Flanagan incorporated a company and operated through it, HBF would have to treat Mr Flanagan as an employee. The brokers were engaged as commission-only agents and as such conducted their own businesses. That does not mean, however, that the persons they introduced to HBF became clients of their businesses. In my view, the brokers were engaged to introduce clients to the business of HBF and the non-poaching rule was merely an efficient way for HBF to conduct its business. 29 If the contractual arrangements between the parties were as the defendants would have them, one would have expected the use of the individual names and, subsequently, the corporate names of the defendants or, at the very least, an indication that the defendants were independent brokers when carrying out their activities from the premises of HBF. 30 On the contrary, with negligible exception, all documentation originated by the defendants was on HBF letterhead and the defendants used HBF standard form templates. The standard letter which went out on HBF letterhead upon completion of a transaction, such as the purchase of a new motor vehicle, was in the following terms: "Thank you for using HBF's services recently when purchasing your new vehicle. For your future reference we have listed below our full range of services. v Leasing and Commercial Hire Purchase - all types of equipment - trucks - earthmoving - aircraft - motor vehicles etc. v Business acquisitions and the restructuring of current business loans to conform with changing market rates. v Factoring - confidential - notification - trade finance - export. Provides cash flow for high turnover companies by releasing funds tied up in debtors. v Real Estate Finance - Hotels/Motel - Commercial - Industrial - Residential - Rural - Project Development. Interest Only or Principal and Interest or Lines of Credit arranged. The greatest assets that a company such as ours can have are clients that approach business as we do - ethically, honestly, and professionally. As such, we will be pleased to assist you with any future transactions which may come under your consideration. Once again, thank you for using our services and we look forward to being of assistance to you in the future."

That is a letter consistent only with the development of goodwill of the business of HBF. It is not a letter consistent with the development of goodwill of individual businesses conducted by the defendants. 31 Mr Ball acted consistently in accordance with the proposition that Messrs Ennis, Flanagan and Sky worked for HBF and not independently. It was necessary, from time to time, for HBF accreditations to be reviewed. In so doing Mr Ball wrote on HBF letterhead to the relevant financier stating that Messrs Ennis, Flanagan and Sky were brokers with HBF. Mr Ball also gave references to Messrs Flanagan and Sky stating in the one case that Mr Sky was employed by HBF as a subcontractor on a commission-only basis and in the other case that Mr Flanagan worked as a full-time subcontractor to HBF. There was no evidence that Mr Flanagan or Mr Sky queried Mr Ball's description in providing them with these references. 32 On a number of occasions Mr Ennis wrote to prospective referrers introducing Hunter Business Finance and not his own finance broking business in each case concluding: "We appreciate this opportunity to assist and look forward to doing further business in the future". Mr Sky and Mr Ennis sent their business cards by facsimile to various people. The business cards were in the name of the individual broker under a logo and heading for HBF. This contrasted with the practice of Messrs Ennis, Flanagan and Sky when acting under the auspices of ACEF to note on their business cards that they were independent finance brokers. 33 When answering the telephone each of Messrs Ennis, Flanagan and Sky introduced themselves by name as a broker working for HBF. They never said on the telephone to anyone that they were independent finance brokers working out of HBF. 34 At one stage Mr Flanagan gave income tax advice to people he introduced to HBF. Mr Ball took issue with this practice and required Mr Flanagan to sign an acknowledgment and warranty in consideration for HBF not forthwith terminating the contractual arrangement between them. The document acknowledged that Mr Flanagan had given advice to clients of HBF and he warranted that he would not give any advice to any client of HBF regarding taxation matters or any other matters not specifically authorised by HBF in writing and, furthermore, he would not assist any such client to complete any taxation form or other form unless specifically authorised by HBF. 35 That document is inconsistent with Mr Flanagan's assertion that such persons were his clients and not the clients of HBF. In cross-examination, Mr Flanagan said that these descriptions were not his understanding of the "relationship" or "ownership" of clients. The matter had been raised by Mr Ball in one of his affidavits to which there was no response by Mr Flanagan in his affidavit in reply. Mr Flanagan neither sought to have the description limited to persons he regarded as his clients nor did he cavil with the description in the document. 36 Notwithstanding his warranty, Mr Flanagan continued to provide income tax advice in the sense of preparing a depreciation schedule for fixtures and fittings and providing other items for consideration for income tax instalment variations and advice on deductions claimed with respect to investment property purchased in the name of one person when the loan to fund the acquisition was in joint names. Mr Flanagan said that he was not giving taxation advice because the material was to be passed on to accountants. This aspect of his evidence did not reflect well on his credit. 37 Mr Sky was a party to and was provided with a copy of a joint venture proposal by HBF to the Greater Building Society. It contained reference to a client base of HBF of over 1,500 regular clients and its having five full-time and one part-time broker (commission-only salesmen) operating in the market. During the initial phase it was proposed that neither Mr Ball, Mrs Ball, nor Mr Sky would draw upon the joint venture. The document stated: "It is our intention because of the above to continue to work HBF Brokerage with the view of being full-time with the joint venture as need dictates". The document is inconsistent with Mr Sky's assertion that persons introduced to HBF by him became his clients. Mr Sky's explanation in cross-examination was that this was a marketing document and it was better to present things as under the HBF name. 38 Subsequently, Mr Sky prepared a proposal to Companion Credit Union drawing upon the material in the Greater Building Society joint venture proposal. It referred to the combining of "our" respective talents and ascribed to HBF current clients of 2,500. Mr Sky again said that this letter, signed by him, was a marketing one speaking in general terms since the recipient did not want to know what the relationship was beneath the structure. 39 Given the weight of documentary evidence, with which these two proposals are consistent, that persons seeking finance through HBF were HBF's clients regardless of the broker who introduced them, I pay little regard to Mr Sky's attempt to overcome the inconsistency of his position and the two proposals he signed or to which he was a party. 40 Mr Fagan drew my attention to CH Magill v National Australia Bank Ltd [2001] Aust Contract Reports 91,601 at 91,609-91,610 in which Ipp AJA with whom Meagher and Heydon JJA agreed, preferred the view expressed by Bryson J in Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103 that subsequent conduct by the parties is inadmissible as an aid to the construction of a contract. In the instant circumstances, however, I do not have regard to subsequent conduct in interpreting the contract between the parties but rather to determine the terms of the contract based on conduct and to test the rival claims as to the conversations by which terms of those contracts were established. The conduct of the defendants outlined above is consistent with Mr Ball's version of the conversations and inconsistent with the defendants' versions of the conversations. 41 As well as the documentary evidence, there was evidence of conversations inconsistent with the stance taken by the defence. Mr Ball and Mr Ennis had a discussion about forming a partnership. A figure of $15,000 was mentioned. Mr Ennis's version was that this was for a 49% interest and when Mr Ennis complained that that did not create a partnership, he said Mr Ball responded: "I set the business up and I am not giving up control. The business is mine". Mr Stevens QC, who with Mr Eassie appeared for HBF, submitted that what was under discussion was the entirety of the activities of HBF and it would be a strain on the language used to regard Mr Ball as segregating out those persons introduced by Mr Ennis and offering him 49% of those persons introduced by himself. I agree with that submission. 42 On a number of occasions Mr Ball gave instructions to the other brokers. If the defendants were conducting their own businesses, there was no place for instruction by Mr Ball. The fact that instructions were given and accepted suggests that the defendants were providing services to HBF rather than that HBF was providing services to the defendants. 43 The Consumer Credit (New South Wales) Act 1995 introduced the Consumer Credit (New South Wales) Code with effect from 1 November 1996. On 30 October 1996 Mr Ball wrote to Mr Ennis and Belfolex and to Mr Flanagan and Optimal stating that HBF had put into place a number of steps to prevent a breach of the code. There was a telephone script sheet allowing the brokers to identify credit code regulated contracts. There was a regulated quotation sheet designed to cover obligations under the Act. Mr Ball required these matters to be checked by a director of HBF or another contracted broker. Finally, Mr Ball required all regulated contract applications to be initialled by a director of HBF before being submitted to a lender. The letter stated that if any breach of the requirements resulted in loss to HBF, the broker and his company jointly and severally would be held liable to indemnify HBF against such loss. 44 Messrs Ennis and Flanagan did not demur to the procedures set out in the letter and conducted themselves in accordance with those strictures. That conduct is inconsistent with the assertions of the defendants that it was they who were conducting their own businesses to which HBF merely provided services. 45 Similar observations apply to the directive issued by Mr Ball to cover the situation where work was performed by one broker with respect to a person introduced by another broker when that other broker was on holidays. If Mr Ball did the work for one of the other brokers, the HBF share of commission increased to 50%. If another broker performed services for yet another broker when on holidays they each shared 50/50 the commission payable to the broker on holidays. 46 In the event of a dispute arising as to who was entitled to commission, Mr Ball gave unchallenged evidence that he was the final arbiter. Mr Flanagan gave evidence that on one occasion he approached Mr Ball for a decision with respect to a person referred to Mr Flanagan by one of his referrers for whom Mr Ball had provided services in the past. That evidence is consistent with the conduct of a business by HBF to which the defendants provided services and not the other way round. 47 When Mr Ennis joined HBF it was Mr Ball who divided up the accountant referrers. When Mr Flanagan was engaged, Mr Ball made the decision about the identity of the accountants whom Mr Flanagan could contact as potential referrers of customers. 48 HBF entered into a principal and agency agreement with State Bank of New South Wales Ltd that became Colonial State Bank of New South Wales. Under that agreement HBF was identified as the lender on loan documents with clients, there was an ability to lower the interest rate charged to clients by 0.2% and HBF was entitled to a bonus dependent upon the volume of business placed under the agreement. HBF was also entitled to charge an application fee. HBF accounted to the brokers for the application fee less an administration charge of about 12% and retained the bonus. HBF accounted to the brokers for the commission payable under the agreements in the usual manner. 49 Later, HBF entered into a principal and agency agreement with Macquarie Leasing. It provided for a reduction of 0.3% in the standard interest rate to clients and a bonus was payable irrespective of volume. In other respects it was similar to the agreement with Colonial State. 50 There was clearly an advantage to HBF to have the brokers place applications for finance under those agreements. In cross-examination, Mr Ball agreed that he had instructed the brokers to place applications under the principal and agency agreements wherever possible. Mr Ennis denied that this was an instruction from Mr Ball. He said he was attracted to place applications to Colonial State and Macquarie Leasing because of the retention of part of the establishment fee and discounted interest rates. Mr Sky accepted that Mr Ball had said he wanted as much business as possible put through Colonial State. Later, with respect to the Macquarie Leasing principal and agency agreement, Mr Sky did not recall Mr Ball saying that he wanted an 85% to 90% hit rate every month of deals going to Colonial State or to Macquarie Leasing. Mr Flanagan denied he was instructed to place business with Colonial State and Macquarie Leasing. He said it was a request from Mr Ball to do so. 51 It was the fact that the majority of applications were placed by the brokers through Colonial State and Macquarie Leasing. In cross-examination, Mr Flanagan agreed with this proposition but said it was the brokers who elected to use the principal and agency agreements for their clients. I do not accept that evidence. Whether it was a request or a directive, it was Mr Ball who indicated that the brokers should place as much business as possible under the principal and agency agreements and the brokers concurred in that course. 52 That, again, is an indication that it was the business of HBF under the stewardship of Mr Ball that was being conducted rather than the asserted independent businesses of the brokers to which HBF merely provided its services. 53 When Mr Ennis purchased Paragon, he sought direction from Mr Ball who said he was concerned that it might cause conflict with HBF clients as some of them contracted with Paragon. Mr Ennis said he would put a system in place so that the hands-on management was done by someone else. Mr Ball said that so long as the business did not conflict with HBF and Mr Ennis did not use HBF facilities and was not drawn away from the mainstream HBF business, he had no problem. If Mr Ennis was conducting his own business and HBF was merely the provider of services to it, there was no occasion for Mr Ennis to seek approval from Mr Ball. 54 When RAMS made HBF its sole agent for the area, Mr Ball informed Mr Ennis that he was not going to retain all the trailing income notwithstanding Mr Ennis's protest that the trailing income was his. There could not have been a directive of that nature if Mr Ennis was conducting his own business. 55 Mr Flanagan put a proposition to Mr Ball that HBF and Law Fund enter into a joint venture. Mr Ball rejected this suggestion. Mr Flanagan said Mr Ball had no objection to his placing mortgage finance with Law Fund but about six weeks later Mr Ball changed his mind and said: "You choose, you either go and do your mortgages or you stay and work here. There are no halfway measures". Mr Ball said there was only one conversation in which he made the above statement. In cross-examination, Mr Flanagan said he responded: "I won't do any more Law Fund work". He said he finished off existing matters and did not place any further work with Law Fund. Mr Flanagan's acceptance of Mr Ball's directive is inconsistent with his assertion that he was conducting his own business and free to choose with which financier he would place his clients' business. 56 In similar vein was the conversation Mr Flanagan had with Mr Ball about his prospective involvement with Australian Property Finance ("APF"), a partnership associated with Financial Analysis Services of Australia ("FASA") and Gregory Raymond John Sterland. Mr Flanagan said he told Mr Ball that APF was looking for a leasing division and suggested that he set up a desk in their office and generate business from their writing agents to channel back through HBF. He requested a reduction in the HBF share of commission to 10%. Mr Flanagan's version of the response by Mr Ball was: "I won't reduce the retention and you need to work through either here or there". If Mr Flanagan was a free agent, he need not have consulted Mr Ball about the matter. Mr Ball's statement that Mr Flanagan work at HBF or at APF clearly indicated that Mr Ball regarded the arrangement between HBF and Mr Flanagan as one in which Mr Flanagan served the business ends of HBF. Mr Flanagan's case was to the contrary yet Mr Flanagan did not seek to disabuse Mr Ball of his understanding. 57 Mr Flanagan said that on no less than five occasions Mr Ball questioned his applications for finance through GIO Finance Ltd. Again, if Mr Flanagan was free to place business with any finance house he chose, it was none of Mr Ball's business to make the inquiry and one would have expected Mr Flanagan to have said so. Instead, he responded that they were giving him the best deal. 58 Mr Ball said on a number of occasions he reprimanded Mr Flanagan for the way he carried out his activities. With respect to one occasion Mr Flanagan acknowledged Mr Ball's dissatisfaction and said that without any consultation with him Mr Ball deducted a larger percentage than agreed from the brokerage in question. There was unchallenged evidence from Mr Ball that on a number of occasions he told Mr Flanagan to "lift his game" and to be more conscientious about office time. About twelve to eighteen months after Mr Flanagan's divorce, Mr Ball said: "I am sick of carrying you and it's about time you wake up to yourself and get on with it. If you don't or can't, I cannot afford to carry you". Mr Flanagan dissolved into tears, requested another chance and promised he would "pick up his act". These incidents are inexplicable in terms of the defendants' case that they were independent agents for whom HBF was providing services. 59 To like effect was Mr Flanagan's evidence that on no less than three occasions from 1997 onwards, Mr Ball approached him and asked whether he was writing mortgages. Mr Flanagan responded that he was referring these matters to Mr Sterland at APF and was not writing them from HBF. If, as Mr Flanagan claimed, he was free to run his business as he saw fit, one would have expected him to tell Mr Ball it was none of his business. He did not do so. 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. 61 The letterheads of Belfolex and Egras were not used. Optimal letterhead was used on a few occasions in relation to regulated mortgage finance applications prepared by Mr Flanagan after hours and condoned by Mr Ball at about one every two months to give Mr Flanagan something to do at weekends after his divorce. 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. 63 There were issues of credit that assisted me in reaching my conclusion that the version of conversations and events given by Mr Ball was to be preferred to the evidence of Messrs Ennis, Flanagan and Sky. 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. 65 Mr Flanagan obtained personal accreditations with St George Bank, Colonial State and FASA. He must have known Mr Ball's position that all finance, other than the weekend work on regulated mortgage finance, should be placed exclusively through HBF. That was the basis for Mr Ball's directives with respect to Law Fund and APF. Yet Mr Flanagan never revealed to Mr Ball that he had, and was utilising, personal accreditations. 66 Mr Fagan submitted that exclusivity formed no part of the relationship. In his submission the defendants were under no obligation to provide any services whatsoever to HBF. The only obligation they had was to share any commission that accrued on transactions they chose to place through HBF in the sense of using HBF's accreditations and administrative facilities. He submitted that it was not reasonable or equitable to imply exclusivity terms as the brokers had no security of income and could starve if they could not get transactions. I reject those submissions. The whole modus operandi was aimed at developing the name and business of HBF. Mr Ball made it perfectly clear that he expected the brokers to place their finance requirements using HBF accreditations and, in particular, with Colonial State and Macquarie Leasing. He issued directives to this effect and admonished poor performance. He made it clear that the business of HBF came first. Mr Flanagan had to decide between Law Fund and APF on the one hand and HBF on the other. The brokers could terminate the relationship instanter if they were not successful in introducing new clients. Their security lay in the lion's share of any commissions from persons they introduced. 67 In my view a term is to be implied in the contracts of engagement that the brokers were not to carry out work that conflicted with HBF and another term is to be implied that the brokers were to provide their services exclusively to HBF unless it agreed to the contrary. In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 the Privy Council held that: "… for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

See, also, Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 and Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. A degree of flexibility is required in a case such as the present where the parties have not attempted to spell out all the terms of their contract. The imputed intention of the parties is to be gained from their words and conduct ( Hawkins v Clayton (1987-1988) 164 CLR 539 at 573). In my view, the imputed intention of the parties was to this effect and, furthermore, each of the conditions in BP Refinery is satisfied with respect to the implication of those terms. 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. 69 There were other inconsistencies in the testimony of Messrs Ennis and Flanagan that support the conclusion that Mr Ball's testimony is to be preferred to that of the defendants. For example, Mr Ennis agreed that he and Mr Flanagan had informed Mr Sterland that, for the purpose of the application by FASA to Macquarie Leasing for accreditation, it might be said that Messrs Flanagan and Ennis were already employed in another brokerage house and dealt with Macquarie Leasing on a regular basis but did not want to disclose their identities until they had resigned from their current roles. 70 When Mr Flanagan was asked whether he was aware that Mr Ennis had been copying the contents of files, he said according to Mr Ball and Jacqueline Anne Corling, an employed receptionist, that the files belonged to HBF. Mr Flanagan's version of what he said was that because of the existence in the files of copies of principal and agency agreements and because HBF paid for the staples and paper and folders and the like, HBF possibly had a right to them. I reject Mr Flanagan's version of the conversation. It is inconsistent with the initial stance of the defendants that the files belonged to the brokers, a claim made by their solicitors to the directors of HBF on 17 November 2000. It was only later that the defendants took the position that HBF might have some entitlement to the files. 71 In addition to the implied terms previously mentioned, the plaintiff claimed that a term as to good faith should also be implied. I agree. I have indicated elsewhere my reasons for the implication of such a term at least in every commercial contract (Commonwealth Bank of Australia v Spira [2002] NSWSC 905 at par 137 to par 155). 72 In my view the essential terms of the contracts of engagement of the brokers were as follows: (a) the brokers were to place applications for finance for clients exclusively in the name of HBF utilising its accreditations unless HBF agreed to the contrary;

(b) the brokers were not to carry out work that conflicted with HBF;

(c) HBF was to provide the brokers with secretarial and administrative support for applications for finance for clients placed in the name of HBF;

(d) HBF was to pay the brokers 70% of the first $4,000 of commissions received per month with respect to clients introduced by the broker and 80% of any additional such commissions;

(e) information relating to clients was confidential to HBF;

(f) clients introduced by the brokers became the clients of HBF;

(g) materials contained in client files and in the HBF computer databases belonged to HBF; and

(h) the parties were, in performing obligations and exercising rights under the contracts, to act in good faith.

I regard the later directives as to non-poaching, sharing of commissions with brokers on holiday and non-participation in regulated transactions without the approval of a director as directions as to the manner in which par (a) above was to operate in practice. I do not regard any of them as variations of the contracts of engagement. 73 HBF has established a breach by Mr Flanagan of par 72(a) and par 72(b) and breaches by each of the brokers of par 72(e), par 72(g) and par 72(h). The defendants have established a breach by HBF of par 72(d). In their defence to the cross-claim, HBF and Mr Ball put in issue the date of settlement of some transactions relative to the date of termination of the engagement with the relevant broker and his company. That is a matter to be addressed when it comes to the quantification of the relief to which the defendants are entitled. 74 HBF also claimed that Messrs Ennis, Flanagan and Sky were in breach of fiduciary duties to act bona fide in the best interests of HBF, to avoid placing themselves in a position where their duties conflicted with their own personal interests or those of persons or companies of which they were directors, substantial shareholders or otherwise associated and not to use their position with HBF to gain an advantage for themselves or for any other person or company. 75 These were commercial contracts of engagement negotiated at arm's length. That circumstance is important, if not decisive, in indicating that no fiduciary duty arose (Hospital Products at 70). The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations. The critical feature is that the fiduciary undertakes or agrees to act for or on behalf of the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship gives the fiduciary a special opportunity to exercise power or discretion to the detriment of the other person who is accordingly vulnerable to abuse by the fiduciary of that position (Hospital Products at 96-97). Those aspects are missing in the relationship between HBF and the brokers. Because each of the brokers and Mr Ball separately managed the persons they introduced to the company, there was, in a practical sense, no acting for and on behalf of the interests of Mr Ball or HBF. The brokers did not have a power they might exercise to the detriment of Mr Ball or HBF and neither was in a position of vulnerability to abuse by the actions of the brokers. There was no relationship of ascendancy or influence by the brokers over HBF or dependence or trust on the part of HBF that one would expect in a fiduciary relationship (Breen v Williams (1995-1996) 186 CLR 71 at 82). 76 Agent and principal is one of the recognised relationships said to give rise to fiduciary duties. In Hospital Products at 71-72, Gibbs CJ doubted that every agent was a fiduciary. Furthermore, to say that a person is a fiduciary is only the beginning of the analysis (Securities and Exchange Commission v Chenery Corporation 318 US 80 (1942) at 85). What is called for is the ascertainment of the particular obligations owed in consideration of what acts and omissions amount to a failure to discharge those obligations (Maguire v Makaronis (1996-1997) 188 CLR 449 at 464). As was pointed out by the Court of Appeal in Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 at 45 a status-based fiduciary relationship is not derived from the status but from what is undertaken or is deemed to have been undertaken in the particular circumstances. 77 In the instant circumstances the activities of each broker were effectively isolated from the activities of the other brokers by the management paradigm introduced by Mr Ball. There was neither an acting for nor an opportunity for exercise of power against the interests of Mr Ball or HBF nor a consequent vulnerability in either of those parties. In my view, no fiduciary relationship existed between HBF and the brokers. 78 The plaintiff also invoked the general equitable jurisdiction to grant relief against abuse of confidential information notwithstanding the absence of tort, breach of contract or some wider fiduciary duty (Moorgate Tobacco Co Ltd v Philip Morris Ltd (No. 2) (1984) 156 CLR 414 at 438. 79 The answer to that claim is that, it having being found that confidentiality of information relating to clients was a term of the contracts of engagement, there is no need to invoke the equitable jurisdiction and the temptation to do so should be resisted (Vokes Ltd v Heather (1945) 62 RPC 135 at 141-142, a passage approved by the Court of Appeal in Faccenda Chicken Ltd v Fowler [1987] Ch 117 at 135, Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 at 191). In any event, I am doubtful that the information in question was sufficiently like a trade secret to have fallen foul of a contractual duty of good faith after termination of the contracts of engagement and in the absence of a restraint of trade provision (Faccenda Chicken at 136-137). Furthermore, in the absence of any contractual term, the question whether the information had the necessary quality of confidence to enliven equitable relief for breach of confidence would need to have been considered (Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at 47-48, Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 443). 80 The client files and the computer databases contained applications for finance on behalf of clients and correspondence in relation thereto. The applications contained detailed assets and liabilities information and personal and company tax returns. Separate databases were kept with respect to the principal and agency agreements with Colonial State and Macquarie Leasing. Confidentiality of that type of information is, in this case, established by the express term of the contracts of engagement. 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. 82 The plaintiff sought an account in preference to damages for breach of contract. I have found that there was no breach of fiduciary duty. This is not a case in which equity should order an account in aid of a common law right. The circumstances fall outside the seven categories identified in Meagher, Heydon, Leeming, Equity: Doctrines and Remedies 4th ed Lexis Nexis Butterworths, Australia, 2002, par 25-020 and while the authors do not suggest that the categories are closed, I see no reason to extend them to encompass the instant circumstances. The plaintiff has its remedy in damages for breach of contract and that is an adequate remedy in the circumstances. Similar considerations apply to the cross-claim 83 I will order that there be an enquiry 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. 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. 85 There was no dispute that Mr Flanagan placed mortgage finance transactions otherwise than in the name of HBF utilising its accreditations. This Mr Flanagan did from mid 1995. After the credit code was introduced on 1 November 1996 and Mr Ball made it clear that HBF was not to be involved in regulated transactions, Mr Flanagan used his own real estate mortgage accreditations with Colonial and then for a few months with St George. In late 1997 and early 1998 he placed real estate mortgage transactions through Mr Sterland who processed them through APF and FASA. By this stage Mr Flanagan had lost his own accreditations with St George and Colonial. In December 1999 Mr Flanagan entered into an agreement that allowed him to submit transactions through FASA. Any commissions earned by Mr Flanagan were retained by him. Many of the transactions were done by him after hours and only to a limited extent did he utilise the facilities or services of HBF. 86 Mr Flanagan put the proposition about Law Fund to Mr Ball in 1996. Mr Ball rejected the idea that Mr Flanagan should operate from a desk at Law Fund and said: "You either go somewhere else and do your mortgages or you stay here. There are no halfway measures". Mr Flanagan placed mortgage finance transactions with Law Fund in the six week period which preceded this conversation. He said that on the earlier date Mr Ball said he had no objection to Mr Flanagan placing transactions with Law Fund if it did not cost HBF anything. Mr Ball denied this conversation. I accept Mr Ball's evidence in this respect. 87 Mr Ball gave his consent to Mr Flanagan placing regulated mortgage transactions elsewhere to give Mr Flanagan something to do at weekends. It was on the basis of a small number of transactions, one every two months. The concession did not extend to non-regulated mortgage finance. However, after the introduction of the credit code it was not possible for HBF to obtain accreditation. That was limited to individuals and Mr Ball had but one accreditation that he did not use. It was not until 2000 that Mr McMahon was appointed to HBF as a mortgage finance specialist. 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. 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. 90 HBF also claimed that the conduct of Mr Flanagan claimed to constitute a breach of contract and a breach of fiduciary duty also constituted a breach of s 42 of Fair Trading Act 1987 in that by his silence as to what he was doing he engaged in conduct that was misleading or deceptive or was likely to mislead or deceive. A similar claim was made against Mr Ennis. 91 Where a person is entitled to believe that a relevant matter affecting him or her would if it existed be communicated to him or her, the failure to communicate may constitute misleading or deceptive conduct because the person who ultimately may act to his or her detriment is entitled to infer from the silence that no danger or detriment existed (Winterton Constructions Pty Ltd v Hambros Australia Ltd (1992) 39 FCR 97 at 114). 92 I do not regard the circumstances in this case as giving rise to misleading or deceptive conduct. Some of the mortgage finance transactions effected by Mr Flanagan were with the consent of Mr Ball. Some of the transactions without his consent were not in conflict with HBF because it lacked individual accreditations in those engaged by it that might have been utilised for the purpose. There was no capacity in HBF to take advantage of mortgage finance transactions until 2000. In those circumstances there was no basis for an assumption on Mr Ball's part that he would be informed by Mr Flanagan that he was placing mortgage finance transactions through entities other than HBF. 93 With respect to Mr Ennis, the allegation was that his failure before the termination of the arrangement with him and Belfolex on 3 November 2000 to inform Mr Ball that he had taken and copied client files and represented a month after the termination of the arrangements that HBF had altered its name to APF, constituted misleading or deceptive conduct. As to the copying of the files, Mr Ennis's silence played no part. Mr Ball confronted him over the matter and Mr Ennis responded. As to the representation after termination of the arrangement, I fail to see how that was a matter that, before termination, Mr Ennis was obliged to reveal for fear that a failure to do so might constitute misleading or deceptive conduct. I reject the claims under the Fair Trading Act 1987. 94 HBF claimed that Optimal and Belfolex were in breach of the Trade Practices Act 1974 (Cth), s 52(1) by reason of the failures of Messrs Ennis and Flanagan as their agents to disclose the matters above discussed. I reject those claims as well. HBF also claimed that Optimal and Belfolex engaged in conduct that was unconscionable contrary to the Trade Practices Act 1974 (Cth), s 51AC(1) by reason of the above failures to disclose. For the same reasons I reject that claim. 95 HBF claimed in fraud against Mr Flanagan for causing APF and FASA to receive commissions on mortgage finance transactions. It was submitted that in diverting these transactions from HBF, Mr Flanagan fell within the first limb of Lord Selborne's propositions in Barnes v Addy (1874) LR 9 Ch App 244. 96 The Evidence Act 1995, s 140 prescribes the standard of proof in civil proceedings as the balance of probabilities and provides that the court may take into account in deciding whether it is so satisfied the nature of the cause of action or defence, the nature of the subject matter of the proceedings and the gravity of the matters alleged. This provision reflects the common law position. In Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 the High Court discussed the quality of persuasion required for this purpose. The court must feel an actual persuasion of its occurrence or existence before it can be found. In civil matters the affirmative of an allegation is made out to the reasonable satisfaction of the court. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the court. In such matters reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences. To similar effect is the statement of the majority of the High Court in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450. 97 Because of the circumstances already discussed in which Mr Ball gave his imprimatur to some mortgage finance transactions by Mr Flanagan and because, until the appointment of Mr McMahon, HBF lacked the capacity to place non-regulated mortgage finance transactions, I am not reasonably satisfied that the serious charge of fraud has been made out on the evidence. 98 HBF claimed that Messrs Ennis, Flanagan and Sky were officers of HBF and, in consequence, subject to the duties to act in good faith and for a proper purpose, not to improperly use their position to gain an advantage or cause detriment to HBF and not improperly to use information to gain an advantage or cause detriment to HBF under the Corporations Act 2001 (Cth), s 181, s 182 and s 183. 99 The term "officer" is defined in the Corporations Act 2001 (Cth), s 9 to include a person who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation. It is also defined to mean a person who has the capacity to affect significantly the corporation's financial standing. The origin of these extensions appears to be the decision of Ormiston J in Commissioner for Corporate Affairs v Bracht [1989] VR 821. That was a case in which the question was whether an insolvent person had been concerned in or taken part in the management of a corporation without the leave of the court. At 830 his Honour expressed the view that the concept of management for that purpose comprehended activities that involved policy and decision making related to the business affairs of the corporation affecting the corporation as a whole or a substantial part of that corporation to the extent that the consequences of the formation of those policies or the making of those decisions might have some significant bearing on the financial standing of the corporation or the conduct of its affairs. 100 In Re HIH Insurance; Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 the respondent was held to be an officer of HIH Casualty and General Insurance Ltd because he was a member of the investment committee which was, subject to the direction and control of the board of HIH, responsible for investments by the companies in the HIH group and he thus participated in decisions that affected the whole or a substantial part of the business of HIH Casualty and General Insurance Ltd. 101 That is far different from the instant circumstances. Mr and Mrs Ball were the directors of HBF. There was no evidence that Messrs Ennis, Flanagan or Sky played any part in their deliberations. The brokers provided their services to HBF in the conduct of their businesses of acting as commission-only agents. The success of their activities no doubt played an important role in the success of the business of HBF. But that does not mean, in my view, that they participated in making decisions affecting the whole or a substantial part of the business. That decision-making power was exercised by Mr and Mrs Ball as witness the decision that HBF should not be involved in regulated transactions when the credit code was introduced. Messrs Ennis, Flanagan and Sky played no part in the formation of the policies that shaped the business of HBF nor did they make decisions which affected the whole or a substantial part of HBF's business. 102 The second extension to the definition of "officer" must be limited to conduct undertaken for or on behalf of the corporation. If this were not so, it would lead to the absurd result that significant suppliers to or customers of a corporation are its officers. Each of Messrs Ennis, Flanagan and Sky contracted at arm's length with HBF and fall outside the extended definition. I find that neither Mr Ennis nor Mr Flanagan nor Mr Sky was an officer of HBF. 103 In my opinion, therefore, HBF is entitled to an enquiry as to damages for breach of contract before a Master as are the defendants on their cross-claim. There is no justification for an account of profits under either the claim or the cross-claim. I will direct the Master to determine who should bear the costs of those enquiries. Consequent upon those enquiries, I will hear the parties on the appropriateness of any further relief with respect to information from client files or the HBF computer databases still held by the defendants and I will hear the parties on the costs of the proceedings before the court. The parties are to bring in short minutes of orders in accordance with these reasons.

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