(This Report is published as an annexure to the judgment of the Hon Justice Simmonds, Able Tours Pty Ltd v Mann [No 2] [2013] WASC 96.)

1 By a judgment after trial dated 28 July 2009, the Court ordered in part that:

1. The defendants account to the plaintiff for the benefits the defendants received from the contract between the second defendant and TJK Pty Ltd trading as Western Xposure entered into for delivery as described in Able Tours Pty Ltd v Mann [2009] WASC 192 [46]-[48].
2. A Registrar of this Court take an account of the benefits received by the defendants from the contracts between the second defendant and TJK Pty Ltd trading as Western Xposure and report to the Court as to those benefits.

2 This is that report, notice of which is given to the parties. The jurisdictional and procedural basis for such a report is that explained by the then Full Court in Gava v Grljusich (Unreported, WASCA, Library No 970492, 18 September 1997) (Ipp, Wallwork & Steytler JJ). See also Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544.

3 Directions were made on 2 October 2009 to aid the account ordered. Those directions required the defendants to file and serve accounts. There were substantial delays in compliance. The inquiry was ultimately heard on 15 17 August 2011. Written closing submissions were lodged later. It is unfortunate that the closing submissions did not include succinct statements of what each party respectively contended or conceded was the correct sum for which the defendants are to account.

4 The trial judge found that the first defendant breached his duties to the plaintiff, who was his employer. The breach consisted in the misuse of confidential information obtained in the course of his employment for his own purposes: Able Tours Pty Ltd v Mann [2009] WASC 192, particularly at [115] [172]. His Honour found that the second defendant was liable under the second limb of the principle in Barnes v Addy (1874) LR 9 Ch App 244, having knowledge of the first defendant's 'dishonest and fraudulent' design: Able Tours Pty Ltd v Mann [173] [188]. That is the background to the order that the defendants account for the benefits derived from the identified contracts.

5 The orders made do not require a simple assessment of the second defendant's profit on the contracts as recorded in its books of account. Nor are there to be applied any particular standard of corporate accounting. It is an accounting for benefits on equitable principles.

6 The nature of the account, in my view, necessarily informs the stringency to be required of the defendants in assessing their claims for amounts to be offset against the gross revenue derived.

7 There were four affidavits filed by the defendants that were relied on to provide the necessary accounting, being those of:

(a) Phillip John Mann sworn 5 November 2009, vol 14 (exhibit 1A D);

(b) Phillip John Mann sworn 17 November 2009 (exhibit 2);

(c) Phillip John Mann sworn 20 July 2011 (exhibit 3); and

(d) Andrew Anthony Mawer sworn 20 July 2011 (exhibit 4).

8 The plaintiff filed and served the affidavit of Kevin Hank De Bruin sworn 9 May 2011 (exhibit 5). This affidavit was the subject of an application to strike it out, and I did strike out certain paragraphs. It would be as well to summarise now my view of the limited use to which that affidavit can be put.

9 Much of the De Bruin affidavit has filed was objected to on the basis that it was inadmissible opinion or hearsay. There was a particular attack on attachment 'KDB1'. That is a spreadsheet that organises the expenses claimed by the defendant by reference to the plaintiff's categorisation of ways of objecting to those claimed expenses. There is, for example, a category of expenses for which the defendants have produced no receipts or other documentation.

10 In my view, the De Bruin affidavit, and attachment 'KDB1' in particular, is not so much as evidence as a way of looking at the evidence. It is a tool that may or may not be useful to classify and analyse the primary evidence.

General observations as to the defendants' evidence

11 Any findings below as to the credibility of the evidence of either Mr Mann or Mr Mawer rests entirely on my own assessment of their evidence: it does not adopt or depend upon any credibility findings by the trial judge.

12 Mr Mann was crossexamined on his affidavits. It rapidly became apparent that he had very little understanding of how the financial data set out in his affidavits and attachments were derived, or what they meant. I made a note in my bench book early on the first afternoon of his evidence that reads:

Taking so long to find invoices it suggest(s) he doesn't know how it is organised.

13 He was plainly not familiar with the documents - attachments to his own affidavits - to which he was being taken. I was told that, on the day he commenced his evidence, he was unwell. Making every allowance for that, I still conclude that Mr Mann had very limited knowledge of what expenses were actually incurred in completing the contracts in question. He was taken through a list of some 80 claimed expenses for which the plaintiff contended there were no supporting invoices or other documents. He was able to identify some supporting documentation in relation to only five of those expenses, and possible supporting documents in the case of a further three. There were numerous occasions when a question was put to him and it took several minutes for him to produce a response after searching through the affidavits before him.

14 The closing submissions of the defendants characterise Mr Mann's oral evidence thus:

The first defendant is, from his evidence and as he appeared in the witness box, a hands-on tradesman, who in the course of a long cross examination, did his best to answer the questions put to him. He readily made appropriate concessions. In general, he dealt adequately with the considerable volume of documentation he was taken to.

15 In my view, that overvalues Mr Mann's evidence. It was apparent that Mr Mann was completely reliant on Mr Mawer both for the derivation of financial data and his understanding of them: see, for example, ts 494. He was prepared to swear to the accuracy and completeness of material that he did not understand. He changed position between his first and second affidavits to the tune of $368,524.43 with no proper explanation. Mr Mann's evidence on financial matters I regard as valueless without corroboration.

16 I do accept that Mr Mann did his best as a witness in relation to how the work in question was performed, and as to practices within the applicable trades. For example, he was crossexamined as to the treatment of electric drills and other small hand tools as expenses for the purposes of the account. The explanation he gave was that contemporary practice is that inexpensive tools are not economically worth repairing (if indeed that is possible); they are used up and thrown away. I accept that. There are, however obvious difficulties in using such evidence in a quantitative way.

17 Mr Mawer was also crossexamined. It was apparent that he was the more business-minded of the two witnesses, with some understanding of basic bookkeeping. He certainly had a working understanding of how to use the MYOB software that had produced the various reports that went into evidence. However, Mr Mawer's demeanour in the witness box showed an unfailing hostility to the plaintiff's claims and a failure to accept that it was entitled to any remedy. This seriously diminishes his reliability as a witness. In my view, his evidence lacked candour and it is to be treated with suspicion where not corroborated.

18 It is clear that the business of the second defendant was not conducted in a sophisticated way. It was not a business that made subtle distinctions between capital and revenue, nor was there any considered allocation of expenses to cost centres. The expenses claimed in the first Mann affidavit in reality amounted to everything that was spent in or about the business in the period in question. For example, counsel for the plaintiff established in cross-examination that the defendants had not had any employee or contractor called Dan Murphy. Rather, the items appearing under that name in the list of expenses were actually invoices from the eponymous liquor store: ts 481. Similarly, there was a deal of cross-examination concerning fuel expenses for motor vehicles that it was conceded had an element of non-business, private use: ts 496 500.

19 The conclusions of those observations is therefore that, in my view, it would not be useful to conduct a minute examination of the expenses claimed, because the data are simply not of a quality that would support it.

20 It is common ground that the second defendant received payments from Western Xposure amounting to $1,180,950.00 inclusive of GST.

21 There was another payment of $50,000.00 by Western Xposure to the second defendant on 6 May 2008. The plaintiff submits that this ought to be taken into account, and the defendants say it was a payment unrelated to the relevant contract.

22 It is worth tracing the evidence on this matter in detail, because it provides a particular illustration of the general state of the defendants' evidence and account. One would have thought that such a question could be settled easily by ordinary business records: one would look for contracts (whether by quotation as offer, and written acceptance, or specific contract documents), invoices, and remittance notes. The second defendant's records were not such as to permit this, and the story has to be pieced together.

23 The second defendant received the payment in dispute early in the life of the contract for the first eight buses. At that date, the second defendant had issued only one invoice, for $146,700: first Mann affidavit par 10. Prima facie, the $50,000 receipt was a payment that was part of the contract and to be accounted for. However, the history of invoices and receipts set out in that paragraph shows invoices totalling $1,179,751.00 inclusive of GST. Paragraph 11 shows other receipts corresponding to those and totalling $1,180,950.00. The difference of $1,200.00 between those figures is explained at pars 11 12 as representing payment for an extra item that had apparently not been invoiced. Counsel for the plaintiff (in my respectful view, sensibly) did not take issue with the explanation for that difference.

24 Evidence as to the payment in question is also set out at pars 14 15 of the first Mann affidavit sworn 5 November 2009, par 68 of the third Mann affidavit of 20 July 2011, and par 6 of the affidavit of Andrew Anthony Mawer sworn 20 July 2011.

25 Paragraph 15 of the first Mann affidavit (exhibit 1) is an assertion unsupported by any primary records. Paragraph 68 of Mr Mann's affidavit of 20 July 2011 (exhibit 3) is in large part admitted hearsay, since certain propositions are put:

[B]ased on my further review of the second defendant's financial records and based on further advice received from Andrew Mawer since 5 November 2009.

26 Mr Mawer's affidavit of 20 July 2011 sets out at par 6 the story put for the defendants. It is that:

(1) the $50,000 was an overpayment on the contract for the eight buses in respect of which the defendants are liable to account;

(2) the second defendant entered into a further agreement with Western Xposure to build two further 'FRR 600' buses;

(3) Mr Mawer agreed with Mr Collins of Western Xposure that the $50,000 would be applied by way of a credit towards that contract rather than being refunded;

(4) the second defendant then provided Western Xposure with a quote for the construction of further buses of a different model, the amount quoted for each bus being expressly conditioned on the construction of four or more buses;

(6) the second defendant built a further two buses and invoiced them and was paid in accordance with the quote;

(7) Western Xposure declined to proceed with further orders;

(8) the second defendant had, or believed it had, a claim to compensation from Western Xposure arising from its failure to proceed with at least two more buses; and

(9) it was orally agreed by relevant individuals on behalf of each that the second defendant would accept the earlier overpayment of $50,000 in full satisfaction of that claim.

27 Looking at the whole of the evidence on this topic, I accept the defendants' submission. It is consistent with the primary evidence of the invoices and the bank register (attachments to the first Mann affidavit). The sum of my experience is that bookkeeping errors of this magnitude are not unknown in businesses of the kind involved in these transactions. I am inclined to think that the best explanation is that there was an unintended, or at least unaccountedfor, early payment by Western Xposure early in the life of the contract, that was not credited against the second defendant's subsequent invoices, and that error was not detected earlier by either party. That is, the $50,000 was not applied in reduction of Western Xposure's liability to the second defendant in respect of the eight buses, nor does the payment show that the real liability (and thus the benefit to the second defendant accountable for present purposes) was $50,000 greater than the invoices suggest. That makes Mr Mawer's explanation the best available, and I accept it.

28 I report therefore that the gross benefits received by the second defendant were $1,180,950.00 inclusive of GST. I now turn to the question of what expenses or other allowances are properly to be offset against that gross revenue, applying the tests to which I have averted.

29 The gross benefit having been determined, the question is what expenses or other allowances are properly to be set off against that. It is for the accounting party to justify. Once a claimed expense is disputed, the accounting party bears the burden of proof: Gava v Grljusich. There is a degree of discretion, to be exercised judicially, in determining allowances to be made: Warman International Ltd v Dwyer, especially [18], [23] and [25].

30 By their opening submissions of 8 August 2011, the defendants classify the expenses properly to be offset against revenue to determine the accountable profit under these categories:

31 Although this classification was somewhat lost in the subsequent detail, I will use it. But first it is necessary to explain how the evidence of the defendants was organised.

32 The expenses claimed by the defendants were first set out in the first Mann affidavit in a claimed total of $1,335,378.90: see par 34.

33 The affidavit attaches as PJM4 the second defendant's purchases. It is organised by reference to the second defendant's purchase orders. These are listed sequentially, but the sequence has missing numbers. This classification also means that payments made by the second defendant are not listed strictly in the chronological order in which they were made.

34 A revised purchases register is attachment PJM4 to the third Mann affidavit. This reduces the expenses claimed to $1,207,497.98.

35 I have considered the nature and reliability of the evidence led on behalf of the defendants in some detail. That is in order to show why I think it would be an exercise in bogus precision to parse the accounts minutely and rule on the admissibility of each item. I bear in mind the overriding objective to ensure that the account taken reflects the intent of the order of the trial judge. I bear in mind the authorities I have cited as to the nature and purpose of the remedy of account.

36 I do not think it is necessary for me to attempt to examine each of the hundreds of individual items appearing in the accounts: My Kinda Town Ltd v Soll (1982) FSR 147, 159; and Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 107, both cited with approval in Warman International Ltd v Dwyer [23].

37 Taken together, those matters leads me to conclude that it is appropriate that I make an allowance under each of the headings of purchases, wages, insurance, superannuation, vehicle repayments and depreciation. In doing so, I explain in broad terms why I make each allowance, without dealing with each item claimed under that heading.

38 The purchases claimed at the opening of the hearing were $1,180,950, which was reduced to $1,154,773.77 by concessions made in the course of the hearing. That latter figure is used as the control figure in the De Bruin spreadsheet. A revised version of that reconciliation was attached to the plaintiff's closing submissions, and that is the version I use.

39 I would allow the conceded items (blue in the De Bruin spreadsheet), which total $601,732.10.

40 I would also allow all the consumable items (orange), which total $50,276.92. It is not clear from the plaintiff's submissions just what the objection to these items is. It was the evidence of Mr Mann and Mr Mawer (which in this instance I accept) that these were truly consumables; that is, items used up in constructing the eight buses. The second defendant was doing nothing else for (at least almost) all the time during which these consumables were used.

41 I make no allowance for the rent claimed of $25,626.04, for which no invoices could be produced. The evidence led in support of this claim, and particularly the excuses for the lack of documentation, left me unconvinced. It had to me an air of artifice. I was left unconvinced that the expense really had been incurred. Even if it had, it seems to me to be an overhead expense of the business, rather than an expense of the contract. Of course, it was necessary for the second defendant to have somewhere to build the buses, but that is not sufficient.

42 The total to be allowed under this head of purchases is therefore $652,009.02.

43 The total claimed is $277,455.95: third Mann affidavit at par 16 and par 21, first Mann affidavit pars 28 31 and payroll registers at PJM5 and PJM6.

44 The plaintiff contends (plaintiff's closing submissions par 34) that the court should exercise its discretion not to allow the defendants' claims for wages and superannuation for Mr Mann and Mr Mawer, because of the breach of fiduciary duty found by the trial judge.

45 Mr Mawer is not an accounting party. For present purposes, there is no reason to treat wage or salary payments to him differently from payments to a non-defendant employee or contractor. It does not seem to me that there is any basis not to allow the second defendant the expense it has incurred in making salary payments to Mr Mawer, and compulsory superannuation contributions associated with those.

46 Mr Mann is in a different category. The authorities show that it is a matter of discretionary judgment whether any allowance should be made for wage and like payments to a defaulting party. In my view it would be inequitable for Mr Mann to receive any profit for work in an enterprise that was in breach of his duty. Attachment PJM5 at page 82 to the first Mann affidavit shows that the total wage or salary payment to the first defendant in the period in question were $79,585. Superannuation contributions for Mr Mann are shown on that page as being $7,162.65. The sum of those two amounts is $86,747.65. The total claimed should be reduced by that amount, resulting in an allowance of $170,698.30.

47 In this way it is the second defendant that is denied the credit for Mr Mann's wages. The alternative would be to allow the second defendant the credit for the wage expense on the basis that the first defendant would separately account to the plaintiff for the wage benefit he derived. It is a question of which pocket the accounting credit comes from. The two methods produce the same net result for the plaintiff. I have made the calculation on the basis I have done, but I respectfully suggest that the trial Judge, when making orders giving effect to this report, may be able to treat it either way.

48 Although a higher figure was claimed earlier, the third Mann affidavit claimed $8,983.11: pars 12 13, and attachment PJM2. The attachment comprises two invoices from a broker. One is for $4,574.86 for workers' compensation insurance. The other is for $4,408.25 for what is said to be a 'Business Pack' policy. This apparently includes public liability and other cover.

49 The workers' compensation cover was legally required as a consequence of the second defendants' payment of wages and salaries in constructing the buses. It is really part of that wage and salary cost. Nothing has been put to me as to how I could discount that amount to reflect the extent to which the cost of discharging the obligation to have workers' compensation insurance was inflated by paying wages to the first defendant, which I have disallowed. The difference is almost certainly a very small sum in the circumstances. The workers' compensation cost is in my view properly to be regarded as part of the wages allowed, and I allow the whole of this invoice.

50 The other insurance was not legally required and is not an expense incurred in building the buses. It is a cost of business, not of this activity. I disallow that.

51 The result is that I allow insurance expenses in the sum of $4,574.86 only.

52 This was sometimes treated by the parties separately from the question of wages, and sometimes rolled in with it. I have dealt with the compulsory superannuation in connection with wages above, and there is no further allowance required.

53 The third Mann affidavit at pars 33 38 sets out, among other things, that the second defendant initially failed to pay compulsory superannuation payments as required, and eventually paid the Australian Taxation Office $17,134.29. The second defendant is clearly not entitled to any credit for expenses incurred as the result of its having failed to meet its statutory obligations as and when required.

54 The second defendant financed two motor vehicles, one used by Mr Mann and one by Mr Mawer, and claims $9,782.76 being repayments to the financier: second Mann affidavit pars 69 75 and attachments PJM9 and PJM10.

55 These are not expenses incurred in constructing the buses. I accept the plaintiff's closing submissions at pars 72 73. There will be no allowance for this item.

56 The remaining objection to a class of expenses shown in the purchases register is what the plaintiff terms capital purchases (pink in the De Bruin spreadsheet). The defendants' evidence as to these items is less satisfactory. As the plaintiff's closing submissions correctly point out (par 48), it was only in his third affidavit that Mr Mann eventually conceded (par 76) that some of the 'expenses' originally claimed in his first affidavit were for the acquisition of durables clearly capital in nature. They included a forklift at $14,300 and a press brake at $8,000. The total cost of these items was $34,918.88. The defendants claim that a flat 20% depreciation on this amount should be allowed as an expense.

57 There was no particular justification advanced for this rate. In my view, the defendants should be allowed no credit for depreciation on these items. They are of a durable nature. While their need or usefulness in the construction of the buses may have been the trigger for their acquisition, that does not make them expenses of the contract. Nor was it explained why the 20% rate (or any other) was justified. I would be surprised if the use of the forklift and the press brake in this contract represented 20% of their anticipated working lives.

58 On the preceding analysis, the account is summarised as follows:

59 I trust that, applying the tests shown in the authorities that the account must reflect and achieve the aims of the order made, the result produced is in conformity with the intent of the trial judge's orders. Whether that is so is of course for his Honour to determine.