Vanguard Financial Planners Pty Ltd & Anor v Ale & Ors - [2018] NSWSC 314 - NSWSC 2017 case summary — Zoe

NSWNSWSC

Vanguard Financial Planners Pty Ltd & Anor v Ale & Ors

[2018] NSWSC 314

Supreme Court of NSW|2017-12-08|Before: Black J, Hungry J

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Source facts

Court

Supreme Court of NSW

Decision date

2017-12-08

Before

Black J, Hungry J

Source

Original judgment source is linked above.

Judgment (23 paragraphs)

[1]

Background and chronology of events

I now turn to the background to the proceedings and also set out a brief chronology of events. Before Mr Pauling and Mr Ale entered into the arrangements in issue in these proceedings, Mr Pauling operated a financial planning business in a corporate entity, The Investment Shop (Australia) Pty Ltd ("TIS"), and Mr Ale operated an accountancy practice in another corporate entity, Vanguard Accountants Pty Ltd ("VA"). VA initially occupied office space at the premises occupied by TIS under an arrangement that contemplated that it would refer accounting clients to TIS and Mr Ale also came to provide accountancy services to TIS. Although cooperative arrangements between Mr Pauling and Mr Ale commenced as early as 2009, it appears that regular referrals of accounting clients of Mr Ale to Mr Pauling's financial planning business did not commence until about 2012 (T38).
In 2010, Vanguard Group (Aust) Pty Ltd, which later changed its name to Vanguard Financial Planners Pty Ltd, was incorporated as a holding company for VA and TIS and Messrs Ale and Pauling were appointed directors of that entity. The shares in that entity were initially owned 50% by TIS and 50% by VA (Pauling 12.4.16 [8]). In October 2011, that business moved to office premises at Charlestown, New South Wales. Vanguard Group Pty Ltd ("VGPL") was incorporated in September 2012, to act as a holding company for VFP, VA and several other entities that were intended to provide real estate and other services in the Hunter Region. The shareholdings within the Vanguard Group were then restructured so that VGPL became the holding company of TIS, VFP and VA, although the evidence as to how that occurred is not clear. At relevant times, Mr Ale and Mr Mark Pauling were each the only two directors of VGPL and VFP and Mr Ale was the only director of VA. Mr Mark Pauling's evidence in cross-examination was that, at the time the Vanguard Group was established, he did not understand the relevant structure and had only a "broad concept" of the applicable provisions under the Corporations Act 2001 (Cth) although he was familiar with the obligation to keep financial records (T36-37). He did not think that he had sighted VGPL's constitution (T42). He had originally believed that he was a director of VA as well as of VFP, although he later found that he had not been appointed as a director of VA (T45).

Mr Pauling, Mr Ale and Mr Allenspach, another financial planner employed by TIS, entered a Shareholder Agreement dated 1 October 2012 (tendered in incomplete form at Ex P2, 1287ff and in complete form as Ex P11) ("Shareholder Agreement"). The Shareholder Agreement identified Mr Ale as a shareholder in VGPL (Sch 2) although a company associated with Mr Ale, O Le Aiga Atoa Pty Ltd ("OLAA") and not Mr Ale was the shareholder in VGPL. The Shareholder Agreement relevantly provided that no shareholder may have any interest in or be associated with a business which competes directly with the business of VGPL (cl 2); VGPL must at all reasonable times provide and make available to each shareholder monthly profit and loss accounts of VGPL (cl 6); VGPL must cause bank accounts to be opened in its name and all monies received from the ownership and trading of the business must be banked into and paid out of that account only, and VGPL must trade and operate the business at all times in a proper and businesslike fashion (cl 8(g)). The Shareholder Agreement also provided (cl 8(k)) that each shareholder acknowledged and agreed with VGPL and each other that: "At any time whilst they are a shareholder, or after they cease to be a shareholder, or otherwise associated with [VGPL] or the business conducted by [VGPL], then such shareholder covenants and warrants to [VGPL] and the other shareholders that they must not directly or indirectly and whether solely or jointly with or as a director, manager, agent, servant, adviser, consultant, investor, trustee, partner, joint venturer (or any of them) carry on or be engaged or interested in any business of a like nature to the business conducted by [VGPL] or any significant component thereof, or permit their names to be used in connection therewith." That restraint of trade applied to the people and area stated in Sch 3, namely 5 years to all existing clients of VGPL (cl 8(k)(ii)). The Shareholder Agreement also provided that each shareholder acknowledged and agreed with VGPL and each other that all confidential information acquired as a result of being a shareholder, officer or employee of VGPL must not be divulged to any third party and that the parties indemnified VGPL and the other shareholders against any loss or damage they may suffer as a result of the breach of confidentiality (cl 8(l)).

[2]

Plaintiffs' claim for breach of fiduciary duty owed to Mr Pauling arising from a joint venture

I turn now to the Plaintiffs' pleaded claims in the Further Amended Statement of Claim. First, the Plaintiffs plead that the arrangement recorded in the Shareholder Agreement was in the nature of a joint venture and Mr Ale owed fiduciary duties to Mr Mark Pauling (FASOC [10]-[11]). The latter allegation is particularised with effect that: "The Plaintiffs rely on the nature of the arrangement, the need for trust and confidence, and the vulnerable position that the second plaintiff found himself in by reason of the arrangement. The fiduciary duties are alleged to arise independently of, and separately to, any fiduciary duty that arose by reason of their directorships in the various companies that formed part of the group."
It is, of course, uncontroversial that a fact-based (or "ad hoc") fiduciary duty can arise within the circumstances of a particular relationship, including a commercial relationship. In Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 ("Hospital Products"), Mason J observed (at 96-97) that "the critical feature" of the traditional fiduciary relationship was the undertaking or agreement by the fiduciary to "act for or on behalf of or in 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" and that: "The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position … It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed …"
Dawson J similarly observed (at 141-142) that, although no single test would identify a fiduciary relationship: "There is, however, the notion underlying all the cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other ..."
In United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, in considering whether fiduciary duties arose from the dealings between the parties to a proposed joint venture, the majority (Mason, Brennan and Deane JJ) observed (at 10) that the reference to a "joint venture" was not determinative and that: "The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken."
In Australian Securities & Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35; 62 ACSR 427, Jacobson J referred, inter alia, to Hospital Products and observed (at [272]) that: "Apart from the established categories, perhaps the most that can be said is that a fiduciary relationship exists where a person has undertaken to act in the interests of another and not in his or her own interests but all of the facts and circumstances must be carefully examined to see whether the relationship is, in substance, fiduciary ..."
In John Alexander's Clubs Pty Limited v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1 at [87], a unanimous High Court identified the 'critical feature' of fiduciary relationships as being that: "'the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interest of that other person in a legal or practical sense.' From this power or discretion comes the duty to exercise it in the interests of the person to whom it is owed."
In Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296, the Full Court of the Federal Court observed (at [177]) (referring, inter alia, to Hospital Products) that a fiduciary duty may exist: "when and insofar as that person has undertaken to perform such a function for, or has assumed such a responsibility to, another as would thereby reasonably entitle that other to expect that he or she will act in that other's interest to the exclusion of his or her own or a third party's interest." Their Honours also noted (at [174]) that the relevant fiduciary duties were: "concerned with the setting of standards of conduct for persons in fiduciary positions. Its burden, put shortly, is with exacting disinterested and undivided loyalty from a fiduciary - hence, for example, its focus on conflicts between duty and undisclosed personal interest, conflicts between duty and duty and misuse of a fiduciary position for personal gain or benefit."
In Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2; (2013) 92 ACSR 417, Barrett JA (with whom Meagher and Ward JJA agreed) referred (at [121]) to the observation of the Supreme Court of Canada in Galambos v Perez [2009] SCC 48; [2009] 3 SCR 247 that "a fact based fiduciary duty cannot arise unless one party undertakes, expressly or impliedly, to act in a particular factual context solely in the interests of the other". His Honour also emphasised the word "solely" in that proposition and observed (at [121]) that: "That essential requirement shows why fiduciary duties, of their nature, do not ordinarily attend bargains struck at arm's length between sophisticated parties with equal bargaining power who, in pursuing their own financial ends, take care to document their respective rights and obligations in a comprehensive way. A person of that kind who makes such a bargain in that way safeguards his or her own interests and aims to achieve the particular advantage sought for the person's own benefit. The contract may import implied duties of good faith performance. One party may have a clear interest in fostering the ability of the other to perform and in seeing that other derive the advantages that the contract is intended to confer. A relationship with a contented counterparty is usually more productive than a relationship with a hostile one. But none of this alters the reality that each party's role is a selfish role, not one of self-denial and subordination of personal interest."
His Honour also held (at [124]) that the City of Sydney's only vulnerability, in a detailed contract, was to breach of that contract by the other party giving rise to contractual remedies and held (at [128]) that there was no need for equity to supplement the contract, by fiduciary obligations, where the circumstances in which the contract was made and its performance required did not indicate remedies for breach of contract were not adequate to vindicate the parties' rights and protect their interests.
There are also well-known examples of fiduciary duties imposed in the context of partnership, which are largely uncontroversial on the basis that partnership is a form of mutual agency, although the partners' duties inter se can be modified by contract: for example, Birtchnell v The Equity Trustees, Executors and Agency Company Limited (1929) 42 CLR 384; Chan v Zacharia (1984) 154 CLR 178; Glandon Pty Ltd v Tilmunda Pastoral Co Pty Ltd [2008] NSWSC 218. The case law also recognises that a fiduciary duty may also arise in a "joint venture", although it also recognises that that term is more useful as a commercial than a legal description. The essential question is whether the functions and obligations undertaken by a participant in a particular venture themselves attract fiduciary duties. Even where fiduciary obligations arise in some aspects of a joint venture, a party may be free to pursue its own interests in particular respects: Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 at 15. In Gibson Motorsport Merchandise Pty Ltd v Forbes [2006] FCAFC 44; (2006) 149 FCR 569 at [16], Finn J (with whom Sundberg and Emmett JJ agreed) distinguished between cooperative action, including the sharing of resources or interdependent conduct, which could colloquially be described as a "joint venture", and a fiduciary duty owed in the context of a joint venture or anticipated joint venture and observed that: "Rarely, though, will there be anything fiduciary about the arrangements themselves as they will not envisage a form or forms of cooperation which is or are particularly fiduciary in character (eg the sharing of control or of profits and losses; the creation of a commonly owned vehicle to effectuate what is agreed, the assumption of similar rights and obligations etc)."
The evidence does not establish a basis for a finding that Mr Ale undertook to act in the interests of Mr Mark Pauling or that Mr Mark Pauling undertook to act in the interests of Mr Ale, in respect of the arrangements governed by the Shareholder Agreement. Although Mr Mark Pauling and Mr Ale are perhaps less sophisticated than the parties in Streetscape Projects (Australia) Pty Ltd v City of Sydney above, their relationship was governed by that detailed agreement. Although that relationship contemplated a degree of trust between them and had the result that each was to some extent practically vulnerable to the other, there is no evidence and I can see no basis to find that either expressly or impliedly undertook to subordinate his own interests to the other or to any joint interests. Each of Mr Pauling and Mr Ale behaved, both during their relationship and as their relationship began to break down, in a manner that reflected a recognition of an entitlement to promote and protect his individual interests. I recognise that the Plaintiffs contend that Mr Mark Pauling was in a position of vulnerability, in particular, because Mr Pauling left Mr Ale to deal with financial aspects of and the accounts of the financial planning business. That vulnerability largely reflected Mr Pauling's choice to pay limited attention to the companies' financial affairs, at least until the relationship with Mr Ale began to break down, and the case law establishes that the existence of practical vulnerability is not in itself sufficient to establish a fiduciary duty.
Mr Wood advanced detailed submissions as to the requirements to establish informed consent to a breach of fiduciary duty and a breach of director's duties and submitted that Mr Ale could not satisfy those requirements. It is not necessary to address those submissions in respect of this claim since I have not found that the alleged fiduciary duty owed by Mr Ale to Mr Pauling was established. The basis for this claim is not established.

[3]

Other terms of the Shareholder Agreement

The Plaintiffs also allege (FASOC [14]) that it was an express, or alternatively an implied, term of the Shareholder Agreement that expenses shared by entities within the Vanguard Group of companies were required to be borne by VGPL and expenses for the financial planning and accounting businesses were to be borne by VFP and VA respectively.
An express term to that effect is not established by cl 8(g) of the Shareholder Agreement, on which the Plaintiffs rely. That clause provides that: "(g) [VGPL] must cause bank accounts to be opened in the name of [VGPL] and all monies received from the ownership and trading of the business must be banked into and paid out of that account only. [VGPL] must trade and operate the business at all times in a proper and businesslike fashion." Mr Rennie points out that cl 8(g) of the Shareholder Agreement is directed to the establishing, and use, of bank accounts to be opened by VGPL, not VFP, and there is no basis for applying that provision to VFP. No such bank account was opened by VGPL, and the parties did not conduct their business by making payments into or out of such an account, as distinct from accounts held for VFP and VA. That clause does not address any question of how expenses were to be borne by VFP and VA, as distinct from providing that they would be borne by VGPL. The obligation in that clause is in any event placed on VGPL, not upon Mr Ale.
I also do not consider that an implied term to that effect is established. The requirements for the implication of such a term, at least in a detailed written agreement, were set out by the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283, as approved by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347, namely, that the specified term (1) must be reasonable and equitable; (2) 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) must be so obvious that 'it goes without saying'; (4) must be capable of clear expression; and (5) must not contradict any express term of the contract. The suggested implied term is neither necessary for business efficacy of the relevant arrangement nor so obvious that it goes without saying, where it would prevent one entity within the Vanguard Group incurring an expense, as a matter of business convenience, and group entities adjusting that expense between them by an accounting entry or an inter-company loan, and would cause difficulty in dealing with expenses incurred for the benefit of several entities in the Vanguard Group. The suggested implied term is also inconsistent with the express terms of cl 8(a) of the Shareholder Agreement which, as I noted above, provided for VGPL rather than VFP or VA to pay those expenses. In any event, no allegation of breach of such a term is pleaded.

[4]

Alleged improper payments

The Plaintiffs' broader allegations of breach of fiduciary and other duties are substantially directed to payments authorised by Mr Ale from several bank accounts maintained by VFP. I will first outline the evidence as to the particular transactions and will then address the broader claims in respect of those transactions. The process of addressing this evidence was made significantly more difficult because the pleading identified transactions in one order; Mr Pauling's affidavit addressed those transactions in a different order; and Mr Ale's affidavit evidence responded to Mr Pauling's affidavit evidence. I will deal with these matters at some length, in deference to the time and effort devoted to them in affidavit evidence and in cross-examination. However, as will emerge below, the claim on this basis must fail, because the Plaintiffs cannot establish causation in respect of the claimed loss.
The Plaintiffs rely on Mr Mark Pauling's affidavit dated 12 April 2016 for identification of some of the impugned transactions and also rely on Ms Jones' reports dated 25 August 2016 (Ex P7) and 13 December 2017 (Ex P9) in respect of some aspects of those transactions. Mr Mark Pauling refers, in paragraph 73 of that affidavit, to transfers totalling $68,015.13 to several accounts, and his evidence is that he does not know the purpose of those transactions and his consent was not given for those transfers. Paragraph 74 of that affidavit refers to payments constituting $17,445.77 by VFP as lessee for the Charlestown office, when it was occupied by all entities in the Group, and Mr Pauling's evidence is that all rent payments for both the Charlestown and Newcastle offices were made by VFP. Paragraph 75 of that affidavit refers to payments of $201.35 to Netregistry, the domain name provider for VGPL. Mr Pauling's evidence (which was plainly inadmissible, although not objected to) was that these expenses "should have been shared by the Group" and that he did not authorise or approve them being made from the account of VFP. Paragraph 76 of that affidavit refers to transactions totalling $66,753.53, and Mr Pauling indicates that he does not know the purpose of the transactions, and says that he did not consent to them, and he expresses his belief that they did not confer any benefit on VFP. Paragraph 77 of that affidavit in turn refers to several payments totalling $359.70 to an internet service provider, including in relation to ownership of the domain "vanguardrealestate.com.au", and paragraph 78 refers to several payments to the Australian Taxation Office, totalling $2,640, which appear to relate to a payment plan with the Australian Taxation Office.
Paragraph 79 of that affidavit refers to payments to a document management service used by VA, totalling $1,574, two of which appear to relate to the registration of a company within the Vanguard Group and three of which appear to relate to registration of companies for clients of VA. Paragraph 80 of that affidavit refers to ATM withdrawals totalling $1,550 and paragraph 81 refers to "miscellaneous" transactions totalling $22,365.77. Mr Pauling's evidence, also inadmissible but not objected to, was that he did not believe those transactions benefited VFP or had anything to do with its business. Paragraph 88 of that affidavit refers to unpaid superannuation for several employees for the period July to September 2015 and paragraphs 89-92 refer to unpaid tax in respect of VFP. The attack on several of the transactions which were the subject of pleaded challenges and were addressed in Mr Mark Pauling's affidavit is no longer pressed. Paragraph 79 of Mr Jason Pauling's affidavit dated 3 June 2016 also identified several expenses which Mr Jason Pauling indicated, in evidence that was also inadmissible but not objected to, "do not appear to relate to the expenses of [VFP]".
In cross-examination, Mr Mark Pauling accepted that the parties' focus was not on the profitability of the business, or any distribution of benefits upwards to shareholders, but on growing the business (T50) and that, although the intent had been that the companies would operate independently, the costs of one company could be paid by the other and the growth of the companies brought both greater income and expenses (T52). Mr Pauling did not, however, accept that the parties had commenced the relationship on the basis of a concept of "cross-subsidisation", which Mr Rennie put to him, and observed that any "cross-subsidies" were (or, I interpolate, possibly should have been) taken into account (T59). It is unclear whether Mr Pauling and the cross-examiner had a common understanding of the concept of "cross-subsidy" in the course of that cross-examination. Mr Pauling accepted in cross-examination that the financial reports he was provided, at least after he had requested them, indicated some cross-subsidisation between the businesses (T69), although (I interpolate) the issues raised in the proceedings as to apportionment of shared expenses suggest that those accounts would not have disclosed the full extent of any cross-subsidisation.
Later in cross-examination, Mr Pauling expressed the understanding that rent and other outgoings would have been charged to the respective companies in respect of the proportion of use (T75). Mr Pauling's evidence was also that he thought that "all expenses were being taken back to the identity [sic] that had expended them" (T78) and that "whenever money was flowing between the two companies, there would have been a loan account drawn up" (T80). It seemed to me that that evidence likely reflected Mr Pauling's understanding formed by the detailed examination of these issues in the preparation of these proceedings, rather than a contemporaneous understanding of those matters. Mr Pauling's evidence was also that, at the time, he was not aware that there was "money flowing between the companies" (T81). Accepting that Mr Pauling may well not have thought about that matter, had he done so, he must have immediately realised that monies had to flow between the companies to meet any liabilities incurred by VGPL, because VGPL itself had no bank account from which they could be met. Mr Pauling did, however, accept that a flow of monies between the companies "was supposed to happen as long as there was a loan account drawn" (T81).
The Plaintiffs also rely on Ms Jones' reports, which involve the application of an accountant's expertise as to the treatment of expenses in a company's financial reports. Those reports are not capable of proving that particular expenses were not, in fact, properly incurred by VFP, which could only be a matter for assumption. Obviously enough, an expense may properly be incurred by VFP, because it is in the interests of VFP, or its holding company VGPL or the Vanguard Group for VFP to incur it, even if it was not correctly accounted for in the Vanguard Group's financial reports. I will address other aspects of Ms Jones' reports in dealing below with a broader claim advanced by the Plaintiffs in reliance on those reports.
Mr Ale's evidence was that he approached the expenses of the relevant companies on a group basis. His affidavit evidence, which the Plaintiffs adopted without criticism of its accuracy in closing submissions, was that: "The expenses of the Group were treated in whatever way was appropriate to maximise profits of the Group and the retention of profits within the Group. The individual companies within the Group were owned by [VGPL] and were operated to favour that company first and foremost. There was no need, desire, practice or policy within the Group which required that revenue or expenses be allocated, paid or recorded in any particular other than to ensure they were paid from revenue earned within the Group and to maximise the making and retention of profits of the Group." (Ale 23.9.16 [6]-[7]). Mr Ale's evidence in cross-examination, in relation to inter-company loan accounts, was that, for a lot of the time, payments were just made from "whichever account", although he also referred to booking payments as a loan (T255).
The Plaintiffs' first allegation in this respect, in paragraph 31 of the Further Amended Statement of Claim, relates to some 72 transactions between January 2013 and November 2015 from an account held with the Commonwealth Bank of Australia ("CBA") that are alleged to have been caused or approved by Mr Ale. Paragraph 32 pleads that those 72 transactions bestowed no benefit on VFP. The attack on some of those transactions is no longer pressed.
Mr Pauling's evidence as to the claim in paragraph 31(a) of the Further Amended Statement of Claim (Pauling 12.4.16 [81(b)]) is that the relevant transaction, in the amount of approximately $232, relates to payment of an SDRO infringement notice. Mr Ale's evidence (Ale 12.8.16 [114(b)]) was that the payment was in payment of a fine incurred by Mr Allenspach. Putting aside any question of the wisdom of a company paying penalties for traffic infringements incurred by a director or employee, this payment related to an employee of VFP, and it has not been established that it conferred no benefit on VFP. Mr Pauling's evidence as to the claim in paragraph 31(b) of the Further Amended Statement of Claim (Pauling 12.4.16 [81(d)]) is that the relevant transaction appears to be a travel cost, which he asserts should have been billed to VGPL, if it was business related. Mr Ale's evidence (Ale 12.8.16 [114(d)]) was that the payment was allocated to the general ledger account for national travel and he could not tell if it should be allocated to a different ledger account from the available records. The obvious difficulty with Mr Pauling's evidence is that VGPL, which did not have a bank account, would not have had the capacity to pay that cost if it had been billed to it, and the payment is not otherwise shown to be improper. It has not been established that it conferred no benefit on VFP.
The claim for $5,340.66 in paragraph 31(c) of the Further Amended Statement of Claim (Pauling 12.4.16 [76(a)], Ale 12.8.16 [109(a)]) was not pressed. Mr Pauling's evidence (Pauling 12.4.16 [81(e)]) as to the claim in paragraph 31(d) of the Further Amended Statement of Claim is that the relevant payment was made to a particular entity using Mr Ale's company credit card. Mr Ale's evidence (Ale 12.8.16 [114(e)]), which was not controverted, was that the payment was for sponsorship of an amateur golfer paid by Vanguard Group. It has not been established that such sponsorship conferred no benefit on VFP. The claims for $711.25 in paragraph 31(e) of the Further Amended Statement of Claim (Pauling 12.4.16 [81(f]), Ale 12.8.16 [114(f)]), for $70 in paragraph 31(f) of the Further Amended Statement of Claim (Pauling 12.4.16 [81(g)], Ale 12.8.16 [114(g)]) and relating to cash withdrawals in paragraphs 31(g)-(i) and 31(x) of the Further Amended Statement of Claim (Pauling 12.4.16 [80], Ale 12.8.16 [113]) were not pressed.
Mr Pauling's evidence (Pauling 12.4.16 [79(a)]) as to the claim in paragraph 31(j) of the Further Amended Statement of Claim is that those payments relate to two payments relating to the company registration of Vanguard Real Estate Pty Limited. Mr Ale acknowledges (Ale 12.8.16 [112(a)]) that these amounts were paid by the Vanguard Group and should have been charged to Vanguard Real Estate. This was not shown to be more than an allocation error. Mr Pauling identifies the payment referred to in paragraph 31(k) of the Further Amended Statement of Claim as made to the National Tax and Accountants Association using Mr Ale's company credit card (Pauling 12.4.16 [81(j)]) and Mr Ale accepts that the amount should have been posted to VA's expense account (Ale 12.8.16 [114(j)]). It does not, of course, follow that an error in that matter gives rise to a breach of fiduciary or directors' duties, a question that I will address below. The claim in paragraph 31(l) of the Further Amended Statement of Claim in the amount of $2,000 (Pauling 12.4.16 [76(c)], Ale 12.8.16 [109(c)] was not pressed.
Mr Pauling's evidence (Pauling 12.4.16 [79(b)]) as to the claim in paragraph 31(m) of the Further Amended Statement of Claim refers to a payment of $433 for registration of a company for a client of VA and Mr Ale acknowledges (Ale 12.8.16 [112(b)]) that the payment should have been charged against VA. The evidence is to similar effect in respect of two payments pleaded in paragraph 31(n) of the Further Amended Statement of Claim totalling approximately $570. It is common ground that the payment challenged in paragraph 31(o) of the Further Amended Statement of Claim was made for service of Mr Ale's company car (Pauling 12.4.16 [81(n)], Ale 12.8.16 [114(n)]) and Mr Ale's evidence is that he believed he could charge that service as a director of VFP. The claim pleaded in paragraph 31(p) of the Further Amended Statement of Claim relates to a payment made to the Roads and Transit Authority for registration of a car registered in the name of Investment Shop (Aust) Pty Ltd (Ale 12.8.16 [114(o)]) and falls within the same category.
It is common ground that the payment attacked in paragraph 31(q) of the Further Amended Statement of Claim relates to rent for the Charlestown office for June 2013 (Pauling 12.4.16 [74(a)], Ale 12.8.16 [107(a)]). The Plaintiffs' case appears to be that the invoice was addressed to VGPL and ought to have been paid by VGPL. That case insufficiently recognises the fact that VGPL had no bank account or funds to make such a payment, and that VFP was the lessee of the Charlestown premises. That payment was for VFP's benefit so far as it discharged its obligation to pay rent under the lease and also at least partly for VFP's benefit since it had access to that office. The claims as to payments of $2,029.16 in paragraph 31(r) of the Further Amended Statement of Claim (Pauling 12.4.16 [73(a)], Ale 12.8.16 [106(a)]), $6795.46 in paragraph 31(s) of the Further Amended Statement of Claim (Pauling 12.4.16 [81(p)]) and $67.50 in paragraph 31(t) of the Further Amended Statement of Claim (Pauling 12.4.16 [81(r)], Ale 12.8.16 [114(r)]) were not pressed.
Mr Pauling's evidence (Pauling 12.4.16 [81(t)]) is that the two payments challenged in paragraph 31(u) of the Further Amended Statement of Claim related to delivery and distribution of taxation brochures. Mr Ale's evidence (Ale 12.8.16 [114(t)]) is that the payments were arranged and approved by Mr Jason Pauling, and that evidence was not controverted. Mr Pauling identifies the payment challenged in paragraph 31(v) of the Further Amended Statement of Claim for some $40 as made to Facebook using Mr Ale's company credit card (Pauling 12.4.16 [81(u)]) and Mr Ale responds that the payment was for Vanguard Group's Facebook marketing (Ale 12.8.16 [114(u)]). That explanation has not been controverted and it has not been established the payment conferred no benefit on VFP. Mr Pauling's evidence (Pauling 12.4.16 [81(v)]) is that the payment for $2,282.50 in paragraph 31(w) of the Further Amended Statement of Claim was made for business cards for VA's staff and presentation folders for tax time and Mr Ale responds (Ale 12.8.16 [114(v)] that an amount of $225.50 related to business cards for an employee of VA and the balance for business cards of employees of VFP and the contrary was not established. This is in any event, at best an allocation question. The claims for $15,968.29 in paragraph 31(y) of the Further Amended Statement of Claim (Pauling 12.4.16 [73(b)], Ale 12.8.16 [106(b)]), for several amounts in paragraph 31(z) of the Further Amended Statement of Claim (Pauling 12.4.16 [73(c)], Ale 12.8.16 [106(c)]) and for $198.95 in paragraph 31(aa) of the Further Amended Statement of Claim (Pauling 12.4.16 [81(x)], Ale 12.8.16 [114(x)]) were not pressed.
The claim in paragraph 31(bb) of the Further Amended Statement of Claim, which relates to the amount of $23.50, is identified by Mr Pauling (Pauling 12.4.16 [81(y)]) as a payment made to a resort during VA's golf weekend and Mr Ale accepts (Ale 12.8.16 [114(y)]) that the payment should have been posted to VA's expense account. The claims for several payments in paragraph 31(cc) of the Further Amended Statement of Claim (Pauling 12.4.16 [73(d), Ale 12.8.16 [106(d)]) were not pressed. Mr Pauling's evidence as to the claim in paragraph 31(dd) of the Further Amended Statement of Claim, in the amount of $104.42 (Pauling 12.4.16 [81(z)]) is that this relates to the payment of a parking fine. Mr Ale accepts (Ale [114(z]) that this payment was posted in error and should have been charged to VA. The Plaintiffs also refer in their Further Schedule of Transactions to Ms Jones' report (Ex P7, [464]) in respect of this claim. Ms Jones there records that she has not analysed the relevant account on the basis that its balance is nominal and her evidence does not support that claim.
Mr Pauling's evidence (Pauling 12.4.16 [73(e)]) as to the claim in paragraph 31(ee) of the Further Amended Statement of Claim refers to the fact that the relevant payment was made and the description recorded for it, which appears to relate to a liability arising under a business activity statement ("BAS"). Mr Ale's evidence (Ale 12.8.16 [106(e)]) is that the payment is noted with the general ledger account for the old VFP transaction account; it may be a BAS payment for VA, as its description suggests; and that Mr Ale would need to have access to accounting software, which was lost when he was shut out of the Charlestown office, to investigate the matter further. It has not been established that this payment was not for VFP's benefit. Mr Pauling's evidence (Pauling 12.4.16 [81(aa)]) as to the claim in paragraph 31(ff) of the Further Amended Statement of Claim is that this payment was made to the National Tax and Accountants Association using Mr Ale's company card and Mr Ale accepts that the payment was posted in error and should have been charged to VA (Ale 12.8.16 [114(aa)]). The claim in paragraph 31(gg) of the Further Amended Statement of Claim (Pauling 12.4.16 [73(f)], Ale 12.8.16 [106(f)]) was not pressed.
Mr Pauling's evidence (Pauling 12.4.16 [75(b)]) as to the claim in paragraph 31(hh) of the Further Amended Statement of Claim in the amount of $155.40, which appears to be duplicated in paragraph 33(p), merely identifies the fact that a payment to an internet registry was made. Mr Ale's evidence (Ale 12.8.16 [108(b)]) is that it was for the renewal of the domain name for The Investment Shop, a name formerly used by Mr Pauling's company, and that evidence was not rebutted. It is common ground that the payment attacked in paragraph 31(ii) of the Further Amended Statement of Claim relates to rent for the Charlestown office. The Plaintiffs' case appears to be that the invoice was addressed to VGPL and ought to have been paid by VGPL. As I noted above, that case insufficiently recognises the fact that VGPL had no bank account or funds to make such a payment, that the payment discharged VFP's obligations to pay rent under the lease and that VFP had access to those premises. It has not been established that VFP did not benefit from the payment and this is at best a question of allocation of the expense between the companies.
Mr Pauling's evidence (Pauling 12.4.16 [77(c)-(d)]) as to the claim in paragraphs 31(jj)-(kk) of the Further Amended Statement of Claim is that these three payments, each in the amount of $19.95, relate to renewal of domain names for companies other than VFP. Mr Ale's evidence is that they were made in error from VFP, although they relate to domain names used by the Vanguard Group. The further payment of $19.95 pleaded in paragraph 31(mm) and the four payments totalling approximately $64 pleaded in paragraph 31(oo) of the Further Amended Statement of Claim fall in the same category. It has not been established that VFP obtained no benefit from these payments.
The claim in paragraph 31(ll) of the Further Amended Statement of Claim (Pauling 12.4.16 [76(g)], Ale 12.8.16 [109(g)]) refers to two transfers of $7,000 in and out of VFP's account on consecutive days, which appear to have caused no loss to VFP and were not pressed. The claim in paragraph 31(nn) of the Further Amended Statement of Claim (Pauling 12.4.16 [76(h)], Ale 12.8.16 [109(h)]) was not pressed. It is common ground that the payment attacked in paragraph 31(pp) of the Further Amended Statement of Claim relates to rent for the Charlestown office. The Plaintiffs' case appears to be that the invoice was addressed to VGPL and ought to have been paid by VGPL. As I noted above, that case insufficiently recognises the fact that VGPL had no bank account or funds to make such a payment, that the payment discharged VFP's obligation to pay that rent as lessee and that VFP benefited from the payment from its access to that office. It has not been established that payment was not for VFP's benefit and this is at best a question of allocation.
Notwithstanding the parties' submissions as to wider questions of law, the Plaintiffs' claim for breach of duty in respect of these transactions largely fails because its factual basis is not sufficiently established or, where established, does not rise to the level of the alleged breach of fiduciary or directors' duties. It is possible to organise the challenged transactions by categories, although the parties largely did not do so. Some are alleged, by their nature, to have had no benefit for VFP. I do not accept that has been established in respect of the transactions pleaded in paragraph 31(a) of the Further Amended Statement of Claim, where Mr Allenspach worked for VFP and the payment of an infringement notice may be, although it will not necessarily be, of benefit to a company in maintaining good employee relations. Some (for example, FASOC [31(b)]) are alleged to have been payable by VGPL, which could not pay them since it had no bank account, and are otherwise not shown to have conferred no benefit on VFP as alleged. The evidence as to some transactions (for example, FASOC [31(d)], [31(ee]) does little more than identify them, and their nature does not, in itself, establish they were not for VFP's benefit. Several transactions, often in small or very small amounts (for example, FASOC [31(j)], [31(k)], [31(m)], [31(n)], [31(bb)], [31(dd)], [31(ff)], [31(jj)-(kk)], [31(mm)], [31(oo)]) were incorrectly allocated to VFP although they were proper transactions of other group companies, including but not only VA, and did not, strictly, confer a benefit on VFP. That matter cannot, in my view, establish the alleged breaches of duty. The question whether other transactions (for example, FASOC [31(o)], [31(p)], [31(u)-(w)], [31(hh)]) were properly allocated to VFP or VA is open to dispute, and it has not been shown that they were of no benefit to VFP. Other payments (for example, FASOC [31(q)], [31(ii)], [31(pp)]) were at least partly for VFP's benefit and the claim they were of no benefit to it must fail. The claim in paragraph 32 of the Further Amended Statement of Claim that each of these payments conferred no benefit on VFP has not been established.
Paragraph 33 of the Further Amended Statement of Claim pleads some 27 further transactions between December 2012 and November 2015 from the CBA account and paragraph 34 pleads that: "Any benefit bestowed by virtue of each of the transactions enumerated in the previous paragraph was bestowed on the Group generally; or alternatively conferred a benefit on [VA] or other entities in the Vanguard group."
Mr Pauling's evidence (Pauling 12.4.16 [75(a)]) as to the claim in paragraph 33(a) of the Further Amended Statement of Claim, for an amount of only $45.94, does not identify the nature of the payment. Mr Ale responds (Ale 12.8.16 [108(a)]) that the payment was for the domain name for the central website for the Vanguard Group, VA and VFP. This is at best a question of allocation between the several group companies. Mr Pauling's evidence (Pauling 12.4.16 [81(a)]) is that the claim in paragraph 33(b) of the Further Amended Statement of Claim relates to two payments to a domain provider for the Vanguard Group and that, after unidentified "reasonable investigation and consideration", he does not believe the transactions benefit VFP or have anything to do with its business. Although no objection was taken to that inadmissible assertion, it cannot establish the asserted fact. Mr Ale responds (Ale 12.8.16 [114(a)]) that the two payments were for website hosting charges for the Vanguard Group, VA and VFP. This is again at best a question of allocation.
Mr Pauling's evidence (Pauling 12.4.16 [77(a)]) as to the claim in paragraph 33(c) of the Further Amended Statement of Claim, in the amount of $90, indicates merely that the amount is an interest charge paid to "Crazy Domains Internet". Mr Ale responds (Ale 12.8.16 [110(a)]) that the payment relates to a website for VGPL, VA and VFP. Mr Pauling's evidence (Pauling 12.4.16 [81(c)]) as to the claim in paragraph 33(d) of the Further Amended Statement of Claim is that this payment was to a printing machine company, and there was only one printer at the Charlestown office. Mr Ale responds (Ale 12.8.16 [114(c)]) that the payment was for two printers in the Charlestown office. This is at best a question of allocation. Mr Pauling's evidence (Pauling 12.4.16 [81(h)]) as to the claim in paragraph 33(e) of the Further Amended Statement of Claim is that this was a payment to a domain provider. Mr Ale's evidence (Ale 12.8.16 [114(h)]) is that the payment was for the central website for the Vanguard Group, VA and VFP and that evidence has not been falsified. This is again at best a question of allocation. The claim in paragraph 33(f) of the Further Amended Statement of Claim (Pauling 12.4.16 [76(b)], Ale 12.8.16 [109(b)]) was not pressed.
Mr Pauling's evidence as to the claim in paragraph 33(g) of the Further Amended Statement of Claim identifies the payment as relating to a printer at the Charlestown office (Pauling 12.4.16 [81(i)]) and Mr Ale's evidence (Ale 12.8.16 [114(i)]) is that the payment was made for the two printers at that office. Mr Pauling's criticism seems to rise no higher than a proposition that the payment should not have been made by VFP, because VA partly occupied that office and this is, at best, an allocation issue. Mr Pauling's evidence (Pauling 12.4.16 [77(b)]) as to the claim in paragraph 33(h) of the Further Amended Statement of Claim, for three payments totalling $126 in total, is merely that they were made to an internet provider. Mr Ale's evidence (Ale 12.8.16 [110(b)]) is that they were made for the website of group companies, and this is again at best an allocation issue.
The claim in paragraph 33(i) of the Further Amended Statement of Claim, in the amount of $99, is identified by Mr Pauling (Pauling 12.4.16 [88(l)]) as relating to a post office box renewal and Mr Pauling accepts that the post office box was used by all of the Vanguard entities. Mr Ale's evidence (Ale 12.8.16 [114(k)]) is to similar effect, and he adds that that post office box appeared on letterhead and other business stationery. This is, at best, a matter of allocation. The payment challenged in paragraph 33(j) of the Further Amended Statement of Claim (Pauling 12.4.16 [81(l)], Ale 12.8.16 [114(l)]) falls within the same category. The claim in paragraph 33(k) of the Further Amended Statement of Claim relates to a payment made to a hygiene service, and it appears to be common ground (Pauling 12.4.16 [81(m)], Ale 12.8.16 [114(m)]) that it related to hygiene services provided for the Charlestown office. This is also, at best, a matter of allocation. The claim in paragraph 33(l) of the Further Amended Statement of Claim (Pauling 12.4.16 [76(d)], Ale 12.8.16 [109(d)]) was not pressed.
Mr Pauling's evidence (Pauling 12.4.16 [81(q)]) as to the claim in paragraph 33(m) of the Further Amended Statement of Claim, is that this payment was made to Snap Printing for stationery and newsletters used by the Vanguard Group and Mr Ale's evidence (Ale 12.8.16 [114(q)]) is that the printing was organised by Ms Allenspach, who I infer was associated with Mr Allenspach and the financial planning aspect of the business. Mr Pauling's evidence (Pauling 12.4.16 [81(s)] as to the claim in paragraph 33(n) of the Further Amended Statement of Claim is that this relates to a payment to a printer and an invoice to VA was paid by VFP. Mr Ale's evidence (Ale 12.8.16 [114(s)] was that he was not sure what the payment was for, but it was made by Mr Jason Pauling. That evidence has not been controverted.
Mr Pauling's evidence (Pauling 12.4.16 [81(w)]) as to the claim in paragraph 33(o) of the Further Amended Statement of Claim is that this payment was made to a utility supplier for the Charlestown office and Mr Ale's evidence (Ale 12.8.16 [114(w)]) is that the payment was for the electricity account for the Charlestown office. This is, at best, an allocation question. The claim in paragraph 33(p) of the Further Amended Statement of Claim appears to duplicate the claim in paragraph 31(hh) of the Further Amended Statement of Claim. The claim in paragraph 33(q) of the Further Amended Statement of Claim relates to two transfers of $5,000 in and out of VFP's account on the same day (Pauling 12.4.16 [76(e)], Ale 12.8.16 [109(e)]), which appear to have given rise to no loss to VFP and was not pressed. It is common ground that the payments attacked in paragraphs 33(r)-(s) of the Further Amended Statement of Claim relate to rent for the Charlestown office. The Plaintiffs' case appears to be that the invoices were addressed to VGPL and ought to have been paid by VGPL. That case insufficiently recognises the fact that VGPL had no bank account or funds to make such a payment, that VFP was the lessee of the premises, the payment discharged its liability for the rent, and that VFP benefited from access to the premises. This is at best a question of allocation.
Paragraph 38 of the Further Amended Statement of Claim relates to 18 payments from an account maintained by VFP at the Greater Building Society ("GBS"), totalling $19,567.27 and paragraph 39 pleads that none of those transactions conferred a benefit on VFP. Mr Pauling's evidence (Pauling 12.4.16 [82]), by way of assertion, is that several of the transactions "appear questionable or irregular to me" or "do not relate to company business" and that he did not consent to the transactions, and he does not otherwise lead evidence describing the transactions. The claims in paragraphs 38(a)-(b) and (e) were not pressed. Mr Ale accepts that a payment of $671.03 to MYOB Australia claimed in paragraph 38(c) should have been treated as an expense of VA and identifies a payment of $1,000 claimed in paragraph 38(d) as a donation made by Vanguard Group each year. The evidence led by both parties as to these transactions does not rise beyond the level of assertion and the evidentiary onus of establishing the basis of any challenge to them, which lies upon VFP and Mr Pauling, has not been satisfied.
Mr Pauling also refers (Pauling 12.4.16 [76(f)]) to a loan repayment of $10,000 and Mr Pauling's evidence is that the payment was transferred to his personal account without his consent, a matter which appears to have caused him no loss. Mr Ale also responds (Ale 12.8.16 [109(f)]), apparently correctly, that that transaction was not pleaded. Mr Pauling's evidence (Pauling 12.4.16 [78]) also addresses three payments, each of $880, to the Australian Taxation Office and he expresses the view that they suggest a payment plan with the Australian Taxation Office, and that he did not consent to VFP entering into a payment plan with the Australian Taxation Office. He indicates that he does not know whether those payments were made in respect of liabilities of VFP and did not approve them. Mr Ale responds, apparently correctly, that that matter is also not pleaded (Ale 12.8.16 [111]).
Paragraph 42 of the Further Amended Statement of Claim pleads that Mr Ale authorised or made payments from VFP of wages of six persons working within the Vanguard Group who, it is alleged in paragraph 43, were not employed by VFP or entitled to receive a payment from VFP. Paragraph 87 of Mr Pauling's first affidavit refers to wages paid by VFP in respect of several persons, who are said not to have been employees of that company. Mr Ale's evidence (Ale 12.8.16 [105]) is that: "The staff referred to at paragraph 87 at (c) to (h) [of Mr Pauling's affidavit] had accounting roles but were employed by [VGPL], being [Aldcroft, Skipp, Janetzki, Fogg and McGuigan] were paid small amounts of their wage by [VFP] to reduce [VFP's] tax liability as it generated more revenue than [VA]." Mr Ale was cross-examined at some length as to his evidence to the time that particular employees spent in dealing with matters relating to the financial planning business on the one hand and the accounting business on the other (T296ff). Mr Pauling denies that he agreed to the payment of those wages by VFP. It does not seem to me that Mr Pauling's specific agreement to that course was required, where he had plainly left the management of those matters to Mr Ale.
Mr Aldcroft's employer was described in his employment agreement as VGPL and its related entities (Ex P1, 187) and it was necessary that he be paid by either VFP or VA, since VGPL did not maintain a bank account and could not have paid him. Mr Ale's affidavit evidence is that a small part of Mr Aldcroft's duties involved providing services to VFP and there is evidence that VA paid the substantial part of Mr Aldcroft's wages and superannuation (Ale 12.12.17, Annexure B). Ms Skipp's employer was also described as VGPL and its related entities (Ex P1, 223) and it was also necessary that she be paid by either VA or VFP, since VGPL did not maintain a bank account and could not pay her. There is evidence that a substantially larger part of her salary was paid by VA than by VFP (Ale 12.12.17, Annexure B). I am not persuaded that the part payment of wages and superannuation to Mr Aldcroft and Ms Skipp was of no benefit to VFP, even on the assumption that all of their work was attributable to VA. It was in the interests of the Vanguard Group, and of VFP as a wholly owned subsidiary of VGPL, that VGPL and VA meet their statutory obligations in respect of payment of wages and superannuation contributions and VFP thereby obtained a benefit from making such payments. At the highest, any breach in respect of those payments could only arise from a failure to account for the payment, in an inter-company loan account between VA and VFP, and such an inter-company debt would have been extinguished by the Separation Agreement as I will find below.
Ms Janetzki's employment agreement (Ex P1, 205) records her employer as Vanguard Group (Aust) Pty Ltd, which subsequently changed its name to VFP. It seems to me to be plainly for VFP's benefit to pay salary and superannuation of a person whom it employs. If part of that payment was properly reallocated to VA by way of an inter-company loan account, that loan would have been extinguished by the terms of the Separation Agreement as I will find below. The Plaintiffs now accept that wages and superannuation paid to Ms Fogg (FASOC [42(e)]) were properly attributable as 75% to VFP (in that VFP obtained 75% of the benefit of Ms Fogg's work) and that wages and superannuation paid to Ms McGuigan (FASOC [42(f)]) were properly attributable as 75% to VFP, and that VA paid more than its proportionate share of Ms McGuigan's wages and superannuation and would be entitled to an adjustment in its favour. Those amounts could properly be paid by VFP as the entity that derived the greater benefit from them. At the highest, any breach in respect of those payments could only arise from a failure to reallocate a portion of the payment, in an inter-company loan account between VA and VFP, and such an inter-company debt would have been extinguished by the Separation Agreement as I will find below.
In respect of several unpleaded claims, the Plaintiffs now accept that the wages and superannuation payable in respect of Messrs Demery, Sampson, Walker and Valone and Ms Sneddon, Ms Little, Mr Allenspach and Ms Allenspach are all attributable to VFP in their entirety, and no claim that they were not paid for VFP's benefit or for breach of duty in respect of their payment could be established. The Plaintiffs now accept that 85% of the payments in respect of Ms Barber are attributable to VFP, 75% of the payments in respect of Mr Mason and several other employees are attributable to VFP, 60% of the payments in respect of Mr Jason Pauling are attributable to VFP and 50% of payments in respect of Ms Hammersley were attributable to VFP. No claim that those payments were not made for VFP's benefit could be, or was, pressed and the only claim available in respect of those persons was that a reallocation of a portion of that payment to VA should have been recorded in the inter-company loan account. Had such an adjustment been recorded, it would have been extinguished by the terms of the Separation Agreement as I will find below.
The claim in paragraph 44 of the Further Amended Statement of Claim in relation to 21 payments made to Mr Ale, and the corresponding allegations in paragraphs 49-50 that these transactions were not authorised by VFP and breached the alleged fiduciary duties and statutory duties owed by Mr Ale as a director to VFP, were not pressed.
Paragraph 45 of the Further Amended Statement of Claim pleads that, over the three year period between October 2012 and November 2015, Mr Ale caused the amount of $107,400.23 to be transferred from VFP's bank account to an account in Ms Ale-Lim's name, without Mr Pauling's consent, and that pleading is particularised by reference to 108 payments. Paragraph 46 pleads that Ms Ale-Lim had not been an employee of or contracted to VFP, although it appears she was in fact employed from time to time to work in the Vanguard Group's or VA's business. Mr Ale's evidence on cross-examination was that Ms Ale-Lim was employed at group level, although she particularly assisted VA in July and August with phone calls in respect of tax returns (T298-299). Mr Mark Pauling's evidence on cross-examination (T129) and Ms Barber's evidence on cross-examination (T202) was that Mrs Pauling was also remunerated from the business, although she did not work in it. It has not been established that the payment to Ms Ale-Lim was of no benefit to VFP, where she in fact worked in the Vanguard Group business or at least VA's business from time to time; she was entitled to be paid wages and superannuation in respect of the work which she in fact performed; and, as I have noted above, VFP had an interest in VGPL and VA meeting their statutory obligations in respect of wages and superannuation. I will address the allegations of breach of duty as to these payments below.
Paragraphs 47-48 of the Further Amended Statement of Claim plead that, in or about 2014, Mr Ale paid himself the sum of $7,824 from the funds of VFP without Mr Mark Pauling's consent. The Plaintiffs' Amended Schedule of Transactions (MFI 7) relies, in support of these paragraphs, on Mr Mark Pauling's affidavit evidence (Pauling 12.4.16 [84]) which in turn refers to a loan from VFP to Mr Ale of $7,824 in 2014, as recorded in VFP's balance sheet as at 31 October 2014. The balance sheet on which VFP relied for this claim is unclear as to whether this transaction is a loan by VFP to Mr Ale, rather than the reverse, but Mr Ale's affidavit evidence (Ale 12.8.16 [94]) proceeds on the former basis, and also refers to a transfer of the loan accounts to VA on 30 June 2015 by reference to a ledger entry which cannot be identified in the documents in evidence. Subsequent balance sheets of VFP seem to indicate that the loan no longer existed as at 31 October 2015 (Ex P2, 2850-2851; Ex D1, 38, 107-108). By email dated 27 February 2018, my Associate, at my request, afforded the parties an opportunity to make further submissions as to a narrow issue as to whether any loss could be established by reason of this transaction, which I will address below. By his further submissions, Mr Rennie pointed out, correctly, that this transaction was addressed only briefly in the Plaintiffs' Amended Schedule of Transactions, to which Mr Rennie had responded in oral submissions on 16 February (T467), and made a series of submissions that went beyond the leave granted. I do not have regard to the submissions made beyond that leave, except to the extent that they identify matters already in evidence to which I would have had regard in any event, and to which I have referred above. With hesitation, it seems to me that the evidence, including Mr Ale's evidence, established that the alleged loan was by VFP to Mr Ale and at least existed as at October 2014.

[5]

The Plaintiffs' wider claim relying on Ms Jones' reports

In a particular to the Further Amended Statement of Claim, a Schedule of Transactions submitted on 1 February 2018, and an Amended Schedule of Transactions submitted on the last day of the hearing (MFI 7), the Plaintiffs sought substantially to expand their case to place reliance, not only on the individual transactions that were challenged above, but on matters of apportionment of expenses raised in Ms Jones' report. The Amended Schedule of Transactions indicated that several payments of wages and superannuation made to Mr Aldcroft, Ms Skipp and Ms Janetzki (which I have addressed above) were alleged to have conferred no benefit on VFP; the payment of wages and superannuation to Ms Ale-Lim was alleged to have breached the no profit rule in respect of Mr Ale; and the payment of motor vehicle expenses in respect of a car used by Ms Ale-Lim, in the amount of $338.70, and certain advertising, printing and entertainment expenses identified in Ms Jones' report were alleged to have conferred no benefit on VFP. The Amended Schedule of Transactions abandoned claims in respect of the payment of wages and superannuation to Ms Roberts and in respect of a motor vehicle used by Mr Fahey, who was associated with VFP, and in respect of advertising expenses in respect of the Vanguard Real Estate business. The Amended Schedule of Transactions also introduced a table of miscellaneous transactions, which repeated claims already pleaded in the Further Amended Statement of Claim. The majority of those payments were alleged to have conferred no benefit on VFP and one, the loan to Mr Ale in the amount of $7,824 (which I have addressed above) was alleged to have breached the no profit rule.
I will deal with several aspects of the claim arising from Ms Jones' report and the Amended Schedule of Transactions, in some detail, while recognising that that claim ultimately cannot succeed for the reason noted in paragraph 160 below. An initial question is whether that claim is open to the Plaintiffs. As I noted above, paragraph 49 of the Further Amended Statement of Claim alleged that the transactions pleaded in the specified paragraphs of the Further Amended Statement of Claim "and particularised below" (defined as the "Disputed Transactions") were not authorised by VFP or Mr Pauling. That paragraph was particularised by the further proposition that: "The Disputed Transactions include those transactions which are enumerated in the expert report of Michelle Jones dated 25 August 2016."
By a letter of particulars provided on 19 October 2016, the Plaintiffs further particularised paragraph 49 of the Further Amended Statement of Claim, apparently in response to orders made by the Court on 10 October 2016, by providing a list of challenged categories of payments, together with references to paragraphs of Ms Jones' report and annexures to it.
By their Further Amended Defence, the Defendants responded by pleading that: "The pleading as to 'disputed transactions' in paragraph 49 of the [Amended Statement of Claim] has a tendency to cause prejudice, embarrassment or delay in the proceedings in the description provided leaves difficulties in recognising or piecing together what is referred to; As such the pleading as to 'disputed transactions' is liable to be struck out."
I need not address the question whether the Court has power to "strike out" a particular, where it would at least have had the power to strike out the words "and particularised below" in paragraph 49 of the Further Amended Statement of Claim. It seems to me that, had the Defendants moved promptly, the Court would likely have done so, where the effect of those words and the particular to paragraph 49 was to require the Defendants to review Ms Jones' report and deduce the material facts on which the Plaintiffs relied from that report, with only limited assistance from the further particulars provided by the Plaintiffs. However, the Defendants did not move, promptly or at all, to bring that matter before the Court prior to the hearing, nor did they seek to agitate it at the commencement of the hearing. In these circumstances, Ms Jones' reports were tendered (although large parts were not pressed and other parts were admitted subject to limiting orders) and she was cross-examined on the basis that the matters raised in her reports were in issue. In those circumstances, I do not consider that I can now proceed on the basis that they are not.
The particulars to paragraph 49 of the Further Amended Statement of Claim broaden the allegation in paragraph 49 to contend that the transactions referred to in Ms Jones' report, and in the Amended Schedule of Transactions which refines their case, were not "authorised". That proposition cannot succeed because Mr Ale had actual or implied authority to enter the transactions on VFP's behalf, where it is plain that Mr Pauling had left him to attend to matters of that kind. I return to that issue in paragraph 120 below. The particulars to paragraph 49 of the Further Amended Statement of Claim also extend the allegation of breach of fiduciary duties and breach of directors' duties in paragraphs 10, 19-23 and 50 of the Further Amended Statement of Claim to the "Disputed Transactions", as defined to include the particularised transactions referred to in Ms Jones' report. That will require analysis of the categories of transactions to which Ms Jones referred.
This aspect of the Plaintiffs' case was ultimately put on the basis that it was a breach of directors' duties for Mr Ale not to apportion payments made by VFP between VFP and VA, by way of an inter-company loan account. That case was founded upon the proposition in Ms Jones' report that generally accepted accounting principles required such an apportionment and such a treatment of those transactions. Although Counsel did not refer to the relevant statutory provisions, I recognise that s 292 of the Corporations Act requires a small proprietary company to prepare a financial report and director's report in limited circumstances, although there is no evidence that a direction was given to VFP under s 293 of the Corporations Act so as to trigger that requirement in this case. Under s 296 of the Corporations Act, the financial report for a financial year must comply with the accounting standards; however the financial report of a small proprietary company does not have to comply with particular accounting standards if the report is prepared in response to a shareholder direction under s 293, and the relevant direction specifies that the report does not have to comply with those standards. I also proceed on the basis that, under s 297 of the Corporations Act, a company's financial statements and notes for a financial year must give a true and fair view of the financial position and performance of the company. The parties did not pay any substantive attention to these provisions in submissions.
Ms Jones' report referred to the Framework for Preparation and Presentation of Financial Statements, issued by the Australian Accounting Standards Board (15 March 2016) which provided (in paragraph 95) that: "Expenses are recognised in the income statement on the basis of a direct association between the costs incurred and the earning of specific items of income. This process, commonly referred to as the matching of costs with revenues, involves the simultaneous or combined recognition of revenues and expenses that result directly or jointly from the same transactions or other events. For example, the various components of expense making up the costs of goods sold are recognised at the same time as the income derived from the sale of the goods …" That principle is expressed at a somewhat higher level of generality than the particular approaches adopted in Ms Jones' report, to which I refer below. At least initially, Ms Jones accepted that generally accepted accounting principles were not applicable in all respects to all entities of any size, and her report indicated (paragraph 22) that: "GAAP are imbedded within accounting standards, guidance notes and policies set by accounting bodies. Whilst entities are not required to comply with all accounting standards and policies, these references provide accountants preparing the books and records of an entity with guidelines on the application of accounting principles. The application of GAAP provides users of financial information with assurance that the information presented to them accurately reflects all the transactions of the entity."
Ms Jones' evidence in cross-examination was that an accountant must apply generally accepted accounting principles in preparing financial statements, whether for general purposes or for a special purpose, although she described that matter as "the foundation of accounting principles" rather than as either best practice or a mandatory requirement (T372). She indicated, in response to a question that I asked, without objection from Counsel, that she did not rely on any accounting standard for the process of reapportionment for which she contended, which was said to be founded in generally accepted accounting principles so far as they require the matching of expenses to the income that is derived in an entity. Her evidence in cross-examination was that she was not aware of any other accounting standard or authoritative pronouncement of an accounting body that provided a more detailed explanation of what was required to implement that principle (T383). Her evidence in cross-examination was that the principle for which she contended was not limited by materiality so far as it sought to achieve that each entity records appropriate and proper expenses of that entity in deriving its income (T384).
Ms Jones' allocation of expenses in her 25 August 2016 report appears to turn, in significant respects, on her making factual findings as to, or possibly assumptions as to, whether, in respect of particular expenses, there is a direct association between the costs and income recorded in VFP's general ledger, or an indirect association between those costs and income so that an amount of expense should be apportioned to other entities in the Vanguard Group, or no association between those costs and income so that costs should be reallocated to another entity within the Vanguard Group (Ex P7, [230]). Ms Jones' further report dated 13 December 2017 recalculated that allocation based on alternative assumptions in respect of employee wages and superannuation and rent and other outgoings for the Charlestown premises and those matters were then further addressed in the Plaintiffs' Amended Schedule of Transactions. Ms Jones accepted in cross-examination that her opinion, so far as it involved allocation of expenses, would depend upon the underlying facts of the case, in the absence of invoices or independent financial records which would "enable [her] to determine the basis for the allocation" (T366). The latter qualification did not sufficiently recognise that questions of fact are matters for assumption for an accounting expert rather than matters as to which the expert may reach his or her own findings.
The first category of expenses which is challenged in Ms Jones' reports and in the Plaintiffs' Amended Schedule of Transactions is wages and superannuation, as to several employees in respect of which that matter is pleaded (Aldcroft, Skipp, Janetzki, Ale-Lim, Hammersley, Fogg and McGuigan, for several amounts which differ from those pleaded) and numerous employees as to which it was not pleaded. The amount claimed in respect of wages and superannuation appears to be $255,544.27, although the amount referable to the pleaded claims would be substantially smaller. Ms Jones' treatment of that matter in her August report depends upon the assumption that Mr Aldcroft, Ms Skipp, Ms Janetzki, Ms Hammersley, Ms Fogg and Mr McGuigan were not employed by VFP and not entitled to receive payment from VFP and that payments to Mr Ale (which are no longer challenged) and Ms Ale-Lim were paid without consent (Ex P7, [221]). The assumptions made in Ms Jones' first report as to the allocation of employee expenses were inconsistent with Mr Jason Pauling's evidence and Ms Jones' report dated 13 December 2017 (Ex P9) recalculated that apportionment. I have addressed these matters in dealing with the allegations in paragraphs 42-43 of the Further Amended Statement of Claim above.
The second category of expenses relates to office occupancy, consisting of rent and outgoings, cleaning and light and power expenses, which Ms Jones considers should be quantified by reference to the level of occupancy utilised by VFP. The Plaintiffs' Amended Schedule of Transactions claims an adjustment for office occupancy expenses for rent and outgoings in the amount of $107,821.63, cleaning expenses in the amount of $12,916.59 and light and power in the amount of $12,147.98. Ms Jones attributed rent, outgoings, cleaning and lighting expenses, between VFP and VA on a 50/50 basis in her 25 August 2016 report and on alternative 70/30 and 30/70 bases in her 13 December 2017 report. Ms Jones' approach to allocation of rent in her August report seems to depend on a bare assertion that a proper application of GAAP requires that rental expenses be recharged to entities providing professional services based on the area occupied by each entity (Ex P7, [262]). That assertion is undermined by the fact that, if a mandatory requirement of that kind existed, one might have expected that a relevant accounting body would have recorded it in writing, or at least one widely circulated accounting text would have identified it, and no such document was identified in evidence or submissions before me. Ms Jones then proceeds to allocate rent and outgoings on a 50/50 basis, in her August report, in the absence of information as to the area occupied by each entity, for the period the premises was shared, and subsequently to allocate all rent and outgoings to VA (Ex P7, [268]). She also initially allocated cleaning expenses on a 50/50 basis in her August report where premises were shared, and subsequently entirely to VA, consistent with her apportionment of rent expense (Ex P7, [290]). As I note above, Ms Jones also modelled different approaches in her December report. That amount is quantified in the Plaintiffs' Amended Schedule of Transactions by apportioning two-thirds of expenses to VFP while premises were shared to 30 June 2014, and smaller percentages to VFP from 1 July 2014, when VFP also occupied other premises in Newcastle and fewer financial planners were operating from the Charlestown office.
Mr Wood opened on the basis that VFP held the lease over the Charlestown premises (T12-13), and the parties proceeded on the common basis that VFP was the lessee of the Charlestown office, as is also implicit in the fact that VFP subsequently excluded VA from that office. Mr Rennie contends, and I accept, that payments made by VFP by way of rent, outgoings and associated expenses in respect of the occupancy of those premises were made for its benefit where it was the lessee of those premises and needed to pay those amounts to preserve its occupancy and use of the premises (T462). The same conclusion would be reached on another basis for the period to 30 June 2014, where the Plaintiffs' Amended Schedule of Transactions acknowledges that the majority of rent and outgoings, cleaning, and light and power expenses would properly be allocated to VFP, since VFP then occupied the majority of work stations at the Charlestown premises, prior to its move to the Newcastle office. The payment of those expenses by VFP, where it incurred the majority of their benefit during that period, was for its benefit. To the extent that any apportionment or reallocation of those payments should have taken place by way of an inter-company loan account, it would have been extinguished by the Separation Agreement as I will find below.
The third category of expenses relates to an equipment lease, as to which the Plaintiffs contend that approximately two-thirds of the benefit of that lease should be attributed to VFP during the period in which VFP and VA shared the Charlestown premises and claim an amount of $5,802.71. The fourth category of expenses relates to motor vehicle expenses, where the Plaintiffs seek to attribute expenses in respect of particular vehicles, and claim an amount of $2,571.72. Again, to the extent that any apportionment or reallocation of these payments should have taken place by way of an inter-company loan account, it would have been extinguished by the Separation Agreement.
The next category of expenses relates to "shared variable expenses", characterised as expenses for which the Vanguard Group as a whole derived a benefit. In their Amended Schedule of Transactions, the Plaintiffs claim adjustments in respect of advertising expenses, bank charges, insurance, postage, printing and stationery, entertainment expenses, computer expenses and expenses for donations and sponsorship, in an amount totalling approximately $45,094.07. Ms Jones appears to have allocated advertising expenses on a 50/50 basis in her August report between VFP and VA, on the basis of an assumption that it is a group expenditure, and in the absence of other financial information (Ex P7, [241]). That allocation does not seem to me to have an adequate evidentiary basis. Ms Jones' apportionment of bank charges in her August report seems to depend upon a bare assertion of her expectation that an accountant applying GAAP to transaction fees would allocate them on the basis of the volume of transactions recorded on the bank statement (Ex P7, [254]). It also depends on an assumption, the basis of which was not proved, that approximately half of the relevant transactions were for VA and the rest for VFP (Ex P7, [256]).
Ms Jones' allocation of insurance expenses in her August report again appears to depend on a bare assertion as to how a reasonably competent accountant applying GAAP would have allocated those expenses, although she also recognised that the financial records of the Vanguard Group had already allocated insurance expenses, with VFP recording a higher proportion of insurance costs than other entities (Ex P7, [314]-[315]). Ms Jones' allocation of postage expenses in her August report also turns on a bare assertion of how a reasonably competent accountant applying GAAP would record such expenses (Ex P7, [358]), on her interpretation of the description of expenses contained in the ledger, and otherwise on a 50/50 apportionment of expenses (Ex P7, [362]). Mr Rennie rightly points out that, where Ms Jones' report indicated that she had insufficient information to enable her to determine which entity had obtained the benefit of postage expenses, that does not support a reallocation of the expense to or partly to VA (T465), or at least does not do so in any quantifiable amount.
Ms Jones' initial allocation of printing and stationery expenses also depends partly on her interpretation of general ledger descriptions, and partly on a 50/50 allocation of such expenses (Ex P7, [374]). Mr Rennie rightly points out that Ms Jones' views as to printing expenses depend upon the interpretation which she has given to Vanguard Group's financial records, and Ms Jones in any event accepts that the majority of those expenses were properly attributable to VFP. The payment of those expenses by VFP, where it incurred the majority of their benefit during that period, was for its benefit. To the extent that any adjustment should have been made in an inter-company loan account, it would again have been extinguished by the Separation Agreement, as I will find below. Ms Jones also partly allocates entertainment expenses on a 50/50 basis, where she lacks information as to which entity derived benefit from those expenses (Ex P7, [385]). In their Amended Schedule of Transactions, the Plaintiffs appear to take a different approach, relying on evidence that those expenses should be charged on a "revenue basis" and relying on Messrs Crisp's and Ale's evidence to contend that such expenses should be charged to VFP on the basis that it earned approximately 70% of group revenue. Any reallocation of those expenses by inter-company loan account would also have been extinguished by the Settlement Agreement, for the reasons noted in paragraph 160 below.
The Plaintiffs and Ms Jones have thus identified various ways in which apportionments of expenses could be undertaken. There is a real question, which it is not necessary to determine, whether any reliable basis for such an apportionment has been established, as distinct from a range of possibilities, so as to allow the Court to determine that any one of those apportionments was appropriate, or even that there was a range within which such apportionments would or could have been appropriate, or determine the amount of any inter-company loan which should have been recorded in VFP's and VA's accounts on that basis. It is not necessary to determine that question because the Plaintiffs' claim based on a reallocation of expenditures that would give rise to inter-company loans, as articulated in Ms Jones' reports and summarised in their Amended Schedule of Transactions, must fail for a simpler and more fundamental reason. Had Mr Ale complied with the duties for which the Plaintiffs contend, by apportioning relevant expenditures in inter-company loan accounts in any of the several ways for which the Plaintiffs have variously contended, then those inter-company loan accounts would have been extinguished by the terms of the Separation Agreement on which the Plaintiffs rely, as I will find below. The Plaintiffs have suffered no loss by any failure to record inter-company loans which would have been extinguished, in any event, by the Separation Agreement on which they rely.

[6]

The Plaintiffs' pleaded claim for lack of authority

Paragraph 49 of the Further Amended Statement of Claim pleads that the transactions pleaded in paragraphs 31 (now partly not pressed), 33 (now partly not pressed), 38 (now partly not pressed), 42, 44 (now not pressed), 45 and 47 were not authorised by VFP. The circumstances in which actual authority of a director or company officer can be established were summarised by Giles J in Equiticorp Financial Services Ltd v Equiticorp Financial Services (NZ) Ltd (1992) 29 NSWLR 260 at 293; (1992) 9 ACSR 199; (1992) 11 ACLC 84 (aff'd in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50; 11 ACSR 642, 11 ACLC 952) as follows: "Actual authority can be found in the acquiescence by those in whom authority ultimately resides to exercise the particular function, for example from a course of business (Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 at 502) or from a board's concurrence in a person acting as de facto managing director and chief executive: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 584, 592. In the latter decision Lord Denning MR said (at 584) that the actual authority was to be implied from the circumstance that the board by their conduct over many months had acquiesced in Mr Richards acting as their chief executive and committing the defendant to contracts without the necessity of sanction from the board. A recent illustration of a finding of actual authority on this basis is Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 361, where it was said that the particular director was "more than an ordinary director", had "assumed the role of managing director with the acquiescence of the members of the board of directors who regarded him as the 'owner' of Brick and Pipe", and had actual authority to manage the business of that company."
It has not been established that the payments referred to in paragraph 49 of the Further Amended Statement of Claim, and the paragraphs to which it refers, were not authorised. By a course of conduct continuing over an extended period, Mr Pauling, the other director of VFP and other shareholder of its holding company, VGPL, left the responsibility for meeting expenses of the Vanguard Group to Mr Ale, and he and VFP thereby necessarily authorised Mr Ale to do so.

[7]

Content of the pleaded fiduciary and statutory duties

In paragraphs 18-21 of the Further Amended Statement of Claim, the Plaintiffs plead, uncontroversially, that, while he was a director of VFP, Mr Ale owed fiduciary duties to VFP and plead the no conflict and no profit duties, the best interests and proper purposes duties (which may or may not be properly characterised as fiduciary duties) and a duty of care and diligence (which is plainly not a fiduciary duty). I will deal with the content of these duties, the alleged breach of them and causation together, where the parties largely took that approach and the distinctions between them would not be material in this case.
I will now refer to the applicable equitable principles, although this case does not raise any novel issue in respect of them. The test for when a conflict arises has been expressed in various ways in the cases, but the shorthand "real [and] sensible possibility" is often used. In Boardman v Phipps [1967] 2 AC 46 at 124, Lord Upjohn formulated the test for whether a conflict exists as whether a: "reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict."
In Chan v Zacharia above, Deane J observed (at 198-199) that the equitable rule involved two themes and that: "The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the 'use of fiduciary position' doctrine is but an illustration or part of a wider 'conflict of interest and duty' doctrine (see, eg, Boardman v Phipps at p 123; N.Z. Netherlands Society "Oranje" Inc v Kuys at p 1229), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain; or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it."
In Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 557-558, the High Court similarly observed that: "A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves "at a level higher than that trodden by the crowd". The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage."
The no conflict and no profit rules are applicable to a director as a status-based fiduciary and, as I observed (by reference to authority) in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 (at [351]): "Broadly, the no conflict rule prohibits conduct where a fiduciary has a personal interest or duty owed to a third party which gives rise to a real and sensible possibility of a conflict. That rule and the no profit rule, which provides that a fiduciary cannot obtain a profit from its fiduciary position without the principal's consent, may overlap."
In Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37; (2016) 333 ALR 524, Payne JA (with whom Gleeson and Leeming JJA agreed) summarised the no conflict and no profit rules as follows (at [105]): "A fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is a conflict, or a real or substantial possibility of a conflict, between the personal interest of the fiduciary and those to whom the duty is owed … A conflict arises if there is a real and sensible possibility that the personal interests of the fiduciary divide the loyalty of the fiduciary with the result that he or she could not properly discharge their duties to the beneficiary. …"
In Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347; (2016) 116 ACSR 566, Bathurst CJ (at [4]; Sackville AJA to similar effect at [133]) observed that: "[D]ifferent minds may reach different conclusions as to the presence or absence of a real possibility of conflict between duty and interest or duty and duty and the doctrine cannot be inexorably applied without regard to the particular circumstances of the relationship."
There are differing views as to whether the duty is breached by the existence of a position of conflict, or only by the pursuit of a director's personal interest while he or she is in a position of conflict: Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1; 70 ACSR 1 at [4503]-[4504]; Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1; 98 ACSR 615; Re Colorado Products Pty Ltd (in prov liq) above. There will often be little practical difference between the two approaches and, in the cases where the wider view has been expressed, the director has generally acted in pursuit of their personal interest in any event. The no conflict rule has a strict application when it applies in the sense that, if a transaction has occurred in conflict of interest, a company director cannot avoid a breach of that rule by asserting the fairness of the transaction or that it was in the company's best interests or that the director was not acting with subjective dishonesty.
The Plaintiffs also plead the proper purposes duty applicable to directors, without addressing the significant difficulty as to whether that duty is of a fiduciary nature. In Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1, the majority in the Court of Appeal of the Supreme Court of Western Australia held (at [918]-[933] per Lee AJA, at [1956] and [1978] per Drummond AJA) that a director's duties to act in good faith and in the company's interests and for proper purposes, although imposing positive obligations, can nonetheless be characterised as fiduciary, and Carr AJA took substantially the same view. On the other hand, in Netglory Pty Ltd v Caratti [2013] WASC 364 at [345]ff, Edelman J observed that it may be incorrect, on the current state of Australian authorities, to characterise a breach of positive duties by a director, such as duties to act in good faith and in a company's interests and for proper purposes, as a breach of fiduciary duty. His Honour nonetheless noted (at [347]-[349]) that the High Court "appears also to have recognised that there may be a fiduciary prescriptive liability to account, when that liability is associated with a proscriptive fiduciary duty"; that it may be possible to describe the "proper purposes" duty in negative terms, as a duty not to act for collateral purposes; and that the duty or duties to act in good faith in the interests of the company could alternatively be characterised as prescriptive conditions upon the exercise of a fiduciary power. It is not necessary to determine whether these duties are properly treated as fiduciary, where it will make no difference to the outcome of this case.
Mr Wood submits that fiduciary duties of a director may continue after his or her resignation as a director: Zomojo v Hurd (No 2) [2012] FCA 1458 at [208], appeal dismissed Hurd v Zomojo Pty Ltd [2015] FCAFC 147. I am not persuaded that that principle can be extended to the case of a consensual separation of the relevant companies, with the intent that each director should retain one of the companies and cease involvement with the other. Mr Wood also submits, and I accept, that duties of confidentiality may continue beyond a director's resignation: Spotless Group Ltd v Blanco Catering Pty Ltd [2011] FCA 979; (2011) 93 IPR 235 at [27].
The allegation of breach of fiduciary duties owed by Mr Ale as a director of VFP is extended, by particulars and by paragraphs 22-24 of the Amended and Further Amended Statements of Claim, to the broadly corresponding statutory duties under ss 180-183 of the Corporations Act. Section 180 of the Corporations Act requires that a director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the corporation's circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. The statutory duty of care and diligence under that section overlaps with directors' duty of care arising at general law, and the circumstances of the particular corporation concerned are relevant to the content of the duty, including the type of company, the provisions of its constitution, the size and nature of its business, the composition of its board, the director's position and responsibilities within the company, the particular function the director is performing, the director's experience or skills, the terms on which he or she has undertaken to act as a director and the manner in which responsibility for the business of the company is distributed between its directors and its employees: Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 at [100]; Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; 62 ACSR 1.
Section 181 of the Corporations Act requires a director or officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose, and that section overlaps with a director's general law duties to act for proper purposes and in good faith and in the company's interests. There are differing views as to whether any part of that duty is to be assessed by a subjective standard, which it is not necessary to address in this case: Re Colorado Products Pty Ltd (in prov liq) above at [421]; Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75; 118 ACSR 189 at [494]; Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307; (2016) 339 ALR 659; 117 ACSR 408 at [75]; Australian Securities and Investments Commission v Flugge [2016] VSC 779; (2016) 342 ALR 1 at [1980]ff. Section 182 of the Corporations Act prohibits a director, secretary, officer or employee of a corporation from improperly using his or her position to gain an advantage for himself or herself or someone else or cause detriment to the corporation, and that section reflects the fiduciary obligation of a director under the general law. Section 183 of the Corporations Act in turn prohibits a director or officer or employee of a corporation from improperly using information to gain an advantage for themselves or someone else or cause detriment to the corporation.
The Amended Statement of Claim initially did not plead a claim for relief under s 1317H of the Corporations Act, consequential upon the pleaded statutory duties and any breach of them. In expressing that view, I do not accept Mr Wood's submission that a reference in the Amended Statement of Claim to "equitable damages" was sufficient to identify a claim for statutory compensation under s 1317H of the Corporations Act. The distinction between equitable claims and statutory claims is one of substance where the Defendants could, for example, have sought relief under s 1317S of the Corporations Act in respect of the latter. The omission of a claim for relief in respect of the alleged breach of statutory duties was remedied by a Further Amended Statement of Claim, filed in Court on the last day of the hearing, which extended the relief claimed to what was described as "equitable damages pursuant to s 1317H of the Corporations Act 2001". That amendment will have no practical impact on the outcome of the proceedings for the reasons noted below.

[8]

The alleged breaches of duty

Paragraph 50 of the Further Amended Statement of Claim pleads that the transactions pleaded in paragraphs 31 (now partly not pressed), 33 (now partly not pressed), 38 (now partly not pressed), 42, 44 (now not pressed), 45 and 47 breached the alleged fiduciary duties and duties owed by Mr Ale as a director to VFP. I will first address the parties' broader submissions and then return to the challenges to the particular transaction below.
The Plaintiffs addressed these allegations in submissions on a somewhat broader basis than their pleaded case and the Defendants responded to those broader submissions. The first aspect of these broader submissions was directed to whether payments were wrongly made by VFP and should have been re-allocated, by inter-company loan accounts, to VA or VGPL. In his oral opening submissions, Mr Wood put the question of allocation of expenses by way of a loan account as a matter of obligation (T8), to the effect that: "It is common for entities within a group to trade together and to lend one another money and even to do it in a very informal way where one company pays an expense of another company because it's expedient to do so, but consistent with fiduciary obligations, you have to set up a loan account."
In opening, Mr Wood also submitted that, when the businesses were separated, Mr Pauling acquired VFP which had been "run down by the diversion … of its income to the benefit of [VA]" (T8). As will emerge below, that proposition was not established by the evidence, which demonstrated that both VFP and VA had met expenses for the benefit of the other and for the benefit of VGPL, and many of the contested expenses paid by VFP (including, for example, rent and outgoings on the Charlestown premises) were primarily for its benefit, although some benefit was also conferred on VA by payment of those expenses. Mr Wood also referred in his oral opening to the possibility that a different price would have been paid by Mr Pauling to acquire the relevant business, if expenses had been apportioned in accordance with generally applied accounting principles (T9). However, that claim was not pleaded and it is not supported by Mr Pauling's evidence. I will return to that matter in paragraph 160 below.
In their closing submissions, the Plaintiffs characterised the payments made by VFP as having the result that: "Mr Ale funded his loss-making accounting practice by paying most of the accounting expenses out of [VFP] [of which he was also a director]. Many of those payments gave no benefit at all to [VFP]."
Mr Wood accepted in closing submissions (T405) that, having regard to Mr Mark Pauling's understanding of loan accounts in the companies, a breach of duty would only be established if it involved both a cash payment by VFP (implicitly, that was not for its benefit or not wholly for its benefit) and was not recorded in a loan account as owing to VFP. Mr Wood rightly also accepted (T405) that, absent an issue as to solvency or cashflow, the booking of an inter-company loan would have avoided any loss to VFP from the payment of an expense for another group entity's benefit. In written submissions in reply, Mr Wood also submitted that it was open to the Plaintiffs to contend that, if expenses had been fairly allocated, VA would have incurred a loss for the relevant period, because they opened the case on that basis. Assuming, without deciding, that that submission is open, it has not been established by the evidence, where numerous challenges to individual transactions have either not been established or would result in only modest adjustments by way of inter-company loan accounts.
Mr Rennie responds that the proposition that all of VFP's profits should have stayed in that company prior to the separation of the companies in 2015 is inconsistent with the group structure, where VGPL had no income, and could not pay expenses or dividends to its shareholders without a transfer of funds from subsidiaries including VFP. There is substantial force in that submission. As I noted above in dealing with the particular challenged transactions, VGPL could not itself pay expenses incurred for its or the Group's benefit from its own funds where it had no bank account, the only relevant income in the Group was generated by VFP and VA, and any payments would have had to have been funded either by direct payment by the subsidiaries, as occurred, or by inter-company loans by the subsidiaries to VGPL or dividends paid by VFP and VA to VGPL. Mr Rennie also submits that the challenged payments were for the benefit of VGPL, in that VGPL depended on revenue from its subsidiaries to meet its expenses and also retained the benefit of any transfer of funds from its subsidiaries and that Mr Pauling, as a shareholder of VGPL, also retained that benefit up to the point of the Separation Agreement. There is also force in that submission. Mr Rennie also submits that: "In essence, the Plaintiffs' complaint is of a transfer of value from a wholly owned subsidiary to its parent company. Absent insolvency, such a transfer is inherently lawful and permissible. The only effect of any of the 'disputed transactions' was to increase the value of the shares in VGPL that formed the consideration for the transaction in the Separation Agreement."
The first difficulty with the Plaintiffs' claim that payments should not have been made by VA, at least in its wider form, is that, at the relevant time, VA (and not Mr Ale personally) conducted the accounting practice as a subsidiary of VGPL and VFP was also a subsidiary of VGPL. Prior to the division of the businesses in December 2015, both VFP and VA were subsidiaries of VGPL and the conduct of those businesses as a group was not necessarily adverse to the interest of the particular companies, or their holding company VGPL and its shareholders, OLAA (and, through it, a family trust associated with Mr Ale) and Mr Mark Pauling. The change in that position after the separation of the relevant entities, which could have been addressed by the terms of the Separation Agreement, does not impugn payments that were properly made by VFP, although partly for the benefit of VA or for the benefit of VGPL or for the benefit of the Vanguard Group, before that separation took place. A second difficulty with that submission is that the evidence to which I have referred above does not establish a breach of duty in respect of the large majority of the pleaded transactions, as distinct from the allocation issues raised by Ms Jones' evidence.
At general law, the directors of a subsidiary may authorise it to make loans or payments for the benefit of its holding company or the corporate group, at least if it is also in the subsidiary's interests that the holding company or group be benefitted in that way: Equiticorp Financial Services Limited (in liq) v Bank of New Zealand above; Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd [2001] NSWSC 448; (2001) 38 ACSR 404. In this case, as I noted above, VGPL could not pay its own expenses, since it had no bank account, and it has not been established that it was not in VFP's interests to pay expenses that were primarily to its benefit and also to the benefit of other group companies, or were to the benefit of VGPL or VA where the companies plainly had a degree of interdependence within a corporate group. The fact that an expense was not for the personal benefit of the shareholders in VFP, after the companies within the corporate group were separated and they did not make any adjustment for those expenses in the Separation Agreement (other than by extinguishing inter-company loans) does not establish that the expense was not for the benefit of VFP before that occurred. Even assuming, without deciding, that at least larger expenses incurred by VFP for the benefit or partly for the benefit of VGPL or VA should have been apportioned between the companies by inter-company loan accounts, the Plaintiffs cannot establish causation or loss arising from a failure to do so, for the reasons noted below.
Mr Rennie also relies on cl 137 of VGPL's constitution and s 187 of the Corporations Act. There is a dispute as to the form of VGPL's constitution at the relevant times, which it is not necessary to resolve given the findings that I reach on other grounds. If that constitution took the form for which VA and Mr Ale contend, it provided, inter alia, that VFP may provide a dividend or other money payable in cash by paying the amount to a third person as directed by a member, relevantly VGPL, or satisfying any amount owed by VGPL to a third person as directed by it, or applying any part of the amount towards satisfaction of money owing by VGPL to VFP on any account. Section 187 of the Corporations Act relevantly provides that: A director of a corporation that is a wholly‑owned subsidiary of a body corporate is taken to act in good faith in the best interests of the subsidiary if: (a) the constitution of the subsidiary expressly authorises the director to act in the best interests of the holding company; and (b) the director acts in good faith in the best interests of the holding company; and (c) the subsidiary is not insolvent at the time the director acts and does not become insolvent because of the director's act.
Mr Wood responded, and I accept, that cl 137 of VFP's constitution fell well short of an express authorisation of a director to act in the holding company's best interests, as required by s 187 of the Corporations Act. However, little turns on that matter given the findings that I have reached as to issues of fact and causation in respect of the relevant transactions.
Mr Wood also advances a wider claim relying on an allegation that Mr Ale had a conflict between his interest in VA and his desire to see it generate profits and his duty to VFP. Mr Wood submits that: "Plainly, as a director of [VA] and a director of [VFP], Mr Ale had a conflict of interest when it came to allocating expenses within the Group. The only answer to that conflict is fully informed consent, which was absent." That submission could equally be made of any director who was a director of two or more companies within a company group. In the Plaintiffs' oral submissions in reply, Mr Wood fairly recognised that the wider case relying on conflict of interest would have the consequence that Mr Ale would be acting in conflict of interest even if he authorised payment from VFP's funds for VFP's benefit of a bill issued to VFP (T483).
I am not satisfied that there was a real or sensible possibility of conflict of interest affecting Mr Ale in respect of the question whether the majority of the transactions that I have addressed above should have been paid by VFP or VA, where VA and VFP were wholly owned subsidiaries of VGPL and it was a matter of indifference to VGPL and its shareholders whether revenue and expenses were earned by, paid by or allocated to those entities, at least unless any issue as to solvency arose as to which creditors' interests may be relevant or there was a separation of the entities. The Plaintiffs did not plead that, and there is no satisfactory evidence that, a real issue of solvency arose in respect of the companies at any relevant point. As I noted above, the payments could not have been paid from VGPL which did not maintain a bank account; the majority of those transactions were for the benefit of VFP; and any conflict of interest involved in authorising VFP to make a payment that was plainly and substantially for its benefit was not material. To the extent that such a conflict arose in respect of the question of how payments that also benefited VA should be treated in inter-company loan accounts, that conflict was also not causative of any loss suffered by VFP or Mr Pauling, for the reasons noted below.
Mr Wood also submits that some of the transactions could not be said to be in VGPL's best interests where there was a payment of a personal nature (T418). The example which Mr Wood gave of such a transaction, namely the payment for a subscription for accounting software, did not support that submission because that was a payment for the benefit of VA, and indirectly for the benefit of VGPL as its holding company, rather than a payment for the personal benefit of Mr Ale. That would, of course, also depend upon the nature of the particular transactions, and I will return to the question of payments to Ms Ale-Lim and the loan to Mr Ale below. Mr Wood also put, in oral submissions in reply, that the "inequality of overall remuneration is not only something that makes the no conflict rule acute rather than technical, but it also invokes the no profit rule" (T486). The evidence did not extend to any systematic comparison of the returns to Mr Mark Pauling and Mr Ale personally, or their associated companies, to establish the inequality of remuneration that is the premise of that submission, particularly where substantially all of the transactions in issue in this case involved group companies, not Mr Ale personally. Mr Wood fairly accepted, in oral submissions in reply, that he could not make a case that a series of transactions amounted to a fiduciary breach, only when viewed together, because that was not pleaded (T487). Such a case would also be undermined by the fact that the attack on many of the transactions comprising that series of transactions has not been established.
Both parties, in submissions, also addressed the question of payments made by Mr Ale to reduce a debt owed to the Ale Family Trust. In closing submissions, Mr Wood submits that: "As a result of Mr Ale recording expenses properly incurred by [VA], but charging those expenses to [VFP], [VA] generated additional profits which were used to reduce the erroneous Ale Family Trust loan account from $270,000 to $108,000."
There is no pleaded breach of duty in that respect. The proposition that the loan account in favour of the Ale Family Trust was erroneous is not raised by any pleaded aspect of the case, and I do not consider that I should determine it when the Defendants were not given fair notice that they would have to meet that allegation. That claim also seems to depend on the premise that the payments made were not for VFP's benefit, so that VA rather than VFP should have made them, or that substantial amounts should have been reallocated to VA by way of inter-company loans. That premise is not established, where VFP now accepts that many of the transactions benefitted VFP to a greater extent than VA and has not established that all or most of the individual transactions were not made for VFP's benefit. The proposition that loan repayments to the Ale Family Trust would or could not have been made, but for any incorrect failure to re-allocate expenses to VA, has also not been established. The evidence does not establish that VA would have been less liquid, or that such payments could not have been made, if inter-company loan adjustments had been made in respect of the transactions for which they were arguably required.
There is also substantial force in the Defendants' submission that the option of paying down debt arising from the original acquisitions was available to both shareholders; that Mr Ale had recommended that course to Mr Pauling, although Mr Pauling had not chosen to adopt it (T145); that the reduction in the debt owed to the Ale Family Trust was disclosed in the financial information provided to Mr Pauling (Ex D1, T143-144); and that no impropriety in that course can be established without reference to the remuneration arrangements of Mr Ale and Mr Pauling generally. The repayment of that debt by VA also has no adverse economic impact on VGPL or its shareholders, at least where no issue of insolvency arises and prior to the separation of the entities, because any payment made brought about a reduction in the level of debt owed by VA.
Returning now to the pleaded challenges to particular transactions, it seems to me that the Plaintiffs' claim for breach of fiduciary and statutory duties relying on paragraph 31 of the Further Amended Statement of Claim cannot succeed on the pleaded basis that the payments were not for VFP's benefit, since that has not been established for the reasons noted in paragraphs 74-85 above. It is not necessary to determine whether the transactions pleaded in paragraph 33 of the Further Amended Statement of Claim, individually or as a group, are sufficiently material to establish a breach of the rule against conflict of interest or the no profit rule or a breach of the other pleaded fiduciary or statutory duties where all of those transactions involve payments that were for the benefit of VGPL or partly for VFP's benefit. Even if an adjustment could or should have been made (generally in a small amount) in an inter-company loan account, causation and loss would not be established in respect of these claims for the reasons noted in paragraphs 160 below. The claim relying on paragraph 38 of the Further Amended Statement of Claim cannot be established because the evidence does not establish any breach of duty in the pleaded transactions for the reasons noted in paragraph 93 above. The claim relying on paragraph 44 of the Further Amended Statement of Claim was not pressed.
It seems to me that Mr Ale breached the no conflict rule in authorising or procuring the payments to Ms Ale-Lim pleaded in paragraph 45 of the Further Amended Statement of Claim, so far as there was a real and sensible possibility of conflict in his approving substantial payments to his wife, notwithstanding that she had undertaken work in respect of the business and those payments were treated as wages and superannuation. It is not necessary to determine whether those payments also breached the no profit rule, which would raise difficult questions as to the economic autonomy of spouses which the parties did not address. I do not find that the fiduciary duties owed by Mr Ale to VFP had been narrowed so as to exclude duties in respect of such payments, or that there had been informed consent to such payments, where there is no evidence that the amount of those payments had been discussed with Mr Mark Pauling. I will address the question of whether VFP has established loss in respect of those payments in paragraphs 161 and 163 below.
With some hesitation, I find that Mr Ale also breached the rule against conflict of interest in authorising or procuring the payment (namely the loan) of $7,824 from VFP to him pleaded in paragraphs 47-48 of the Further Amended Statement of Claim, which I have held existed as at October 2014. He had a personal interest in the receipt of that loan and it was not so small as to be fairly described as immaterial. I reach that finding notwithstanding that that loan gave rise to a corresponding asset for VFP, namely the debt owed by Mr Ale to it, and there is no evidence that Mr Ale could not, if called upon, meet any liability under the loan. Given the finding I have reached as to conflict of interest, it is not necessary to determine whether that loan breached the no profit rule, where it allowed Mr Ale access to the money lent but also gave rise to a corresponding obligation to repay that amount to VFP. I will address the question whether VFP has established loss in respect of that loan in paragraphs 162 and 163 below.

[10]

Causation and loss

Mr Wood initially submitted that "everything is assumed against the breaching fiduciary" in respect of quantification and that common law rules of causation do not apply where a plaintiff seeks remedies other than equitable compensation for a breach of fiduciary duty. That submission is, at best, a substantial over-simplification. In closing submissions, Mr Wood qualified that submission by accepting that a plaintiff which seeks equitable compensation must establish some causal connection between a breach of fiduciary duty and the loss for which compensation is recoverable, at least to the extent that the loss would not have occurred but for the breach.
The case law makes clear that VFP and Mr Mark Pauling must establish causation in order to recover equitable compensation in their claim for breach of fiduciary duty. In Swindle v Harrison [1997] 4 All ER 705 at 733, Mummery LJ observed that there "is no equitable by-pass of the need to establish causation" and a unanimous High Court approved that observation in Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [44]. The most expansive approach to causation applies to a trustee who misapplies trust property, which can be required to restore the trust property or, if that is not possible, pay an equivalent monetary amount into the trust, and that liability is not limited by considerations of causation or remoteness, and that approach can also be applied where a director misapplies company property in breach of fiduciary duty: O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272. However, Spigelman CJ there also observed (at 274-275) that: "[A] claim for equitable compensation for breach of a fiduciary obligation requires a causal link between the breach and the loss. Causation in equity is not, however, susceptible to the formulation of a single test. It is necessary to identify the purpose of the particular rule to determine the appropriate approach to issues of causation."
In Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383, Sackville AJA (with whom Meagher and Barrett JJA agreed) observed at [172] that: "It is common ground that a claim for equitable compensation requires a causal link between the breach and the loss …. Thus to claim equitable compensation for the appellants' breaches of fiduciary duty, [the respondent] must establish that it has sustained losses and that there is a causal link between the losses claimed and the breaches." His Honour also summarised the principles arising from O'Halloran v RT Thomas & Family Pty Ltd above (at [174]) as indicating that the "common sense" answer to a question of causation depends on the purpose and scope of the relevant rule; the object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation, and the loss as a consequence of the breach is to be assessed with the full benefit of hindsight; and: "In the case of a trustee dealing with trust property in breach of a trust, a sufficient connection will be established irrespective of the identification of a separate and concurrent cause when the loss would not have occurred if there had been no breach of duty. The policy underlying this strict principle applies equally to a breach of fiduciary duty by a director of a company, since equity is concerned not only to compensate the plaintiff, but to enforce the duty of the director … Thus the approach to causation which has been adopted for the trustee of a traditional trust should be applied to fraudulent dispositions of company property in breach of fiduciary duty ..."
In ABN Amro Bank NV & Ors v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1 at [1090], the Full Court of the Federal Court summarised the principles of causation in relation to a claim for equitable compensation for breach of duty as follows: "… the principles of causation in relation to a claim for equitable compensation for breach of fiduciary duty are distinct. The court must identify "criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty ... What constitutes an adequate or sufficient connection is not predetermined or formulaic. Each case requires a precise focus on both the nature of the obligations and the nature of the breach … Any question of "direct" or "immediate cause" is a red herring. The required focus is the nature of the obligations and the nature of the breach because different obligations and breaches may raise different criteria that supply the necessary connection. So, for example, 'several matters appropriately will be taken into account when there falls for consideration, in an action against the fiduciary arising other than out of breach of trust, the criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty' which may not be relevant in breach of trust cases …" [citations omitted]
It seems to me that the Plaintiffs cannot establish causation or loss in respect of the majority of the challenged transactions, which were at least partly made for VFP's benefit. As Mr Rennie pointed out, had expenses incurred by VFP, partly for the benefit of VGPL or VA, been apportioned between those entities in an inter-company loan account, the balance owing between VFP on the one hand and VGPL and VA on the other would then have been extinguished under the Separation Agreement. As I noted above, Mr Pauling's evidence on cross-examination (T101) was that the notes he made on the Separation Agreement, beyond the typed text, which included the reference to forgiveness of inter-company loans, was "what we agreed" on 18 November 2015. Mr Pauling accepted in cross-examination that both his and Mr Ale's copy of the Separation Agreement had a note that the inter-company loans were forgiven and that "we agreed" that matter (T105). In his opening submissions, Mr Rennie referred to Mr Pauling's note in the documents that the parties treat as the Separation Agreement that inter-company loans were to be forgiven ([10]) and to Mr Pauling and Mr Ale having discussed the issue of inter-company loans and agreed that they would be forgiven ([37]).
It seems to me that neither VFP nor Mr Pauling suffered loss by the non-recording of an inter-company loan that would have been extinguished in that manner. The Plaintiffs made no attempt to establish or quantify loss on any alternative bases, for example that Mr Pauling would have proposed and Mr Ale would have agreed to a separation on some different terms had a larger quantum of inter-company loans been recorded, or that the Separation Agreement would not have been entered into and the parties would have either continued in business together despite the breakdown in their relationship or Mr Pauling or Mr Ale would have sought relief in oppression proceedings or sought to wind up the companies on the just and equitable ground. There is no basis for any finding that VFP or Mr Pauling would have achieved a more favourable result on those bases. Mr Wood submitted in reply that, had the effect of the Separation Agreement on the inter-company loan accounts been pleaded, then he would have led evidence from Mr Mark Pauling to say what he would have done had different information been disclosed by the inter-company loan accounts. That does not seem to me to be an answer to the Plaintiffs' failure to establish causation where that is an essential aspect of their claim; they rely on the Separation Agreement (which includes the provision for forgiveness of inter-company loan accounts) in their case; and Mr Rennie had pointed to the forgiveness of inter-company loans by that agreement in opening.
I held above that a breach of the no conflict rule was established in respect of the wages and superannuation payments in respect of Ms Ale-Lim pleaded in paragraph 45 of the Further Amended Statement of Claim. The quantum of loss arising from those payments has not been established, where the amount of that loss would need to be reduced by the wages and salary that were properly payable by VGPL and properly funded by VFP for the work she had done (by contrast with the position of Mrs Pauling who was, it appears, paid for work she had not done). Had the breach of duty not occurred, and had those amounts been properly paid by VFP, VA or both VFP and VA and apportioned by inter-company loan accounts between them, the resulting balance would again have been extinguished by the Separation Agreement. The relevant breach was not causative of any loss to VFP.
I also held above that a breach of the no conflict rule was established in respect of the loan to Mr Ale pleaded in paragraphs 47-48 of the Further Amended Statement of Claim. As I noted above, I afforded the parties an opportunity to make further submissions as to a narrow issue in respect of this transaction, as to whether any loss could be established from the pleaded loan by VFP to Mr Ale, where the transaction gave rise to a debt owed by Mr Ale to VFP. Mr Rennie submitted that no loss arose from the creation of a modest debt owed by Ale to VFP. Mr Wood accepted that the Plaintiffs did not bring a claim in debt but submitted that Mr Ale's Defence denied "liability to repay the amount claimed" on the basis that it fell within his entitlements as a director, officer and employee of VFP and as part of his earnings and wages. That submission is undermined by the fact that Mr Ale's Defence denied the allegation made, namely of breach of fiduciary and statutory duty, rather than addressing an unpleaded allegation in debt. Mr Wood also submitted that VFP could not recover the debt owed by Mr Ale, after judgment, because a res judicata or an Anshun estoppel would arise and VFP would lose the ability to recover that sum as a debt. I do not accept that, if a debt existed, a res judicata would arise, where a claim in debt was not brought by VFP against Mr Ale. I recognise that the Plaintiffs' ability to pursue the debt might be impeded if they would reasonably have raised that matter in these proceedings, but it is hardly self-evident that a claim for a small debt should have been brought in the Supreme Court of New South Wales, even in combination with the several larger and many smaller claims also brought in these proceedings. Mr Wood also submitted that there was no reason to think that Mr Ale would have repaid the alleged debt, if a demand had been made by VFP or that it could have been recovered cheaply and easily, and submitted that loss "should be presumed against the breaching fiduciary who … has not repaid it".
It seems to me that neither Mr Pauling or VFP has established any loss in respect of this transaction, so as to support a claim for equitable compensation or damages under s 1317H of the Corporations Act. The transaction gave rise to a debt owed by Mr Ale to VFP, apparently payable on demand, which still exists and which is an asset of VFP. There was no evidence that debt is not legally or practically recoverable in accordance with its terms. Obviously enough, a lender does not suffer a loss merely by making a loan, and an order for compensation would amount to double recovery for VFP where that loan and the corresponding debt subsists.
The applicable causation requirement in the Plaintiffs' claim for relief under s 1317H of the Corporations Act is more demanding than that which is applicable in equity, and VFP would likely have had to establish that the relevant damage was as a matter of fact caused by the particular contravention, or satisfy a "common sense" standard of causation: Adler v Australian Securities & Investment Commission [2003] NSWCA 131; (2003) 46 ACSR 504; Hydrocool Pty Ltd v Hepburn (No 4) [2011] FCA 495; (2011) 279 ALR 646; 83 ACSR 652. The Plaintiffs cannot establish a claim for compensation for breach of directors' duties under s 1317H of the Corporations Act, where they cannot establish causation or loss even on the less demanding equitable standard of causation, for the reasons set out above.

[11]

Solicitation of clients and other conduct from January 2016

Paragraphs 51-54 of the Further Amended Statement of Claim plead that Mr Ale registered the business name "Vanguard Financial Group" on 9 November 2015 and subsequently established a financial planning business styled "Vanguard Financial Group" and, from 15 January 2016, contacted clients of the "financial planning business" and sought a transfer of their accounts to that new business. As I noted above, on 15 January 2016, Mr Ale sent a letter to 71 clients (Pauling 12.4.16 [111]-[118], Ex P2, 3051-3052) who he contends were current and former clients of VA and VGPL, which advised of the end of the association between Mr Ale and Messrs Mark and Jason Pauling; noted that "we have not been able to access our office in Charlestown since early December" and apologised for any inconvenience caused; indicated that Mr Ale would "love to continue working with you as your financial planner"; and requested clients to confirm the correctness of details on an included form and to return signed documents, which would implement a change of advisers. The attached client authority authorised the provision of information from relevant investment product issuers in respect of the client's investments and authorised the appointment of Mr Ale as the client's financial adviser.
Mr Rennie points out that that letter was sent after Mr Mark Pauling and VFP had excluded VA from the Charlestown premises on 8 December 2015, and after the failure of the settlement meeting on 14 January 2016; that it was a response to the damage caused by Mr Pauling's "seizure" of the Charlestown office and his alleged repudiation of the Separation Agreement; and that, from that point, Mr Ale and VA acted as if the Separation Agreement had come to an end, both by that letter and by making arrangements to secure other business premises on the basis that the Charlestown office would not be made available to VA as the Separation Agreement required.
Mr Ale is alleged, first, to have "established a financial planning business styled Vanguard Financial Group" and that is alleged (FASOC [52]) to have breached "the duties at paragraphs 10, 19 to 23 above". Those duties are the fiduciary duty alleged to have been owed by Mr Ale to Mr Mark Pauling by reason of the joint venture, which I have found has not been established; and the fiduciary and other duties alleged to have been owed by Mr Ale to VFP as a director of VFP. The only step which Mr Ale is alleged to have taken, before any "joint venture" was terminated by the Separation Agreement and he resigned as a director of VFP as contemplated by that agreement, was to register the business name "Vanguard Financial Group", which would be descriptive of the range of activities which VGPL (as distinct from VFP) and its associated entities had carried on and does not specifically refer to financial planning. The Plaintiffs have in any event not pointed to any loss arising from that conduct. The other conduct of which the Plaintiffs complain took place after the relevant businesses were separated and Mr Ale was no longer a director of VFP.
Mr Wood did not devote substantial attention in submissions to the claim for breach of fiduciary and other duties in respect of this matter. Even if (contrary to my view) Mr Ale had previously owed Mr Pauling a fiduciary duty in respect of the "joint venture", it seems to me that that duty ceased no later than the termination of the "joint venture" by the Separation Agreement, and the dealings with clients were thereafter governed by the Separation Agreement and a continuing duty of confidentiality which I address below. To the extent Mr Ale owed a fiduciary duty to VFP, it seems to me that that duty also ceased on his resignation as a director of that company, where that resignation was consensual in implementing the Separation Agreement. It is well-established that a fiduciary duty generally terminates on termination of any underlying fiduciary relationship, although any duties of confidentiality can continue beyond the termination of that relationship: Attorney-General v Blake [1998] Ch 439 at 453-5; [1998] 1 All ER 833; Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 at 235; [1999] 1 All ER 517. While I recognise that there are some cases which recognise a continuing fiduciary duty of a director beyond resignation, generally where that resignation is itself a further step in an existing breach of fiduciary duty or an attempt to avoid liability for that breach, I can see no reason to extend that approach to Mr Ale's or Mr Pauling's resignation as director as part of a consensual separation of the businesses which contemplated their reciprocal resignations as director.
The Plaintiffs did not press a further allegation (FASOC [55], [60]-[64]) that this conduct constituted a breach of cll 2 or 8(k)(i) of the Shareholder Agreement. The Plaintiffs press an allegation (FASOC [73]) that the conduct pleaded in paragraphs 51-54 of the Further Amended Statement of Claim breached cll 7(a) and 8(a) of the Separation Agreement, on the basis, accepted by both parties, that that agreement had operative effect.
Clauses 7 and 8 of the Separation Agreement relevantly imposed obligations on Mr Ale by way of a restraint of trade and concerning activities as an authorised representative. Those clauses provide that: "7. Trading Restrictions (a) Jason Ale agrees that he or any associated company, employee or family member cannot trade as a Financial Planning company for two years from the 1st December 2015 or earlier if Mark exists, sells or transfers the financial planning business to another entity. 8. Authorised Representative Status (a) Jason Ale agrees that while clause 7(a) is in force, he will conduct all financial planning work under Vanguard Financial Planners Pty Ltd as an authorised representative of Vanguard Financial Planners Pty Ltd." A handwritten note that reads "Sub agent" appears beside clause 8(a) in Mr Pauling's copy of the Separation Agreement (Ex P2, 2908) but not in Mr Ale's copy of that Agreement (Ex P2, 2915), suggesting that note was one of the additional notations that Mr Pauling subsequently made on that document (T105).
Mr Rennie submits that the Plaintiffs have an onus of establishing that the restraint is not contrary to public policy to establish that it remains valid and enforceable, under the Restraints of Trade Act 1976 (NSW). He submits that the only purpose behind the relevant restraint is to prevent competition in relation to financial planning services and that purpose is inherently contrary to public policy. Mr Wood responds that it had not been pleaded that the Restraints of Trade Act invalidates the clause, although that proposition was put by Mr Rennie in opening. It does not seem to me that that matter needed to be pleaded, since it is apparent on the face of that clause that, if it has the reading for which the Plaintiffs contend, it is not limited by geography or any continuing relationship between Mr Ale and VFP, and would have the obvious consequence that Mr Ale or VA could not act as a financial planner anywhere in the world for the relevant period if it could not do so on VFP's behalf. Those propositions do not depend on any additional material facts, beyond the obvious scope of the clause and the matters already pleaded as to the failure of the relationship between VFP and Mr Pauling on the one hand and VA and Mr Ale on the other, and are so obvious that they could not possibly have caught the Plaintiffs' legal representatives by surprise. I therefore consider that is open to the Defendants to raise the validity of the restraint in response to this claim.
The applicable principles are well-established, and Mr Wood drew attention to Brereton J's useful summary of them in Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9. I also summarised those principles in Cadgroup Australia Pty Ltd v Snowball [2016] NSWSC 22, on which I have drawn for the summary that follows. A contracting party is not entitled to be protected from competition as such, but may have business interests capable of being protected by an appropriate restraint of trade, including its personal connection with customers and an interest in the protection of confidential information, even if that information is not in the nature of a trade secret such as to attract equitable protection in the absence of any contractual agreement: Cactus Imaging Pty Ltd v Peters above at [12], [25]. There is, of course, also a public interest in contractual performance: Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386; (2011) 206 IR 450 at [3].
Section 4(1) of the Restraints of Trade Act, on which the Defendants rely, provides that: "(1) A restraint of trade is valid to the extent to which it is not against public policy, whether it is in severable terms or not. (2) Subsection (1) does not affect the invalidity of a restraint of trade by reason of any matter other than public policy. (3) Where, on application by a person subject to the restraint, it appears to the Supreme Court that a restraint of trade is, as regards its application to the applicant, against public policy to any extent by reason of, or partly by reason of, a manifest failure by a person who created or joined in creating the restraint to attempt to make the restraint a reasonable restraint, the Court, having regard to the circumstances in which the restraint was created, may, on such terms as the Court thinks fit, order that the restraint be, as regards its application to the applicant, altogether invalid or valid to such extent only (not exceeding the extent to which the restraint is not against public policy) as the Court thinks fit and any such order shall, notwithstanding sub-section (1), have effect on and from such date (not being a date earlier than the date on which the order was made) as is specified in the order."
The effect of that section is that a restraint is valid to the extent to which it is not against public policy, even if not in severable terms: Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [27]; John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 at [6]. The Court determines, first, whether the alleged breach (independently of public policy considerations) will infringe the terms of the restraint properly construed; second, whether the restraint in its application to that breach (and not with respect to a hypothetical situation) is against public policy; and, if it is not, then the restraint is valid in its application to the alleged infringing conduct, unless the Court makes an order under s 4(3) of the Restraints of Trade Act: Woolworths Ltd v Olson [2004] NSWCA 372 at [42]; John Fairfax Publications Pty Ltd v Birt above at [6].
The Court will have regard to whether the relevant party has a legitimate protectable interest and whether the restraint is no more than reasonable for the protection of that interest, judged at the time at which the contract was made, by reference to what the restraint entitled or required the parties to do. In Tullett Prebon (Aust) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414 at [47], Brereton J, after referring to the application of s 4 of the Restraints of Trade Act, observed that: "In New South Wales, a restraint of trade is valid to the extent that it is not against public policy [(NSW) Restraints of Trade Act, 1976, s 4(1); …. A restraint of trade is not contrary to public policy if it is reasonable as between the parties, and not unreasonable in the public interest, so that while affording adequate protection to the party in whose favour it is imposed, it is not injurious to the public … Whether a restraint is reasonable having regard to the interests of the parties depends on two, albeit related, considerations: first, whether the covenantee has a legitimate protectable interest, and secondly, whether the restraint is no more than reasonable for the legitimate protection of that interest. A covenantee is not entitled to be protected against mere competition; the legitimate interests which may be the subject of protection by covenant are in the nature of proprietary subject matter …, including trade secrets and confidential information, and goodwill including customer connection. The validity of a restraint is to be judged at the time at which the contract is made, by reference to what the restraint entitles or requires the party to do, rather than what they intend to do or have actually done … [citations omitted] His Honour also observed (at [55]) that: "… [A] prohibition on being employed by third parties is a restraint …; it is therefore valid to the extent that it is not contrary to public policy, but no further. The mere circumstance that the parties have agreed to it cannot of itself provide the requisite justification, else every contractual restraint would be justified; the question must be whether the restraints are more extensive in scope, area or duration than necessary for the reasonable protection of the employer's legitimate interests."
I now turn to the question whether the alleged breach (independently of public policy considerations) will infringe the terms of the restraint properly construed. There is some, although limited, evidence that Mr Ale conducted a financial planning business, after the separation from VFP, through a financial planning company which he established, under the name Vanguard Financial Advisors Pty Ltd (for example, the client authority at Ex P2, 3190ff). It seems that the conduct of business in that manner was permitted by s 916B(3) of the Corporations Act, which is an exception to a general prohibition on sub-authorisation by an authorised representative. Mr Ale accepted in cross-examination that, after the separation of VA and VFP and after VA was locked out of the Charlestown premises, he terminated his authorisation with Meritum Financial Group and applied for and obtained authorisation from GWM Advisor Services, and his evidence was that he could not perform financial planning under VFP's authorisation after he was excluded from those premises (T277).
Mr Wood accepted, in oral submissions, that cll 7 and 8 of the Separation Agreement should be read together (T421, 423) and submitted that those clauses should be construed in the context of the commercial background of the agreement, including that Mr Mark Pauling had worked as the financial planner and Mr Ale had worked both as an accountant and provided some financial planning services to some clients within the relevant business.
As I noted above, cl 7(a) of the Separation Agreement prohibits Mr Ale trading as a "Financial Planning company" for two years from 1 December 2015 or the earlier date if Mr Pauling exits the financial planning business. Mr Wood submitted that that clause was a contractual requirement that Mr Ale not trade as a financial planner, and that cl 8 was an exception to that requirement (T424). It seems to me that cl 7(a) of the Separation Agreement has a narrower operation, and expressly applies only to Mr Ale conducting a business in a corporate form. That clause is engaged where there is evidence, as I noted above, that Mr Ale traded in that form. Clause 8(a) of the Separation Agreement is then also engaged so as to require Mr Ale to conduct all financial planning work under VFP as an authorised representative of VFP in the relevant period. Both of those clauses assume that Mr Ale will be permitted to conduct financial planning work as an authorised representative of VFP during the period of the restraint. It was plain that would not occur in this case, from no later than 15 January 2016, after VA and Mr Ale had been excluded from the Charlestown premises and the settlement meeting had failed.
It seems to me that, so far as cll 7(a) and 8(a) were breached by the relevant conduct, their application to that conduct (and not with respect to a hypothetical situation) is against public policy. The restraints apply to prevent Mr Ale and VA undertaking financial planning work through either as a company or as an authorised representative of another entity - the only ways in which such a business could be conducted, other than through VFP which would not now occur - in the Newcastle area in which Mr Ale and VA conducted its business (and also anywhere else), notwithstanding that VFP had excluded Mr Ale and VA from the Charlestown premises and would not then permit him, as a matter of practical reality, to conduct financial planning work as its authorised representative.
In oral submissions, Mr Wood sought to avoid the result that cll 7(a) and 8(a) of the Separation Agreement would operate as a prohibition on Mr Ale conducting a financial planning business, if VFP did not appoint Mr Ale as its representative, by pointing to the obligation of good faith and fair dealing recognised in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558, which he contended would bind VFP (T424). The difficulties with that proposition are, first, that subsequent cases have somewhat narrowed any such obligation; second, whatever the scope of such an obligation, it was plain that VFP and Mr Pauling would not, at least from mid-January 2016, permit Mr Ale to conduct financial planning work as a representative of VFP, given the extent to which the parties were then in dispute and the exclusion of VA from the Charlestown premises; and, third, whatever the scope of that obligation, VFP now seeks to rely on that restraint although Mr Ale and VA could not and did not conduct a financial planning work in the contemplated manner. No doubt, as Mr Wood pointed out (T425), it would have been open to the parties to negotiate a variation to the agreement if they could not work together. However, they did not do so, and cll 7 and 8 of the Separation Agreement then operated so as to prevent Mr Ale from conducting a financial planning business as a representative of another licensee, in the Newcastle area (and also anywhere else) while not being provided with either the appointment as a representative of VFP or the income from that appointment which the Separation Agreement contemplated. It does not seem to me that the position differs where, as Mr Wood points out, Mr Ale obtained an authorisation from GWM Advisor Services, rather than the entity with which VFP had previously dealt, where that reflected the breakdown of the relationship between the parties and the fact that VFP had excluded VA from the Charlestown premises and did not permit him, as a matter of practical reality, to conduct financial services work through it.
The operation of cll 7 and 8 of the Separation Agreement in this manner, where Mr Ale cannot practically conduct financial planning work as VFP's authorised representative, would be inconsistent with what was contemplated by the Separation Agreement, namely that Mr Ale would conduct such work as an authorised representative of VFP, and would be remunerated for doing so under cl 9 of the Separation Agreement. When cll 7 and 8 apply in that situation, they operate as an absolute prohibition on Mr Ale competing with VFP in the financial planning field in a manner that is not properly necessary to protect VFP's interests. I therefore find that the restraint of trade in those clauses, as regards its application to VA and Mr Ale in those circumstances, is against public policy in those circumstances and I order that the restraint be invalid under s 4(3) of the Restraints of Trade Act.
Mr Rennie also submits that, by reason of Mr Pauling's "seizure" of the Charlestown office and repudiation of the Separation Agreement, the Plaintiffs are no longer able to rely on any restraint clauses in that agreement. It is not necessary to address that submission here where I have found that the restraint was, as applied in the relevant circumstances, invalid. It will be necessary to deal with the question of repudiation in addressing the Defendants' Cross-Claim below.
The Plaintiffs alternatively claim (FASOC [76]-[77]) that Mr Ale's conduct breached a binding agreement reached by the parties to separate their businesses on or about 18 November 2015 ("Division Agreement"). It may be that the reference to the "Division Agreement" is intended to refer to the Separation Agreement which all parties accept was operative, and the two terms were treated as interchangeable in submissions. The Plaintiffs plead that the Division Agreement contained an implied term that the Defendants, or alternatively Mr Ale and/or the Defendants, not compete with the Plaintiffs in the financial planning market in the Hunter region or alternatively Newcastle. That term is particularised as follows: "The terms [sic] are implied in law by reason of the nature of the arrangement, which was, in effect, a grant or transfer of the Financial Planning Business."
In oral submissions (T421), Mr Wood relied on Trego v Hunt [1896] AC 7 and Jennings v Jennings [1898] 1 Ch 378 for the proposition that a party to a contract cannot derogate from the grant and also referring to the Court of Appeal's decision in Page v McKensey [2004] NSWCA 437. These decisions broadly relate to the question whether, without more, goodwill is included in the sale of a business. In Carlton & United Breweries Ltd v Tooth & Co Ltd (1986) 7 IPR 581 at 600, Young J referred to those decisions as standing for the more qualified proposition that: "the principle is that it is a rule of construction that if there is simply the sale of a business with nothing more, then the Court will be inclined to say that goodwill passes as part of the business. If, however, there is a more complex contract for the sale of a business including a whole set of terms yet the word "goodwill" not mentioned, the Court will construe the contract to see whether or not in the light of the contractual provisions, goodwill passes."
Mr Wood's submission depends on treating the transfer of the shares in VFP to Mr Pauling and Ms Barber as amounting, in substance, to a sale of the financial planning business to them. I do not accept that the arrangement documented by the Separation Agreement can fairly be characterised as an unqualified grant to VFP of the "whole of the Financial Planning Business for consideration", as the Plaintiffs contend. That characterisation cannot be accepted because there is no indication that VA or Mr Ale was intending to sell, or VFP or Mr Pauling paid any consideration to purchase, the goodwill associated with clients of VA that had been referred to VFP for the provision of financial planning advice, where the transaction contemplated that VA would continue to provide accounting services to those clients. As I noted above, cl 8(a) of the Separation Agreement also expressly contemplated that Mr Ale would in fact provide financial services, as representative of VFP, and cl 9(a) provided that VA would receive 15% of the revenue for referred clients and 60% of any trailing commission and up-front revenue. It seems to me that any submission as to the transfer of goodwill to VFP and the suggested implied term must accommodate the express terms of the Separation Agreement and the public policy considerations to which I have referred above. I am not persuaded that the principle in Trego v Hunt above is applicable, at least in its broadest form, in that context.
It is not strictly necessary to address the Plaintiffs' claims that this alleged breach, which has not been established, has caused loss and damage to VFP and that VA, VGPL and Mr Ale will, unless restrained, continue to breach the Separation Agreement. I will nonetheless make some brief observations as to those matters against the contingency that an appellate court may take a different view to that which I have taken as to whether a breach was established. Mr Pauling leads evidence, to support a quantification of the claim for loss of clients, in his affidavit dated 9 September 2016 of his "churn" rate, being the rate at which clients are lost (Pauling 9.9.16 [66]-[67]). Ms Jones in turn calculates a "client churn rate" for Mr Pauling, and provides two alternative calculations of loss based on findings of the extent to which Mr Pauling would have retained clients beyond the two year restraint period (Jones 1.6.17 [11]). The amount of loss claimed is quantified as $38,260, attributable to a two year restraint period under the Separation Agreement; $160,825, referable to a five year period, or $291,712, referable to a ten year period. It seems to me that Mr Pauling's evidence seeking to establish that he would have retained those clients for five or ten years, but for any breach of the restraint, was insufficient to establish the factual basis of that proposition.

[13]

Alleged contractual breach by non-payment of bills

The Plaintiffs allege (FASOC [80]) that cl 6(a) of the Separation Agreement required that Mr Ale ensure that there would be enough money in bank accounts held by VFP to pay the anticipated or regular expenses incurred by VFP for the month of December 2015. The Plaintiffs allege (FASOC [81]) that, on its proper construction, that clause required Mr Ale to pay the existing ordinary trading liabilities of VFP up to and including November 2015 from the cash resources available to VFP, or if those resources were insufficient, from another entity within the Vanguard Group or his personal assets; and pay to VFP, from his own funds or funds held by another entity in the Vanguard Group, sufficient funds to meet the ordinary trading expenses of VFP for the month of December 2015.
The Plaintiffs plead (FASOC [83]) that the ordinary trading expenses of VFP for December 2015 amounted to $26,581.25, made up of wages, PAYG obligations, superannuation contributions, GST, and rent and utilities, phone and internet, motor vehicle and miscellaneous office expenses. The Plaintiffs also plead (FASOC [85]) that, as at 30 November 2015, VFP had $72,054.66 in outstanding ordinary trading expenses, made up of superannuation due for July to September 2015 and for October to November 2015; amounts due in respect of its October and November 2015 business activity statements; a balance of ATO income tax for 2013 and 2014; GST for October and November 2015; and the balance of the ATO income tax account at 30 November 2015. The Plaintiffs also plead (FASOC [86]) that, as at 30 November 2015, VFP had total cash resources available to it of $4,825.04. The Plaintiffs plead (FASOC [87]) that Mr Ale breached the Separation Agreement by reason of these matters and the breach is particularised as: "The breach lies in failing to pay the existing liabilities and in failing to ensure that [VFP] had sufficient cash to cover the December expenses, which Jason Ale was required to transfer to [VFP] in addition to the amounts necessary to discharge the existing ordinary trading liabilities."
The Plaintiffs claim (FASOC [88]) that these alleged breaches have caused VFP loss and damage, particularised as. "The sum of $98,635.911 [sic] which was necessary to cover the existing liabilities and the December liabilities, less the sum of $4,825.04 which was the available cash at the date of transfer."
I approach the question of construction of that clause by reference to well-established principles of construction. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40], a unanimous High Court observed that: "This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction." [Citations omitted]
That approach was confirmed in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 at [35] where French CJ, Hayne, Crennan and Kiefel JJ observed that (citations omitted): "[T]his court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'." [citations omitted]
The High Court also reviewed the principles of construction in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188 (at [46]-[52], [59]) and I proceed on the basis that construction should commence with the language used by the parties, although the Court may also have regard to objective surrounding circumstances. I also recognise that, even when there is ambiguity in a contract, it is not permissible to look at evidence of the parties' statements and actions reflecting their actual intentions and expectations: Prenn v Simmonds [1971] 1 WLR 1381 at 1384; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales above at 352; Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [42]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd at [50].
Clause 6(a) of the Separation Agreement is brief and not particularly clear. It appears under the heading "Vanguard Financial Planners Bank Account" and provides that: "Jason Ale will ensure that there is enough to pay the bills for the next month."
Mr Wood submits that that clause required Mr Ale to ensure that VFP had enough cash in its account to meet each expense for December 2015, apparently without the need for VFP to take account of the income which it would receive in that month which would also be available to meet such expenses. Mr Rennie submits that that clause required only that Mr Ale ensure there is sufficient money in the account such that VFP could meet such expenses from its resources, including the income it would receive in that month, without a cash injection from Mr Pauling. Mr Rennie submits that VFP in fact had enough to pay the bills for December 2015, having regard to its trading revenue of approximately $35,000 to $45,000 per month.
Mr Rennie also emphasises that, during negotiations, Mr Pauling had requested that all outstanding superannuation obligations for VFP be paid in full as at the date of transfer (Ex P2, 2783) and that Mr Ale had not accepted that request, but indicated that there would be enough cash in VFP to pay its bills for December (Ex P2, 2883) and told Mr Pauling about VFP's expected revenue for December (Ale 12.8.16 [47]). I cannot accept Mr Rennie's submission that I can reject the Plaintiffs' construction of cl 6(a) of the Separation Agreement by reference to prior negotiations or the fact that Mr Ale had previously reflected the position for which VFP now contends in negotiations with Mr Pauling, where that would impermissibly have regard to Mr Ale's subjective intention expressed in the negotiations as to how the clause should operate. Mr Ale also denied in cross-examination that the arrangement between the parties was that he would make sure that there was enough in VFP's bank account to cover the expenses for December 2015 (T270), but his subjective understanding as to that matter also does not assist in resolving the construction question that I must determine.
It seems to me that the commitment reflected in cl 6(a) of the Separation Agreement did not extend beyond the sufficiency of amounts in VFP's bank account to meet expenses, having regard to amounts that would ordinarily be received by VFP within that month. In ordinary usage, a person has "enough to pay the bills" over a particular period if his or her savings and income are equal to or exceed his or her expenses. Conversely, it would not ordinarily be said that a person does not have "enough to pay the bills" for, say December, because he or she did not have, on 1 December, the amount that would be required to meet bills on 31 December, if he or she would have sufficient funds to do so after receiving salary or other payments in that month. Although the concept of "pay the bills" is hardly precise, it seems to me to require only that VFP be able to pay its bills from its own resources, including the income that is available to it on an ongoing basis, and not that it have sufficient funds on hand to meet its expenses without reference to its income. It has not been established that Mr Ale did not comply with cl 6(a) of the Separation Agreement, on its proper construction, by funding VFP to the extent necessary to pay its expenses for December 2015, having regard to its income for that month still less that compliance with that clause required payments of the amounts claimed in paragraphs 83 and 85 of the Further Amended Statement of Claim.
Alternatively, the obligations for which the Plaintiffs contend are alleged to be an implied term of the Separation Agreement (FASOC [82]). I have addressed the principles applicable to whether such a term should be implied above. This term cannot be implied where it is not necessary to give business efficacy to the contract, it is not so obvious that it goes without saying and it is inconsistent with, in the sense of more demanding than, the express term of the Separation Agreement that deals with this matter.
Alternatively, the Plaintiffs plead (FASOC [87A]) that there was an agreement for Mr Ale to pay the outstanding superannuation for VFP for July to September 2015, and rely on an email from Mr Ale on 1 December 2015 at 6:00 pm as the basis of that agreement. That email follows an exchange as to whether Ms Barber's superannuation had been paid for the September quarter, to which Mr Ale responded (Ex P2, 2977): "It appears that the super payment for the September quarter was missed and will look to rectify asap." Mr Ale accepted in cross-examination, inter alia, that superannuation liabilities were not paid by the Vanguard Group in late October 2015 and claimed that he became aware of that when Mr Mark Pauling raised it with him (T253), and he accepted that he told Mr Pauling that "we'd fix it up" but gave evidence that VA was locked out of the Charlestown premises not long after that and that it was not in fact fixed up (T254).
I cannot find that the statement in Mr Ale's email dated 1 December 2015 was contractual in nature, where neither an intent to enter legal relations not consideration for it was established. No representational claim or claim in estoppel was brought in this regard.

[14]

Claim for misleading and deceptive conduct under the Australian Consumer Law

By their Further Amended Statement of Claim, the Plaintiffs also sought damages under s 236 of the Australian Consumer Law. The Plaintiffs plead that, at all material times, Mr Ale was the accountant, registered tax agent, public officer, and managing director of VFP (FASOC [88A]); that he performed taxation and accounting work for VFP, including preparation and submission of income tax returns, business activity statements, instalment activity statements, 'Pay As You Go' payments, and 'Goods and Services Tax' payments for VFP to the Australian Taxation Office (FASOC [88B]); and that, from time to time, he reported on the financial performance of VFP by preparing financial reports for VFP, and presenting them to Mr Mark Pauling (FASOC [88C]).
The Plaintiffs also plead (FASOC [88D]) that, on or about 4 November 2015, Mr Ale represented to Mr Pauling, by a letter dated 4 November 2015 from Mr Ale to Mr Pauling (Ex P2, 2859) that motor vehicle expenses for motor vehicles owned by companies within the Vanguard Group had been paid for by the companies which benefited from the use of the motor vehicles and that repayments by VA of loans for motor vehicles used by VA amounted to $22,440 per year. The Plaintiffs plead (FASOC [88E]) that that email and other conduct pleaded in FASOC [16]-[17], [26], [30], [36] and [40] together constituted a representation or conduct by Mr Ale and/or VA that the financial affairs of VFP had been managed in accordance with generally accepted accountancy principles and the terms of the Shareholder Agreement. These representations are alleged to arise from Mr Ale having responsibility for reporting on the financial performance of VFP and VGPL and for approving transactions and for financial management of VFP and VGPL (FASOC [16]-[17]); from Mr Ale being authorised to operate the CBA bank account and approve withdrawals and transfers from that account (FASOC [26]); from Mr Ale approving transfers transacted on the CBA account (FASOC [30]); from Mr Ale being authorised to operate the GBS bank account and approve withdrawals and transfers from that account (FASOC [36]); and from Mr Ale processing payments of wages to staff of companies within the Group (FASOC [40]).
In closing submissions, the Plaintiffs indicated that they abandoned the misleading or deceptive conduct case based on the letter of 4 November 2015 and what remains is an alleged representation that Mr Ale would manage the financial affairs of VFP in accordance with generally accepted accounting principles, cl 8(g) of the Shareholder Agreement and the Income Tax Assessment Act 1997 (Cth). Mr Wood submits that the representation as to generally accepted accounting principles can in turn be simplified to the proposition that "there should have been loan accounts" and that the loss caused by that representation is that Mr Mark Pauling "paid" too much on entry into the Separation Agreement. The latter claim was not pleaded, and as I have noted above, there is no evidence that would support a finding that Mr Mark Pauling could have entered into the Separation Agreement on different terms, more favourable to him, or that Mr Ale would have accepted such terms, or that Mr Pauling would otherwise be in a more favourable position had he not entered into the Separation Agreement on its present terms.
It does not seem to me that any basis for finding such a representation by Mr Ale, still less by VA, has been established. I have referred above to the statutory provisions that deal with when small proprietary companies are required to prepare financial accounts in accordance with generally accepted accounting principles in some circumstances. I do not accept that, as the Plaintiffs' case implies, the preparation of accounts for a proprietary company generally conveys an unqualified representation as to compliance with accounting standards. The fact that Mr Pauling took little interest in financial reporting by the companies until the dispute arose, although he was a director of VGPL and VA, does not give rise, alone or without other matters, to such a representation by Mr Ale or indeed by Mr Jason Pauling or other members of VGPL's or VA's staff.
It also does not seem to me that the alleged representation as to compliance with the Shareholder Agreement is established, where that agreement required VGPL rather than Mr Ale personally or VA to maintain such accounts. Clause 8(h)(i) of the Shareholder Agreement relevantly provides that VGPL (rather than Mr Ale) covenants: "That the books and accounts of the company truly and fairly reflect the company's affairs and accurately record the details of all of the company's transactions, finances, assets and liabilities."
The Plaintiffs also plead (FASOC [88F]) that the alleged representations were made in trade and commerce. I am also unable to accept that if, contrary to my view, the alleged representations were made, they were made in trade and commerce. In Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594, Mason CJ, Deane J, Dawson J and Gaudron J referred in a joint judgment to the need there identified to construe the words "in trade or commerce" in such a way that there is not imposed "by a side-wind, an overlay of Commonwealth law upon every field of legislative control into which a corporation might stray for the purposes of, or in connection with, carrying on its trading or commercial activities". Their Honours observed (at 604) that: "What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character."
Mr Wood drew attention, in oral submissions in reply, to the decision in Cleary v Australian Co-operative Foods Ltd & Ors (No 2) [1999] NSWSC 991; (1999) 32 ACSR 701, where Austin J had held (at [114]) that sending a proposal for a merger to members, and commenting on it by reference to a restructure proposal which would lead to the listing and trading of shares in a corporation, was conduct in trade or commerce. That proposition does not seem to me to assist in establishing that an observation, express or implied, by one director to another as to the accounting treatment of a particular transaction amounts to conduct in trade or commerce. In New Cap Reinsurance Corp Ltd v Daya [2008] NSWSC 64; (2008) 216 FLR 126; (2008) 66 ACSR 95; (2008) 26 ACLC 301, Barrett J referred to Concrete Constructions (NSW) Pty Ltd v Nelson above, Prestia v Aknar (1996) 40 NSWLR 165 and Cleary v Australian Co-operative Foods & Ors (No 2) above and held that statements made during board meetings by officers and employees of a company to directors are wholly internal to the company and are therefore not made "in trade or commerce", so not actionable under the s 52 of the Trade Practices Act 1974 (Cth), the predecessor of s 18 of the Australian Consumer Law, or the corresponding provision in s 42 of the Fair Trading Act 1987 (NSW). It seems to me that discussions among the directors or shareholders of VGPL or VFP as to the compliance or non-compliance of the companies' accounts with generally accepted accounting principles, had they occurred, or implied representations as to the same matter, would generally occur in the internal management of VGPL's and VFP's affairs and not in trade or commerce.
Mr Wood initially contended, in his written outline of submissions in reply and in oral submissions in reply, that the decision in New Cap Reinsurance Corporation Ltd v Daya above was not applicable in respect of representations made before the entry into the Shareholder Agreement and formation of the Vanguard Group. However, Mr Wood fairly accepted in oral submissions in reply (T490) that the Plaintiffs had not pleaded any such representations made prior to the entry into the Shareholder Agreement and that representations made after that agreement was formed, implicitly as an aspect of the parties' dealings in respect of the internal affairs of the companies, were not in trade or commerce. The claim under the Australian Consumer Law would also fail on that basis.
As I noted above, the Plaintiffs also plead that the alleged representations were misleading and deceptive within the meaning of s 18 of the Australian Consumer Law (FASOC [88G]) and that Mr Ale and VA contravened s 18 of the Australian Consumer Law (FASOC [88H]). That claim depends on the view expressed in Ms Jones' reports that, in effect, the allocation of profit and loss items in VGPL's financial reports was inconsistent with generally accepted accounting principles and VA's reported financial performance and financial position during the relevant period was incorrectly stated or, as Mr Wood put it, that the accounts were at least in error by reason of the failure to adjust the relevant transactions by inter-company loan accounts. It is not necessary to express a final view as to that allegation where the relevant representations are not established and would not have been made in trade or commerce had they been made. It is preferable that I do not do so given the difficulties with significant aspects of Ms Jones' evidence to which I have referred above.
The Plaintiffs also plead that VFP and Mr Pauling relied upon the representations to their detriment (FASOC [88I]) and that reliance has caused loss and damage to VFP and Mr Pauling (FASOC [88J]). However, Mr Pauling's evidence in cross-examination was also that he did not focus on the value of the shares in VGPL or VFP in negotiating the separation of the business and did not have regard to financial reports of any of the companies in determining whether to agree to the separation (T67-68) or, implicitly, whether to enter into the Separation Agreement. Although the Plaintiffs opened their case on the basis that the alleged misleading or deceptive conduct affected the price paid for the Separation Agreement, there is, as I have noted above, no evidentiary basis to identify any alternative transaction to which Mr Ale would have consented. The Plaintiffs cannot establish causation, or that they have suffered loss by reason of any misleading and deceptive conduct, where they have not established that they would not have entered the Separation Agreement on the same terms, or would or could have entered any alternative and more advantageous transaction, had the alleged representations not been made.
The Plaintiffs' claim for misleading and deceptive conduct does not expressly extend to the Disputed Transactions as particularised to paragraph 49 of the Further Amended Statement of Claim by the reference to Ms Jones' report, although they would no doubt be relevant to whether the financial affairs of VFP had been managed in accordance with generally accepted accounting principles, a matter which is raised by that claim. It is not necessary to address that matter further, where the claim for misleading and deceptive conduct cannot succeed for the other reasons noted above.

[15]

Barnes v Addy

The Plaintiffs plead that Mr Ale's knowledge is taken to be the knowledge of VA, by reason that Mr Ale was a director of VA (FASOC [88K]); that, by reason of that matter, VA knew of the breaches of fiduciary duties alleged in paragraph 50 of the Further Amended Statement of Claim, in respect of the numerous payments that are challenged (FASOC [88M]); that VA has obtained a benefit from those transactions or some of them (FASOC [88L]); and, by reason of those matters, VA is liable to account to VFP, give restitution, or pay equitable compensation to VFP for the benefit it has obtained with the knowledge of Mr Ale's breach of fiduciary duty (FASOC [88N]).
The heading of this section of the pleading and the reference to receipt by VA suggests that this is a claim for knowing receipt under the first limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244, which has effect that a person who receives company property from a director will hold it on trust for the company if he or she knows, or the circumstances are such that he or she ought to know, that the director is acting in breach of duty in respect of the relevant transaction. In order to succeed in a claim for knowing receipt, the Plaintiffs must establish the relevant breach of fiduciary duty by Mr Ale; that the third party, VA, received the relevant property by reason of the breach of duty; and, at the time of receiving that property, knew of the "trust" (or duty) and of the misapplication of the relevant property: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) above; Grimaldi v Chameleon Mining NL (No 2) above.
It is not necessary to determine the Barnes v Addy claim against VA where the underlying breach of fiduciary duty, pleaded against Mr Ale, on which that claim relies, has largely not been established, and causation and loss arising from that claim has not been established in respect of any question of apportionment of expenses or the treatment of inter-company loan accounts or the payments to Ms Ale-Lim or the loan to Mr Ale. I note, for completeness, that I would have been satisfied that the elements of a claim for knowing receipt were established against VA in respect of any payments to it as to which a breach of fiduciary duty, causation and loss had been established. In my view, the requisite knowledge on its part would have been established where Mr Ale was its director, had it received any relevant benefit of such a payment.

[16]

Use of confidential information

The Plaintiffs plead that, as at 8 December 2015, VFP stored specified information in an on-line storage facility or "drop box", namely, names of clients of the "Financial Planning Business" included on the client list for VFP, financial planning client files, including client financial documents and history of services provided, and financial planning client account numbers (together, defined as "Confidential Information") (FASOC [89]); the Confidential Information (as defined) was made available to Mr Ale in the course of his directorship of VFP and/or in circumstances where it was clear to him that the information was confidential in nature (FASOC [90]); on or about mid-January 2016, Mr Ale caused a letter to be sent to approximately 76 clients of VFP (FASOC [91]); and, by engaging in that conduct, Mr Ale has improperly copied, retained and/or used the Confidential Information (FASOC [92]).
The Plaintiffs allege that, by reason of those matters, Mr Ale has contravened s 183 of the Corporations Act and/or breached his equitable obligation to keep confidential information confidential (FASOC [93]). The prohibition in s 183 of the Corporations Act substantially corresponds with the equitable duty of confidentiality and would be contravened where a director used information that was confidential to a company to make a personal profit: for example, Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779 at 783; 12 ACLC 269. The Plaintiffs plead that that breach has caused the Plaintiffs loss and damage (FASOC [94]) particularised as: "The loss includes the clients that have moved their business to Vanguard Financial Group. At least 27 clients of Vanguard Financial Planners [VFP] have left the business since 1 February 2016. The plaintiffs claim the revenue that would have been derived over the course of acting for those clients."
Mr Rennie responds that a plaintiff which seeks to restrain a use of confidential information in equity, or under a contractual obligation of confidentiality, must identify with specificity the information in question; must show that the information has the necessary quality of confidentiality; must show that the information was received by the defendant in circumstances that import an obligation of confidence; and must show that there is an actual or threatened misuse of the information: Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 443. Mr Rennie submits that client information, or at least the names and addresses of clients which were used to communicate with them on 15 January 2016, "belonged" to VGPL; that VFP cannot assert any "proprietary interest" in the contact details of customers of companies within the Vanguard Group because clients "belong" to the Vanguard Group; that the names and addresses of the relevant clients are not confidential information that can be protected on the application of VFP or Mr Pauling, where the client information was kept in a "drop box" facility administered by VGPL; and that VFP did not have a confidential or proprietary interest in that information. Mr Rennie also submits that the information used by VA on 15 January 2016 amounted to a subset of the information that had originally been collected by VA and was no more than the name, address and policy number included on an initial referral from VA to VFP, which was prepared by staff of VA (T287-288) and held in the "drop box" account for VGPL, and which was accessible from other computers within the Vanguard Group that had access to those records (T289-T290).
The evidence does not establish that the relevant client information was confidential to VFP, as a subsidiary of VGPL, rather than to VGPL, or that the relevant clients were not also clients of VA and that information was not already known to VA and Mr Ale. Mr Ale's evidence was that the client information held in the "drop box" related to the names and addresses of clients of VA that had been referred to VFP (Ale 12.8.16 [103]) and it did not seem to me that evidence was displaced, although he was cross-examined at some length as to this matter (T286ff). It seems to me that VFP has not established a claim to confidentiality of information that is already known to VA and relates to VA's clients.
The Plaintiffs also plead that VFP is entitled to exclusive possession of the Confidential Information (as defined) and, unless restrained, Mr Ale and VA will continue to use and retain the Confidential Information (FASOC [95]-[96]). The Plaintiffs seek an order that the Mr Ale and VA be restrained permanently, by themselves, their servants or agents, from disclosing or using VFP's and Mr Mark Pauling's Confidential Information (as defined). By their Further Amended Statement of Claim, the Plaintiffs also sought orders for delivery up of any Confidential Information (as defined) in the possession of the Mr Ale, VA or VGPL. Had this claim otherwise been established, I could not have granted relief in that form, where it would extend to information that was known to Mr Ale by his dealings with clients and would adversely affect the interests of non-parties to the proceedings, namely clients who had now transitioned to Mr Ale's business and expressly or impliedly consented to the use of such information by Mr Ale and that business.

[18]

The Cross-Claim brought by VA, Mr Ale and VGPL

By their "First Cross-Claim Amended Statement of Cross-Claim" filed on 5 December 2016, VA, Mr Ale and VGPL bring several claims against Mr Mark Pauling and Mr Jason Pauling. It appears that VA, Mr Ale and VGPL took the unfortunate course of largely, but carelessly, replicating the Plaintiffs' pleading in that Cross-Claim. They initially sought relief by way of an account of profits, equitable compensation, "equitable damages", an order that Mr Mark Pauling transfer the shares in VFP to VGPL, an order restraining Mr Mark Pauling, VFP and Mr Jason Pauling until 1 December 2017 from operating a financial planning business in the Hunter region and from disclosing or using certain information, orders for delivery up of confidential information, damages under s 236 of the Australian Consumer Law, damages and, exemplary damages. A number of aspects of that Cross-Claim are either no longer pressed or are only pressed to seek to establish a set-off against the Plaintiffs' claim.
Paragraphs 10-22 of the Cross-Claim relate to the exclusion of VA from the Charlestown premises on 8 December 2015. In closing submissions, Mr Rennie indicated the Cross-Claimants pursue this aspect of the Cross-Claim irrespective of whether any liability is established under the Plaintiffs' claim. The Cross-Claimants plead that Mr Mark Pauling took possession of the Charlestown premises on 8 December 2015 and thereafter denied entry to those premises to employees of VA and VGPL and Mr Ale (Cross-Claim [12]); that that conduct constituted a breach of the Separation Agreement (Cross-Claim [13]); and that VA, VGPL and Mr Ale were thereafter unable to access client records, including taxation information, and unable to provide accounting and other services to clients of VA and VGPL and Mr Ale (Cross-Claim [14]). I will address the pleaded claims of loss in respect of this matter below.
Clause 3(a)-(c) of the Separation Agreement relevantly provided that: "(a) Jason Ale and related entities going forward will continue to operate from the Charlestown office. (b) Mark Pauling and related entities going forward will continue to operate from the Newcastle office. (c) Mark Pauling and related entities will remove the current bank guarantee that is in place for the Charlestown office and use towards its own costs. This bank guarantee is estimated to be $12,000 plus."
By paragraph 10 of their Amended Defence to the Cross-Claim, VFP and Mr Pauling plead that the right of occupancy of the Charlestown premises arising under cl 3 of the Separation Agreement is subject to an express or implied term that VA's entitlement to occupy the premises was subject to Mr Ale's compliance with cll 3(c) and 6(a) of the Separation Agreement and an implied term that the parties would use their best endeavours to perform their obligations under that agreement in a timely manner and in good faith, and that VA's entitlement to occupy would cease forthwith in the event of non-compliance with those terms. Paragraph 12 of the Amended Defence to Cross-Claim in turn alleges that, following a breach by Mr Ale of those terms, Mr Pauling had terminated the licence to occupy the premises.
The Cross-Claimants rely on VA's exclusion from the Charlestown office as a repudiation of the Separation Agreement. Mr Rennie submits that Mr Pauling's and VFP's excluding VA from the Charlestown office was not justified by the differences between the parties as to the interpretation of cl 6(a) of the Separation Agreement; amounted to a repudiation of the Separation Agreement, and in particular the obligations under cl 3 of that agreement; and amounted to an unlawful seizure of VA's business equipment and records. Mr Rennie also submits that Mr Pauling asserted ownership over the computer equipment in the Charlestown office, despite cl 12(a) of the Separation Agreement which provided that the server at the Charlestown office was to stay there, and was implicitly to be available to VA which was to operate from the Charlestown office under cl 3(a) of the Separation Agreement. Mr Wood opened on the basis that any breach of the Separation Agreement, by way of exclusion of VA from the Charlestown premises, was not a repudiatory breach and that there was no evidence of the repudiation having been accepted, with a qualification that is not presently relevant (T13).
It seems to me that cl 3(c) of the Separation Agreement is, in substance, an acknowledgment that Mr Pauling and his associated entities will take a particular step, namely to remove the bank guarantee that is in place for the Charlestown office. That clause does not, in terms, impose any obligation upon Mr Ale, although I recognise that an implied obligation of cooperation may arise in the relevant circumstances. It has not been established that such an implied obligation was breached. The Plaintiffs have not established that Mr Ale had not complied with cl 6(a) of the Separation Agreement, an allegation that I addressed above. I am not satisfied that any implied term as to timely or good faith performance of the relevant obligations was breached or that the suggested term that any licence would terminate forthwith is so obvious that it goes without saying and can be implied. I have not found that the alleged express or implied term was established so as to provide a lawful basis for the termination of VFP's occupancy of the Charlestown premises.
It is common ground between the parties that repudiation involves an expressed unwillingness or inability to render substantial performance of a contract: Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 659; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 at [44]. In JW Carter, Carter's Breach of Contract, LexisNexis Butterworths (2011) at [8-04], the author notes, by reference to authority, that it is sufficient to establish repudiation that a promisor has behaved in such a way as to indicate a refusal to perform to a reasonable person in the promisee's position. In Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261 at [123], Kunc J summarised the relevant legal principles as follows: "The relevant legal principles are not in doubt … A party will be taken to have repudiated a contract if it manifests the intention no longer to be bound by it or to fulfil it only in a manner substantially inconsistent with that party's obligations and not in any other way. That manifestation may occur before performance is due (known as anticipatory breach) and does not depend upon the existence of an actual intention to repudiate. Rather, the Court looks to how a reasonable person, in the position of the "innocent" party, would view the allegedly repudiatory conduct." I am also conscious that, as Lord Wright noted in Ross T Smyth & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60 at 71, repudiation of a contract is a "serious matter, not to be lightly found or inferred".
It seems to me that Mr Pauling's and VFP's refusal to permit access to Mr Ale and VA to the premises which it was intended to occupy under the Separation Agreement, and to the data which it would be able to access on the server in those premises had that agreement been complied with, amounted to an unwillingness to render performance of the Separation Agreement. The matters to which Mr Pauling and VFP refer, in explaining why Mr Pauling reached that position, may be understandable, but they do not alter the fact of the repudiation of the Separation Agreement.
A question then arose as to whether Mr Ale and VA could show that they had accepted the repudiation of the Separation Agreement. In Carter's Breach of Contract, above at [7-46], the author defines "acceptance" of a repudiation as a promisee's election to terminate the performance of the contract at a time when a repudiation is operative. The author notes, by reference to authority, that acceptance of a repudiation must generally be communicated to the promisor. In Stocznia Gdynia SA v Gearbulk Holdings Ltd [2009] EWCA Civ 75; [2010] QB 27, on which Mr Wood relied, the Court of Appeal observed at [44] that: "It must be borne in mind that all that is required for acceptance of a repudiation at common law is for the injured party to communicate clearly and unequivocally his intention to treat the contract as discharged." The Court also noted that no question of election between alternative rights arose where the contract provided a right to terminate which corresponded to a right under the general law, including because the breach went to the root of the contract. In oral submissions, Mr Wood also relied on the decision in Whittaker v Unisys Australia Pty Ltd [2010] VSC 9; (2010) VR 668 as authority that the acceptance of a repudiation has to be clear and unambiguous, and also that the termination of a contract for repudiation is not respective to the time of breach, but operates from the time of the innocent party's election to accept the repudiation.
Mr Rennie relies both on the statement that Mr Ale claims to have made at the end of the settlement meeting on 14 January 2016 and the letters then sent by Mr Ale to clients on 15 January 2016 as amounting to an acceptance of that repudiation. Mr Wood responds that the Cross-Claimants did not plead acceptance of the repudiation and should not be permitted to rely on the letter sent to clients as acceptance of the repudiation. I do not accept that submission. The claim for repudiation was plainly raised by the Cross-Claimants and acceptance of that repudiation was implicit in that claim. The letters sent by Mr Ale to clients on 15 January 2016 have always been in issue, as part of the Plaintiffs' claim for breach of confidentiality, and I am not persuaded by Mr Wood's submission that he would have approached cross-examination differently had those matters been expressly identified as amounting to the alleged acceptance of the repudiation. Mr Wood also submits that there is no credible evidence of any acceptance of the repudiation, even if the exclusion of VA from the Charlestown premises amounted to a repudiation, but specifically addressed the matters which were discussed at the settlement conference on 14 January 2016 in submissions, giving less attention to other matters that may be capable of constituting acceptance, including the letter sent to clients on 15 January 2016 and the subsequent steps taken by VA and Mr Ale to relocate VA's offices.
With hesitation, I have concluded that the evidence does not establish an unequivocal acceptance of the repudiation by Mr Ale. I am not persuaded that Mr Ale accepted the repudiation in any statement made at the settlement meeting, to which I referred above, and his walking out of the settlement meeting was not necessarily an acceptance of the repudiation, as distinct from a temporary setback in settlement negotiations. The letters to clients sent on 15 January 2016 were not an unequivocal acceptance of the repudiation, since they would not be inconsistent with the Separation Agreement if (as I have also found) cll 7 and 8 were void as contrary to public policy. The relocation of premises was also not an unequivocal acceptance of the repudiation, where it would also be consistent with a mitigation of VA's loss and VGPL's and Mr Ale's affirming the Separation Agreement and maintaining a claim for damages for breach.
I now turn to the losses claimed by VA and Mr Ale, against the contingency that an appellate court may take a contrary view as to whether acceptance of the repudiation is established, and where those losses would potentially be recoverable for VFP's or Mr Pauling's breach of the Separation Agreement, even if repudiation was not established. The Cross-Claimants claim losses said to have been sustained as a result of their exclusion from the Charlestown office. Paragraph 16 of the Cross-Claim pleads loss and damage particularised by allegations of lost earnings of $93,494.20. In his affidavit, Mr Ale "estimates" a larger loss of revenue due to a reduction in VA's capacity to service clients of $150,990.71 (Ale 2.6.17 [99]ff, Annexure R). Little of the evidence to support this claim was in admissible form or admitted. The Plaintiffs also point to difficulties with this calculation, including that the lost clients identified in the particulars to paragraph 16 of the Cross-Claim amount to revenue of only $17,889.80 per annum, and the calculations of the higher figure in Mr Ale's evidence include clients lost prior to the exclusion of VA from the Charlestown premises. The Plaintiffs also submit, and I accept, that VA has not established a causal connection between that exclusion and any loss of clients or any other identifiable loss by VA, where VA's staff continued to work from home and clients had already been lost by VA for other reasons. I am not satisfied that the evidence is sufficient to establish a real reduction in VA's capacity to deliver services to clients or that the basis of that estimated loss of revenue has been established.
Paragraphs 17-18 of the Cross-Claim plead loss and damage particularised by time spent negotiating remission of taxation penalties imposed on clients for late lodgement of returns, and quantified as $4,207.50. That loss depends on Mr Ale's estimate of the time spent per client, the rate to be applied, and the proposition that income could in fact have been earned from other clients had that not occurred, and little of the evidence to support that claim was in admissible form or admitted. It has not been established that any time devoted to this matter in fact led to a loss of income from other clients and this claim is not established.
Paragraphs 19-21 of the Cross-Claim plead loss and damage by way of relocation expenses in respect of new premises occupied by VA and VGPL and Mr Ale, being approximately $43,000 as at 29 July 2016, as recorded in VA's general ledger (Ex P2, 2970-2972). Paragraph 96 of Mr Ale's affidavit of 2 June 2017, which sought to prove the costs of establishing the new office, were admitted as a submission only, and Mr Wood submits that evidence (or, more precisely, submission) is insufficient to show that those costs resulted from the exclusion of VA from the premises. Mr Wood also submits, and I accept, that the weight to be given to VA's general ledger extract (Ex P2, 2970) and a worksheet (Ex P2, 2972) is limited by the absence of invoices or receipts supporting those documents, and those documents also include expenses that do not have any apparent relationship with the relocation of VA's office, and which predate the date on which Mr Ale says that he determined to seek alternative premises (Ale 12.8.16 [71]). I am not satisfied that the Cross-Claimants have established the loss suffered by VA in this respect and I am not satisfied that damages is established on that basis. Mr Ale's affidavit also advances a claim for legal costs of the dispute concerning the Charlestown office prior to commencement of the proceedings, quantified as $3,730 (Ale 2.6.17 [98]). I am not satisfied that the evidence sufficiently established that loss.
Paragraph 22 of the Cross-Claim pleads loss and damage suffered by VA, quantified as wages paid to its employees from 1 December 2015 to 31 March 2016 (Ale 2.6.17 [105]-[106]), if its claim for lost revenue is not established. I am not satisfied that that claim is established, because it has not been shown that VA's staff were not providing productive services over that period, while working from home, and any quantification of that loss would need to take account of the value of the services provided by those staff.
These claims also have the further and fundamental difficulty that they are brought by VA, which was not party to the Separation Agreement and cannot recover loss for breach of it by a claim in contract. The loss suffered by VGPL or Mr Ale, which were party to the Separation Agreement, may differ from any loss suffered by VA and the Cross-Claimants did not adequately address either any calculation of any loss by VGPL or Mr Ale or any possibility that VGPL or Mr Ale may hold their relevant rights under the Separation Agreement on trust for VA, so as to support a claim by them for the loss that it has suffered.
The Plaintiffs also respond to these claims by contending that Mr Ale failed to mitigate the loss suffered by VA by its exclusion from the Charlestown office and refer to access given by Mr Pauling and VFP to client information held on those premises. It does not seem to me that the complaint of lack of mitigation is established, where VFP only permitted access to nominated client files; an unsuccessful settlement meeting took place on 14 January 2016, after the intervention of the Christmas period; and Mr Ale secured new premises from 15 February 2016.
Paragraphs 23-24 of the Cross-Claim claim payment for unpaid accounting services and, in closing submissions, the Cross-Claimants indicate that these claims are only pursued if VA is found to be liable in respect of the Plaintiffs' claim. VFP and Mr Mark Pauling respond to these allegations by pleading that accounting services were provided free of charge pursuant to an agreement between Mr Pauling and Mr Ale which was partly to be implied, and otherwise seek to extinguish any liability to VA by setting off as much of the amount claimed in the Further Amended Statement of Claim as necessary. Since the Plaintiffs' claim against VA has not been established, it is not necessary to determine these matters.
Paragraphs 25-26 of the Cross-Claim claim unpaid financial planning revenue of $10,900 on the basis of the Separation Agreement, which (as I noted above) contemplated that Mr Ale would provide financial planning services as a representative of VFP, and, by cl 9(a) of the Separation Agreement, that VA would receive 15% of the revenue for referred clients and 60% of any trailing commission and up-front revenue. Mr Rennie submits that, although the Separation Agreement was (he submits) terminated on 18 January 2015, the Cross-Claimants' claim relates to financial planning revenue for financial planning services provided prior to its termination. VFP and Mr Pauling plead, in their Amended Defence to Cross-Claim, that VA was entitled to be paid a percentage of financial planning revenue by VFP for the period 1 December 2015 to 31 March 2016, but that entitlement was subject to Mr Ale continuing to service clients of VFP for which Mr Ale was the financial planner, which he failed to do; otherwise deny the allegation; and plead that VFP will seek to extinguish any liability to Mr Ale, VGPL and related entities by setting off as much of the sum claimed in the Further Amended Statement of Claim as necessary. This claim appears to be addressed in paragraphs 37-38 of Mr Ale's affidavit dated 15 June 2017, which does not establish the dealings with referred clients, or the revenue or commission underpinning the claim, or the quantification of the amount claimed. Quite apart from the other issues as to the claim, which received little attention in submissions, this claim must fail on the basis that the underlying facts giving rise to the claimed entitlement, or the quantification of that entitlement which was put in issue by the Defence to Cross-Claim, has not been established.
Paragraphs 29-35 of the Cross-Claim plead the content of fiduciary duties as against Mr Mark Pauling and broadly replicate paragraphs 18-24 of the Further Amended Statement of Claim, and paragraphs 44-50 of the Cross-Claim repeat that pleading for a second time, apparently without the Cross-Claimants or their legal representatives having paid sufficient attention to the claim to notice that duplication. Paragraphs 36-38 of the Cross-Claim adopt the pleading in paragraphs 25-50 of the Further Amended Statement of Claim alleging payments made by the Company without a corporate benefit. In closing submissions, Mr Rennie indicated that these claims are only pursued if VA is found to be liable in respect of the Plaintiffs' claim. The Plaintiffs' claim against VA has not been established, and it is therefore not strictly necessary to determine those matters. I should nonetheless observe that Mr Ale and VA there plead that, from October 2012 to 30 November 2016, VA paid wages to Mr Mark Pauling and Mr Jason Pauling for which VA received no benefit totalling $20,636. Mr Rennie submits that: "If it be the case that Ale's administration of VFP involved breaches of duties to that company and/or to VG[PL] as well, both Mark Pauling and Jason Pauling must also be found to have engaged in reciprocal breaches of duties to the extent that VFP was also a recipient of inter-company loans and other benefits from VA." That proposition does not follow. The question whether any particular benefit provided by VA to VFP involved a breach of duty must depend upon analysis of the relevant circumstances, and it appears that such benefits were largely or entirely recorded in inter-company loan accounts, which would not involve an improper transaction. That proposition also does not follow so far as Mr Jason Pauling was concerned because, as I will find below, it has not been shown that he was a director or officer of VA.
In closing submissions, the Cross-Claimants indicate that their claim in respect of an inter-company loan in paragraph 39 of the Cross-Claim is pursued if VA is found to be liable in respect of the Plaintiffs' claim. The Plaintiffs' claim against VA has not been established, and it is therefore not strictly necessary to determine that matter.
Paragraphs 51-55 of the Cross-Claim plead that the parties agreed that VGPL would conduct the financial planning and accounting businesses; VGPL purchased the entity by which Mr Pauling had previously conducted the financial planning business and VGPL has conducted that business through VFP; and VGPL purchased the entity by which Mr Ale had previously conducted the accounting business and that VGPL has conducted that business through VA. Paragraphs 56-80 of the Cross-Claim then advance a convoluted and opaque claim for an account of profits for benefits obtained from the relevant businesses or for a constructive trust against Mr Mark Pauling. In closing submissions, Mr Rennie indicates that their claims in paragraphs 51-80 of the Cross-Claim are pursued if VA is found to be liable in respect of the Plaintiffs' claim. The Plaintiffs' claim against VA has not been established, and it is therefore not necessary to determine these matters.
Paragraphs 81-93 of the Cross-Claim plead a claim in respect of fiduciary duties against Mr Jason Pauling which I will address below. It appears, from the Cross-Claimants' closing submissions, that the claims pleaded in paragraphs 94-100 of the Cross-Claim, concerned with a transfer of shares to Mr Mark Pauling, and the claim pleaded in paragraphs 104-119 of the Cross-Claim, relating to the restraint of trade under the Shareholder Agreement, are no longer pressed.
Paragraphs 120-128 of the Cross-Claim advance a claim for misleading and deceptive conduct, which broadly corresponds to the Plaintiffs' claim in paragraphs 88A-88J of the Further Amended Statement of Claim. The alleged misleading and deceptive conduct is that Mr Mark Pauling did not express any disagreement with, or raise any issue in relation to, the payment of amounts from funds held in the name of VFP. It is not necessary to determine whether Mr Pauling's silence as to that matter can constitute misleading or deceptive conduct in the relevant circumstances, where Mr Pauling's silence, like Mr Ale's conduct, was not in trade or commerce for the reasons that I have noted above in determining the corresponding claims in the Further Amended Statement of Claim.
Paragraphs 129-138 of the Cross-Claim plead that Mr Pauling and VFP divulged confidential information of VA to another accounting firm in Newcastle from 1 December 2015, and VA suffered loss, being the income that would otherwise be earned from clients that moved from VA to that firm. In closing submissions, the Cross-Claimants indicated that they do not pursue that claim, on the basis that any loss claimed would overlap with that claimed in respect of the lockout from the Charlestown office. I therefore do not address those matters.

[21]

Claims against Mr Jason Pauling

In closing submissions, the Cross-Claimants indicated that they no longer pursued the relief sought against Mr Jason Pauling in paragraph 7 of the relief sought in the Cross-Claim, in respect of delivery up of any confidential information in the possession of, relevantly, Mr Jason Pauling, where the computer server previously held in the Charlestown premises had been delivered to them during the course of the hearing. The Cross-Claim against Mr Jason Pauling is now only pursued in respect of a claim for damages, and only if the Plaintiffs are successful in their claim, which has not occurred. I nonetheless indicate the findings that I would have reached in respect of that Cross-Claim, which are likely to be relevant to the question of costs as between the Cross-Claimants and Mr Jason Pauling.
Paragraphs 81-90 of the Cross-Claim, which plead the content of fiduciary duties owed to VGPL and VA as against Mr Jason Pauling, broadly replicate paragraphs 18-24 of the Further Amended Statement of Claim. Mr Jason Pauling is alleged to have owed fiduciary duties to VGPL and VA as a senior employee or "officer" within the Vanguard Group, including in relation to the accounting business and VA (Cross-Claim [81]-[83]). Those duties are pleaded as including the no conflict and no profit rules and a proper purposes duty (Cross-Claim [84]-[86]), and the statutory duties under ss 180-183 of the Corporations Act and corresponding general law duties are also pleaded (Cross-Claim [87]-[89]).
By his Defence to the Cross-Claim, Mr Jason Pauling admits that he was employed by VGPL from January 2013 to 30 November 2015 and he also admits that he owed fiduciary duties to VGPL in his capacity as an employee. Mr Dooley, who appears for Mr Jason Pauling, submits that the nature of those duties is uncontroversial, being a duty not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. In oral submissions, Mr Dooley also submitted that there was no allegation, and no submission, that Mr Jason Pauling owed fiduciary duties to VA, as distinct from duties under the Corporations Act (T470). I do not accept that submission, since the Plaintiffs plead that Mr Jason Pauling owed fiduciary duties to VA as I have noted above. I will assume, without deciding, that the fiduciary duties owed by Mr Jason Pauling to VGPL as its employee could extend to corresponding duties owed to VA as its subsidiary. That position is at least open where an employee of one company in a corporate group has assumed an obligation to promote another company's interests as well as performing his duties as an employee of the first company: Oliver Hume South East Queensland Pty Ltd v Investa Residential Group Pty Ltd [2017] FCAFC 141; (2017) 348 ALR 385; (2017) 122 ACSR 183. I will find below that a breach of such duties was not established.
Whether Mr Jason Pauling owed statutory duties under s 180 or s 181 of the Corporations Act depended on whether he was a director or "officer" of the relevant companies, although the statutory duties under ss 182 and 183 of the Corporations Act also apply to an employee of a company. Whether Mr Pauling was an "officer" of the companies within paragraph (a) of the definition of that term in s 9 of the Corporations Act depends on whether he was a director, including a statutory director, of the companies. There is no suggestion that Mr Jason Pauling was formally appointed as a statutory director of the companies. Mr Rennie opened (T25) on the basis that Mr Jason Pauling had conducted himself as a "shadow" director, although there was no evidentiary basis for any proposition that Mr Ale or Mr Mark Pauling had acted at Mr Jason Pauling's direction, and the intended reference may have been to a "de facto" director.
It is not wholly clear whether an allegation was ultimately pressed that Mr Jason Pauling was a de facto director of any of the companies, although the parties referred to the relevant case law. The circumstances in which a person may be a de facto director were summarised by the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [63]ff. Relevant matters include the duties performed by that person in the context of the relevant company's operations and circumstances; whether he or she exercises the top level of management functions; whether outsiders who deal with the company would have reasonably perceived that person as a director and whether he or she held himself or herself out as a director; the nature and extent of the functions he or she performs and any constraints imposed on him or her can have evidentiary significance: Re Swan Services Pty Limited (in liq) above; Re Central Management (NSW) Pty Ltd [2017] NSWSC 1258 at [26]-[27].
Mr Dooley submits that Mr Jason Pauling was not an "officer" of the companies within paragraph (b) of the definition of that term in s 9 of the Corporations Act. A person falls within that definition if, relevantly, he or she makes or participates in making decisions that affect the whole or a substantial part of the corporation's business, or has the capacity to affect significantly its financial standing. In Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) above at [490], Jacobson J observed that that definition contemplates that an "officer is involved in policy making and decisions that affect the whole or a substantial part of the business of the corporation." There is authority that the first limb of this definition refers to participation in decision-making that is "more than administrative arrangement, and there must be a real contribution from the postulated participation to the making of the decisions, but beyond that it is a question of fact": Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 at [893]. In Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 286 ALR 612; 88 ACSR 126, the High Court held that the general counsel and company secretary of a listed company was an "officer" of that company within the meaning of this section because his actual responsibilities involved participation in significant company decision-making, although the ultimate decisions were made by others. Mr Dooley submits that Mr Jason Pauling was not an "officer" of VA for the purposes of the Corporations Act, and implicitly also not a de facto director, because he had no authority from the directors of the companies; his role was subordinate to the directors, and decisions which affected the companies were made by the directors.
Mr Jason Pauling was the operations manager of VGPL and was not employed under a written employment agreement, and he was not a shareholder or formally appointed as director of any of the companies in issue. Mr Jason Pauling's evidence was that his practice was to seek directions from Mr Ale or Mr Mark Pauling as to relevant issues (Jason Pauling 1.6.17 [7]-[9]). He accepted in cross-examination that, in his role as operations manager, he participated in senior management meetings of VGPL that related to operations across the broader Vanguard Group of companies and dealt with issues about VFP, VA and other entities (T168), and that his role in the business included general oversight of day-to-day operations and his evidence was that he undertook activities that arose from weekly meetings and then reported back at the next weekly meeting (T170). He did not accept in cross-examination that he had more authority than as operations manager, including by reason of being Mr Mark Pauling's son (T185).
As Mr Dooley pointed out in closing submission, there was also a body of evidence which indicates that Mr Jason Pauling sought input from the directors, and particularly Mr Ale, before making a range of decisions (for example, Ex P2, 1411, 1616, 1951, 1953, 2017-2018, 2897-2898). I recognise the fact that Mr Jason Pauling sought input as to some matters does not necessarily exclude the possibility that he may have exercised an independent discretion as to other matters of substance, but there is no evidence indicating that he did so. To the extent that any conduct of Mr Jason Pauling after the date of the Separation Agreement may be relevant, Mr Mark Pauling's evidence on cross-examination was that he made relevant decisions on 7-8 December 2015 when VA was excluded from the Charlestown premises and that he told Mr Jason Pauling to cut the internet service that was otherwise available to VA (T97).
It does not seem to me that the evidence establishes that Mr Jason Pauling exercised the top level of management functions or that an outsider would have perceived him, rather than Mr Mark Pauling or Mr Ale, as a director and I am not satisfied that he was a de facto director of VFP or VGPL at general law. I am also not satisfied that Mr Jason Pauling made or participated in making decisions that affected the whole or a substantial part of the companies' business, or had the capacity to affect significantly their financial standing, although he assisted in implementing decisions that appear to have been largely made by Mr Ale and to a lesser extent by Mr Mark Pauling. I am not satisfied that Mr Jason Pauling was a de facto director or otherwise an "officer" of the companies within the scope of the definition in s 9 of the Corporations Act and the statutory duties under ss 180 and 181 of the Corporations Act are therefore not applicable. As I noted above, the statutory duties under ss 182 and 183 of the Act apply to him as an employee of at least VGPL.
Mr Dooley also contends that the allegations in the Cross-Claim against Mr Jason Pauling are not established because there is no evidence that he breached any fiduciary or statutory duties; there is no evidence that he received any improper benefit, including any financial benefit; and there is no evidence that would permit quantification of any loss. The Cross-Claimants did not clearly identify, and the evidence does not establish, any act on Mr Jason Pauling's part, at least prior to the separation of the companies and while he remained an employee of VGPL, that could constitute a breach of the applicable duties under ss 182-183 of the Corporations Act or any fiduciary duties that were owed by him as an employee of VGPL, including by an extension of such duties in favour of VA.
Paragraphs 91-99 of the Cross-Claim plead allegations against Mr Jason Pauling, in similar terms to allegations against Mr Mark Pauling pleaded in paragraphs 59-67 of the Cross-Claim. First, paragraphs 91-93 of the Cross-Claim plead that Mr Jason Pauling used customer information of VA between January 2013 and 30 November 2015 and thereby obtained a benefit. In his Defence to the Cross-Claim, Mr Jason Pauling contests the confidentiality of the relevant client names and addresses; contests that customer information was imparted in circumstances involving an obligation of confidence; submits that there is no evidence of unauthorised use of the relevant information by him; and submits that there is no specific identification of the relevant confidential information. Mr Dooley points out that there is no evidence that the names of customers and contact details were confidential, or could not be remembered by employees of VFP (or VA) and their contact details identified by social media, mutual contacts or the telephone directory. There is also no evidence that customer information was confidential between the respective companies, where the commercial rationale for the arrangements was to make referrals as between at least VA and VFP. Mr Dooley also points out in closing submissions, and I accept, that there is also no evidence of use by Mr Jason Pauling of confidential information of VA during the period to which the Cross-Claim is directed, prior to 30 November 2015, still less of any use of such information prior to that date that was unauthorised by VA or not for the purposes of VA, in the manner in which it was managed as an entity within the Vanguard Group. The pleaded claim is not established.
Mr Dooley also points out that the relief claimed against Mr Jason Pauling in the Cross-Claimants' closing submissions, in respect of access to confidential information after 30 November 2015, is not supported by the Cross-Claimants' pleaded case in paragraphs 91-93 of the Cross-Claim, which does not extend beyond 30 November 2015. Mr Dooley submits that the Court should not permit any departure from that pleaded case having regard to the conduct of the hearing. I accept that submission, both because of the difficulties which already exist in identifying the matters in issue in the proceedings, even by reference to the pleadings, and because Mr Jason Pauling could have led evidence to respond to any case against him that travelled beyond the pleading.
Second, the Cross-Claimants allege that Mr Jason Pauling assisted Mr Mark Pauling to enter into a share transfer transaction in November 2015 that conferred financial benefits on Mr Mark Pauling (Cross-Claim [95]-[96]). The Cross-Claimants did not seem to put this claim other than on the basis that the same result should follow as for allegations made by the Plaintiffs against Mr Ale. Mr Jason Pauling responds to this allegation by pointing out, correctly, that it does not follow from any finding that Mr Ale breached a relevant duty, made in favour of Mr Mark Pauling and VFP, that Mr Jason Pauling breached such a duty, since that will depend upon matters such as the terms of the relevant duties and the application of the Shareholder Agreement in the relevant circumstances. This allegation has not been established.
Third, the Cross-Claimants allege that Mr Jason Pauling did not previously inform VGPL of the allegations made by Mr Mark Pauling in these proceedings (Cross-Claim [97]-[98]). This allegation must fail both because there is no evidence that Mr Jason Pauling knew of those claims, prior to November 2015, and, in any event, the case law establishes that fiduciary duties generally do not give rise to any freestanding positive duty of disclosure: Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 at 576; P & V Industries Pty Ltd v Porto [2006] VSC 131; (2006) 14 VR 1 at [24]; Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24; (2011) 191 FCR 1 at [108].
Fourth, the Cross-Claimants allege that Mr Jason Pauling participated in the operation of the financial planning business from 1 December 2015, and seek to advance parallel allegations to those made by the Plaintiffs against Mr Ale, including of breach of the restraint contained in the Shareholder Agreement (Cross-Claim [104]-[119]). The Cross-Claimants also no longer press these allegations, where the Plaintiffs do not press the corresponding claim in paragraphs 60-64 of the Further Amended Statement of Claim. Had they pressed these allegations, they would have failed since Mr Jason Pauling was not party to the Shareholder Agreement and no claim for accessorial liability, or for inducing a breach of contract, was pleaded.

Parties

Applicant/Plaintiff:

Vanguard Financial Planners Pty Ltd & Anor

Respondent/Defendant:

Ale & Ors

Legislation Cited (6)

Trade Practices Act 1974(Cth)s 52

Corporations Act 2001(Cth)ss 180, 181, 182, ss 9, 180, 181, 182, 183, 187, 292, 293, 296, 297, 911A, 1317S, 1317H, 916B

Restraints of Trade Act 1976(NSW)s 4

Evidence Act 1995(NSW)s 136

Fair Trading Act 1987(NSW)s 42

Income Tax Assessment Act 1997(Cth)

Cases Cited (112)

Australian Securities & Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35; 62 ACSR 427 - Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75; 118 ACSR 189 - Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 - Barnes v Addy (1874) LR 9 Ch App 244 - Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1; 70 ACSR 1 - Birtchnell v The Equity Trustees, Executors and Agency Company Limited (1929) 42 CLR 384 - Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24; (2011) 191 FCR 1 - BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 - Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558 - Cactus Imaging Pty Ltd v Peters [2006] NSWSC 717; (2006) 71 NSWLR 9 - Cadgroup Australia Pty Ltd v Snowball [2016] NSWSC 22 - Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 - Carlton & United Breweries Ltd v Tooth & Co Ltd (1986) 7 IPR 581 - Chan v Zacharia (1984) 154 CLR 178 - Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 - Cleary v Australian Co-operative Foods (No 2) [1999] NSWSC 991; (1999) 32 ACSR 701 - Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 - Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 - Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37; (2016) 333 ALR 524 - Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 - Craig v Silverbrook [2013] NSWSC 1687 - Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 - Equiticorp Financial Services Ltd v Equiticorp Financial Services (NZ) Ltd (1992) 29 NSWLR 260; (1992) 9 ACSR 199; (1992) 11 ACLC 84 - Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50; 11 ACSR 642, 11 ACLC 952 - Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 - Fitzwood Pty Ltd v Unique Goal Pty Ltd (in liq) [2001] FCA 1628; (2001) 188 ALR 566 - Galambos v Perez [2009] SCC 48; (2009) 3 SCR 247 - Gibson Motorsport Merchandise Pty Ltd v Forbes [2006] FCAFC 44; (2006) 149 FCR 569 - Glandon Pty Ltd v Tilmunda Pastoral Co Pty Ltd [2008] NSWSC 218 - Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 - Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298 - Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307; (2016) 339 ALR 659; 117 ACSR 408 - Hoath v Connect Internet Services [2006] NSWSC 158 - Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 - Hurd v Zomojo Pty Ltd [2015] FCAFC 147 - Hydrocool Pty Ltd v Hepburn (No 4) [2011] FCA 495; (2011) 279 ALR 646; 83 ACSR 652 - Jennings v Jennings [1898] 1 Ch 378 - John Alexander's Clubs Pty Limited v White City Tennis Club Limited [2010] HCA 19; (2010) 241 CLR 1 - John Fairfax Publications Pty Ltd v Birt [2006] NSWSC 995 - Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 - Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 - Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 - Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd [2001] NSWSC 448; (2001) 38 ACSR 404 - McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477 - Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 - Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 325 ALR 188 - Netglory Pty Ltd v Caratti [2013] WASC 364 - New Cap Reinsurance Corp Ltd v Daya [2008] NSWSC 64; (2008) 216 FLR 126; (2008) 66 ACSR 95; (2008) 26 ACLC 301 - Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383 - Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 - O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 - Oliver Hume South East Queensland Pty Ltd v Investa Residential Group Pty Ltd [2017] FCAFC 141; (2017) 348 ALR 385; (2017) 122 ACSR 183 - P & V Industries Pty Ltd v Porto [2006] VSC 131; (2006) 14 VR 1 - Page v McKensey [2004] NSWCA 437 - Prenn v Simmonds [1971] 1 WLR 1381 - Prestia v Aknar (1996) 40 NSWLR 165 - Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 - Re Central Management (NSW) Pty Ltd [2017] NSWSC 1258 - Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 - Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724 - Rosetex Co Pty Ltd v Licata (1994) 12 ACSR 779 at 783; 12 ACLC 269 - Ross T Smyth & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60 - Seven Network (Operations) Ltd v Warburton (No 2) [2011] NSWSC 386; (2011) 206 IR 450 - Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 286 ALR 612; 88 ACSR 126 - Societe d'Avances Commerciales (Societe Anonyme Egyptienne) v Merchants' Marine Insurance Co (The "Palitana") (1924) 20 LI L Rep 140 - Southern Cross Autoglass Pty Ltd v Protector Glass Industries Pty Ltd [2014] NSWSC 261 - Spotless Group Ltd v Blanco Catering Pty Ltd [2011] FCA 979; (2011) 93 IPR 235 - State of New South Wales v Hunt [2014] NSWCA 47; (2014) 86 NSWLR 226 - Stocznia Gdynia SA v Gearbulk Holdings Pty Ltd [2009] EWCA Civ 75; [2010] QB 27 - Streetscape Projects (Australia) Pty Ltd v City of Sydney [2013] NSWCA 2; (2013) 92 ACSR 417 - Swindle v Harrison [1997] 4 All ER 705 - Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 - Trego v Hunt [1896] AC 7 - Tullett Prebon (Aust) Pty Ltd v Purcell [2008] NSWSC 852; (2008) 175 IR 414 - United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 - Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; 62 ACSR 1 - Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 - Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1 - Whittaker v Unisys Australia Pty Ltd [2010] VSC 9; (2010) VR 668 - Woolworths Ltd v Olson [2004] NSWCA 372 - Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 - Zomojo v Hurd (No 2) [2012] FCA 1458 Texts Cited: - JW Carter, Carter's Breach of Contract, LexisNexis Butterworths (2011) Category: Principal judgment Parties: Vanguard Financial Planners Pty Ltd (First Plaintiff/First Cross-Defendant) Mark Andrew Pauling (Second Plaintiff/Second Cross-Defendant) Jason Phillip Ale (First Defendant/Second Cross-Claimant) Vanguard Accountants Pty Ltd (Second Defendant/First Cross-Claimant) Vanguard Group Pty Ltd (Third Defendant/Second Cross-Claimant) Jason Pauling (Third Cross-Defendant) Representation: Counsel: C D Wood/N Sedaghati (Plaintiffs/First and Second Cross-Defendants) M Rennie/J Mee (Defendants/First and Second Cross-Claimants) J Dooley (Third Cross-Defendant)

The pleadings and affidavit evidence

These proceedings concern a dispute arising from the separation of a financial planning business associated with the Plaintiffs, The Investment Shop (Aust) Pty Ltd (formerly Vanguard Financial Planners Pty Ltd ("VFP")) and Mr Mark Pauling, and an accounting business associated with the Defendants, Vanguard Accountants Pty Ltd ("VA") and Mr Jason Ale. That dispute has generated a multitude of claims and cross-claims, a hearing conducted over six hearing days and two days of submissions, and lengthy submissions as to matters partly within the scope of the parties' pleaded cases.
By their Amended Statement of Claim filed on 20 October 2016, and a Further Amended Statement of Claim filed on the last day of the hearing, VFP and Mr Pauling bring claims against Mr Ale alleging, inter alia, that the arrangement between the relevant parties was in the nature of a joint venture and that Mr Ale owed fiduciary and other duties to Mr Pauling or VFP; and that Mr Ale breached those fiduciary duties in respect of a large number of individual payments, some of small amounts, made from specified accounts and by authorising the payment of salaries of specified individuals, including his wife, from VFP and other payments. The Plaintiffs sought to expand one aspect of their pleaded case by particulars to the Amended and Further Amended Statements of Claim, to introduce a substantially wider case as to the accounting treatment of expenses addressed in an expert's report on which they relied, and particularised, in broad categories, by a letter dated 19 October 2016. I will address that matter further below. The Plaintiffs also attack other conduct of Mr Ale, in dealing with clients and in purchasing (or leasing) a company car and contend that Mr Ale breached the terms of the separation arrangements between the parties by not making a larger payment to VFP; engaged in misleading and deceptive conduct in respect of financial reports prepared by the Vanguard Group; and breached a contractual restraint of trade and duties of confidentiality in dealings with certain clients of VA or VFP. Mr Ale and VA filed a detailed Amended Defence on 31 March 2017.
Mr Ale and VA in turn brought an Amended Cross-Claim, filed on 5 December 2016, against VFP, Mr Mark Pauling and his son Mr Jason Pauling, which claimed compensation arising from the circumstances in which VA was shut out of premises leased by VFP at Charlestown in New South Wales; advanced claims for breach of fiduciary duty against Mr Mark Pauling, which were of a broadly similar character to those advanced by VFP and Mr Mark Pauling against Mr Ale; advanced claims in respect of a restraint of trade, for breach of confidentiality and for misleading and deceptive conduct; and advanced a range of claims against Mr Jason Pauling. Parts of that Cross-Claim had something of a "tit for tat" quality about them, and VA and Mr Ale now do not press several of the claims advanced in it, if the claims against them do not succeed. Mr Mark Pauling, VFP and Mr Jason Pauling in turn file an Amended Defence to that Cross-Claim on 15 December 2016.

[2014] WASC 102

[2008] WASC 239

[2015] HCA 37

[2013] WASC 364

[2006] VSC 131

[2012] WASCA 157

[2010] VSC 9

[2016] VSC 779

(2014) 224 FCR 1

(2014) 48 WAR 1

(2007) 160 FCR 35

(2016) 340 ALR 75

(2008) 39 WAR 1

(1929) 42 CLR 384

(2011) 191 FCR 1

(1977) 180 CLR 266

(2001) 69 NSWLR 558

(2006) 71 NSWLR 9

(1986) 7 IPR 581

(1984) 154 CLR 178

(1982) 149 CLR 337

(1990) 169 CLR 594

(2016) 333 ALR 524

(1987) 14 FCR 434

(2014) 306 ALR 25

(1992) 29 NSWLR 260

(1993) 32 NSWLR 50

(2007) 230 CLR 89

(2001) 188 ALR 566

(2006) 149 FCR 569

(2012) 200 FCR 296

(2003) 56 NSWLR 298

(2016) 339 ALR 659

(1984) 156 CLR 41

(2011) 279 ALR 646

(2010) 241 CLR 1

(1989) 166 CLR 623

(2010) 274 ALR 205

(2015) 325 ALR 188

(2008) 216 FLR 126

(1988) 14 NSWLR 1

(1998) 45 NSWLR 262

(2017) 348 ALR 385

(2006) 14 VR 1

(1996) 40 NSWLR 165

(2011) 206 IR 450

(2012) 286 ALR 612

(2011) 93 IPR 235

(2014) 86 NSWLR 226

(2004) 219 CLR 165

(2008) 175 IR 414

(1985) 157 CLR 1

(2007) 73 NSWLR 451

(1995) 182 CLR 544

(2012) 44 WAR 1

(2003) 212 CLR 484

(2016) 342 ALR 1

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Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd; In the matter of Combined Projects

Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd

EQUITY - Fiduciary duties - Breach - Rule in Barnes v Addy - Knowing involvement - Where director caused company to purchase asset from company controlled by his spouse - Whether relevant knowledge can be inferred - Whether knowledge can be imputed to company controlled by director's spouse.

The Plaintiffs read an affidavit of Mr Mark Pauling dated 12 April 2016. Significant parts of that affidavit were inadmissible and were not read or admitted as submission only or with limiting orders under s 136 of the Evidence Act 1995 (NSW); other parts of the affidavit, although also not in admissible form, were not objected to and were therefore admitted. Mr Mark Pauling's second affidavit dated 9 September 2016 expanded his account of the circumstances in which the Vanguard Group was formed, responded to Mr Ale's affidavit evidence and expanded on his account of the circumstances relating to the division of the Vanguard Group. Mr Pauling also referred to what he characterised as Mr Ale's attempt to "break in" to the Charlestown office, after VA and Mr Ale had been excluded from that office, although the relevant events did not merit that description. Mr Pauling also referred to the process in which individual files were made available, on request, to VA, at least on some occasions, after it had been excluded from the Charlestown office. Mr Pauling also led evidence of "poor service delivery" by Mr Ale and VA which was intended to respond to VA's claim in respect of lost accounting clients. Mr Mark Pauling's further affidavit dated 20 February 2017 referred to steps which Mr Pauling would have taken to seek to retain clients within his financial services business, and a further affidavit dated 16 June 2017 responded to the affidavits of Mr Ale, Ms Hammersley and Mr Aldcroft dated 2 June 2017, and sought to justify the Plaintiffs' approach to allowing limited access to documents to VA after VA was excluded from the Charlestown office. Mr Mark Pauling's affidavit dated 11 December 2017 sought to provide the factual basis for several assumptions made in an accounting expert's report dated 25 August 2016, on which the Plaintiffs relied. Mr Mark Pauling's further affidavit dated 13 December 2017 and the affidavit of the Plaintiffs' solicitor, Mr Baker, also dated 13 December 2017 related to negotiations between the parties for the settlement of the dispute on 14 January 2016.