Efg Australia Limited and Ors. v Kennedy and Ors. [1999] NSWSC 922 (9 September 1999)

Last Updated: 13 September 1999

NEW SOUTH WALES SUPREME COURT

CITATION: EFG Australia Limited & Ors. v. Kennedy & Ors. [1999] NSWSC 922

CURRENT JURISDICTION: Equity Divisiion

FILE NUMBER(S): No. 3056 of 1995

HEARING DATE{S): 24th and 25th August 1999

JUDGMENT DATE: 09/09/1999

PARTIES:

EFG Australia Limited, EFG Treasury Pty. Limited, EFG Finance Limited - Plaintiffs

Robert David Phillips - 2nd Defendant

JUDGMENT OF: Hodgson CJinEq

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

Mr. Burnside QC with Mr. Collins for Plaintiffs

Mr. L. Ellison for 2nd Defendant

SOLICITORS:

Corrs Chambers Westgarth, Melbourne for Plaintiffs

Bateman Battersby, Penrith for 2nd Defendnat

CATCHWORDS:

EMPLOYMENT LAW - CONTRACT OF SERVICE. EQUITY - FIDUCIARY OBLIGATIONS

ACTS CITED:

DECISION:

See p.21 of judgment

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

CORAM: HODGSON, CJ in Eq.

Thursday 9th September 1999

NO. 3056 OF 1995

EFG AUSTRALIA LIMITED & ORS. V. KENNEDY & ORS.

JUDGMENT

1 From 24th July 1989 to 2nd August 1995, the defendant Robert David Phillips was employed by the second plaintiff EFG Treasury Pty. Limited (which I will call "EFG Treasury") to assist another employee David Ian Kennedy in the management, on behalf of the first plaintiff EFG Australia Limited (which I will call "EFG"), of a joint venture development at Penrith known as the Glenmore Park joint venture. That employment was peremptorily terminated on 2nd August 1995 by John O'Grady, the Managing Director of EFG and EFG Treasury.

2 In these proceedings, the plaintiffs seek an account from Mr. Phillips of certain payments and benefits received by him during that employment. By a cross-claim, Mr. Phillips seeks damages for wrongful dismissal.

OUTLINE OF FACTS

3 I will commence with an outline of facts not substantially in dispute.

4 On 4th May 1989, EFG entered into a joint development agreement with NSW Land & Housing Corporation whereby the Corporation agreed to form a joint venture to develop 473 hectares of land known as Glenmore Park at Penrith. When fully developed, Glenmore Park was to be a residential suburb, comprising 4,500 residential allotments and also community facilities. EFG then proceeded to provide development services to the joint venture by contracting with a project manager. Initially, with the Corporation's consent, EFG appointed Glenmore Park Developments Pty. Limited as project manager. That company engaged Benjamin Chow, a town planner and engineer, as a project consultant to provide professional engineering services. Another company, Glenmore Park Realty Pty. Limited, was engaged from about 1990 to market the real estate of the joint venture.

5 Glenmore Park Developments was initially controlled by a Mr. Lowry and a Mr. Turnbull; but by about the middle of 1991, those persons ceased to be involved in the joint venture. Their role was in substance taken over by Mr. Chow; and by an agreement dated 6th March 1992, Sydney Subdivision Pty. Limited, a company controlled by Mr. Chow, was appointed project manager in place of Glenmore Park Developments. By about this time, Glenmore Park Realty had also come to be controlled by Mr. Chow.

6 Mr. Kennedy was first employed by the plaintiffs on 15th February 1988, and was given the responsibility to manage overall the development of the joint venture on behalf of the plaintiffs. Mr. Phillips was first employed by the plaintiffs on 24th July 1989, and he was made second in charge to Mr. Kennedy. Mr. Phillips' responsibilities included reviewing on behalf of the plaintiffs tenders and accounts in relation to engineering services submitted by Mr. Chow.

7 The first transaction about which the plaintiffs complain was the purchase of Lot 3145 Glenmore Park by Osaka Holdings Pty. Limited (which I will call "Osaka"), a company of which Mr. Phillips was a director and a one-third owner. A sales summary dated 4th May 1991 records the sale of that lot to Osaka for $70,000.00, with a rebate of "5k", and "exchange upon DA approval". On 3rd June 1991, Mr. Kennedy sent a memorandum to the Department of Housing recommending reductions in price inter alia for Lot 3145, from $70,000.00 by a rebate of $5,000.00, as it was "proving difficult to sell". A further sales summary dated 4th September 1991 records the sale of this lot to Osaka for $71,000.00, with a rebate of $6,000.00. Osaka re-sold this land in February 1992 for $80,000.00.

8 Meanwhile, an invoice dated 23rd September 1991 was sent by The Urban Collaborative Design (a name used by Mr. Phillips) to Benjamin M.T. Chow & Associates for $3,750.00, being for "Professional Consulting Services from 1 June thru 30 August 1991". Mr. Phillips received payment of this sum from Mr. Chow or an entity associated with him. Further similar invoices were sent dated 10th December 1991 (for $3,750.00, in respect of the period 1st September to 30th November 1991), and 12th May 1992 (for $6,250.00 in respect of the period 1st December 1991 to 30th April 1992); and those invoices were also paid. Mr. Phillips claims that these invoices and payments were in respect of professional work which he performed for Mr. Chow in his spare time.

9 An invoice dated 27th August 1991 was sent from "Phillips Racing", a name associated with go-kart racing organised by Mr. Phillips, to Glenmore Park Realty, for $1,961.50 for kart parts and other items. This invoice was paid by Glenmore Park Realty. There were further similar invoices dated 24th January 1994 for $1,760.00, 20th July 1994 for $1,546.60, 7th November 1994 for $1,924.50, and 8th November 1994 for $2,000.00. These invoices were also paid by Glenmore Park Realty. According to Mr. Phillips, these were payments for sponsorship of go-kart racing and for associated advertising benefits, which he had arranged with Mr. Chow. There is a photograph and clothing in evidence showing display of the Glenmore Park name.

10 The second land transaction about which the plaintiffs complain was the purchase by Osaka of Lot 3208. In a memorandum dated 5th November 1991 to the Department of Housing, Mr. Kennedy recommended that the price of Lot 3208 be reduced to $76,000.00, despite a valuation report dated 31st October 1991 assessing its value at $80,000.00. A sales advice dated 30th November 1991 recorded the sale of this lot to Minion Holdings Pty. Limited for $76,000.00. It appears that this purchaser then sought a rebate of $4,500.00, and on 16th December 1991, this was rejected by Mr. Kennedy. A record dated 30th January 1992 shows the sale of this lot to Osaka for $76,000.00, and a settlement sheet dated 14th July 1992 shows that a rebate of $6,000.00 was allowed off that price on settlement. By that time, Osaka had subdivided the lot into two lots, and it appears that the sale of those two lots for $98,950.00 was completed at the same time.

11 A memorandum dated 12th October 1992 from Mr. Kennedy to Mr. Phillips asserted as follows:

STAFF DEALINGS IN LAND PURCHASES GLENMORE PARK

You are herein reminded of your duties as employees of Elders to fully disclose any involvement you may have in transactions relating to properties at Glenmore Park and would advise that such disclosure must be in writing to me and should be made available in relation to any transaction either personally, as a Director of any company or in relation to any relative.

You are formally advised that any breach of the foregoing will necessity (sic) notice being given to Head Office in Melbourne of such breach so that appropriate action can be taken.

Kindly confirm, in writing, acknowledgement of this memo.

On the next day, Mr. Phillips responded confirming full and complete understanding of the contents of that memorandum. On the next day, a further memorandum from Mr. Phillips to Mr. Kennedy included the following:

I wish to express my concern to you over this incident and the previous Osaka one, both of which were obviously brought up to suggest improper conduct on behalf of myself and other employees of key Glenmore Park companys (sic). I personally am finding it increasingly difficult to work in circumstances where one has to continually justify the propriety of their business conduct. I would hope that you can take steps to stop this petty and unwarranted comment and criticism from continuing, so that myself and the other key people within the Glenmore Park team can continue to effectively advance this project to a successful conclusion without wasting our time on answering unwarranted accusations.

12 An invoice dated 22nd March 1993 from The Urban Collaborative Design to Glenmore Park Realty claimed "commission" totalling $6,750.00. It shows a calculation of this amount, being $600.00 for "lots settled to date 8 x $75" and $6,150.00 being "advance on further settlements 82 x $75". Further similar invoices were sent or dated 16th June 1993 (for $9,000.00, as an advance on 120 further settlements), 20th July 1994 (for $20,025.00, for 267 lots settled), 7th November 1994 (for $10,050.00, for 134 lots settled), and 4th April 1995 (for $13,875.00, for 165 lots at Glenmore Park and 20 lots at Mango Hill). These invoices were paid. Mr. Phillips gave evidence that these invoices were also for professional work performed for Mr. Chow in his spare time, as before. The method of invoicing was as requested by Mr. Chow.

13 On 19th October 1993, EFG Treasury and Mr. Phillips executed a service agreement. The relevant clauses of that agreement are clauses 4.1, 4.3, 4.4 and 6.1. Clause 4.1(a), (e) and (f) were in the following terms:

4.1 The Executive shall as an employee of the Company:

(a) act diligently and do the best of his ability, and show good faith to the Company;

...

(e) not at any time do anything negligently or fraudulently which directly or indirectly may or may be liable to cause loss or damage or to impair the Company;

(f) notify the Company of any information directly or indirectly relating to any business opportunity relating to the assets of Foster's which the Executive becomes aware of during the course of his employment with the Company as soon as practicable after becoming aware of such information.

"Foster's" is defined in the agreement to mean Foster's Brewing Group Limited and related companies, and those related companies include EFG and EFG Treasury. Clauses 4.3, 4.4 and 6.1(b) and (h) were in the following terms:

4.3 The Executive shall disclose to the Company in writing prior to or at the time of making any recommendation in relation to the business of Foster's if any proposed transaction in relation to the business of Foster's is a transaction in which the Executive has any interest, whether direct or indirect, and if so, the nature of any such interest.

4.4 During the continuance of his employment under this Agreement the Executive shall not, except with prior written consent of the Company be directly or indirectly engaged or concerned in any other business, occupation or undertaking provided that nothing in this clause shall apply to or in respect of the holding of shares in any company listed on any stock exchange (being shares which do not in the aggregate exceed five percent [5%] of the total of the issued shares in that company).

6.1 The employment of the Executive may be terminated by the Company forthwith and without notice if the Executive:

...

(b) having acted in breach of any obligation owed by him to the Company fails to remedy that breach within fourteen (14) days (or such longer period as may be specified by the Board after receiving a notice from the Company requiring that the breach be rectified);

...

(h) is in the reasonable opinion of the Board guilty of negligence or dishonesty or misconduct or incompetence.

14 According to Mr. O'Grady, Mr. Phillips reported to Mr. Kennedy. Mr. Kennedy was the senior manager managing the joint venture on behalf of EFG, and he was authorised by EFG to do various things in connection with the joint venture, including executing village management agreements, supply contracts, tender acceptances, works agreements, and (at least from 23rd June 1992) contracts for the sale of joint venture land. It seems that Mr. Kennedy reported directly to Mr. O'Grady.

15 Also according to Mr. O'Grady, he was not told, prior to the commencement of these proceedings, nor was his approval sought or given, to the effect that Mr. Phillips or any person or company associated with him was receiving benefits beyond his salary in connection with his employment; nor that any company in which he was interested was purchasing lots at Glenmore Park (although he became aware of this matter shortly before the proceedings were commenced).

16 In about May or June 1995, Mr. O'Grady received information suggesting Mr. Phillips had breached his duties to the plaintiffs in relation to the joint venture. He engaged a private investigator to look into the matter. The information which ultimately led to the dismissal of Mr. Phillips on 2nd August 1995 became known to Mr. O'Grady progressively from about late June 1995 and through July 1995. At that stage, the information was limited to the Osaka transactions.

17 On 10th July 1995, Mr. O'Grady signed a letter approving a pay increase for Mr. Phillips. That letter was in the following terms:

On behalf of EFT Treasury Pty. Ltd. and Foster's Brewing Group I would like to thank you for your contribution to our successful operation during the last financial year.

I am pleased to advise you that with effect from 1 July 1995 your Total Remuneration has been increased by $4,197 to $109,120 per annum.

Your remuneration increase will be processed in the August payroll.

In common with other parts of the Foster's Group, not all EFG employees will receive a pay increase. It is therefore imperative that, as in all employment and remuneration matters, you do not discuss this matter with other employees.

At the time he signed that letter, Mr. O'Grady was aware that serious allegations had been made against Mr. Phillips, and that they were being investigated.

18 The events immediately leading up to the dismissal were described as follows by Mr. O'Grady, in an affidavit sworn by him:

2. In 1995, the Board of the Second Plaintiff, EFT Treasury Pty. Limited, consisted of myself and Mr. Bruce Elliott.

3. On 31 July 1995 at 11.00am I called a meeting attended by Bruce Elliott, a Director of the Second Plaintiff, Brian Russell, the Company Secretary of the Second Plaintiff and David Neufeld, the Chief Financial Officer of the Second Plaintiff. That meeting was held at 333 Collins Street, Melbourne on Level 19.

4. The purpose of the 31 July 1995 meeting was for myself and Brian Russell to appraise Bruce Elliott and David Neufeld of the results of investigations into the management of the Glenmore Park joint venture, to discuss court action which was proposed, and to discuss a proposal that the employment of David Kennedy and Robert Phillips by the Plaintiffs be terminated.

5. At the meeting I said words to the effect:

"On my instructions investigations have been undertaken by Peter Spence into the conduct of the Glenmore Park joint venture and statements have been obtained by him in the course of those investigations."

6. I informed those at the meeting of the results of Mr. Spence's investigations and summarised the contents of the statements he had obtained. I am now unable to recall the detail of what I said about all the statements but in relation to the information concerning Mr. Phillips, I said words to the following effect:

"Peter Spence has obtained a statement from a person connected with the joint venture who has said that he made payments to Bob Phillips in connection with the Glenmore Park joint venture and that Bob Phillips through a company known as Osaka Holdings Pty. Ltd had been involved in purchasing lots of land at Glenmore Park for resale at a profit to builders. There is a suggestion that Bob Phillips has had work performed on his home at very good rates by builders who are purchasing lots at Glenmore Park. Peter Spence had confirmed Osaka Holdings Pty. Ltd. had purchased lots at Glenmore Park and Bob Phillips was a director of that company."

7. In the course of the discussion concerning Mr. Phillips I said words to the following effect:

"Bob Phillips did not disclose to EFG his dealings at Glenmore Park"

8. At the conclusion of the discussion, Mr. Bruce Elliott, Brian Russell and David Neufeld said they agreed with the proposal to terminate Mr. Kennedy's employment, terminate the employment of Mr. Phillips' and to proceed with the court action proposed.

19 On 2nd August 1995, without prior notice, EFG Treasury dismissed Mr. Phillips. Mr. O'Grady handed Mr. Phillips and said words to the effect "Your employment is terminated forthwith". The letter was in the following terms:

1. I hereby give you formal notice of the immediate termination of your employment under the Service Agreement dated 19 October 1993 on the grounds of serious misconduct.

2. Details of your termination payment are enclosed, together with a cheque from the employer company, EFG Treasury Pty. Limited. The termination payment includes five weeks pay in lieu of notice plus holiday pay up to and including today. The payment is made in accordance with the Industrial Relations legislation.

3. Under the circumstances, you have forfeited your entitlement to the redundancy payment, as set out in the Company's letter dated 19 October 1993. Notice of termination of your employment will be forwarded to the administrators of the Foster's Brewing Group Superannuation Fund shortly, and they will contact you direct regarding your superannuation payout.

4. The following are to be handed to me (or my nominee) forthwith:

Keys to the West Ryde office.

Keys to filing cabinets and desk drawers at the West Ryde office.

Keys to motor vehicle Registration No. QJQ 587

Details of the location of the above vehicle so that it can be collected.

American Express Card No. 3760 209281 12006.

BP Petrol Card No. 5211

Shell Petrol Card No. 1318

Any documents or records of EFT Australia Limited and/or its subsidiaries which are in your possession or under your control.

Any documents or records of the Glenmore Park Joint Venture development which are in your possession or under your control

5. Suffice to say that your actions are viewed with disappointment and regret, EFG proposes to conduct a comprehensive review of the operations of the Glenmore Park Joint Venture development following which decisions will be made regarding further legal proceedings.

20 Mr. Phillips was for a time unable to obtain other employment, and subsequently he obtained employment for a lower remuneration. If I find that Mr. Phillips is entitled to damages, the detailed calculation of those damages will be left to a further enquiry.

ISSUES

21 The first issue to be considered is whether Mr. Phillips owed fiduciary duties to the plaintiffs. Paragraph 18 of the Second Further Amended Statement of Claim alleges as follows:

18. Further, at all relevant times since his employment commenced on 24 July 1989:

(a) Phillips owed to the plaintiffs or alternatively the first and second plaintiffs fiduciary duties as follows:

(i) to act honestly, diligently and in the best interests of his employer in carrying out his duties;

(ii) not to take advantage of his position to obtain any benefit for himself or his associates.

(b) Phillips owed duties to the plaintiffs or alternatively the first and second plaintiffs as part of his contract of employment in terms of 17(a) and 18(a) above.

Paragraph 4 of Mr. Phillips' Amended Defence admitted paragraph 18, but then continued "but does not admit that his duty was as a 'fiduciary'".

22 Next, there is the question whether Mr. Phillips procured financial benefits for himself and for Osaka during the course of his employment. The allegation to that effect in paragraph 20 the Statement of Claim is denied, but it is plain that the denial is directed to the words "during the course of his employment", so that this question really merges with the next one.

23 Thirdly, there is the question whether Mr. Phillips breached any duty to the plaintiffs. Paragraphs 20A-20C of the Second Amended Statement of Claim are in the following terms:

20A The conduct referred to in paragraph 20 above and the benefits gained by Phillips referred to in paragraph 20 above were not disclosed to the plaintiffs by Phillips.

20B. The conduct of Phillips referred to in paragraph 20 above was dishonest and improper or engaged in by him recklessly as regards to whether or not it was honest or proper.

20C. By reason of the matters referred to in paragraphs 20 to 20B above Phillips engaged in conduct which was in breach of the duties referred to in paragraph 17(a) and 18 above.

Those paragraphs are denied in the Defence. There is no express pleading alleging informed consent by the plaintiffs to Mr. Phillips' conduct. At the end of submissions, following a suggestion by me, Mr. Ellison for Mr. Phillips applied to amend the Defence to raise informed consent. That was opposed by Mr. Burnside QC for the plaintiffs. However, I consider that the case was conducted on the basis that informed consent was a live issue, and I am prepared to allow the Defence to be amended so that that issue is explicitly raised.

24 I should also mention that an application was made at the same time to raise waiver as a defence, the alleged waiver being the letter of 10th July 1995 referred to above. That application was also opposed by Mr. Burnside. I indicated a tentative view that I would not permit that amendment, as I did not consider the case had been conducted on the basis that there was any question of waiver. I indicated tentatively that I accepted Mr. Burnside's submission that had waiver been expressly raised, the plaintiffs would have devoted more attention to Mr. O'Grady's knowledge and intentions in signing the letter. I adhere now to that tentative view. I would add that it seems in any event extremely unlikely that Mr. Phillips could rely on waiver: it is not shown that Mr. O'Grady had full knowledge at the time of signing the letter even of the Osaka transactions, and it seems clear that he had no knowledge at the time of the other transactions complained of.

25 Next, if there was a breach of duty, there is the question of the appropriate remedy to which the plaintiffs may be entitled.

26 Then, on Mr. Phillips' Cross-claim, there is the question whether EFG Treasury was entitled to terminate the employment, either under general law, or pursuant to cl.6.1(b) and/or (h) of the service agreement. I note that the pleading also referred to par.(f) of cl.6.1, but that was not relied on.

27 Finally, if EFG Treasury was not entitled to terminate the employment, it will be necessary to make some findings as to the basis on which damages would be calculated.

28 There are some factual questions within these issues, especially in relation to the question of whether Mr. Phillips breached any duty to the plaintiffs. I will consider those factual questions as I consider the relevant issues.

29 Accordingly, I will deal with the matter under three topics: first, the nature of Mr. Phillips' duty; second, was there any breach of that duty, and if so, what remedy is the plaintiff entitled to; and third, was EFG Treasury entitled to terminate the employment, and if not, on what basis should damages be calculated.

THE NATURE OF MR. PHILLIPS' DUTY

30 Although the relationship of employer and employee is generally said to be a fiduciary relationship, it seems that the fiduciary obligations of junior or "ordinary" employees are narrower than those of senior employees, and indeed that in many respects ordinary employees are not fiduciaries at all: see Austin, "Fiduciary Accountability for Business Opportunities" in Finn, Equity and Commercial Relationships (Sydney LBC 1987) at p.171-2; State Rail Authority of New South Wales v. Earthline Constructions Pty. Limited (O'Keefe, CJ Comm.D., Supreme Court of New South Wales, 14/9/94); Colour Control Centre Pty. Limited v. Ty (Santow, J, Supreme Court of New South Wales, 24/7/95).

31 However, in State Rail Authority at p.52, O'Keefe, CJ Comm.D. said this:

Those duties 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.

This was quoted with approval by Santow, J. in Colour Control Centre at p.17.

32 Mr. Phillips was a quite senior employee of the plaintiffs, being the second in charge of managing a very large project. In my opinion, he had fiduciary duties at least to the extent set out in the passage quoted above. The written agreement of 19th October 1993 reinforces this view, at least in relation to the period following its date.

WAS THAT DUTY BREACHED?

Submissions

33 Mr. Burnside QC for the plaintiffs referred to Mr. Phillips' evidence that the first three invoices were for work unrelated to Glenmore Park, including designing a duplex at Alfreds Point, two housing schemes at Kariong, landscape work, Narellan Exhibition Homes, and planning and use of land at East Gosford, Bayview and Penrith Lakes; and that the remaining invoices were also for work performed for Mr. Chow, not being work associated with the plaintiffs. Mr. Burnside submitted that these explanations should be rejected: no documents were produced evidencing the work allegedly performed; and in relation to the later invoices, there was no proper explanation for the invoices being addressed to Glenmore Park Realty, for the services being described commissions on lot sales, or for why Mr. Chow wanted invoices which were admittedly false. The only reasonable conclusion were that the payments were made to Mr. Phillips by virtue of his office and in connection with his duties in relation to Glenmore Park.

34 Mr. Burnside next submitted that the purchases and re-sales by Osaka involved a clear breach of fiduciary duty. The only defence suggested was that Mr. Kennedy was aware of the purchases and had not objected to them. In fact the evidence did not demonstrate that Mr. Kennedy was aware of the transactions.

35 Similarly, in relation to the sponsorship of go-kart racing, there was no suggestion that the promotional value of the sponsorship justified these payments: the only inference that could be drawn was that the payments were received by reason of Mr. Phillips' position in relation to the joint venture and in order to place him under an obligation to Mr. Chow.

36 Mr. Burnside submitted that Mr. Phillips was accordingly obliged to account for these benefits, as being obtained where there was a conflict or possible conflict between his fiduciary duty and his personal interest, or by reason of his fiduciary position. This liability did not depend on evidence of detriment to the plaintiffs, or even upon dishonesty or lack of bona fides: see Hospital Products Limited v. United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 68; Warman International Limited v. Dwyer (1995) 182 CLR 554 at 557; Chan v. Zacharia [1984] HCA 36; (1984) 154 CLR 178 at 199; Consul Developments Pty. Limited v. DPC Estates Pty. Limited [1975] HCA 8; (1975) 132 CLR 373 at 394.

37 In so far as Mr. Kennedy sought to rely on informed consent, on any view the level of disclosure concerning the payments to Mr. Chow and the Osaka transactions were insufficient. I should accept Mr. O'Grady's evidence that Mr. Kennedy had power to reject consent for transactions involving a conflict of interests, but not to approve them. There was no evidence from Mr. Phillips that he believed Mr. Kennedy had authority or relied on any such belief, or as to any grounds which could support such a belief.

38 Mr. Ellison for Mr. Phillips submitted first that, in relation to the sponsorship for go-kart racing, Mr. Chow was entitled to spend money on advertising, and it could not be misconduct on the part of Mr. Phillips that he agreed to spend it in part through an entity associated with Mr. Phillips.

39 As regards the Osaka transactions, Mr. Ellison submitted that these transactions were known to Mr. Kennedy, who had all actual and implied authority to approve of them. Mr. Kennedy was a senior executive. His knowledge and authority was confirmed by the memoranda of October 1992.

40 As regards the invoices to and payments by Mr. Chow, there was no indication that Mr. Phillips absented himself from his duties and obligations to the joint venture. Mr. Chow was entitled to use the skills and talents of Mr. Phillips in a manner that both saw appropriate, so long as there was no conflict.

41 Mr. Ellison pointed out that Mr. Phillips was not cross-examined on his assertions that his work for Mr. Chow had nothing to do with the Glenmore Park project, or, in relation to the later invoices, that it was Mr. Chow who established and continued this particular regime. Although Mr. Phillips' employment was full-time employment, this did not prevent him working in his spare time. Mr. Ellison submitted that I should infer that the evidence from Mr. Kennedy and Mr. Chow would not have assisted the plaintiffs. It was never put to Mr. Phillips that the payments from Mr. Chow were a reward for favouring Mr. Chow in relation to his tenders and accounts.

Decision

42 In my opinion, the suggestion that the payments by Mr. Chow to Mr. Phillips were connected with his employment by the plaintiffs, and with his dealings with Mr. Chow in relation to the Glenmore Park project, was sufficiently raised and put to Mr. Phillips in cross-examination. The Statement of Claim alleged that the payments were dishonest and improper, or else reckless. The cross-examination suggested that Mr. Phillips did no work apart from his work connected to Glenmore Park which justified the payments. Mr. Phillips was questioned in relation to the later invoices, which Mr. Phillips admitted, after some prevarication, were deliberately false. It was put to Mr. Phillips that his job included reviewing Mr. Chow's construction tenders and his monthly accounts.

43 Although I am not affirmatively satisfied that Mr. Phillips did no work for Mr. Chow outside his duties in connection with Glenmore Park project, and while I accept Mr. Phillips' evidence that he would charge his time for such work as he may have done at $100.00 per hour, I am affirmatively satisfied that the performance of any such work was not the substantial reason or basis for the payments made by Mr. Chow to Mr. Phillips.

44 In coming to this view, I rely on the circumstance that Mr. Phillips was unable to produce any records or documents which evidenced such work for Mr. Chow, and gave no satisfactory explanation for the complete absence of such records or documents. In my opinion, in relation to this matter it was for Mr. Phillips to call Mr. Chow or to subpoena Mr. Chow to produce documents evidencing such work; and Mr. Phillips' failure to do so in my opinion suggests that those steps would not have assisted Mr. Phillips' case. The preparation of deliberately false invoices further supports the conclusion I have reached. I note that Mr. Phillips gave evidence to the effect that Mr. Chow said "rather than try and maintain precise records, he would pay (Mr. Phillips) a reasonable amount for (his) services"; but in my opinion this evidence further confirms that the payments were not in substance related to or based upon work done by Mr. Phillips for Mr. Chow unconnected with the Glenmore Park project. My conclusion is also supported by Mr. Phillips asserting that the receipt of these payments did not create any conflict of interests, because the issues with Mr. Chow were entirely separate: in the absence of further explanation, it is difficult to see how Mr. Phillips could honestly hold such an opinion.

45 I accept Mr. O'Grady's evidence that he knew nothing of the payments by Mr. Chow, and also his evidence that Mr. Kennedy did not have the plaintiffs' authority to approve of transactions involving a conflict of interest.

46 In support of a defence of informed consent, Mr. Phillips gave evidence that his work for Mr. Chow was openly discussed in the presence of Mr. Kennedy; although he accepted that he did not tell Mr. Kennedy that he was getting something like $1,250.00, and later $2,000.00, per month, or that Mr. Chow had asked for false invoices. In my opinion, this could not amount to informed consent by the plaintiffs. Mr. Kennedy was not sufficiently informed about the matter. He did not have any actual authority to give consent on behalf of the plaintiffs. There is no evidence from Mr. Phillips that he believed Mr. Kennedy had such authority. There is no evidence of any reasonable grounds for any such belief, such as might support a case of ostensible authority.

47 In those circumstances, in my opinion the receipt of the payments from Mr. Chow did involve breaches of Mr. Phillips' fiduciary duties. In my opinion, Mr. Phillips is now bound to account to the plaintiffs for those payments, with interest from the time of their receipt. In my opinion, no basis is shown for any "just allowance" deduction from those payments: the evidence about work performed by Mr. Phillips which might in part justify the payments is too tenuous.

48 As regards the Osaka transactions, in my opinion there was a clear conflict of interest in relation to those transactions, and that in such transactions, Mr. Phillips benefited himself to the detriment of the plaintiffs. In my opinion, Mr. Phillips is obliged to account to the plaintiffs for one-third of the profit made in each of those transactions. In relation to Lot 3208, this was subdivided before re-sale, and there is some evidence that Mr. Phillips did professional work in relation to that subdivision. On that matter, I would make provision for just allowances. Otherwise, the plaintiffs are entitled to the whole of the one-third of the profits, plus interest.

49 As regards the go-kart sponsorship, this seems to me to be a borderline case. The evidence does not suggest any monetary profit by Mr. Phillips, but rather that certain expenses associated with go-kart racing involving his son were paid by Glenmore Park Realty. It seems also that the Glenmore Park project received the benefit of some publicity from this sponsorship. Ultimately, having regard to the smallness of the amounts involved, the difficulty of assessing just allowances, and the borderline nature of the conflict of interest, I am not satisfied that relief is justified in relation to these transactions.

WAS THE DISMISSAL WRONGFUL?

Submissions

50 Mr. Ellison submitted that the service agreement should be construed contra proferentem, and that, even if there were some conduct by Mr. Phillips that might justify dismissal, the plaintiffs had to give Mr. Phillips the opportunity to rectify the situation contemplated by cl.6.1(b): see Nissho Iwai Australia Limited v. Malaysian International Shipping Corporation (1988) 12 NSWLR 731; Darlington Futures Limited v. Delco Australia Pty. Limited [1986] HCA 82; (1986) 161 CLR 500. The requirements of the agreement leading to dismissal had to be strictly complied with: Tricontinental Corporation Limited v. HDFI Limited (1987) 21 NSWLR 689.

51 The burden of proving justification for dismissal was on the plaintiffs: Blyth Chemicals Limited v. Bushnell Limited [1933] HCA 8; (1933) 49 CLR 66 at 67. In any event, Mr. Phillips was not in breach of his duties to the plaintiffs in working for Mr. Chow in his spare time: see Cementaid (NSW) Pty. Limited v. Chambers, Spender, J., Federal Court of Australia, 29/3/95.

52 Mr. Ellison further submitted that the plaintiffs were obliged to afford natural justice: see Macken McCarry & Sappideen, The Law of Employment, 4th Ed., 1997, footnote 180. Mr. Ellison also referred me to North v. Television Corporation Limited (1976) 11 ALR 599 at 609; Martin v. South Australia (1982) 49 SAIR 269 at 284.

53 At common law, Mr. Phillips was entitled to reasonable notice: Quinn v. Jack Chia Australia Limited [1992] VicRp 37; (1992) 1 VR 567 at 580. Mr. Ellison also referred me to Shields v. Carlton & United Breweries NSW Pty. Limited [1999] FCA 377; (1999) 86 FCR 446 at 451; and Bostik (Australia) Pty. Limited v. Gorgevski (No.1) [1992] FCA 209; (1992) 36 FCR 20 at 34.

54 Mr. Burnside submitted that the termination was justified by cl.6.1(h): the members of the Board of EFG Treasury formed the reasonable opinion that Mr. Phillips was guilty of misconduct. There was no need for a formal Board meeting: see Roden v. International Gas Applications (1995) 18 ACSR 454 at 456; Atkins v. St. Barbara Mines Limited (1996) 22 ACSR 187 at 194, (1997) 15 ACLC 800; Swiss Screens (Aust) Pty. Limited v. Burgess (1986) 11 ACLR 756 at 758; Versteeg v. R. (1988) 14 ACR 1 at 14; Poliwka v. Heven Holdings Pty. Limited (1992) 7 ACSR 85 at 91.

55 In any event, Mr. Phillips' conduct amounted to a repudiation justifying immediate dismissal. It did not matter that, at the time of the dismissal, the plaintiffs were not aware of the whole of the conduct, and in particular not aware of the payments by Mr. Chow: Boston Deep Sea Fishing & Ice Company v. Ansell (1888) 39 Ch.D. 339.

Decision

56 In my opinion, the conduct of Mr. Phillips, including both the Osaka transactions and the payments from Mr. Chow, although the latter was not known at the time, was sufficient to amount to repudiation of his employment contract and to justify immediate dismissal: Boston Deep Sea Fishing. As Cotton, LJ said in that case, at 357:

Where an agent entering into a contract on behalf of his principal, and without the knowledge or assent of that principal, receives money from the person with whom he is dealing, he is doing a wrongful act, he is misconducting himself as regards his agency, and, in my opinion, that gives to his employer, whether a company or individual, and whether the agent be a servant, or a managing director, power and authority to dismiss him from his employment as a person who by that act is shewn (sic) to be incompetent of faithfully discharging his duty to his principal.

In the same case, at 363-4, Bowen, LJ said this:

Now, there can be no question that an agent employed by a principal or master to do business with another, who, unknown to that principal or master, takes from that other person a profit arising out of the business which he is employed to transact, is doing a wrongful act inconsistent with his duty towards his master, and the continuance of confidence between them. He does the wrongful act whether such profit be given to him in return for services which he actually performs for the third party, or whether it be given to him for his supposed influence, or whether it be given to him on any other ground at all; if it is a profit which arises out of the transaction, it belongs to his master, and the agent or servant has no right to take it, or keep it, or bargain for it, or to receive it without bargain, unless his master knows it.

57 If Mr. Phillips' conduct had not amounted to repudiation, then I am inclined to think that instant dismissal was not justified by the contract. While I would not be prepared to imply the notice requirements of cl.6.1(b) into cl.6.1(h), I am inclined to think that "reasonable opinion" in cl.6.1(h) means an opinion arrived at reasonably, as well as reasonably based on available material. In most cases, this would require natural justice to be afforded.

58 However, Mr. Phillips has now had a full opportunity to explain the payments, and for the reasons I have given, has not done so satisfactorily. The facts as I have found them would certainly support a reasonable opinion justifying dismissal. Accordingly, even if the conduct did not amount to repudiation, in my opinion Mr. Phillips would be entitled to damages only in respect of a short period during which natural justice might have been afforded to him.

59 However that may be, for the reasons I have given, the cross-claim must fail.

CONCLUSION

60 It would appear unnecessary to have any further hearing concerning the amount to be paid by Mr. Phillips, except possibly in relation to the question of just allowances in relation to the subdivision of Lot 3208. Mr. Phillips' share of the profit on this lot (leaving aside expenses) was $9,650.00, while his share of the profit on Lot 3145 (leaving aside expenses) was $5,000.00. It should be possible to agree on a figure for just allowances: any difference could not justify the expense of an enquiry.

61 The cross-claim will be dismissed, and I see no reason why Mr. Phillips should not pay the plaintiffs' costs of the proceedings properly referable to the claims against and by him.

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LAST UPDATED: 10/09/1999