The shortcomings of evidence of practice in a context of whether or not certain words were used were commented on by Young J in Garcia v National Australia Bank Ltd (1993) 5 BPR 11,996 at 12,006 - 12,007, by McLelland CJ in Eq in State Bank of NSW v Muir (1997) 8 BPR 15,483 at 15,488 and by myself in Armstrong v Commonwealth Bank of Australia (1999) 9 BPR 17,035 at [17]. I make due allowance for these shortcomings. But Rodgers gave the impression of having been devoted to the job he was carrying out and the cause which his organisation was propounding in 1987 and 1988. The participation of workers as owners of the business was central to the whole concept. The evidence indicates that he did attend a meeting of the proposed shareholders in about March or April 1988 in Casino and I so find. I find that he (rather than Cheney) did address that meeting and that he said something on that subject matter. What he claims he said as set out in [55] is a complete reconstruction, without any element of recollection of what was said on the occasion, and I certainly am unable to find that he used those words. It must be remembered that he spoke in a context where shareholders were still being looked for and all permanent shareholders at that stage were certainly being offered shares. I find that Rodgers said something on the subject matter, despite the fact that some of the defendants were undoubtedly present at that meeting but do not now remember any such thing being said. If, whatever the words he used, they did not convey to the listeners in a meeting where those present were largely people who were committed to take up 10,000 shares that there would be an ongoing obligation in the future to offer shares to future permanent employees, rather than that there was a necessity for all permanent employees to be offered shares at that stage, it would not be surprising. This appears to be how Reid took the words: see [61] above. It is impossible to know who precisely was at the meeting Rodgers addressed and who was not (save that, as I have found at [12], the plaintiff was not present). It is impossible to know the words he used or their real substance.
71 The conclusions that I come to relating to the defendants' knowledge of the existence of an entitlement in permanent employees to have shares in the company are as follows.
72 I do not find that any of the defendants read any particular document emanating from WEC (including any model rules), whether obtained from the train, sent as part of an information kit or otherwise, before the May 1988 meeting. Hanley alone admits any relevant knowledge in 1987 or before the takeover, and he does not remember how he got it. I find that the substance of the relevant articles was not the subject matter of discussion at the May 1988 meeting, where the 1988 articles were adopted. I decline to find that any of the defendants read the articles generally or read the relevant articles before or at that meeting. They all deny having done so and I think that accords with the likelihood as to whether or not ordinary people would bother reading through articles in legal language when they came to be adopted at the meeting. Nor is there any evidence from anybody that the subject matter of the entitlement of permanent employees as to shares was spoken of at that meeting. I am not prepared to find that any of the defendants knew of that subject matter before the time at which each of them concedes that he or she learnt of it. Whether that is so in fact or not is impossible to tell at this distance of time, but there is no cogent evidence to contradict the concessions that they are now prepared to make. The only one in respect of whom there really is any evidence to suggest that he may have known at an earlier time than he concedes is Reid. The other two directors, Hanley and Armfield, concede knowing about this in 1987 and 1988 respectively, whereas Reid does not concede being aware of it until 1990. Hanley believes that he may have discussed the subject matter with Reid before then, but Hanley's recollection as to that is vague. Reid contemporaneously in writing expressed himself surprised when the subject matter was brought to his attention in 1990. I am not prepared to find on the evidence that he knew of the entitlement before 1990.
Contested Facts: Whether There Were Combinations or Agreements Which Would Found Conspiracies or Any Intention to Harm the Plaintiff
73 So far as conspiracy is concerned, the first question is whether there was any combination or agreement to any of the effects alleged. It must be borne in mind that the pleading alleges various combinations or agreements entered into at or about the time of the May 1988 meeting and at two later times.
74 The agreement at the time of the 1988 meeting is alleged to incorporate the terms alleged in par 14(a) to (e) and (h) to (i) of the statement of claim (see [38] above), including agreement not to inform the plaintiff of her rights and to exclude permanent employees from participation in the company ("the first agreement"). As I have already observed, there is no evidence that the subject matter was discussed among the first ten defendants at the May 1988 meeting when the 1988 articles were adopted or at any time around then: see [57]. The ten defendants became by force of law and in particular by force of article 2(a) contractually bound to each other and to the company in relation to the 1988 articles at that time, but there is not any evidence of any other agreement between them at that time and that is the only time at which the first agreement is alleged. The closest the evidence approaches to a combination or agreement among the ten defendants not to issue shares in accordance with the articles or to inform permanent members of their rights was in respect of a later point of time. That really arises only in the evidence of Bodycote as set out in [62] above. About this a number of things may be said. First, the evidence lacks certainty. Bodycote cannot remember how many meetings this was discussed at. The indications from the documentation are that it may have been discussed at two different times, one after the 1989 letter was received and the other after the 1990 letter was received. However, Bodycote's evidence suggests that there was a consensus at the end of some meeting, although which is not specified, that things were to be left as they were. He said that different people were present at the different meetings he referred to. In one answer he said that all ten were present at at least one of them. But asked whether two named defendants were present at one of the meetings, he said he did not know. Nobody else corroborates his account or gives any account of what occurred at any of those meetings. In my view it could not be concluded that there was a combination or agreement among the ten defendants that would base a conspiracy at any of the meetings in 1989 and 1990. But, certainly, in any event, as I say, there is no allegation in the proceedings that there was a conspiratorial agreement at those times. I find that the first agreement alleged to have been made in or about May 1988 is not made out.
75 The agreement in terms of par 14(g), to replace the articles, is alleged to have arisen at the time of the March 1992 meeting at which those articles were replaced ("the second agreement"). Other than the fact of their replacement at that meeting, at which all ten defendants are recorded as attending, there is no evidence of discussion or agreement among them in this regard. I find that that second agreement is not established. In any event, there was not at that time any unlawful element in what was done.
76 The agreement in terms of par 14(j) and (k), to call a meeting to approve the sale of the enterprise, is alleged to have arisen at the time of the November/December 1997 meeting at which the sale was approved ("the third agreement"). There seems no doubt that a resolution of approval was passed, but there is no evidence of discussion or agreement among the ten defendants. I find that that second agreement is not established. In any event, there was not at that time any unlawful element in what was done.
77 I should add that, there being no positive evidence establishing any of these agreements, there is no evidence of coinciding actions by the different defendants which could be attributed to or could found an inference of the existence of the first agreement, the second agreement or the third agreement: see [52].
78 As to the question of an intention to harm the plaintiff, I decline to find that any of the first ten defendants had any such intention at any material time, much less that anything was done with the predominant intention of harming the plaintiff. Many of the defendants did not think of the plaintiff at all at any material time. The most that was conceded was some awareness that, if a certain course was followed, she would not come to share in certain benefits. But there was not in any event any certainty at any time that, if she received 100 shares, she would receive the same benefits as original shareholders who held 10,000 shares. Those benefits were not provided for by the 1988 articles. I do not conclude that any of those defendants formed or harboured any intention to harm the plaintiff, much less acted with a predominant intention to harm the plaintiff.
Conclusions: Preliminary
79 There is no doubt that the first ten defendants did come under some obligations in relation to the articles of association. The provisions of the companies legislation at all material times contained a provision substantially the same in relevant ways as the provision now contained in the Corporations Act 2001 (Cth) s 140. The effect of the relevant provision is to the effect that the articles have effect as a contract between the company and each member and between a member and each other member under which each person agrees to observe and perform the articles of association so far as they apply to that person. However, in the present state of the law that is not a contract that could be enforced (were it sought to be enforced) by an outsider: Eley v Positive Government Security Life Assurance Co Ltd (1876) 1 ExD 88. Despite the modification by the High Court of the doctrine of privity of contract in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 there is no authority to date which would justify the enforcement of the contract constituted by the articles by an outsider: see generally Ford's Principles of Corporations Law (10th ed, 2001) [6.050].
80 Whilst logically the existence of a fiduciary duty is a question that comes before the question of the content of the duty, in my view the possible ambit of the duty is one of the general circumstances as against which the situation needs to be considered. It is obvious that the plaintiff in this case is aggrieved that after she and her husband came to acquire some 11,000 shares at a price of $7 to $8 per share in 1993 or 1994 she discovered what she took to be an entitlement for her, on becoming a permanent employee, to acquire shares, it would seem she thought 10,000 shares at $1 per share. In any event, it is clear that she is deeply aggrieved at what she considers to be the injustice of her situation. From the time that she acquired her shares she was given additional benefits in generally the same way as other shareholders received them. Although it does not appear expressly from the evidence, it may be inferred that the sense of grievance arises from the difference in price and from the fact that she did not receive the additional benefits earlier, although as I have said, it is not clear at what point of time she actually did commence to seek shares and I am unable to find on the evidence that it was before about mid 1993. Despite all these things, what in this context it is important to note is that the obligation under article 10 was not to issue to any employee who applied a shareholding equivalent to the holding of any other shareholder, but only 100 shares. This was the condition imposed by WEC and adopted in the 1988 articles. The imposition and adoption were both at a time when the shareholding of the company was already set, so that it was in a context where the ordinary shares were otherwise held in parcels of no less than 10,000 that the provision of the articles as to the issue of shares to permanent employees stipulated the number at 100. Of course, more could be applied for and could be issued if the company chose, but the only obligation that arose under the article upon an application by a permanent employee was to issue 100 shares and, if there were an enforceable duty on any of the defendants in relation to the issue of shares to permanent employees, that in my view would have been the ambit of the duty. I do not conclude that it is demonstrated on the evidence that at any time after May 1988 more than 100 shares would have been issued to any permanent employee who applied for them.
81 It should also at all times be remembered that the articles required all employees to be employed under a specific form of contract. Not only was the plaintiff not employed under that form of contract, but on the evidence, no employee of the company, whether a shareholder or not, was employed under that form of contract. That form of contract contained, of course, a disadvantage as well as an advantage for any permanent employee. The advantage was that 100 shares could be obtained. The disadvantage was that, if they were not obtained, then the company was bound to dismiss the employee. I do not think that I transgress the permissible bounds of judicial knowledge if I take into account that the employment market in regional towns in New South Wales in the 1990s was not buoyant. Indeed, one of the reasons why Hanley, who was aware of the WEC scheme, did not wish to implement it was that he said that he was simply not prepared to dismiss any employee because the employee would or did not become a shareholder. I have no reason to doubt his word in that regard.
82 It is put against the company that it came under a fiduciary duty towards the plaintiff. It is undoubted that the company was under a contractual duty to WEC or WEC's successor as the lender under the deed of loan to implement the provisions of the 1988 articles. There is no doubt that that is an obligation that WEC could enforce. The lender did in fact make efforts to have that condition enforced. I accept Rodgers' evidence that he raised the subject matter at the directors' meeting on 25 January 1989. His recollection was triggered and corroborated by a note in the minutes, "We need to look at longer term plans and include additional members in the plans." In oral evidence, his recollection was that he said words to the effect of "the time has come to contemplate whether …. other offers of membership should be made to other employees." I do not doubt that he said something with the intention of raising that subject matter. In his case I do not doubt that, he being committed to the WEC philosophy, that was done with the intention of having that philosophy put into action to the extent that the company had undertaken it by the deed of loan and by the adoption of the 1988 articles. He left the board shortly after. Attempts were made in 1990 and 1991 by AAC to enforce the article. In this case, I have some doubts from the context in which the matter arose as to whether there was a philosophical desire on the part of the lender to enforce the provisions or whether it was simply part of an effort to bring to an end a loan which it regarded as unsatisfactory. Its motive does not matter. It was perfectly entitled to call for the contract to be complied with and it did so. The efforts in fact had the result of bringing the loan, the relationship and ultimately the 1988 articles to an end.
Conclusions: The First Ten Defendants: Fiduciary Duty and Conspiracy
83 In my view it is quite clear on the evidence in this case that it is impossible to draw an inference that there was an undertaking, agreement or pledge by the first ten defendants as shareholders in the company to assume any duty towards the plaintiff. The agreement among members contained in the 1988 articles is not sufficient for that purpose. The degree of individuals' knowledge of the possible rights of the plaintiff is discussed above. I have accepted that in the case of a number of the ten there was no knowledge of the plaintiff's supposed rights before those rights were changed by the 1992 replacement of the 1988 articles. Even in the case of those who knew, an inference could not be drawn that, by having that knowledge, those defendants undertook an obligation to the plaintiff. Nor is there any other basis on which in my view the conclusion could be drawn that they together or individually gave such an undertaking.
84 Furthermore, if a fiduciary duty were to be imposed upon the group of members constituted by the first ten defendants, it would have to be on the basis that they had such control over the subject matter of the relevant articles that a fiduciary duty to the plaintiff was imposed. The difficulties of the imposition of such a duty in the case of the defendants who did have control over the subject matter, namely, the company and the directors, will be considered below. But, in the case of the first ten defendants as members, it cannot even be concluded that they had control over the relevant subject matter. The case sought to be made against them rests not simply on the fact that all were members of the company at relevant times. Reliance is also placed on the fact that they played a more active role in the affairs of the company than is usually played by members. Between 1988 and 1992 they met regularly. In the earlier part of this period it would seem that the meetings were as frequent as weekly. There is little doubt that at those meetings the affairs of the company and its business were discussed. However, it is not possible to conclude on the evidence that they took decisions that bound or purported to bind the directors as to the governance or management of the company. There is no record of what passed at these meetings after the 1988 articles were adopted on 13 May and the business acquired on 31 May 1988, but it is apparent from minutes of directors' meetings during 1988 and 1989 that the directors conducted the business of the company without explicit reference to the shareholders and much in the way that any board of directors of a company conducting a small to medium sized business would conduct themselves. When I say that the members did not purport to bind the directors in the management of their company, I bear in mind the principle stated in National Roads & Motorists' Association v Parker (1986) 6 NSWLR 517. The meetings I take it were for discussion of the general progress of the company and of ideas for the conduct of the business. There is no evidence that those meetings purported to make decisions or that what occurred at them dictated or governed what was done by the directors or that the members in those meetings or in any other way exercised or purported to exercise any control over whether or not shares in the company might be issued.
85 I conclude that the first ten defendants as members of the company were not under any fiduciary duty towards the plaintiff.
86 It will be apparent from my findings in [74] to [78] above that in my view no cause of action in conspiracy is made out against the first ten defendants.
Conclusions: The Company: Fiduciary Duty and Duty of Care
87 The situation was different as to whether in the circumstances there was created a fiduciary duty owed to and enforceable by the plaintiff against the company. The company did have the power to solicit applications for shares from the plaintiff and other permanent employees and a duty to deal with those applications in specified ways. Whether or not a fiduciary duty to the plaintiff arose must be considered in this context. In considering whether the relevant "undertaking or agreement" or "pledge" by the company could be inferred in the circumstances, I bear in mind the exhortations to caution in the imposition of fiduciary duties in commercial contexts. This was a dealing involving employees and a specialised State agency designed to provide them and their enterprise aid in certain circumstances. Nonetheless, the contractual arrangements that were entered into were essentially commercial and the negotiations that led to those arrangements were conducted at arm's length. I also bear in mind that, whilst it is not impossible that fiduciary duties may be created towards persons who are not parties to the transaction that creates them, the plaintiff was not a party in this case to any of the relevant transactions, ie, the borrowing of moneys, the acquisition of the business, the subscription for shares or the adoption of the articles of association. I also bear in mind the commercial and transitory nature of the central transaction. The transaction was a borrowing of $250,000 from WEC which was for a term of six years; it would in any event come to an end at that time and would not necessarily be renewed. The borrowing might come to an end before the expiry of the term, because the borrower was able to bring the transaction to an end by paying out the loan. There always was a possibility that that might happen, as, indeed, it did. The money was borrowed from WEC because, with a small group of shareholders buying a considerable enterprise, no bank or financial institution would lend the money. However, if the company's loss making situation were turned around within a year or two, as it was by the new group that invested in and took over the company, the possibility of borrowing through normal financial channels would obviously be increased. I also bear in mind that the ambit of the contractual promises that were made and what was to be done to carry them out were clearly spelt out in the contract. As I have already said, the lender, as the other contracting party, was at liberty to enforce the relevant obligations in the deed of loan if it chose, as, indeed, it sought to. In all the circumstances I do not infer that the company by entering into the transaction could be taken as making an undertaking or giving a pledge in favour of the plaintiff or other persons who might become permanent employees such as would give rise to a fiduciary duty and I draw the conclusion that there was no fiduciary duty imposed on the company towards such persons, including the plaintiff.
88 There is one aspect of the plaintiff's contention that the company was under a relevant fiduciary duty towards her that merits particular mention. It is said that one of the recognised categories of fiduciaries mentioned by Mason J in the Hospital Products case supra at 96 is employer and employee. It is clear that not all obligations created by this relationship are fiduciary in nature, but some are. The employee's duty to keep the employer's secrets partakes of a fiduciary nature. It arises no doubt from the employer's vulnerability to misuse by an employee of information with which he or she is necessarily invested in the course of duty. This vulnerability clearly exists despite the fact that the employer is in many respects in a position of dominance or power in the relationship. The plaintiff refers to the employer's implied obligation not to engage in conduct likely to undermine the trust and confidence required by the employer/employee relationship to allow it to continue and submits that that obligation gives rise to a fiduciary duty. There is no case I have discovered in which it has been held that the existence of that obligation gives rise to a fiduciary, as opposed to a contractual, duty and I hold that no fiduciary duty arises from the implication of that obligation in the plaintiff's contract of employment with the company. I have concluded for the reasons set out in [87] that there was no fiduciary duty imposed on the company towards the plaintiff. In my view, the principle discussed in [48], considered alone or in conjunction with the other considerations set out in [87], does not make any difference to that conclusion.
89 So far as the duty of care is concerned, I am of the view that no duty of care was imposed on the company as alleged in the statement of claim. The plaintiff relied particularly on the decision of the High Court in Perre v Apand Pty Limited (1999) 198 CLR 180. It is important to note that the averment that is central to the imposition of the duty of care contended for is the employment by the company of the plaintiff, ie, their entry into a contract of employment. However, no case is maintained by the plaintiff against the company for breach of this contract. Despite the plaintiff's adversion to the implied term referred in [48] above, the only way in which the contract of employment is relied on (apart from any significance it may have in relation to the existence of a fiduciary duty, as to which see [48] and [88] above) is as founding the duty of care alleged. Whilst it is clear that the same conduct may give rise to both tortious and contractual liability, authority suggests that the principles of contract are to be preferred when considering an employment relationship. In Scally v Southern Health and Social Services Board supra, a case concerning an alleged duty to inform, Lord Bridge of Harwich said at 303, "If a duty of the kind in question was not inherent in the contractual relationship, I do not see how it could possibly be derived from the tort of negligence." His Lordship cited the observation of Lord Scarman in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1986] AC 80 at 107:
"Their Lordships do not believe there is anything to the advantage of the law's development in searching for liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial context."