Colour Control Centre Pty Limited and Ccc Enterprises Pty Ltd v Ricardo Ty, Deborah Rando and Photo Technica Pty Limited No. 1689/93 Employment Law - Equity [1995] NSWSC 96 (24 October 1995)

COURT
IN THE SUPREME COURT OF NEW SOUTH WALES
EQUITY DIVISION
SANTOW J
HRNG
SYDNEY, 28-29 June 1995
#DATE 24:7:1995
#ADD 24:10:1995


  Counsel for the Plaintiffs            C M Harris


  Solicitors for the Plaintiffs         Ritchie Martin


  Counsel for the
Defendants            J M Atkin


  Solicitors for the Defendants         Taylor Kearney Reed and Owen
ORDER
  Orders made
JUDGE1
SANTOW J  This matter concerns a claim by the Plaintiffs against two former
senior employees and their company, formed to compete
against the Plaintiffs.
The Plaintiffs allege that one of the former employees, the Second Defendant,
acted in breach of her contractual
or fiduciary duties by usurping a business
opportunity in the Plaintiffs' line of business. This work was obtained while
both the
First and Second Defendants were still employed by the Plaintiffs,
starting from a contact gained by virtue of the Second Defendant's
position as
a manager of the Plaintiffs. The Plaintiffs allege that the First and Third
Defendants dishonestly assisted in the Second
Defendant's breach of fiduciary
obligation, so giving rise for liability as accessories. The Plaintiffs bring
an action for damages,
or in the alternative, for an account of profits.


2.  The Defendants deny any liability. They claim they breached no duty by
planning
to set up in competition to the Plaintiffs and lining up work for
that new business while still employed with the Plaintiffs. They
further claim
that this was not a business opportunity which the Plaintiffs were capable of
performing.


ELABORATION OF FACTUAL
BACKGROUND
3.  Most of the factual circumstances are not in dispute. Where they are, I
give my findings.


The Colour Control Group
4.  The Plaintiff Colour Control Pty Ltd ("Colour Control") and the
subsequently joined Plaintiff, CCC Enterprises Pty Ltd ("CCC")
are related
companies. They together with a company Sesoru Pty Limited operate a
commercial film and photographic processing and
printing business. I refer to
them collectively as "the Colour Control group". The business of the Colour
Control Group involves
the processing of film, the printing of photographic
reproductions and enlargements, and the construction of photographic displays.
The business has been in existence for over 26 years, has over 2,000 customers
and an annual turnover of approximately $700,000.
The Managing Director of
Colour Control and CCC is Mr Raymond Vine ("Mr Vine") who, with his wife and
mother, are the only shareholders.


Sub-contracting
5.  Some of the work undertaken by the Colour Control group is in fact
sub-contracted. This is done particularly
because of limitations in equipment
available in-house. The Colour Control Group did not have the necessary
equipment to make prints
above a certain width. There is some dispute about
what was that maximum width. This was in order to produce black and white
prints
of requisite quality at the relevant time. Ms Rando gave evidence that
the Plaintiffs' maximum capacity was a 16 inch width. Whereas,
Mr Vine gave
evidence that it was 52 inches. In the end I am satisfied nothing hangs on
that. I am satisfied that the Plaintiffs
were able to produce prints of the
requisite size and quality, either in-house or by subcontracting, to satisfy
the business opportunity
in question, sub-contracting occasionally where
necessary. Generally, but not always, the Colour Control group would when
subcontracting,
mark up the price for the client.


The Defendants
6.  The First Defendant, Mr Ricardo Ty ("Mr Ty"), was employed by Colour
Control
in 1985 as a printer. In 1988 he was promoted to laboratory manager.
In that capacity he supervised most of the production work carried
out by the
Plaintiffs and had direct contact with customers.


7.  The Second Defendant, Ms Deborah Rando ("Ms Rando"), was employed
by CCC.
She was employed in 1987 as a printer and then promoted in 1989 to production
and marketing manager. Ms Rando's duties included
a number of production tasks
such as purchasing materials, pricing jobs and engaging subcontractors. Ms
Rando's duties also included
dealing with customer inquiries, visiting
customers and seeking out new business for the Plaintiffs. I am satisfied she
played a
principal role in representing the Plaintiffs in their business with
existing or prospective customers. She occupied a position of
such seniority
and trust that when Mr Vine was away on holidays, she managed the business.
Effectively she was second in charge.


8.  These were both senior positions in the employment of the Plaintiffs. They
gave each of the First and Second Defendants full
access to all of the
Plaintiffs' business records and direct access to the Plaintiffs' customers.


9.  The Third Defendant, Photo
Technica Pty Limited ("Photo Technica"), was
incorporated on 10 August 1992. Mr Ty and Ms Rando are its directors and
shareholders.
Photo Technica was incorporated to compete with the Plaintiffs
and did so since that time. Because in the initial stages, the Defendants
were
purchasing the necessary processing equipment for their new business, until
around mid September 1992 all processing work undertaken
by Photo Technica was
sub-contracted.


First Contact with the Sydney Jewish Museum
10.  For much of 1992, Mr James Doe ("Mr Doe")
had been seconded by Westfield
Limited to Terrace Towers Pty Limited for the purpose of carrying out duties
in connection with the
establishment of the Sydney Jewish Museum ("the
Museum"). The Museum was to contain a significant display, involving four
levels
of photographic prints and in the vicinity of 1,000 images. During his
work at Westfield, Mr Doe had frequently employed the services
of Allied
Reprographics, a photographic laboratory which was a competitor of the
Plaintiffs. Mr Doe was at that time happy with the
service provided by that
company, and intended to use it for the Museum work.


11.  However, Mr Doe became unhappy with the quality
of a print provided by
Allied Reprographics. At some time on or before 22 July 1992, he contacted Ms
Rando at the offices of the
Plaintiffs in order to see if a better quality
print could be obtained than that produced by Allied Reprographics. At his
request
Ms Rando attended his offices. Ms Rando acknowledged in her affidavit
evidence that "I understood that this request was made of the
Plaintiff
company, and not myself personally". Ms Rando arranged for a 'test strip' to
be prepared, which is a sample of part of
the print. This was to be used to
indicate whether the Plaintiffs could obtain better results. She subcontracted
this work to Mr
Rischmiller of Amarisco Photographic Services Pty Ltd, a
company not infrequently used by the Colour Control group for sub-contract
work. The job sheet prepared by Mr Rischmiller on 22 July 1992 (annexure E to
his affidavit) was initially headed "Colour Control
Centre", but these words
were later crossed out. They were replaced with the words "Photo Technica".
The Plaintiff was not charged
for the work of preparing the test strips, and
no charge was made to the Museum.


12.  Ms Rando was told by Mr Doe at the time of
this first contact of the
significant amount of photographic material required by the Museum. She was
also told that if the strip
was satisfactory the company she represented might
get the Museum work.


13.  There is some dispute as to whether in fact the Colour
Control group
could have produced that print. It required, according to Ms Rando, a 72 inch
black and white processor. This she said
the Colour Control group did not
have. Mr Vine gave evidence that of all the over 1,000 prints made eventually
for the Museum, there
were only two or three on the premises which Colour
Control could not have produced itself I do not however need to decide who was
correct, since it did not matter in the event. First Mr Doe judged the test
strips to be no better than Allied Reprographics. Second,
it is common ground
the Colour Control group regularly sub-contracted in carrying out its business
so could have done so this time,
if necessary.


14.  On 23 July 1992, the following day, Ms Rando collected the test strip by
courier and took it to the Museum.
Mr Doe concluded that whilst he had been
unhappy with Allied Reprographics print, this alternative source was not
appreciably better.
Thus at that point, he still remained happy to deal with
Allied Reprographics, by reason of his previous dealings with that company.
He
gave evidence that at that point he saw no reason to transfer any work from
Allied Reprographics either to the Plaintiffs or Ms
Rando.


15.  Up to this point Mr Vine had been kept informed of Ms Rando's dealings
with the Museum and was aware that there was
potential work involved. However,
it is clear that following this initial setback with the test strips, Ms Rando
left Mr Vine with
the impression that they "didn't get the Museum job", as
indeed was the case at that point. But she gave no indication that the Museum
work was not unattainable, or that the Plaintiffs might still get the work by
initiating further discussions with Mr Doe. When she
did do this shortly
after, she did not disclose this to her employer, nor the outcome. I deal with
that shortly.


16.  When Ms Rando
finally gave notice of resignation, she mislead the
Plaintiffs into believing she would have no interest in their business
opportunities
by falsely stating she intended to work as a counsellor with
Alcoholics Anonymous (see below). She actively concealed what later
followed
with the Museum.


The $3,000 Order with the Museum
17.  Ms Rando rang Mr Doe sometime in late July, or possibly early August,
but
while still employed. She disclosed her plans to set up her own business. She
offered her personal assistance in the Museum work.
Mr Doe said he would keep
it in mind, and told her that they would need someone to do a lot of running
around, collecting and returning
photographs, taking negatives, and other time
consuming work. Ms Rando said she was interested. The exact date of this
telephone
conversation is not certain. According to Ms Rando it occurred one
to two weeks after she had showed Mr Doe the test strips. Mr Doe
stated in his
affidavit it was in late July. In any event, the conversation was indubitably
whilst Ms Rando was still employed by
the Plaintiff group, though possibly
after she gave notice on 31 July 1992. However, as this conversation appears
to have occurred
prior to the meeting referred to in the next paragraph, I
consider the date of the conversation was more likely prior to 31 July
1992,
based on the likely date of that meeting. I turn now to that meeting.


18.  Shortly after this conversation Ms Rando had the
meeting with Mr Doe. Mr
Doe mentioned a specific job for which Allied Reprographics had quoted $4,000.
Ms Rando said she thought
she could do a better job and at a better price. She
agreed to do it for $3,000. Mr Doe decided to give Ms Rando this small order
for Level 2 in the Museum ("the $3,000 order"). It is significant that Ms
Rando did not disclose this order or conversation to the
Plaintiffs. It is
clear she wished to conceal it. The precise date of this meeting is in
dispute. It certainly must have occurred
on or prior to 3 August 1992, when Ms
Rando delivered the books and photographs for the $3,000 order to Mr
Rischmiller (see below).
Ms Rando claims it happened after her resignation,
that is to say after she gave her notice of resignation on 31 July 1992.
However,
in cross examination she said that the meeting must have occurred on
the weekend of 1 and 2 August 1992 (transcript at 92), so even
on her account
while working out her one week's notice and thus while still employed. Her
contention that the meeting occurred on
that weekend was not however mentioned
in her affidavit evidence. Mr Doe was unable to put a date to the meeting in
cross examination
(transcript at 74). Mr Ty conceded in cross examination that
he knew Ms Rando had some work with the Museum prior to going on holidays
on
31 July 1992, thus suggesting that the meeting may well have occurred prior to
that time (transcript at 102). Most significantly,
the actual date of the
$3,000 order was 28 July 1992. It appears that as at that date the order was
made out to Allied Reprographics,
and was only subsequently given to Ms Rando.
That, however, is consistent with the earlier concealment. I thus conclude it
is more
likely than not that this meeting occurred earlier sometime between 28
and 31 July 1992, though a later date on or before 3 August
1994 would not
matter, given Ms Rando was still then employed.


19.  I am satisfied that Ms Rando was aware at this time, while
so employed,
that Level 2 of the Museum was to contain many more prints, and that there was
thus the potential for considerably more
work. I am also satisfied that she
concealed this renewed opportunity with the Museum from her then employer. As
already mentioned,
Mr Doe gave Ms Rando this information when he first met her
(transcript at 73). Mr Rischmiller gave evidence that on 3 August 1992,
when
Ms Rando gave him a request for a detailed quote for the $3,000 order, she
said words to him to the effect: "I've left Colour
Control now and so has
Ricardo. Our Company is called Lab Tech Pty Limited. It looks like we might
have got Level 2 of the Jewish
Museum". This version of the conversation is
denied by Ms Rando and Mr Rischmiller conceded in evidence that his
recollection was
not clear in that regard (transcript at 30). However, I think
it more likely that she thus expressed confidence in getting the Level
2 work.
Mr Ty put the position as less certain; "Still a gamble 50/50" (transcript at
107). But I conclude that the Defendants had
good reason to and did believe
they would get this work; as indeed they did.


20.  The $3,000 order was subcontracted to Mr Rischmiller's
company, and the
materials for that order were delivered by Ms Rando during the evening of 3
August 1992. Ms Rando had picked up
these from Mr Doe earlier that night. The
order was not returned for about two weeks. Although the evidence differed as
to this,
I am satisfied the $3,000 order yielded a small profit of around $610
($3,000 less Mr Rischmiller's charge of $2,390; see annexure
B of Mr
Rischmiller's affidavit of 10 May 1993).


21.  Ms Rando's evidence was that the $3,000 order was never given to the
Plaintiffs
and indeed that the Plaintiffs could not have carried it out with
existing equipment. However, she acknowledged that her employer's
practice
would have been to sub-contract it, if that were so (transcript at 93).
Indeed, as I have said, the Plaintiffs not infrequently
subcontracted to Mr
Rischmiller's company. The question thus arises whether the $3,000 order was
in fact placed with Ms Rando personally,
or rather was placed through her with
the Plaintiffs (even though the Plaintiffs had no knowledge of the order until
much later).


22.  Mr Doe gave evidence that when the $3,000 order was first placed, 
    "I was aware that Ms Rando was still working at Colour
    Control Centre Pty Limited, however I had no intention of
    dealing with that company. My intention was to deal with Ms
  
 Rando personally"; Doe affidavit 31 March 1993, para 8.


23.  In cross-examination the following question and answer ensued with
Mr
Doe: 
    "Q: I take it so far as the Museum was concerned, it didn't
    care who she was employed by. It was her personal involvement
    that was important ?

    A: It was very important to me." (Transcript 30 June 1995 at 74)


24.  I am however satisfied that
the $3,000 order was in fact placed with
Colour Control Centre Pty Limited, though in the expectation that the Museum
would follow
Ms Rando if and when she left the Colour Control group. At that
time Ms Rando was, to the knowledge of Mr Doe, still employed by
that group,
though intending to leave. She had no corporate entity yet available to carry
out the order or indeed to accept it. She
never intended to take on the order
personally, but rather to have her company then in process of formation later
do so. But the
fact remains that in the meantime, the only other entity
available to contract to do the work was her present employer. The fact
that a
sub-contractor was used does not detract from this given that this was in
circumstances where concealment would clearly have
been much more difficult if
work were actually to be done by her employer, assuming capacity.


The resignation of the First and
Second Defendant
25.  On 31 July 1992 Ms Rando gave the Plaintiffs one week's notice of
termination of her employment, falsely telling
the managing director of the
Plaintiff that she was going to work for Alcoholics Anonymous as a counsellor,
yet still leaving her
employer with the false impression that nothing had come
of the Museum job. Ms Rando claims she did not tell Mr Vine of her plans
so as
to avoid unpleasantness that might arise. She continued working off her notice
period. Her last day of employment with the
Plaintiffs was Friday 7 August
1992. 1 have concluded nothing turns on whether the $3,000 order was secured
before or after Ms Rando
had given notice, given that the order was secured
clandestinely so far as her employer was concerned and while she was still
employed.


26.  On 31 July 1992, the same day Ms Rando gave her notice, Mr Ty went on one
month's vacation. He told Mr Vine that he was going
to the Philippines to have
a holiday and to attend to some family business. In fact Mr Ty did not leave
Australia. He used his vacation
period to ready the Third Defendant for
business by obtaining equipment and by other activities. Mr Ty engaged in
subterfuge to give
his employer the false impression he had gone overseas. On
17 August 1992, while still on vacation, he sent a letter from Australia
to a
friend in the Philippines, so it could be re-posted back to the Plaintiffs in
Australia with a Philippines postmark. The letter
stated that he had decided
he wished to pursue some business interests in the Philippines with his
brother and his uncle, and tendered
his resignation as an employee of the
Plaintiffs. Mr Ty conceded that when he went on his holiday on 31 July 1992 he
knew Ms Rando
had got some work from the Museum and was going to resign. He
also conceded that they were both hoping for much more work for the
Museum
(transcript at 102, 107).


27.  It should be noted that Mr Ty and Ms Rando had first discussed setting up
business together
in March 1992. So these were plans of long-standing, though
concealed from their employer till they were ready.


Events subsequent
to the resignations
28.  Prior to leaving the Plaintiffs, Ms Rando had already taken a number of
steps required to establish the
new business. For example, she had entered
into negotiations for the lease of some business premises at 4 Foster St,
Surry Hills.
By 28 July 1992 she had reached agreement for that lease. She had
investigated the purchase or lease of various items of equipment.
This
included the purchase during July 1992 of a second hand "R3" machine from Mr
Roche of Ab Libidum Trannys Pty Ltd for $4,000.
She had also seen a solicitor
concerning the office lease and the incorporation of the company to act as a
vehicle for carrying out
the business. Ms Rando denied that any of this was
done during office hours.


29.  On 10 August 1992, Photo Technica was incorporated,
and everything was in
place for the commencement of operations. A copy of a company search of Photo
Technica is annexure E to the
affidavit of Mr Vine dated 8 March 1993. Photo
Technica subcontracted out all processing work until approximately the second
week
in September of 1992. It was at this time that Photo Technica purchased a
52 inch black and white processor.


30.  Over the next
IO weeks Photo Technica operated with further very
substantial work from the Museum. The Defendants themselves state that they
produced
the more than one thousand images within a ten week deadline: see
annexure D to the affidavit of Mr Vine of 8 March 1993. Mr Vine
agrees the
work could have been done within such a ten week time frame. Thus I do not
accept the later evidence of the Defendants
that the job actually took 13
weeks: see the Report of Mr Bell, the accuracy of which was conceded to depend
on the accuracy of Ms
Rando's instructions, rather than being based on any
documentary evidence (transcript at 75).


31.  On Ms Rando's evidence generally,
I found her defensive and anxious to
put the best possible face on events. Mr Vine's evidence was given with a
degree of sometimes
dogmatic emphasis, though not, so far as could be tested,
so as to override accuracy.


Revenues and expenses arising from the Museum
work
32.  The Defendants have not put forward any evidence isolating the profits
made from the museum work, or isolating the revenues
gained and expenses
incurred in that work. Accordingly it is necessary to make estimates of these
amounts based on the evidence before
me. It is also necessary to estimate the
revenues and expenses that the Plaintiffs would have incurred had they
obtained the Museum
work.


33.  Ms Rando claims that the total value of the work undertaken for the
Museum to January 1993 was $104,212.31, billed as
follows: 
    1992 August     $5,814.00
    September      $24,697.42
    October        $22,831.18
    November       $43,676.32
    December        $4,808.40
    1993 January    $2,384.99


34.  It is common ground that the Defendants have done some further
work for
the Museum since January 1993, although the extent of this is not clear. Ms
Rando was unable to quantify the billing for
this additional work in
cross-examination, but conceded that it would have been an easy matter to
include such information in relation
to February and March in her affidavit of
31 March 1993 (transcript at 98). However, given that the Museum opened on 18
November
1992, I am satisfied such additional work would not have been of
nearly the same scale as that of the previous few months. I am thus
satisfied
that the total revenues received by the Defendants were approximately
$110,000.


35.  On 3 March 1993, after hearing that
the Museum work had gone to the
Defendants, Mr Vine went to the Museum and after viewing the more than one
thousand images, estimated
that the total value of the job to the Plaintiffs
would have been over $150,000. This is Mr Vine's opinion of the total amount
that
the Plaintiffs would have charged for the work, inclusive of all costs.
If the Plaintiffs had done that work, notwithstanding that
it had been in
business in excess of twenty-six years, it is undisputed that this job would
have been the biggest job ever undertaken
in that time. However, there does
not appear to be any basis for concluding that the Plaintiffs could have
charged much more for
the Museum work than was actually charged by the
Defendants. To obtain the Museum work from Mr Doe they would no doubt have had
to
make competitive tenders, given that there were other businesses interested
in performing the work. However, the revenue received
by the Plaintiffs, had
they obtained the Museum work, need not have been identical with that in fact
received by the Defendants,
granted the likely les's personal nature of the
service that they would have been able to provide. I am satisfied that an
appropriate
estimate of the revenues that the Plaintiff would have received is
$120,000. This recognises that the estimate provided by Mr Vine
must be
discounted, his estimate being made on the somewhat impressionist basis of
viewing the very large number of prints, and possibly
having been influenced
by his disappointment with the Defendants for their perceived lack of fidelity
to their former employers.


36.  It has been agreed between the parties that the total costs of
subcontracting this work incurred by the Third Defendant was
$27,725
(transcript at 63), made up as follows: 
    Costs of mounting:                        $10,757.69
    Costs of laminating:
                      $7,979.75
    Costs of other photographic laboratories:  $8,988.07


37.  There is some difficulty in estimating
what the subcontracting costs
might have been to the Plaintiffs had they obtained the Museum work. Such an
estimate will necessarily
be to some extent speculative. Ms Rando concedes
that if the Plaintiffs had subcontracted the work out themselves, they may
have
been able to negotiate a discount with the sub-contractors in the
vicinity of 25-30%. I am satisfied that the Plaintiffs were clearly
in a
better position than the Defendants to perform the work in-house, having
access to substantially more equipment than the Defendants.
The Plaintiffs
claim they could have produced and laminated most of the prints themselves. Mr
Vine thus claims the Plaintiffs would
only have incurred subcontracting
expenses in the vicinity of $12,400. I have referred earlier to there being
some disagreement as
to exactly what the Plaintiffs' capabilities were in this
regard. However, Ms Rando appeared to agree in cross-examination that the
Plaintiffs could have done some of this laminating and photography work itself
without needing to subcontract it (transcript at 97).
I am thus satisfied that
$15,000 is an appropriate estimate of the subcontracting expenses that would
have been incurred by the Plaintiffs
(discounting $27,275, the sub-contracting
costs agreed to have been incurred by the Defendants, both for lower prices
charged by
the subcontractors and the lower volume of work required to be
subcontracted in such circumstances).


38.  Some estimate must also
be made for wages referable to the Museum work.
Mr Bell for the Defendants in his report calculated total wages for the job as
being
$29,149.54, including office overheads of 20%. This was based on a 60
hour week over 13 weeks for a technician at $650 per week and
an assistant at
$350 per week, each being paid for an additional 22 hours per week overtime.
Mr Bell does not explain where he arrived
at the figure of a 60 hour week. He
has not claimed any particular expertise in this industry as would be required
to estimate the
amount of work involved. Indeed his estimate appears to be
contrary to Ms Rando's instructions, which were that she and Mr Ty together
worked in excess of 3,000 hours over the 13 weeks (which would require them
both to work over 16 hours a day, seven days a week,
for the full 13 weeks).
Thus Mr Bell's evidence in this regard cannot be given any great weight. Mr
Vine calculated total wages of
$12,000, including office overheads of 20%.
This was also calculated on the basis of a technician being paid $650pw and an
assistant
being paid $350pw, but on the basis of a 10 week job with no
overtime. Mr Doe made clear that the Museum work involved time consuming
and
personalised service. Thus I do not think it realistic to determine wages
without any provision for overtime. However, I believe
the overtime claimed by
the Defendants was somewhat overstated. Accordingly, I am satisfied an
appropriate provision for wages for
the 10 week job would be $18,000.


39.  The Defendants claim the cost of materials used in the Museum work was
approximately $13,500.
This was apparently based on an entry in the trading
statement for the period ending 30 November 1992, prepared by Mr Maynard of
Wilson Maynard Kearns, the Defendants' accountants, Such statement was
expressed to be based on information supplied by the Third
Defendant, and
access to a number of source documents. However this statement was not
expressly limited to the Museum work but rather
was in relation to all
activities of the Defendants during the relevant period. This is not to
suggest that there would necessarily
have been a great volume of such other
work. Thus the provision for materials in the trading statement may have
included costs of
materials in relation to any other work performed during
this time period, or the costs of any stocks of materials accumulated during
the Third Defendant's establishment period (no balance sheet being provided by
the Defendants to show that any such stocks were treated
as an asset rather
than as an expense of the business.) Mr Vine estimated in cross examination
that the materials used in the Museum
work would have cost around $4,000, such
estimate being based on his visit to the Museum (transcript at 40). I am
satisfied that
this can only be a rough estimate given the very large number
of prints involved and I feel it may have been somewhat understated.
I thus
prefer a higher figure of $8,000.


40.  In addition to the above expenses of subcontracting, wages, office
overheads and
materials, some provision should be made for the other expenses
that both the Plaintiff and Defendant would have incurred on the
Museum job.
For example, Ms Rando deposes that she incurred significant motor vehicle
expenses In acting for the Museum, such as
in collecting and delivering
photographs and commissions, but does not quantify these expenses. Other
expenses in this category include
telephone, power and repairs. Due to the
limited nature of the evidence before me, any quantification must be
speculative. However,
I am satisfied that it is appropriate to allow an amount
of $5,000.


41.  Having calculated the above revenue and expenses, it is
possible to reach
an estimate of both the profit the Defendants in fact made from the Museum
work, and the profit the Plaintiffs
would have made had they obtained that
work. In both cases the relevant profit is the estimated revenue less the
marginal costs of
the Museum work. That is the additional expenses incurred to
obtain and perform that work. In the current circumstances no account
is taken
of the fixed costs of the two businesses, such as rent and depreciation, these
being costs incurred independently of whether
the Museum work was obtained or
not.


42.  Based on the above figures, I am satisfied that the profit for the Third
Defendant for
the Museum work was $51,275, calculated as follows: 
    Third Defendant's Gross revenue:                     $110,000
    Subcontractors
fees:                $27,725
    Wages (including office overheads): $18,000
    Materials:                           $8,000
   
Other:                               $5,000           $58,725
    Net profit                                            $51,275

Also based on the above figures, I am satisfied that if the Plaintiffs had
obtained the Museum work, they would have been above to
obtain a profit of
$74,000. This profit is calculated as follows: 
    Plaintiffs' potential gross revenue:                 $120,000
    Subcontractors fees:                 $15,000
    Wages (including office overheads):  $18,000
    Materials:                
           $8,000
    Other:                                $5,000          $46,000
    Potential net profit                    
             $74,000


43.  I am satisfied that Ms Rando's action deprived her employer of the
opportunity to garner this substantial
work. I discuss below whether this was
in breach of any obligation of Ms Rando. I then assess the chance that the
Plaintiff would
have obtained the Museum work had it been given that
opportunity-, in dealing with the assessment of damages. I am satisfied that
the Colour Control group were competent to do the work, sub-contracting where
necessary. In this regard I generally prefer the evidence
of Mr Vine to Ms
Rando for reasons earlier mentioned.


44.  Mr Vine first became aware of the Museum work having been carried out
by
the Defendants in February 1993. Colour Control commenced proceedings by
summons on 8 March 1993. CCC was subsequently added as
an additional
Plaintiff. Of the matters raised the summons, only the orders in relation to
the Museum work are still sought by the
Plaintiffs.


RESOLUTION OF LEGAL ISSUES
Ms Rando's implied duty of fidelity and good faith in contract
45.  Implicit in every contract
of employment is an implied term under which
employees are subject to a duty of good faith and fidelity for the period of
their employment.
The scope and content of that duty will vary according to
the nature and circumstances of the contract of employment: Wessex Dairies
Ltd
v. Smith  (1935) 2 KB 80 at 84-5; Hivac Ltd v. Park Royal Scientific
Instruments Ltd  (1946) 1 Ch 169, 1 All ER 350; Timber Engineering Co Pty Ltd
v. Anderson  (1980) 2 NSWLR 488; Schindler Lifts Australia Pty Ltd v. Debelak
[1989] FCA 311;  (1989) 89 ALR 275 at 300.


46.  While the full scope of the implied duty of fidelity is not clearly
defined, such duty does give rise to certain clear
obligations relevant to the
present circumstances. First, an employee may not retain, without approval,
any profit or property the
opportunity for the acquisition of which was
furnished by the employment: Willey v. Syan [1937] HCA 85;  (1937) 57 CLR 200; London
Corporation v. Appleyard  (1963) 2 All ER 834; 1 WLR 982; Reading v. The King
 (1948) 2 All ER 27 at 28; Reading v. A-G [1951] UKHL 1;  (1951) AC 507 at 518 per Lord Oaksey.
Second, although in general employees are entitled to work in competition with
their employer in their own
time, special circumstances may give rise to an
implied duty not to compete: Hivac Ltd v. Park Royal Scientific Instruments
Ltd (supra).
In particular, a director or senior employee who takes up a
business opportunity within the scope of the company's actual or potential
line of business, without the consent of the company upon full disclosure of
the facts, may be required to account to the company
for any profit made or to
compensate it for any loss suffered: Cook v. Deeks [1916] UKPC 10;  (1916) 1 AC 554 at 563-4;
(1916-17) All ER 285; Pacifica Shipping Co Ltd v. Anderson  (1985) 2 NZCLC
96-040;  (1986) 2 NZLR 328, Green and Cara Pty Ltd v. Bestobell Industries Pty
Ltd  (1982) WAR 1. The employee may be liable to account for such profit even
where its acquisition did not adversely effect the employer: Boston Deep
Sea
Fishing and Ice Co v. Ansell  (1888) 39 Ch D 339.


Ms Rando's obligations under the Corporations Law
47.  Similar obligations and remedies arise under the Corporations Law.
Subsections
232(5) and (6) create civil penalty provisions under which
officers and employees, including former ones, must not make improper
use of
their position, or of information acquired by virtue of their position, to
gain directly or indirectly an advantage to themselves
or others, or to cause
detriment to the corporation. Remedies for contravention include s13l7HD,
which empowers the corporation to
bring proceedings to recover any profits
made, or loss or damage suffered, as a result of such a contravention. These
civil penalty
provisions have an effect in addition to, and not in derogation
of, other rules of law in relation to the duties and liabilities
of persons by
reason of their office or employment in relation to a corporation: s232(11).
It is not, however, appropriate for me
to consider whether any potential
liability or remedies arise under these sections, as no claim was made under
those provisions nor
submissions made.


Ms Rando's Fiduciary obligations
48.  The relationship of employer and employee is commonly included as an
exemplar
of fiduciary relationships: See, for example, Hospital Products Ltd
v. US Surgical Corporation [1984] HCA 64;  (1984) 156 CLR 41 per Gibbs CJ at 68, per Mason J
at 96, per Dawson J at 141. Fiduciary obligations in the employment context
are not limited to senior
executives and officers, and may in appropriate
circumstances extend to other employees: Timber Engineering Co Pty Ltd v.
Anderson
(supra); Angus and Coole Pty Ltd v. Render  (1989) 16 IPR 387.
However, the fiduciary obligations of junior employees, who do not hold
positions of decision making discretion and responsibility
in matters of
management, may tend to be narrower than those of more senior executives and
directors: Austin, "Fiduciary accountability
for business opportunities", in
Equity and Commercial Relationships, (Sydney, LBC, 1987) at 171-172; and see
generally State Rail
Authority of New South Wales v Earthline Constructions
Pty Ltd (O'Keefe CJ, Supreme Court of NSW, 14 September 1994, unreported).
In
the circumstances of the current case, however, it is undisputed that Ms Rando
was a senior employee with significant employment
responsibilities involving
matters of decision making discretion and managerial responsibility.


49.  The question thus arises as
to whether in the circumstances of this case
the particular employment relationship between Ms Rando and CCC gave rise to
fiduciary
obligations. Further, if such obligations do exist, how their scope
is to be moulded according to the nature of the particular relationship
and
the facts of the case. Fiduciary relationships may take a wide variety of
forms and give rise to a wide variety of obligations.
A relationship which is
otherwise not fiduciary may nonetheless give rise to particular obligations of
a fiduciary character: Chan
v. Zacharia [1984] HCA 36;  (1983-1984) 154 CLR 178 at 195;
Hospital Products Ltd v. US Surgical Corporation (supra) at 123. Conversely,
not all duties imposed on a person who stands
in a fiduciary relationship to
another will be fiduciary in their natureState Rail Authority of New South
Wales v Earthline Constructions
Pty Ltd (supra) at 50 of judgment; Birtchnell
v Equity Trustee Executors and Agency Co Ltd [1929] HCA 24;  (1929) 42 CLR 384 at 408; NZ
Netherlands Societies "Oranje" Inc v Kays (1973) 2 All ER 1222 at 1229-30;
Noranda Australia Ltd v Lachland Resources
NL  (1988) 14 NSWLR 1.


50.  In response to the breadth of the fiduciary concept, the authorities
wisely essay no allembracing, definitive statement of
the criteria by
reference to which the existence and scope of fiduciary obligations may be
identified. What they rather do, is identify
indicia of a fiduciary
relationship and the obligations said to flow therefrom. As Gibbs CJ stated in
Hospital Products at 69: 

   "I doubt it is fruitful to make a general statement of the
    circumstances ill which a fiduciary relationship will be
    found
to exist. Fiduciary relations are of different types,
    carrying different obligations ... and a test which might
    seem appropriate
lo determine whether afiduciary relationship
    existed for one purpose might be quite inappropriate for
    another purpose."


51.  I am satisfied that in the circumstances of the current case there are
three factors of particular importance in assessing
whether the employment
relationship between Ms Rando and CCC gave rise to fiduciary obligations and
in defining the scope of those
obligations.


52.  First, as was noted above, throughout the time from her first contact
with the Museum until she left employment
with the Plaintiffs, Ms Rando was
entrusted with significant employment responsibilities with the Plaintiffs.
She was the production
and marketing manager. She had access to all the
Plaintiffs' business records. She managed the businesses when Mr Vine was on
holidays.
She acted as agent for the Plaintiffs in the raising of new
business. She represented the Plaintiffs in its business with new and
existing
customers. She was ostensibly acting on behalf of the Plaintiffs in relation
to the potential Museum work. I am satisfied
that it was implicit in Ms
Rando's employment with the Plaintiffs that she had undertaken to act in the
Plaintiffs' best interests
to the exclusion of her own in regard to all these
tasks. Whether or not such an undertaking to act in the interests of another
can
always be considered either necessary or sufficient for the recognition of
fiduciary obligations, it is clear that such 'representative'
element is a
factor of significance in such recognition: See, for example, Moorgate Tobacco
Co Ltd v. Philip Morris Ltd (No 2) [1984] HCA 73;  (1984) 156 CLR 414 at 436; Walden
Properties Ltd v. Beaver Properties Pty Ltd  (1973) 2 NSWLR 815 at 833; Elders
Trustee and Executor Co Ltd v. EG Reeves Pty Ltd [1987] FCA 332;  (1987) 78 ALR 193 at 238; US
Surgical Corporation v. Hospital Products International Pty Ltd  (1983) 2 NSWLR
157 at 208-209; Hospital Products Ltd v US Surgical Corporation at 96-97 per
Mason J.


53.  Second, the question arises whether, inherent
in the relevant aspect of
the relationship, there was a position of disadvantage or vulnerability on the
part of one party which
caused it to place reliance on the other, and which
thus requires the protection of equity acting on the conscience of that other:
Hospital Products, at 142 per Dawson J; Paid Dainty Corporation Pty Ltd v.
National Tennis Centre Trust [1990] FCA 163;  (1990) 22 FCR 495 at 515. No general
characterisation of Ms Rando's employment relationship could safely be made
that the Plaintiffs were in a position
of disadvantage or vulnerability in
relation to their employee. However, in relation to the particular aspect of
the employment relationship
currently under consideration, that of Ms Rando's
actions in relation to business opportunities within the scope of the
Plaintiffs'
line of business, the situation differs. The Plaintiffs were
clearly in a position of vulnerability to Ms Rando in that regard, and
were
required to repose trust and confidence in her that she would act in their
interests. This was amply illustrated by the manner
in which Ms Rando was
actually able to exploit that trust and vulnerability in the circumstances.


54.  Third, the question of the
existence and scope of fiduciary obligations
must be assessed in the particular context in which they are claimed to arise.
Here
we are dealing with the relationship between a senior manager and a
corporate employer, a recognised fiduciary category in which
strict norms of
exemplary behaviour are imposed. In Canadian Aero Service Ltd v. O'Malley
 (1973) 40 DLR (3d) 371 at 382, Laskin J of the Supreme Court of Canada
delineated the position thus:- 
    "Descending from the generality, the fiduciary
relationship
    goes at least this far: a director or a senior officer...is
    precluded from obtaining for himself, either secretly
or
    without the approval of the company (which would have to he
    properly manifested upon full disclosure of the facts), any
    property or business advantage either belonging to the
    company or for which it has been negotiating; and especially
    is
this so where the director or officer is a participant
    in the negotiations on behalf of the company.

    An examination of the
case law in this Court and in the Courts
    of other like jurisdictions on the fiducary ditties of
    directors and senior officers
shows the pervasiveness of a
    strict ethic in this area of the law. In my opinion, the
    ethic disqualifies a director or senior
officer front usurping
    for himself or diverting to another person or company with
    whom or with which he is associated a maturing
business
    opportunity which his company is actively pursuing; he is
    also precluded from so acting even after his resignation
    where the resignation may fairly be said to have been prompted
    or influenced by a wish to acquire for himself the opportunity
    sought by the company, or where it was his position with the
    company rather than afresh initiaive that lead him to the
 
  opportunity which he later acquired "


55.  The principle stated in above passage has been cited with approval in
subsequent cases:
See, for example, Mordecai v. Mordecai  (1988) 12 NSWLR 58 at
65, Lord Corporation Pty Ltd v. Green (1991) 22 NSWLR 532 at 543-544; Pacifica
Shipping Co Ltd v. Anderson (supra); Green and
Clara Pty Ltd v. Bestobell
Industries Pty Ltd (supra).


56.  In relation to the scope of the fiduciary obligations arising in the
employment context, O'Keefe CJ stated in State Rail Authority of New South
Wales v Earthline Constructions Pty Ltd at 52 of the Judgment:

    "Those ditties of an employee which are normally characterised
    as fiduciary relevantly include:
    (i) to act honestly
in the service of the employer. This is
    sometimes expressed as a duty of loyalty or good faith and in
    appropriate cases survives
the termination of the employment.
    Breaches of this duty include the taking of bribes or secret
    commissions or acting in
one's own interests or the interests
    of another rather than in the interests Of the employer;
    (ii) not to benefit him or
herself to the detriment of the
    employer;
    (iii) to treat confidential information as such and not
    disclose it to competitors."


57.  After consideration of the above factors and all the circumstances of the
case, I am satisfied that Ms Rando's relationship
of employment gave rise to
fiduciary obligations to the Plaintiffs during the period of her employment. I
am further satisfied that
such fiduciary obligations included an obligation on
Ms Rando, in the absence of the Plaintiffs' consent upon full disclosure of
the facts, to act exclusively in the interests of the Plaintiffs during the
period of her employment and in particular in relation
to business
opportunities to which she was led through her position with the Plaintiffs.
Here the business opportunity is within
the Plaintiffs' actual or potential
line of business, thus reinforcing that obligation, were that necessary. As is
noted above, such
obligation may survive termination of the relationship from
which it arose.


Ms Rando's breach of duty of fidelity and fiduciary
obligations
58.  Ms Rando has clearly breached both her fiduciary obligations and her
implied duty of fidelity to the Plaintiffs.
Ms Rando concedes that Mr Doe
first contacted her in relation to the Museum work to obtain test strips from
the Plaintiffs rather
than herself personally. He told her of the very large
amount of work potentially available at the Museum at this time. The Museum
work was thus a business opportunity of which Ms Rando became aware only by
reason of her position as employee and when so employed.
It was also clearly a
business opportunity within the Plaintiffs' actual line of business which,
when arranging the test strips,
she had been pursuing on the Plaintiffs'
behalf. In good conscience she should have continued so to pursue it. Instead
Ms Rando,
whilst still employed, pursued the Museum work for her own benefit,
while concealing her actions from the Plaintiffs and allowing
them to believe
that she continued to act in their best interests. She misled them into
believing that they "didn't get the Museum
job", while realising that a
continued opportunity to obtain the work existed. She conceded in cross
examination that she did not
tell Mr Vine of the work because she intended to
leave the Plaintiffs shortly, and wanted to take the Museum job with her. Thus
Ms
Rando, while still an employee, failed to act exclusively in the interests
of her employer in regard to an aspect of her employment
where she had
fiduciary obligations to do so.


59.  In addition, as Canadian Aero Service Ltd v. O'Malley makes clear, an
employee
may be precluded from acting in relation to a business opportunity
even after termination of employment, where the resignation may
fairly be said
to have prompted or influenced by a wish to appropriate the opportunity sought
by the company. I am satisfied that
although Ms Rando and Mr Ty had been
discussing the idea of setting up their own business for some time, the
particular timing of
Ms Rando's resignation was prompted or significantly
influenced by the desire to obtain the Museum work. I do not accept Ms Rando's
evidence that the timing of her resignation was mere coincidence, uninfluenced
by the desire to obtain the Museum work for the Defendants.
Thus in this
aspect also she was not acting in accordance with her fiduciary obligations.


Accessory Liability of Mr Ty and Photo
Technica
60.  A stranger may be made liable for a breach of trust or of fiduciary
obligation where the stranger is the recipient
of the trust property or its
traceable proceeds, or where the stranger is an accessory in dishonestly
procuring or assisting in the
breach of trust or of fiduciary obligation:
Barnes v. Addy  (1874) LR 9 Ch App 244 at 251-252; Consul Developments Pty Ltd
v. DPC Estates Pty Ltd [1975] HCA 8;  (1975) 132 CLR 373 at 395-396 per Gibbs J, at 408-409
per Stephen J; US Surgical Corporation v. Hospital Products International Pty
Ltd (supra) at 253-256;
Royal Brunei Airlines v. Philip Tan Kok Ming (Privy
Council, 24 May 1995, Unreported). In relation to whether the principle in
Barnes
v. Addy applies to impose liability on strangers who knowingly
participate in a breach of fiduciary duty by a person who is not a
trustee,
Gibbs J stated in Consul Developments Pty Ltd v. DPC Estates Pty Ltd (supra),
at 397: 
    "If the maintenance of a very
high standard of conduct on the
    part of fiduciaries is the purpose of the rule it would seem
    equally necessary to deter other
persons from knowingly
    assisting those in a fiduciary position to violate their duty.
    If, on the other hand, the rule is
lo be explained simply
    because it would be contrary to equitable principles to allow
    a person to retain a benefit that he
had gained from a breach
    of his fiduciary duty, it would appear equally inequitable
    that one who knowingly took part in the
breach should retain
    a benefit that resulted there on. I therefore conclude, on
    principle, that a person who knowingly participates
in a
    breach of fiduciary duty is liable to account to the person
    to whom the duty is owed for any benefit he has received
as
    a result of such participation."


61.  The cases make it clear that liability of a person who assists in a
breach of fiduciary
duty is not limited to accounting for any benefit
received, but can also extend to a liability in equity to make good any
resulting
loss suffered by the beneficiary. This is consistent with general
fiduciary principles under which a wronged beneficiary is entitled
to make an
election between an account of profits or compensatory damages: Warman
International Ltd v. Dwyer [1995] HCA 18;  (1995) 128 ALR 201 at 210.


62.  I am satisfied that Mr Ty dishonestly participated in Ms Rando's breach
of fiduciary duty in the circumstances. Mr
Ty had actual knowledge of all the
relevant circumstances of Ms Rando's breach. He was a fellow director of the
Third Defendant,
and actively collaborated with her both during the period of
his employment with the Plaintiffs and subsequently. He took steps to
mislead
the Plaintiffs as to his own intentions on leaving their employ, going to the
extreme of having a letter posted to the Plaintiffs
via the Philippines to
convince the Plaintiffs that he was pursuing business opportunities in that
country. As a shareholder in Photo
Technica, Mr Ty was a recipient of
pecuniary benefits from Ms Rando's breach of fiduciary duty. Accordingly, I am
satisfied that
the Mr Ty is liable to the Plaintiffs both under the first and
the second limbs of the test in Barnes v. Addy (supra). In light of
my
decision on this point, it is unnecessary for me to consider whether Mr Ty
breached his own duty of good faith and fidelity, or
any fiduciary obligations
which may have been owed by him, to the Plaintiffs,


63.  In relation to the Photo Technica, the Third
Defendant, I am satisfied
that it also has dishonestly participated in Ms Rando's breach of fiduciary
duty, and was the recipient
of the benefits of the business opportunity
usurped by Ms Rando from the Plaintiffs in breach of her fiduciary duty. Photo
Technica
is fixed with the actual knowledge of its directors and shareholders,
Ms Rando and Mr Ty. It was the vehicle through which the pecuniary
benefits
from the above breaches were received by the First and Second Defendants.
Accordingly, Photo Technica is also liable both
under the first and second
limb of the test in Barnes v. Addy.


Assessment of damages
64.  In relation to the remedies available
for a breach of fiduciary duty, the
High Court stated in Warman International Ltd v Dwyer (supra) at 210: 
    "Ordinarily a fiduciary
will be ordered lo render an account
    of the profits made within the scope and ambit of his duty
    (Phipps v Boardman (1967)
2 AC at 127 Per Lord Upjohn). Of
    course, if the loss suffered by the plaintiff exceeds the
    profits made by the fiduciary,
the plaintiff may elect to
    have a compensatory remedy against the fiduciary. That
    election will bind the plaintiff (Kendal
v Marsters (1860)
    2 De G F and J 200; [1860] EngR 964;  45 ER 598).


65.  The Plaintiffs have sought compensatory damages for the above breaches,
or in the alternative, an account of profits. Damages
is thus the primary
remedy sought. However, it is clear the Plaintiffs have sought to recover
damages on the basis that they are
entitled to the profits they would have
made had they actually performed the Museum contracts. The assumption made by
the Plaintiffs
is that but for the breaches by the Defendants, they would have
obtained the Museum contracts. However that assumption requires testing.


66.  I am satisfied that it is more probable than not, though by no means
certain, that the Museum work would only have stayed
with the Plaintiffs while
Ms Rando remained employed by that group. Mr Doe's evidence was that his
intention was always to deal with
Ms Rando personally, wherever she was
employed. He said he never intended to deal with the Plaintiffs directly.
However, I conclude,
Mr Doe was at least assisted in reaching that state of
mind because of Ms Rando's breach of her fiduciary duty in pressing her
services
to the exclusion of the Plaintiffs. There is no conclusive evidence
of what Mr Doe's views would have ultimately been as to the Plaintiffs'
particular ability to perform the Museum work had she not approached him to
divert that work for herself Had she acted in good conscience
Mr Doe's state
of mind may have been very different. She would have made no secret
presentations on her own behalf while still employed
with the Plaintiffs. She
would not have left the Plaintiffs with the misleading impression that the
Museum job was not attainable.
The Plaintiffs would then have had an
opportunity to make their own presentation to Mr Doe, and might have convinced
him that they
were the business best able to provide the type of service he
required for the Museum work and would do the necessary running round
which
was done by Ms Rando. After all the job was large enough to be clearly worth
it.


67.  On the other hand the work may still
have gone to the Defendants, even if
they had not breached their fiduciary obligations to the Plaintiffs, either by
obtaining an
informed consent on the Plaintiffs part to pursuing the work or
via a fresh initiative in circumstances involving no breach of such
fiduciary
obligation. Thus the Defendants might still have convinced the Museum that
only they could provide the personal service.
Finally, it is conceivable, that
Allied Reprographics might have kept the work.


68.  It is for these reasons that I conclude that
it is by no means certain
that the Museum work would have gone to the Plaintiffs in the absence of the
Defendants' breach. I am however
satisfied that there was a chance the
Plaintiffs would have obtained such work and I turn now to an assessment of
that chance.


69.  What is thus required is an assessment of the probability or chance that
the Plaintiffs would have secured and retained the
Museum work, but for the
Defendants' breach of their respective duties. Damages can then be quantified
on the basis of the loss of
that chance. Damages may be assessed for breach of
fiduciary duty leading to the loss of a chance: see, for example, Sanders v
Parry
 (1967) 1 WLR 753 at 767;  2 All ER 803 at 809. In the present
circumstances, such a chance is not susceptible to assessment by any precise
calculation. What is required
is a common sense assessment in light of the
evidence as a whole. Based on that, I assess the chance the Plaintiffs would
have secured
and retained the Museum work at around 30%. I recognise that such
quantification gives an appearance of precision. Yet the determination
is
rather a common sense, heuristic process involving recognition rather than the
precise calculation of probability theory. For
a helpful discussion see
"Probability: the Logic of the Law - a Response" in  (1995) 15 Oxford Journal
of Legal Studies 55-6 by Hodgson J (writing extra-judicially). There he
demonstrates how probability theory is generally not applied in any strict
sense
in such a process, which is rather one of "common sense, experience of
the world and based on beliefs of how people behave (folk
psychology)". Such a
process must always be based on the evidence, though its interpretation
necessarily draws on those sources.


70.  The matters I have taken into account in reaching this outcome include
the following. First, the test strip suggested that
the Plaintiffs were not
able to provide better quality prints than Allied Reprographics. Second, the
Plaintiffs' own assessment of
the amount they would have charged the Museum
shows they may not have been price competitive with the Defendants, who as a
start-up
enterprise, were more concerned with obtaining customers than in
making a large profit. Third, Mr Doe's evidence was that the Defendants
received the Museum's work subsequent to the $3,000 job due to the enthusiasm
and personal service that Ms Rando was able to provide.
I have concluded this
was crucial to Mr Doe. The Plaintiffs operated an established business with a
large customer base, suggesting
that the Plaintiffs may have had some
difficulties in offering the level of personal service required by Mr Doe for
the Museum work.
The Defendants on the other hand, were in a start-up phase,
with no competing clients. Fourth, and on the other hand, the Plaintiffs
were
experienced and successful operators in the photographic processing and
printing business, who would have been able to make
a competent presentation
to Mr Doe in order to obtain what was potentially a very significant amount of
work. The potential for such
a presentation to convince Mr Doe that the
Plaintiffs were able to provide the type of service he required for the Museum
work should
not be discounted. Fifth, the Museum work was in fact a series of
jobs. Even if the Plaintiffs had initially secured the work, there
is no
guarantee they would have kept it in the face of competition from the
Defendants and Allied.


71.  Thus the damages that the
Plaintiffs should receive for the Defendants'
breach is the profits they would have made if they had have secured and
retained the
Museum work, which I have earlier estimated at $74,000,
multiplied by the chance that the work would have been obtained, which I
have
estimated at 30%. The damages quantified on this basis are $22,200. In so
doing, I am applying the approach laid down by the
High Court in Malec v J C
Hatton Pty Ltd  (1990) 169 CLR 63 8 and subsequently developed in Poseidon Ltd
and Sellers v Adelaide Petroleum NL [1994] HCA 4;  (1994) 179 CLR 332. As this figure is less
than the profits which I am satisfied the Defendants in fact made on the
Museum work, I need to look at what
an account of profits would yield, with
the discount, if any, that may be required.


Account of profits
72.  The remedy of account
of profits for breach of fiduciary obligations was
considered by the High Court in the earlier cited case of Warman International
Ltd v. Dwyer, including whether an entitlement to such remedy arose, and the
basis upon which such an account should be taken. It
is clear that liability
to account for profits made in breach of fiduciary obligations is not
dependent on upon proof of damages
by the person to whom the fiduciary duty is
owed, or dishonesty or lack of bona fides of the fiduciary: Warman
International at 208;
Consul Developments Pty Ltd v. DPC Estates Pty Ltd at
394 per Gibbs CJ. Further, it is generally immaterial to the fiduciary's
liability
to account that the person to whom the fiduciary obligation is owed
could not have earned the profit or gain: Warman International
at 212. Thus
the above assessment of the Plaintiffs chances of gaining the Museum work is
immaterial to such remedy. Although the
remedy is discretionary, in the
absence of equitable defences such as estoppel, laches or acquiescence, the
basic pfinciple is that
the principal who so elects is entitled to an account
of profits. In the current circumstances, the fiduciaries obtained an
identifiable
profit from a breach of fiduciary obligation involving active
dishonesty, and the persons owed such obligation took appropriate action
on
becoming aware of such breach. I am thus satisfied that the circumstances are
such that the remedy of account of profits is appropriate.


73.  The assessment of profit will often be extremely difficult in practice.
Again what is required of the inquiry will not be
mathematical exactness but a
reasonable approximation of what was acquired by the fiduciary in consequence
of the fiduciaries' breach
of duty: Warman International at 209; My Kinda Town
Ltd v. Soll  (1982) FSR 147 at 159 per Slade J. I have earlier estimated that
the Defendants made a profit on the Museum work of $51,275. The question thus
arises
whether the Defendants should be liable to account for the full amount
of the profits made on the Museum work, or some smaller amount,
as being
acquired in consequence of their breach. With respect to the current situation
where a competing business has been established
and carried on by a fiduciary
in breach of fiduciary obligations, Mason J noted in Hospital Products that
there are two possible
approaches to assessing the profit or benefit obtained
by that fiduciary in consequence of their breach. His Honour stated at 610:

    "One approach, more favourable to the fiduciary, is that he
    should he liable to account as constructive trustee not of

   the entire business but of the particular benefits which
    flowed to him in breach of his ditty. Another approach, less
   
favourable to the fiduciary, is that he should be held
    accountable for the entire business and its profits, due
    allowance
being made for the time, energy, skill and financial
    contribution that he has expended or made. In re Jarvis
    ((1958) 1 WLR
815 at 820; (1958) 2 AHER 336 at 340), Upjohn J
    observed, correctly in my opinion, that it is not possible to
    say that one
approach is universally to be preferred to the
    other, for each case depends on its own facts and the form
    of inquiry which
ought to be directed must vary according to
    the circumstances. In each case the form of inquiry to be
    directed is that which
will reflect as accurately as possible
    the true measure of the profit or benefit obtained by the
    fiduciary in breach of his
duty. "


74.  The above passage was quoted with approval in Warman International at
209. The High Court noted at 212 that the onus
lies upon the Defendant to
establish that it is inequitable to order an account of the entire profits
earned by such a business.
If the Defendant does not establish such inequity,
then the Defendant must bear the consequences of mingling the profits
attributable
to their breach of fiduciary duty with the profits attributable
to their own skill efforts property and resources. The Court stated
at 211: 
    "In the case of a business it may well be inappropriate and
    inequitable to compel the errant fiduciary to account
for the
    whole of the profit of his conduct of the business or his
    exploitation of the principal's goodwill over an indefinite
    Period of time. In such a case, it may he appropriate to
    allow the fiduciary a proportion of the profits, depending on
 
  the particular circumstances. That may well he the case when
    it appears that a significant Proportion of an increase in
  
 profits has been generated by the skill, efforts, properly
    and resources of the fiduciary, the capital which he has
    introduced
and the risks he has taken, so long as they are
    not risks to which the principal's properly has been exposed.
    Then it may
he said that the relevant proportion of the
    increased profits is not the product or consequence of the
    plaintiff's property
by the product of the fiduciary's skill,
    efforts, property and resources."


75.  The above passage of Mason J from Hospital
Products was referred to by
Pincus J in Schindler Lifts Australia Pty Ltd v. Debelak at 301-302 The facts
of that case were similar
to those before me, in that it involved employees
making secret arrangements to compete with their employer in breach of their
fiduciary
obligations. Pincus J held the employees were liable to account as
constructive trustee not for the entire business, but only for
the particular
benefits which flowed from their breach. These particular benefits were
assessed as merely being the acceleration
by a month of the process of
obtaining the commercial advantage. His Honour thus adopted that approach
which was the more favourable
to the fiduciaries. In adopting such approach,
His Honour relied upon the nature of the breach by the employees, which he
treated
as being not of a serious nature. Indeed, His Honour went so far as to
state that the commercial advantage in that case was one that
the employees
"may well have felt they were morally entitled to attempt to secure before
committing themselves to leaving their employment"
(at  301-302). I am
satisfied the current situation is distinguishable on that basis, in that the
Defendants' breach clearly cannot
be considered trivial in nature.


76.  It is clear that in the current circumstances, although the Museum work
was first secured
by the Defendants in breach of their fiduciary duty, the
Defendants only retained that work because they were able to offer highly
professional and dedicated services, including a great deal of personal
running around in collecting prints and the like. Indeed,
I hold that a
significant proportion of the profits made were thus properly attributable to
the Defendants' skill, effort and resources,
especially with regard to the
later work. Thus due allowance should be made for the time, energy, skill and
financial contribution
that the Defendants expended in retaining that work
over a period of time. I am satisfied that this contribution is best reflected
by applying a discount to the total profit made by the Defendants on the
Museum work. Such discount should reflect the skill, effort
and resources that
the Defendants were able to dedicate to that task, a contribution which in
fairness entitles them to a proportion
of the profits made. I am satisfied
that taking all relevant factors into account, an appropriate discount rate is
20%. The Defendants
are thus liable as constructive trustees to account to the
Plaintiffs for 80% of the total profit made from the Museum work, being
the
amount of $41,020.


ORDERS
77.  I invite the parties to submit draft orders giving effect to this
judgement within 14 days.


78.  Subject to any submissions either party may wish to make at the time the
draft orders are handed up, costs would ordinarily
follow the event and thus
be awarded to the Plaintiffs.