Plaintiffs v Defendants

Plaintiffs v Defendants - [2008] VSC 201 - VSC 2008 case summary — Zoe

[25]

16 The first of the particulars relied upon against Paul Duggan in support of the allegation that he took steps against the interests of the plaintiffs "to establish or to assist Adam [Duggan] to establish a business in competition with the plaintiffs", is that on or about 27 April 2005 he formed, or assisted with the formation of, Jak Max (M) Sen. Bhb., a company registered in Malaysia, to compete with the plaintiffs. The defendants maintain that the striking similarity in name between the Malaysian company and the second defendant was a "mere coincidence". I assume that the coincidence asserted on their behalf was intended to extend as to a coincidence of name, date and location: the "Jak" in the name of the second defendant is a combination of the first letters of the given names of each of Paul Duggan's three children (John, Adam and Kylie), and Maxwell (for which "Max" might be thought to be a common abbreviation) happens to be Paul Duggan's middle name; Malaysia is a country with which Paul Duggan had a connection (it appears that he owned an apartment in Kuala Lumpur); and 27 April 2005 is, of course, within the month of the email concerning the Elfving requests about Sunvic generators. However, the only evidence about this matter ultimately came from the examination-in-chief of Paul Duggan by his counsel. In that evidence Paul Duggan denied any knowledge of the Malaysian company or of its directors or of what the company does. He was not, as counsel for the defendants pointed out in their written submissions, cross-examined on this evidence and no other witness gave evidence on this subject. The plaintiffs' written submissions expressly state that they did not pursue this particular and, counsel for the defendants submitted that "there is no evidence on which the Court could conclude [that] the allegation is made out". I doubt this to be correct but, despite my considerable reservation about the reliability of the evidence of Paul Duggan, I will proceed upon the assumption that the particular is not relied upon by the plaintiffs and that, therefore, I do not need to decide whether Paul Duggan formed or assisted with the formation of the Malaysian company with a strikingly similar name to that of the second defendant in a place in which Paul Duggan had an apartment at about the same time as Adam Duggan was writing to a customer suggesting that the customer should deal direct with Li Xia or Kua Si Lin.

[113]

80 In my view the business of Jak Max is substantially similar to the plaintiffs' business although it may not be the same. Both Jak Max and the plaintiffs sell chainsaw accessories and parts, particularly guide bars, saw chain, sprockets, replacement rims, files, wedges and safety clothing. They also sell spare parts and accessories for lawn mowers and brush cutters. In the period to 30 June 2006, Jak Max sold products for the amount of $195,075.38 that were the same as the products sold by the plaintiffs. In the 2007 financial year Jak Max sold products for the amount of $1,927,421.13 that were the same as the products sold by the plaintiffs. The figure for the 2007 financial year excluded some products that were also substantially similar to products sold by the plaintiffs such as cordless saw chain grinders. Jak Max has sold its products to 692 customers that were customers of the plaintiffs at the time of the share sale deed and only to 60 customers that were not. In the 2007 financial year Jak Max sold 329 products that were the same as the products sold by the plaintiffs as at the date of the share sale deed and only 39 products that were not. Jak Max obtained supply of a number of products from the same suppliers as the plaintiffs, including replacement rims from Andy Wang, saw chain from Carlton, nylon line from Speed France, files from Vallorbe and a range of products from Dartong. During the same period the employees of Jak Max had been employees of the plaintiffs and were employed by Jak Max to perform the same or very similar roles to those they have performed while working at GB or GB Products. It may be that this does not amount to the Jak Max business being the same as that of the plaintiffs' business if identity is required or even if something less than strict identity is required. It is a business, however, that is substantially similar to the plaintiffs' business when judged by reference to whether the two are competing with each other. The object of the restraint is to prevent competition and the activities of Jak Max were plainly in competition with those of the plaintiffs.

[139]

100 The evidence of Paul Duggan was that he had no discussions at all about the fact that his children were going to use their properties as security for a Jak Max credit application. Indeed, at one point his evidence was that he did not even know when they had applied for an overdraft from the bank. Even if I assume (contrary to my expectation of events) that Mike Howell would not have mentioned any of this to Paul Duggan when playing golf (if not during the course of the other dealings for Paul and Violetta Duggan personally), I find it implausible that in a tight knit family, as the Duggan family is, there would not have been discussions between the father and his children that three properties (two of which were only recently acquired and the other only recently becoming unencumbered by the desire of Paul Duggan to set up his children for their future) were all about to be given as security for the new business of the children through a newly formed company. I do not believe Kylie Duggan when she said that she "never really discussed" with her father the fact that two weeks after he had paid off her property she was planning to offer the property as a security for an overdraft account for Jak Max; that is, that she was about to encumber with debt the property which her father had only two weeks earlier unencumbered. Nor do I believe her when she said, or implied, that she did not tell her father that she was planning to use the property as security for an overdraft account for Jak Max. If she did not say so to her father it can only have been because she knew that he knew it. Paul Duggan was spending a lot of money in providing his children with unencumbered properties and I find it improbable that the children would immediately mortgage the properties and expose themselves to the risk of loss without even mentioning such a risk to their father. Paul Duggan's wealth, on his own evidence, is not such that the provision of properties amounting to $1.1 million is so insignificant that their hazard of loss would be insignificant for him. I also find it unbelievable that Nick Loschiavo never spoke to Paul Duggan about the use of the children's properties as security for the Jak Max application. I do not accept Nick Loschiavo's evidence when he denied ever speaking to Paul Duggan about the properties, especially in view of the evidence of Nick Loschiavo about his knowledge of Adam Duggan's use of money in the past which had at times required close monitoring.

[168]

117 In the end Dean Stubbs did not go to China at that time and, despite the chain of emails, he could not recall having had a plan to go to China in late September 2005. Indeed, his plan at the time had been to go to the Canton Fair in October 2005. Paul Duggan, however, did have a plan to go to China on 15 September 2005 in the following week. On 15 September 2005 Paul Duggan had emailed Wang Wei Ming stating that he wanted to come and see him the next week, on 21 or 22 September 2005, requesting that the two meet in Shenzhen on 21 September 2005. Paul Duggan's evidence about this meeting was that he wanted to meet Wang Wei Ming in Shenzhen because he wanted to tell him that he, Paul Duggan, had a two year restraint against competing with the plaintiffs. This reason had not been proffered in a witness statement previously exchanged between the parties for contemplated use in the proceeding. I accept the submission on behalf of the plaintiffs that the reason given for the visit with Wang Wei Ming is of recent invention put forward to explain the emails that otherwise disclosed that he had arranged a meeting with Wang Wei Ming in the week following the exchange of emails between Dean Stubbs and Joan at Dartong which discussed, amongst other things, who would manufacture product. It appears that the emails only came to light once they were obtained from Wang Wei Ming relatively recently. Furthermore, the reason given by Paul Duggan is inherently unlikely. I am asked to believe that Paul Duggan would go to the cost and inconvenience of flying to China just so that he could tell Wang Wei Ming that he would not be in the industry for the following two years. This I am asked to believe in the context of him having earlier sent a circular letter to his contacts on 22 June 2005 and having already told Li Xia in China about the position. It also requires me to accept that Paul Duggan would require Wang Wei Ming, who does not speak English, to fly from Hangzhou to Shenzhen, only to be told, through an interpreter, that Paul Duggan would not be in the industry for two years. It is far more probable that the meeting between Paul Duggan and those at Dartong and with Wang Wei Ming had been intended as a business meeting between them and that this intention existed at least from about 13 or 15 September 2005.

[174]

123 Wang Wei Ming gave evidence that he flew from Hangzhou to Shenzhen the following day, 21 September 2005. There he met with Li Xia, John Duggan and Paul Duggan at a restaurant and from there the four went to Li Xia's offices. Wang Wei Ming's evidence was that he had not previously met or spoken to John Duggan but that he met with Paul Duggan, John Duggan and Li Xia. The latter interpreted for him but after a while asked a Ms Hu (possibly Joan Ho) to interpret. Wang Wei Ming's evidence was that during the meeting he and Paul Duggan discussed laminated bars and sprockets and that he was given a number of samples of sprockets in GB boxes. He said that he made a note of the product numbers of the samples which had been given to him. After the meeting they went to dinner to celebrate Li Xia's birthday and subsequently he had sprocket drawings prepared from the samples that he had been given from which he manufactured 30 samples which he sent to Dartong. Paul Duggan's version of events was different to this, but on 7 October 2005 Wang Wei Ming sent an email to Paul Duggan attaching the sprocket drawings referring to whether some samples had been sent, asking whether he had confirmed the new order and whether he would be going to the Canton Fair. In the same email he asked, separately, for John Duggan's email address and asked, curiously, "Can you tell me ? wish to talk with = him in early date." Perhaps this question was intended to enquire into whether Wang Wei Ming was to communicate with John Duggan rather than Paul Duggan but the other contents of the email indicate the assumption by Wang Wei Ming of Paul Duggan's familiarity with business discussions which, according to Paul Duggan and John Duggan, the former did not participate in. Wang Wei Ming's assumption of Paul Duggan's familiarity with such discussions is, of course, consistent with Wang Wei Ming's evidence that Paul Duggan did participate in them. It is also inconsistent with Paul Duggan's evidence that his purpose in meeting Wang Wei Ming (involving as it did the inconvenience of travel for Wang Wei Ming) was to ensure that Wang Wei Ming knew of the restriction on competition for two years.

[177]

126 There is further material to suggest that the notes had been falsely created for the purpose of defending the proceeding. Many of the recorded matters in the notes appear to be responsive to allegations in the statement of claim or to documents which had been discovered prior to the discovery in the proceeding of the notes. The China notes were discovered as document 630 in the third affidavit of documents of the second and third defendants dated 16 June 2006. The amended statement of claim dated 7 December 2005 was current at the time of the discovery of the notes. Various matters in the notes address allegations in the amended statement of claim. On p.2 of the notes there are the words "asked him to set up JAKMAX website" which addresses the allegation in sub-paragraph (ix) of the particulars to paragraph 14(b). On 27 September 2005 Bob Wang (Li Xia's ex-husband) sent an email to Paul Duggan and John Duggan on the subject matter "copy sabre chainsaw price and web" indicating, amongst other things, that a new website for Jak Max had been set up and could commence to be used as from 30 September 2005. On p.2 of the China notes there are the words "asked for quote on sabre chain" which addresses the allegation in sub-paragraph (ix) to the particulars of paragraph 14(b). The same email to which I have just referred was addressed both to Paul Duggan and to John Duggan and attached the price for the "copy sabre chain saw". On the same page of the China notes were the words "Has lawn mower ... is sending sample" which appears to address the allegation in sub-paragraph (xiv) of the particulars. On 28 September 2005 Joan Ho from Dartong sent an email to Dean Stubbs with copies to Adam Duggan and Li Xia stating that there was attached to the email the lawn mower photos which "Paul required". Later on p.2 of the China notes were the words "chain saw carry case" which addressed the allegation in sub-paragraph (xii) of the particulars. That referred to an email sent by Joan Ho on 27 September 2005 to Dean Stubbs with copies to Li Xia and Adam Duggan on the subject "chain saw box" referring to a chain saw box sample "that Paul brought" to Shenzhen. On p.1 of the China notes there are the words "asked for a copy of his mailing list - he will help me w/ contacts in China" which can be seen to address the allegation in paragraph 31 in relation to the "supplier list". Also on p.1 are the words "asked about GB - want to know who to talk to" which supported the defence in paragraph 16(a)(iii) of the amended defence dated 7 June 2006. On p.3 there are the words "Dad explained two year restraint - doesn't understand." which addressed a major issue in the proceeding. On p.1 of the notes there is also reference to the meeting with Wang Wei Ming which may be seen to address the email from Wang Wei Ming dated 7 October 2005 discovered by Paul Duggan in his affidavit of documents sworn 16 March 2006 and which was exhibited to Wang Wei Ming's affidavit sworn 25 November 2005 which had been filed, at that stage, by and on behalf of the defendants. On p.1 there were also the words "asked how negotiations with bank are going" which may be seen as responsive to the document subpoenaed from the Commonwealth Bank prior to June 2005.

[242]

These were not isolated instances and go to the credit of Adam Duggan. On 9 September 2005, for example, he wrote an email to a Pier Sgarbi on the subject of a visit to Italy saying that he was in the process of starting a new business which would not have his father but would include himself "John & Kylie, Dean Stubbs, Nick Loschiavo and Ben Canning" with assistance from Kua Si Lin and Li Xia. On that same day he sent an email to Favre Yvan of Vallorbe (a manufacturer of high quality chain saw files sold in Australia by the plaintiffs) informing of his new company and in this instance that there would be several former GB employees including Ken Hansen (his brother John's godfather). In each of these, and other, instances he accepted that the information was in part false and that some names were added to gain more "credibility". When pressed about incorrect information being misleading to, in the instance, Vallorbe, Adam Duggan's response in self-justification was by saying to counsel that "[i]n your world it's misleading, in my world it's a little fib to get us a bit more credibility".
An article appeared in the October/November 2005 issue of the industry magazine Power Equipment containing an article about the new Jak Max business which included a photograph of the people expected to be involved. The photograph and much of the information in it was probably supplied by Adam Duggan. Amongst the people featured was a Tony Nigro who had also been identified as a Jak Max employee in information supplied to the bank for finance for Jak Max as the proposed warehouse manager. Ken Hansen was also listed in the details of the Jak Max company structure as harvester bar manager. In cross-examination Adam Duggan accepted that what was stated to the bank about Tony Nigro and Ken Hansen was not correct and that he had deliberately exaggerated to the bank both who was involved with Jak Max and the level of their experience. In the end I was left with the impression that I could not safely rely upon the testimony of Adam Duggan and do not accept it whenever it is in conflict with that of others or the documents and inferences to be drawn from them.

[255]

179 I am left with no doubt that the drought had an impact in reducing the plaintiffs' sales of their products. They admitted in their submissions that it is impossible to accurately quantify the extent to which the sales were reduced by reason of the drought. Nonetheless they contended that the evidence allows a rough estimation to be made of an impact of not greater than $200,000. They contended that the drought affected only the Australian GB products business and that that business was seasonal, with sales of chainsaw parts and accessories made mainly in winter, and with sales of brush cutter and lawn mower parts and accessories mainly in summer. The drought, on this view, affected the lawn mower and brush cutter part sales considerably more than the chainsaw parts. In the 2006 financial year it is said that there was little difference in the percentage loss of sales between the two categories. The total GB products sales fell by 16.1% while sales of brush cutter products fell 5.2% and the sales of lawn mower products by 17.8%. The drought did affect their sales in the 2007 financial years. In that year the total GB products sales fell by 15.9% while the sales of brush cutter products fell 34.6% and the sales of lawn mower products by 43.2%. The total dollar value of the loss of sales between 2006 and 2007 for both lawn mower and brush cutter products was $585,000, being 43% of the total lost sales for GB products. In 2005, lawn mower and brush cutter sales represented 22% of total sales. Assuming, therefore, that without the drought there would have been no difference between chainsaw products and lawn mower and brush cutter products, the total loss due to the drought would be about $292,500. To that figure, however, I was told that I should take into account the impact of the drought on aqua spikes. I was told that in times of drought the plaintiffs' sales of aqua spikes increased. In the 2007 year the sales of aqua spikes increased by $180,000. If 2005 is taken as the appropriate base, aqua spike sales increased by $95,000. It is by that calculation that the plaintiffs estimated that the impact on the plaintiffs' sales of the drought could be no greater than about $200,000.

At a glance

Court

Decision date

Before

Source

Judgment (343 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (24)