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Metal Manufacturers Limited v GMJ Electrical Projects Pty Ltd[2019] QDC 62

Metal Manufacturers Limited v GMJ Electrical Projects Pty Ltd[2019] QDC 62

DISTRICT COURT OF QUEENSLAND

CITATION:

Metal Manufacturers Limited v GMJ Electrical Projects Pty Ltd & Ors [2019] QDC 62

PARTIES:

METAL MANUFACTURERS LIMITED (ACN 003 762 641)
(Plaintiff)

AND

GMJ ELECTRICAL PROJECTS PTY LTD (ACN 139 383 618)
(First Defendant)

AND

GREGORY JOHNSTON
(Second Defendant)

AND

ALFRED STOCKILL
(Third Defendant)

AND

MARIA JOHNSTON
(Fourth Defendant)

FILE NO/S:

4794 of 2013

DIVISION:

Civil

PROCEEDING:

Trial

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

29 April 2019

DELIVERED AT:

Brisbane

HEARING DATE:

18-21 February 2019, 11 March 2019

JUDGE:

Porter QC DCJ

ORDER:

  1. The Plaintiff’s claim is dismissed.
  2. The Third Defendant’s third party claim is dismissed.

CATCHWORDS:

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – DUTIES INVOLVING CONFLICTS OF INTEREST – where the Third Defendant was employed as a Profit Centre Manager by the Plaintiff – where the Third Defendant made supplies of goods to the First Defendant on unauthorised credit – where the Third Defendant obtained no personal benefit from the unauthorised credit supplies – whether the Third Defendant owed fiduciary duties to the Plaintiff as an employee – whether the Third Defendant breached his fiduciary duty by using his position to obtain a personal benefit – whether the Third Defendant breached  his fiduciary duty not to prefer his personal interests over those of the Plaintiff – whether the Third Defendant improperly used his position to gain an advantage for himself or cause a detriment to the Plaintiff in breach of s. 182 Corporations Act 2001 (Cth) – whether the Plaintiff is entitled to equitable compensation or equitable damages, or compensation pursuant to the Corporations Act 2001 (Cth)

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – ACCESSORIAL LIABILITY – where the Plaintiff and Third Defendant alleges the Second Defendant made representations that he would pay for unauthorised supplies of goods – where the Plaintiff alleges the Second Defendant knew that the Third Defendant was not authorised to make the unauthorised credit supplies –  whether the Second Defendant knowingly assisted in a dishonest breach of fiduciary duty by the Third Defendant – whether the Second Defendant has accessorial liability for any breaches of the Corporations Act 2001 (Cth) committed by the Third Defendant

Barnes v Addy (1874) LR 9 Ch App 244

Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341

Chan v Zacharia (1984) 154 CLR 178

Chew v R (1992) 173 CLR 626

EagleBurgmann Australia Pty Ltd v Leabeater (2012) 219 IR 449

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296

Hodgson v Amcor [2012] VSC 94

Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited [2017] FCAFC 74

Pilmer v Duke Group Ltd (In liq) (2001) 207 CLR 165

R v Byrnes (1992) 183 CLR 501

Corporations Act 2001 (Cth), s 79, s 182, s 1317H

COUNSEL

G Coveney for the Plaintiff

The Second, Third and Fourth Defendants each appeared on their own behalf

SOLICITORS:

Case Legal for the Plaintiff

The Second, Third and Fourth Defendants each appeared on their own behalf

Contents

Introduction4

Mr Stockill’s proceedings7

The issues7

Haymans’ evidence8

Mr Gallard8

Mr Osborne8

Mr Hart9

Mr Hardy9

Mr Raj10

Mr Stockill’s evidence10

Mr Johnston’s cross examination of Mr Stockill18

Mr Johnston’s evidence20

Mr Coveney’s cross examination of Mr Johnston22

Mr Stockill’s cross examination of Mr Johnston24

Uncontentious facts25

Resolving the conflicting accounts of Messrs Stockill and Johnston28

The competing versions summarised28

Demeanour31

General attacks on Mr Johnston’s credit31

Mr Stockill’s previous statement32

The documentary record of dealings between GMJ and Haymans32

The intercom and switchboard supply35

Inferences from GMJ’s supply needs35

Other factors generally favouring Mr Stockill’s account37

Findings38

Discussions prior to May 201339

Haymans’ claims against Mr Stockill43

The pleaded case43

General principles43

Fiduciary duty as employee?43

Breach of s. 182(1) as an employee49

Analysis of the plaintiff’s claims against Mr Stockill53

Was Mr Stockill a fiduciary?53

Did Mr Stockill breach the pleaded fiduciary duty?56

Did Mr Stockill breach s. 182(1)?59

Concluding observation60

Haymans’ Claims against Mr Johnston60

Introduction60

Mr Johnston’s accessory liability for breach of fiduciary duty61

The Law61

The plaintiff’s case on knowing assistance64

Mr Johnston’s knowledge66

Mr Johnston’s acts of assistance66

Analysis67

Mr Johnston’s liability for accessory liability for breach of s. 182(1)67

Haymans’ remedies69

Mr Stockill’s claims against Mr Johnston72

Orders73

Annexure A74

Annexure B78

Introduction

  1. [1]
    The plaintiff is a well-known supplier of electrical products under the name “Haymans” (Haymans). The first defendant (GMJ) was an electrical contractor providing fit out services to small to medium sized projects. It carried on business with Haymans from about 2010 until about August 2013. It was placed into administration in January 2014 and wound up soon after. GMJ took no part in this proceeding.
  2. [2]
    The second defendant (Mr Johnston) was the sole director and shareholder of GMJ and its guiding mind. He also directed and managed GMJ’s projects with the assistance of a number of employees.
  3. [3]
    The third defendant (Mr Stockill) was a “Profit Centre Manager” for Haymans. He was responsible for management of Haymans’ Ipswich branch.
  4. [4]
    The fourth defendant (Ms Johnston) is the wife of Mr Johnston.
  5. [5]
    In September 2012, after a trading history of about two years with the Ipswich branch, GMJ entered into a credit facility with Haymans, administered through Mr Stockill’s Ipswich branch. The credit limit was $20,000. On 20 March 2013, the credit limit was increased to $50,000. The circumstances of that event are contentious, but it is not contentious that Mr Stockill had by that date permitted GMJ’s account to exceed its $20,000 credit limit at that time by some $24,000 without authorisation by Haymans’ credit department.
  6. [6]
    Thereafter, Haymans and Mr Stockill contend that from April to July 2013 further supplies of goods totalling $275,797.50 were permitted by Mr Stockill on credit which exceeded the approved credit limit. That left a sum due for goods supplied of $325,797.50. GMJ did not pay that sum and following its insolvency, it appeared unlikely that the sum would be paid by GMJ. In late 2013, Haymans brought these proceedings to recover its losses from GMJ and failing that, from the other defendants. Mr Stockill sought indemnity from Mr Johnston for any such loss.
  7. [7]
    At trial, Haymans contended:
    1. (a)
      Mr Stockill permitted unauthorised credit supplies in knowing breach of his authority and pursuant to an agreement with Mr Johnston that supplies would be paid for when GMJ had the funds available;
    2. (b)
      Mr Stockill was induced to do so by Mr Johnston’s continuous promises that GMJ would pay for the unauthorised credit supplies;
    3. (c)
      Mr Stockill’s actions were in breach of his fiduciary duties, Corporations Act 2001 (Cth) duties and accordingly he is liable for the loss arising from the unauthorised supplies;
    4. (d)
      Mr Johnston was involved in those breaches in a manner which gives rise to accessory liability in respect of the fiduciary and Corporations Act breaches by Mr Stockill so as to make Mr Johnston liable for the loss from the unauthorised supply. That involvement was pleaded as comprising (in summary):
      1. (i)
        Reaching the agreement alleged;
      1. (ii)
        Representing to Mr Stockill that supplies on credit under the agreement would be paid for from GMJ’s successful projects; and
      1. (iii)
        Doing those acts knowing Mr Stockill’s acts were unauthorised.
  8. [8]
    By its pleading, Haymans also alleged that:
    1. (a)
      Ms Johnston had accessory liability for the loss from the unauthorised supply (that claim was dismissed by consent on the second day of the trial); and
    2. (b)
      Mr Stockhilll breached contractual employment duties and GMJ, through Mr Johnston, had engaged in misleading and deceptive conduct in breach of the Australian Consumer Law by inducing Mr Stockill to make the unauthorised supplies, and that Mr Johnston had accessory liability for that loss. Those claims were not pressed in submissions.
  9. [9]
    Mr Stockill’s defence disputed the claims advanced against him. He did not dispute the unauthorised credit supplies but said:
    1. (a)
      That it was within his authority to permit supplies on credit exceeding the credit limit; and
    2. (b)
      If doing so was not within his authority, his error was the result of inexperience and inadequate training and management abilities which were known to Haymans.
  10. [10]
    Notably, he also:
    1. (a)
      Admitted the unauthorised credit supplies were made, though did not admit the precise amount;
    2. (b)
      Alleged that the making of the supplies was not a breach of duty because he exercised his discretion to make those supplies for the benefit of Haymans; and
    3. (c)
      Alleged that he did not obtain any personal benefit from making the unauthorised supplies.
  11. [11]
    Mr Stockill changed his position substantially at trial. At trial, he made clear that he was not disputing the factual basis of Haymans’ claim against him. He admitted that he knew he was not authorized to supply goods outside of the approved credit limit,[1]that he took active steps to conceal the unauthorised supplies from Haymans by not generating tax invoices until there was available credit under the approved credit limit,[2]and that he reached an agreement as alleged by Haymans with Mr Johnston to do so.[3]He also accepted the amount claimed by Haymans.
  12. [12]
    Although Mr Stockill was not represented at trial, I am satisfied that he understood the nature and effect of his admissions. He did maintain his position that he received no personal benefit from the unauthorised supply. There was no evidence at trial to the contrary and no submission to the contrary by Haymans. Notwithstanding Mr Stockill’s factual concessions and very effective cross examination of Mr Johnston, it was plain that he had only a very  limited appreciation of the legal issues arising in the proceedings, both in respect of Haymans’ claims and in respect of his claim against Mr Johnston (dealt with from [16] below).
  13. [13]
    Mr Johnston’s defence rejected Haymans’ claims against him. In summary, Mr Johnston pleaded:
    1. (a)
      He reached no agreement with Mr Stockill to make the unauthorised supplies and conceal them from Haymans;
    2. (b)
      Mr Johnston did not know that Mr Stockill had no authority to make the supplies and in fact Mr Stockill had actual or ostensible authority to make supplies on credit outside the approved credit limit;
    3. (c)
      That he did not make the extensive representations promising payments alleged, in fact he had little to do with Mr Stockill; and
    4. (d)
      That there were no unauthorised supplies to the value alleged under any agreement.
  14. [14]
    Mr Coveney, counsel for the plaintiff, contended that the value of the unauthorised supplies was the subject of a deemed admission in Mr Johnston’s defence. Mr Johnston consistently sought to dispute the amount at trial. Ultimately, Mr Coveney sought to establish the amount claimed on the evidence tendered at trial and did not press the deemed admission agument.
  15. [15]
    Like Mr Stockill, Mr Johnston was initially represented. His pleadings were settled by counsel. His solicitors withdrew just days before the commencement of the trial. At trial, he maintained his pleaded case except in one important respect. His evidence in chief, given by tender of a statement prepared with legal assistance, accepted that he knew Mr Stockill did not have authority to sell goods on credit above the approved credit limit.[4]The actual or ostensible authority contention was thereby unmaintainable.

Mr Stockill’s proceedings

  1. [16]
    Mr Stockill brought his own third party proceeding against Mr Johnston. By his statement of claim, Mr Stockill repeated the allegations contained in the Haymans statement of claim of representations by GMJ (through Mr Johnston) that GMJ could and would pay for the unauthorised supplies. 
  2. [17]
    Further he alleged that in the circumstances where Mr Johnston knew Mr Stockill was breaching his duties in making the unauthorised supplies, it was misleading conduct for Mr Johnston not to warn Mr Stockill if there was a risk that the promises of payment would not be forthcoming and, by not doing so, Mr Johnston impliedly represented that he had reasonable grounds to make the representations.
  3. [18]
    Mr Stockill alleged that the representations were untrue and that there were no reasonable grounds for making them, primarily because the payments were never made and GMJ ultimately became insolvent. Mr Stockill alleges he relied on those representations to make the unauthorised supplies and that if they had not been made, he would not have made supplies on credit above the $50,000 limit and would have avoided any liability to Haymans, including for costs. If he is found liable, he claims that loss against Mr Johnston, as a person involved in GMJ’s contraventions.
  4. [19]
    Mr Stockill also sought contribution or indemnity from Mr Johnston in respect any liability he has to Haymans for breach of fiduciary duty and/or breach of s. 182(1) Corporations Act 2001 (Cth).

The issues

  1. [20]
    The issues to be resolved in the proceedings are as follows:
    1. (a)
      First, whether Mr Johnston and Mr Stockill reached the agreement alleged;
    2. (b)
      Second, if no such agreement was reached, whether and to what extent Mr Johnston knew that Mr Stockill was in fact making unauthorised credit supplies to GMJ;
    3. (c)
      Third, whether promises were made by Mr Johnston to Mr Stockill about payment for unauthorised credit supplies and if so what they were;
    4. (d)
      Fourth, whether Mr Stockill’s conduct breached one or more of the duties alleged by Haymans;
    5. (e)
      Fifth, whether Mr Johnston’s conduct and knowledge were sufficient to attract accessory liability for any such breaches;
    6. (f)
      Sixth, if Mr Stockill is liable, whether Mr Johnston’s conduct is such as to cause him to be liable to Mr Stockill for any liability of Mr Stockill to Haymans; and
    7. (g)
      Seventh, the amount of any such liabilities.

Haymans’ evidence

  1. [21]
    The plaintiff called four witnesses: Messrs Gallard, Osborne, Hart and Hardy, and relied on Mr Raj’s affidavit evidence.

Mr Gallard

  1. [22]
    Mr Gallard was the Regional General Manager of Haymans at the relevant time. He gave evidence that Mr Stockill had no authority to supply on credit above approved credit limits. He gave evidence that Mr Stockill successfully completed a number of management training courses. He gave evidence of Mr Stockill’s admissions to him on 7 November 2013 (the 7 November meeting) that Mr Stockill had supplied GMJ with goods on credit over the credit limit. Those admissions were ruled inadmissible against Mr Johnston.[5]I have acted on this basis where other such evidence was led without express objection by Mr Johnston.

Mr Osborne

  1. [23]
    Mr Osborne was the Regional Credit Manager for Haymans at the relevant time. He also gave evidence that there was no discretion to branch managers to approve supplies on credit above the credit limit. He proved the various credit applications and approvals for September 2012 ($20,000), March 2013 ($50,000) and August 2013 (an application for a credit limit of $100,000, to be discussed further below). He also gave some evidence of discussions at the 7 November 2013 meeting about Mr Stockill’s explanation as to how he permitted and concealed supplies above the credit limit. The comments about the admissibility and weight of this evidence as evidence against Mr Johnston in the previous paragraph apply equally here.
  2. [24]
    Mr Osborne also gave evidence of a meeting with Ms Johnston and a solicitor, Mr Jones, in November 2013 following Mr Stockill’s admissions. He had little recollection of what was said except that he promised to cause delivery of supporting documentation.
  3. [25]
    The Haymans account statement for GMJ as at 31 January 2014[6]and the payment history report for GMJ produced from Haymans’ accounting system[7]were tendered through Mr Osborne. In cross examination, Mr Johnston tendered a letter sent by Mr Osborne[8]following the November 2013 meeting with Ms Johnston and Mr Jones which recorded, amongst other things, that:
    1. (a)
      Mr Stockill had supplied documents supporting the claimed amount of $281,295.57 said by Haymans to have been supplied by Mr Stockill above the credit limit; and
    2. (b)
      Mr Stockill said that he had supplied those documents at the end of July 2013 in a meeting with the Johnstons and Mr Stephenson (GMJ’s Project Manager).

Mr Hart

  1. [26]
    Mr Hart is the current Regional Credit Manager for Haymans. He was called primarily to tender the tax invoices generated by Haymans after Mr Stockill admitted the unauthorised supplies in November 2013. There was a question raised as to the admissibility of the tax invoices as books of account or entries in the books of account of Haymans pursuant to s. 84 Evidence Act 1977 (Qld). The issue (raised by me, bearing in mind the unrepresented status of Mr Johnston) was whether they were entries “made in the usual and ordinary course of” Haymans business (see s. 85(1) Evidence Act). The question arose from the evidence that the tax invoices were prepared after Mr Stockill entered all the unauthorised transactions which he said he had kept off the books of Haymans until November 2013. I deal with that further below but observe that the documents were in any event admissible under s. 1305 Corporations Act.

Mr Hardy

  1. [27]
    Mr Hardy was a long standing employee of Haymans who had for many years worked as an internal auditor for the business. He had conducted an audit following Mr Stockill’s revelations, but did not personally carry out the reconciliation and entry of the unauthorised credit supplies into the records of Haymans (Mr Stockill did that).
  2. [28]
    He did, however, explain Haymans’ order and billing processes. He explained a customer order (called a telephone order book (TOB) for historical reasons) was raised when an order was received. On supply in accordance with the order, a tax invoice was raised. Supply should be accompanied by some proof of supply. Where it was delivered by Haymans, there should be signed manifest by the customer. Where collected by a courier, the courier should sign. Where the customer collects, they should have signed for delivery on the tax invoice. The raising of the tax invoices is done at branch level.[9]

Mr Raj

  1. [29]
    Mr Raj’s affidavit proved the admissions by Mr Stockill in his statements. These were only admissible against Mr Stockill. The statements were ultimately tendered by Mr Stockill in his case, making them evidence admissible against Mr Johnston. That was the only evidence led by Haymans on the precise character of the dealings between Mr Johnston and Mr Stockill. Both of those gentlemen gave evidence in their own cases.

Mr Stockill’s evidence

  1. [30]
    Mr Stockill’s evidence in chief included two signed statements,[10]tendered under s. 92 Evidence Act, supplemented by some brief questions asked by me. His first, longer, statement was signed on 12 December 2013 and a short supplement was signed the next day.
  2. [31]
    His evidence was significantly expanded through cross examination by Mr Coveney. Because Mr Stockill’s position was almost entirely supportive of the plaintiff’s factual case at trial, Mr Coveney cross examined without asking leading questions. He was correct to adopt that course. I would not have permitted cross examination in the ordinary way on issues where there was a close co-incidence of interest of the plaintiff and Mr Stockill.[11]Mr Coveney’s examination was in the nature of further evidence in chief.
  3. [32]
    Mr Stockill said he was employed by Haymans for 22 years and was a Profit Centre Manager for the Ipswich branch from 2010. From about 2010, he knew Mr Johnston as a regular cash customer of Haymans through GMJ. He said that in around September 2012, Mr Johnston asked him if GMJ could have a credit account and one was approved by Haymans at $20,000 on 14 September 2012. He told Mr Johnston that the account was a standard 30 day account and had to be kept in terms. He said that thereafter he was the point of contact for Mr Johnston at Haymans.
  4. [33]
    He said that until March 2013 GMJ operated within terms and that he would speak at times on the telephone and in person at the branch with Mr Johnston about their respective business activities. He says he told Mr Johnston that the branch was under pressure from losing Queensland Rail as a customer.
  5. [34]
    He said that at the end of March 2013, Mr Johnston asked to increase his credit limit to $50,000 and signed an application to that effect. He said GMJ’s account was at $44,435.44 at that stage, some $24,000 over the approved limit. The credit limit increase was approved.
  6. [35]
    He explained the circumstances of the March 2013 increase in detail. He said that in March 2013, Mr Johnston gave Mr Stockill orders which, if supplied on credit, would have taken GMJ’s account well outside the credit limit. He said that he met at least some of those orders on unauthorised credit to the extent that the outstanding sum due from GMJ by the end of March 2013 was $44,435.44.[12]
  7. [36]
    He gave a version in testimony as to how the initial unauthorised credit supply came about. This was the only evidence which in my view touched on the alleged express oral Credit Limit Circumvention Agreement:[13]

All right. Do you ever remember agreeing to supply goods above the credit limit of the company?Yes, I do.

And do you recall how that came about?Yes, I do.

And how do you recall that coming about?It came about, basically, it started at the $20,000 limit. And the Logan job, the super clinic job, was a big job and I got an order for about 30,000-odd of lighting. He was already at his limit and – to supply the lighting and I got a phone call asking for the – the lighting to be delivered on-site and I spoke to – obviously I spoke to Greg at the time and said to him, “Mate, the – you exhausted your limit and that I couldn’t provide the gear.”  I was advised that he’d sort payment out. So sometimes, even though it’s not permitted to extend someone’s limit, it has happened from time to time. And I took the trust of the customer to say that he would provide   

Well, hold on?Sorry.

You said that this happened in the context of the Logan job?Yes.

Where there was an order for, I think you said   ?30,000-odd of lighting.

   30,000-odd of lighting?Yes.

And you told me that you recall saying to Mr Johnston that you couldn’t supply because it was over the limit?Yep.

He was at his limit. So what do you recall being said around this time after that?I just recall us having a general common – conversation   

Yes?    about his need for the gear to be on-site at a certain time to get his job going and us making an agreement for me to supply that gear outside of the terms of the contract on the proviso that I would get a payment that would bring him back inside his terms.

All right. Well, do you remember how the issue of payment outside the scope of the credit terms came up?  Do you remember who raised the question of supply outside the credit limit?Who raised the question with me to supply   

Yes?Yes, the – the – Mr Johnston.

Right. And do you remember the substance and effect of what he said to you to raise that issue?Again, just that the fact that he had lots of jobs going and needed the gear and – I suppose we had many conversations of an agreeance to – to supply that gear.

All right. Well, do you recall him asking you to advance the – to supply the goods outside the credit limit?  Do you recall him asking you   ?Yeah, I do. Yes, I do.

Well, what do you recall was the substance and effect of how he asked you that?Well, basically, he asked me to supply the gear, like I said, because he needed the gear on-site. He – he knew what his credit limit was at the time.

Well, I’m not interested in what he knew, I’m just want to know what he asked you, Mr Stockill. You said he asked you to supply the gear on-site?He asked me to supply the gear   

Yes?    on-site on the proviso that he would make a payment.

All right. Do you recall any discussion between him and you at that time about the credit limit?About the credit limit?

Yes?Yeah, I don’t recall.

  1. [37]
    He later gave this evidence:[14]

Right. And did you speak to Mr Johnston about an increase in the credit limit so that you could supply those further items?  Yeah, at the – at the time, because of what I could see going forward in – and where I was in the situation of where the balance was, I couldn’t process the sales orders to invoices. So the only way to do that would be to interviews [sic: increase] the credit limit.

All right. And did you have that conversation or a conversation about that with Mr Johnston?  Yes, I did.

And what did you say?  Well, I actually said – basically said to him at the time that I’ve got invoices that I can’t – sorry, I’ve got sales orders that I can’t process into invoices because of the purchase orders that he’d been supplying me and that they were basically off-the-books. So what we used to call it is under-the-counter transactions, and so I could at least start to process some of those under-the-counter transactions that would have to increase the limit.

Was doing under-the-counter transactions, as you tell me, was that permitted as part of your employment?  No.

Did you explain that to Mr Johnston?  Yes, I did.

How did you explain that to him?  Verbally. I explained to him that, you know, I could lose my job over it, and that, you know, obviously the balance – because the balance of the accounts was where it was, I couldn’t charge things and I explained to him that I couldn’t charge him invoices and that’s why we would need to increase the credit limit and that by doing what I’m doing – by doing what I was doing, I potentially would lose my job over it.

All right. And just to give this the right timeframe, this is the time – the point in time in around March 2013 where a $50,000 increase – sorry, an increase in the credit limit of 50,000 was contemplated?  That’s correct.

[Underlining added]

  1. [38]
    This was an important piece of evidence in the trial. Mr Johnston disputes any such conversation. Precision in the language used is hard to achieve years after the event. But it is to be noted that Mr Stockill did not seem to say that he used the expression “under the counter transactions” in discussion with Mr Johnston. Rather, he referred to purchase orders which were off the books. The distinction probably does not matter much if I accept the evidence in the above underlined passage, which appears to reflect Mr Stockill’s recollection of what was said.
  2. [39]
    Mr Stockill subsequently said as follows:[15]

…So I’m just talking about that period in March 2013 where the $20,000 limit was in place, not yet increased to 50 and you’d said to me that there was some off the book invoices or transactions    ?  Yes.

that you were doing and you’d also said that you told Mr Johnston about those, that doing them that way you could lose your job. That was    ?  Yes.

what I understood you had said. I just wanted to know in those conversations when you told him you could lose your job, did he say anything back to you about that?  No, Greg always give me faith in saying things to the contrary of, “Mate, I will get it sorted out. I – I’ll speak to Maria. I’ll get a payment made.”  He always made me feel as if everything was going to be okay, in the words that he used.

  1. [40]
    Despite the form of the question, the answer was seemingly a reference to discussions over the whole period of the unauthorised supply.
  2. [41]
    Mr Stockill wrote in his statement that after the $50,000 credit limit was established, Mr Johnston started to order a lot of goods from Haymans. He said he would call Mr Johnston every one to two days to ask for payment because he was “either just within, or just outside of the credit limit”. He wrote that Mr Johnston would give him reassurances that he would sort it out and make a small payment to keep under the limit. He wrote that by the end of April Mr Johnston was ordering goods in an amount that greatly exceeded the $50,000 credit limit but when he spoke to him about this, Mr Johnston “would tell me that he would sort it out and make payment”. Mr Stockill wrote that based on those assurances, he “decided to keep on supplying the goods to Greg even though it was outside the $50,000 credit limit”.[16]
  3. [42]
    As set out above, Mr Stockill also gave oral evidence about orders for a large job at Logan (the Logan Job) valued at about $30,000 which was placed by Mr Johnston. While Mr Stockill referred to an agreement to supply the goods above the credit limit, when pressed as to what was actually said, the evidence seemed to be that Mr Johnston asked for the supply when he knew he was at the credit limit (seemingly because Mr Stockill had told him that) and promised to make payment if the goods were supplied. It is not clear when this conversation is said to have occurred.[17]
  4. [43]
    Mr Stockill then gave evidence that thereafter he would receive purchase orders from GMJ, prepare sales orders (TOBs) for those purchase orders and supply the goods, keeping the purchase orders and TOBs as records of transactions done over the credit limit but not invoiced.[18]A bundle of emails from GMJ comprising orders with purchase orders allocated were tendered for the period April to July 2014 by way of example.
  5. [44]
    Mr Stockill gave further evidence about what he told Mr Johnston about what he was doing. He said:[19]

And if you received it – let’s say, on a particular day you received some large orders to go out and in the knowledge that GMJ was at its credit limit already, or exceeding it, would you telephone Mr Johnston to speak to him about that?  Oh, I regularly spoke to Greg because the more purchase orders I got, the more pressure, obviously, it put on myself and I had to convey that to – to Greg, how sometimes you want to do some things and sometimes you – you – you don’t want to. But, yeah, it was conveyed. Definitely.

Right. How did you convey that?  Sometimes verbally over the phone. Sometimes I’d – I’d go to a job site and deliver the gear myself and reinforce that I – I needed the payment. I needed a payment.

And did you – did you reiterate at all what you’d said earlier, which was that your employment depended upon getting paid?  On – on a regular basis because I’d made it known that what I was doing was wrong and – and I just    

HIS HONOUR:  Just could I stop you there. When you say you made it known what you’re doing was wrong, do you remember the substance and effect of what you ever said in that regard?  Yeah. I – I told – I – there was many occasions – to specifically – do you want me to specifically point one or just    

MR COVENEY:  Please?  Specifically, I mean, are we – I – I’d often say to Greg, I mean, we had plenty of chats and I’d often say to Greg, “If I ever got caught out by – by doing what I’m doing, by providing gear to you that I can’t invoice out that I’d lose my job” and – and not only that, that it was – you know, the way we were doing things were well-outside the terms in the – you know, in my mind the only person that was in a situation to lose was probably myself.

[Underlining added]

  1. [45]
    Mr Stockill then gave evidence about the meeting in May 2013 with Mr Johnston. It was uncontentious that there were two such meetings, one in May 2013 and one in late July or early August 2013. There is also some agreement as to what happened at that meeting.
  2. [46]
    As to the May 2013 meeting, it is uncontentious that:
    1. (a)
      The meeting occurred in May between Mr Stockill and Mr Johnston at GMJ’s office in Fortitude Valley; and
    2. (b)
      That Mr Stockill asserted that he had $75,000 worth of supplies which had not been invoiced over and above the credit limit.
  3. [47]
    Otherwise the versions of the participants differ. Mr Stockill wrote that:[20]
    1. (a)
      The meeting was the first time he and Mr Johnston physically met to discuss the account;
    2. (b)
      That it occurred at the start of May;
    3. (c)
      That he told Mr Johnston he would lose his job over the supplies he had made over the credit limit and that he had made the supplies based on Mr Johnston’s promises to pay;
    4. (d)
      He gave Mr Johnston all the TOBs relating to unauthorised supplies;
    5. (e)
      Mr Johnston said that he would pay all arrears and pay $75,000 for un-invoiced goods supplied and a further $75,000 in June to sort out the account; and
    6. (f)
      That there was some $150,000 to $200,000 in un-invoiced goods at this time.
  4. [48]
    Mr Stockill gave consistent evidence orally, but his oral evidence was much less detailed.[21]
  5. [49]
    Thereafter, Mr Stockill said that the promises of payment made at this meeting were not kept, but he continued to supply goods outside the credit limit because he would be dismissed for his conduct to that point, so he just had to keep supplying GMJ and trust the customer to pay as promised.[22]He said Mr Johnston continued to promise payment.[23]He said in evidence that, while GMJ made some payments, they were never large enough to permit invoicing of the unauthorised supplies.
  6. [50]
    Mr Stockill gave up on GMJ in July 2013 when he decided to stop supplying.
  7. [51]
    Mr Stockill then arranged another meeting with Mr Johnston. It is not contentious that at the meeting, Mr Stockill said that a large amount of unauthorised credit supplies remained un-invoiced and outstanding. However, the events at the meeting are otherwise in dispute.
  8. [52]
    Mr Stockill’s version was as follows:[24]
    1. (a)
      The meeting was attended by Mr and Mrs Johnston and Mr Stephenson;
    2. (b)
      Mr Stockill provided all the documents relating to the un-invoiced goods and said that he was “fucked” and that he was “going to lose his job” over the unauthorised supplies;
    3. (c)
      He told Mr Johnston and Mr Stephenson that he needed them to pay the account and left them looking at the documents;
    4. (d)
      About an hour later he rang Mr Johnston, who told him GMJ would pay $75,000. Mr Stockill said that was not enough;
    5. (e)
      At no point did Mr Johnston say he would not pay or dispute the fact that the unauthorised supplies had been made; and
    6. (f)
      No payment was made as promised.
  9. [53]
    That version is contested by Mr Johnston.
  10. [54]
    What is not contentious is that on 23 August 2013, Mr Johnston sought a further increase in the credit limit for GMJ from $50,000 to $100,000 by signing a Haymans application form to that effect.[25]The circumstances of that occurrence were described by Mr Stockill as follows:[26]

All right. There was, subsequent to that, in August, there was another application for a credit limit increase?  That’s correct, to go from 50,000 to 100,000.

Yes, did you discuss that with Mr Johnston?  Yeah, I did at Chermside.

Right, and so give me the circumstances of the meeting between you at Chermside?  So   

Was that at the Wheller on the Park site?  That’s correct. Yeah, the meeting there was – I was really struggling to – to sort out how I was going to invoice any gear and I conveyed that again to Greg, that I’ve got so many sales orders that I can’t invoice. My thought – and we both agreed to try to get the limit taken to 100,000. That would allow me to – to book out more gear on the account, and in my mind, then that would become on the statement that – because it seemed to be that the statement values were the only ones getting paid.

Right. And by this time in August, had you stopped supply altogether to GMJ?  Yes, I had.

[Underlining added]

  1. [55]
    This evidence appears to assume the existence of another meeting between Mr Stockill and Mr Johnston at Chermside. No more appears to have been said about that meeting in evidence. However, that the two men did meet around 23 August 2013 tends to be supported by Mr Stockill witnessing the $100,000 credit application on that date.
  2. [56]
    Mr Stockill’s comment that “the statement values were the only ones getting paid”[27]is not disputed by Mr Johnston and is confirmed by the evidence. GMJ adopted the practice of paying each month the amount shown on monthly statements as overdue (that is, over 30 days). The following material payments were made from March 2013 to September 2013:
    1. (a)
      $12,938.94 on or about 12 April 2013;
    2. (b)
      $31,396.50 on or about 10 May 2013; and
    3. (c)
      $18,589.45 on or about 12 June 2013;
    4. (d)
      $31,223.54 on or about 8 July 2013;
    5. (e)
      $18,644.11 on or about 7 August 2013;
    6. (f)
      $10,000 on or about 2 September 2013.
  3. [57]
    The amounts paid equal the amounts identified as overdue in the monthly statements issued immediately prior to those payments.[28]The exception is the payment on 2 September 2013, the circumstances of which are as follows.
  4. [58]
    Mr Stockill said that he faced a crisis when the Haymans stocktake was looming at the end of August 2013. He said that he told Mr Johnston that he required payment in full before the stocktake and that if he could not account for the unauthorised supplies he would be in a lot of trouble. His statement says that he told the auditor he had supplied goods to GMJ that he could not account for and that the Haymans auditor told him he had two days to account. It is evident that the auditor only picked up discrepancies of some $10,000 worth of goods.
  5. [59]
    He says he told Mr Johnston about that deadline and that after that the $10,000 one-off payment was made. In oral evidence, it appeared that Mr Stockill had somehow otherwise prevented the auditor from detecting the other unauthorised credit supplies which, on his version, would have totalled over $250,000 at that time.[29]
  6. [60]
    Thereafter, Mr Stockill wrote, Mr Johnston ceased taking his calls or responding to his emails.
  7. [61]
    The denouement of these events was brought on by a decision by Mr Stockill to reveal his conduct to his employers. As Mr Gallard said, Mr Stockill rang him and told him about the unauthorised credit supplies. The subsequent discussions with Mr Osborne and Mr Osborne’s meeting with Ms Johnston are dealt with in their evidence.
  8. [62]
    Mr Stockill, for his part, was put to work by his employers entering the unauthorised credit supplies into the accounting system. As Mr Johnston challenges the sum claimed, it is useful to set out what Mr Stockill says he did:[30]

So after – after I put my hand up to Mr Gallard, they sent me to work for 36 hours to put all the information in, just sales orders, proof of deliveries mainly, what they were chasing, that I could collate all them. They opened up the account, took it off stock and opened up the account so I could invoice everything to the account.

Right?  And in doing so, I had to then put a proof – so I had to go to head office, to regional office and spend about a – at least four or five days there, putting all the paperwork together. And then they sent me to Mr Johnston’s office to – to deliver them.

So when you say “put the paperwork together”, did that involve putting together a sales order together with some delivery docket or other type of evidence and then the invoice?  Yeah, it would have had an invoice on top, the original sales order that I had hidden and a – a signature proof of delivery that the goods had been supplied.

All right. And so do I understand your evidence is that you personally were the one who, having told your employer about the situation, sat down and invoiced all of the sales orders?  Yeah. Overnight I was. So it went back to the office or was told to go back to the office about 7.30 at night. So I spent until 6.30 when we opened the next day and then Mr Gallard had a manager some Sumner Park come and start helping me invoice the gear out.

Right. And that involved taking the sales orders which had, to this point, not been converted invoices and converting them into invoices;  is that right?  Yeah, that’s correct.

  1. [63]
    Mr Stockill accepted that this work was not supervised by any officer of Haymans. We have already seen that the auditor, Mr Hardy, did not check that work beyond some spot checks. Mr Stockill said that he provided copies of his working documents to Mr Johnston at a meeting in November 2013.

Mr Johnston’s cross examination of Mr Stockill

  1. [64]
    Mr Johnston cross examined Mr Stockill. Mr Johnston and Mr Stockill both conducted some effective cross examination.
  2. [65]
    Mr Johnston focussed on an earlier affidavit given by Mr Stockill in defence of an application for summary judgment by Haymans sworn on 3 June 2014.
  3. [66]
    In that affidavit Mr Stockill relevantly swore: 
  1. On behalf of the Plaintiff, I advised the Second Defendant that I could not supply more Goods on credit to the First Defendant, as the Credit Facility was in excess of the Credit Limit.

[…]

  1. Based on my knowledge of the First Defendant’s business and my prior dealings with the First and Second Defendants, I made an operational and/or managerial decision in the interests of the Plaintiff, to advance the First Defendant Goods in excess of the Credit Limit, as I had previously done on a [sic] in my role as Profit Centre Manager.
  1. I made the decision to advance the First Defendant Goods in excess of the Credit Limit as we had been told recently in a manger’s meeting (involving all of the Profit Centre Managers in South East Queensland) that the business was not taking enough ‘risks’ in Australia. I made a decision to take this particular risk in an attempt to address the significant shortfall in revenue that had arisen as a result of the Plaintiff being unsuccessful in retaining Queensland Rail as a customer and the subsequent drop in sales.
  1. As previously advised, it was my experience that that [sic] the Plaintiff permitted us to make operational decisions and exceed the formal credit limits. The decision to exceed the credit limited [sic] was made on a case by case basis, and involved consideration of what I knew about the customer. In this case, I knew the First Defendant to be a regular customer of the Plaintiff, that the Plaintiff had agreed to grant the First Defendant a credit facility, and that it had confidence to increase the credit limit. I also knew that the First Defendant had a number of large projects on the go at that time. My knowledge of those projects came from what I was being told by the Second Defendant and the fact that we were delivering the Goods to the project sites themselves.
  1. Based upon the above matters, I was of the belief that the First Defendant would pay its outstanding balance under the Credit Facility.
  1. There was no Agreement, written or verbal, between myself and the Second Defendant on this issue. I made the decision as to whether to continue providing Goods to the First Defendant on credit on a case by case basis.
  1. [67]
    Mr Stockill said that the contents of in paragraphs 31, 34 and 35 were still correct (with one minor irrelevant correction). As to paragraph 36, he said that it was not true that the plaintiff permitted branch managers to make operational decisions and exceed formal credit limits except in respect of very small amounts. Mr Stockill said paragraph 37 was still correct.  However, not surprisingly, he said paragraph 38 was incorrect. He said there was a verbal agreement with Mr Johnston.
  2. [68]
    Mr Johnston then indicated an intention to cease cross examination. That afternoon I suggested he think about putting any contrary version of his to Mr Stockill as to the specific evidence Mr Stockill gave, particularly his statements that he told Mr Johnston about losing his job by supplying over the credit limit and that Mr Johnston gave the reassurances of payment.
  3. [69]
    Mr Johnston then continued his cross examination. He returned to Mr Stockill’s June 2014 affidavit. He cross examined him on statements made generally in paragraphs 4 to 16 of that statement. In doing so he established relevantly:
    1. (a)
      Mr Stockill’s statement (in paragraph 6 of the affidavit) that he was “never trained for the role of manager” was accepted by Mr Stockill as being incorrect; and
    2. (b)
      Mr Stockill accepted that he made a statement in the affidavit that it was the practice for other branch managers to supply goods despite a credit stop order and then invoice when payments were made. He said that it was untrue to the extent it attributed that behaviour to other managers, but true for him.
  4. [70]
    Mr Stockill accepted that he felt pressure to replace Queensland Rail as a customer and pressure of the responsibility for the employment of his staff if the branch performed badly.
  5. [71]
    The next day Mr Johnston turned to challenging Mr Stockill’s evidence as to the value of unauthorised sales.
  6. [72]
    He suggested that Mr Stockill could not rule out other sale staff raising TOBs for GMJ which were not referable to orders from GMJ. Mr Stockill rejected that suggestion: he said sales staff would only have raised a sales order on receipt of an instruction or purchase order from GMJ and would have got proof of delivery of the item.
  7. [73]
    Mr Stockill rejected the suggestion that his knowledge of GMJ’s affairs came from purchase orders, not discussions with Mr Johnston, and maintained that there on-going discussions between September 2012 and March 2013.
  8. [74]
    Mr Johnston also put to Mr Stockill that his decision to make unauthorised credit supplies was based on the fact that GMJ made payments that kept the credit account in terms, not because of Mr Johnston’s promises of payment. Mr Stockill accepted that he knew of the payments but rejected the suggestion.
  9. [75]
    The balance of the cross examination involved putting matters of Mr Johnston’s case to Mr Stockill. No material concessions were made.

Mr Johnston’s evidence

  1. [76]
    Mr Johnston’s evidence in chief was contained in a s. 92 statement which he tendered.[31]His evidence was as follows.
  2. [77]
    GMJ operated from 2009 to 2014. It sourced supplies of goods for its business from “numerous electrical goods wholesalers”, including Haymans. He accepted the entry into the credit facility at $20,000 in September 2012.
  3. [78]
    Mr Johnston understood that Haymans could only debit the account if a purchase order was issued by GMJ and that “if the Credit Facility was at a limit, GMJ staff could not rely on the Credit Facility to purchase product. It was Mr Johnston’s expectation and understanding that no goods were supplied to GMJ if the Credit Facility was maxed out”.[32]
  4. [79]
    Mr Johnston says that in March 2013, Mr Stockill telephoned him and offered an increase in the Credit Facility. Mr Johnston said that, as he knew GMJ had substantial work forecast, he agreed and executed the credit limit increase application. He says that thereafter he would receive emails from Mr Stockill seeking payment of outstanding balances on the account and would arrange for payment in order to keep the account within terms. As noted in paragraph [56] above, it is not contentious that this occurred. The issue in this case is whether other supplies were made off the books.
  5. [80]
    Mr Johnston drew a completely different picture of his dealings with Mr Stockill prior to May 2013. He wrote that he rarely saw or spoke to Mr Stockill prior to the May 2013 meeting. He admits only to receiving calls from Mr Stockill on a couple of occasions to tell him that the Credit Facility was nearing its limit and that if GMJ wanted to buy more equipment, it would have to make a payment. He wrote that on no occasion did Mr Stockill say that he would supply goods on credit in excess of the credit limit.
  6. [81]
    Mr Johnston said that he understood that if the account was at its limit, goods would have to be paid for on delivery or collection by GMJ staff and that this was what occurred.[33]He expressly recognised (as I have already noted) that he knew that Mr Stockill and his staff could not debit the Credit Facility over the limit without authorisation from Haymans’ credit department.
  7. [82]
    He rejected that he made any statements about payments to be made for unauthorised supplies or any statements about payment other than the undertaking to pay overdue amounts on the Credit Facility when they were drawn to his attention.
  8. [83]
    On Mr Johnston’s case, the May meeting came as a complete surprise. He writes:
    1. (a)
      Mr Stockill told him he had $75,000 worth of unauthorised supplies to be invoiced (not a total of $150,000);
    2. (b)
      He asked for proof of these supplies which Mr Stockill promised to provide; and
    3. (c)
      He had and has no idea how the Credit Facility limit could have been exceeded.
  9. [84]
    He wrote that a couple of weeks later Mr Stockill attended at his office with “a handful” of sales orders said to sustain his allegations and some documents bearing signatures which Mr Johnston did not recognise. Mr Johnston says he reviewed the documents and concluded they did not prove the supplies alleged. He says he “believed them to be false and continued to make payments on the balance of the existing Credit Facility as normal”.[34]Neither in his statement nor in cross examination does he give evidence of doing anything else in response to this apparent misconceived demand for $75,000 supported by false documents.
  10. [85]
    Mr Johnston’s statement takes up the narrative with the August 2013 meeting. It states:
    1. (a)
      The meeting occurred in or about August 2013;
    2. (b)
      Mr Stockill told him the total sum due was likely to reach $120,000;
    3. (c)
      Mr Johnston was shocked by this, particularly where “GMJ’s average monthly spend with Haymans was in the order of $20,000”;[35]and
    4. (d)
      Mr Johnston asked for Mr Stockill to provide further documents to substantiate the claims.
  11. [86]
    At that time (that is in or about August 2013), GMJ stopped purchasing with Haymans on the Credit Facility.
  12. [87]
    He then writes that Mr Stockill provided him with an application to increase the Credit limit on 23 August 2013 to $100,000 which he signed because:
    1. (a)
      At that time the Credit Facility was near its limit;
    2. (b)
      He did not want the dispute about unauthorised supplies to affect GMJ’s credit rating; and
    3. (c)
      He was yet to work out to what extent any unauthorised supplies had occurred.
  13. [88]
    Mr Johnston’s account then turns to November 2013. He does not accept any meeting occurred but does accept a box of documents was supplied. He says he tried to reconcile them with his purchase orders and could not. He say he no longer has copies of the documents provided.
  14. [89]
    He expressly denied any discussion in the nature of the alleged Credit Limit Circumvention Agreement. He said he had no concerns about the solvency of GMJ until December 2013. Mr Johnston was cross examined by Mr Coveney and Mr Stockill.

Mr Coveney’s cross examination of Mr Johnston

  1. [90]
    Mr Coveney started by establishing Mr Johnston’s chequered business history:
    1. (a)
      Mr Johnston was a director of a company operating a data cabling business called Total Network Solutions. It failed in 2005 as a result, according to Mr Johnston of the failure of the Walter Construction Group. Mr Johnston became bankrupt as a consequence and accepted he was keen to avoid a repeat of that experience (which arose from giving personal guarantees). He set up GMJ in 2009, after being discharged.
    2. (b)
      He also set up another company called Korr Electrical to undertake electrical projects in 2012. That company was also wound up. Mr Johnston said the cause was industrial action by the Electrical Trades Union; he did not recall if it had any creditors.
    3. (c)
      He also gave evidence about the winding up of a company called KNX, which was an electrical goods supply company which sold to contractors. It was wound up in 2014 by a supplier, Siemens. It had another supplier called ABB. Mr Johnston said Haymans was not a supplier to KNX.
  2. [91]
    Mr Coveney asked Mr Johnston about the circumstances of the increase in the credit limit in March 2013. Ultimately, Mr Johnston gave evidence that he had asked Mr Stockill for a credit application to increase the credit limit because he had larger jobs coming up. This differs from his evidence about this in his statement, where he said Mr Stockill approached him.
  3. [92]
    Mr Coveney then took Mr Johnston through a number of projects of GMJ in the period of about March to July 2013 and tendered various tax invoices and other financial documents relating to work done by the company in that period.[36]They supported the view that GMJ was conducting a number of projects over that time. That evidence led to this exchange:[37]

MR COVENEY:  So, Mr Johnston, through 2013, it seems, GMJ is working on, from what I can tell, at least three projects, the total value of which those contracts exceeds $3 million. That’s correct, isn’t it?I can’t say.

Right. And although you don’t seem to be able to recall, I put it to you that Haymans is the party supplying electrical components to you, to your company, for those projects. That’s correct, isn’t it?Not alone, no.

Right. And you’re being paid, your company is being paid on its payment claims fairly regularly by the contractors to those projects?Yes.

Yes. And according to your statement, you say that you’re aware that in April or May 2013, the credit facility was at or near its limit, its limit being $50,000, and that you knew you were unable to – that the staff couldn’t debit the credit facility without authorisation, otherwise it would have to be purchased ad hoc. There was certainly no substantial ad hoc cash purchases in April or May 2013, were there?No, I don’t recall.

  1. [93]
    Mr Johnston gave evidence that the percentage of turnover which was ordinarily required to fund stock was 20 to 30 per cent. He accepted that assuming $200,000 worth of work was carried out in a month, stock would amount to $40,000 to $60,000. He accepted that in the relevant period, that amount would not be unusual, though he said it would have been spread over three suppliers.[38]He accepted it was conceivable that GMJ needed between $80,000 and $120,000 in stock over April and May. 
  2. [94]
    Mr Coveney then took Mr Johnston to Exhibit 23 and suggested that it showed orders being placed on an urgent basis with Haymans even though GMJ was at the limit or near the limit from time to time. Mr Johnston accepted that but said they were very minor orders.
  3. [95]
    Mr Johnston was asked directly about Mr Stockill’s evidence that he told Mr Johnston repeatedly what he was doing and that Mr Johnston repeatedly reassured him he would cause GMJ to pay for the unauthorised supplies. Mr Johnston rejected the proposition that any such discussions occurred.
  4. [96]
    He was cross examined about Mr Stockill’s account and rejected that version directly. He did give evidence that he never took up Mr Stockill’s allegations from the May meeting with anyone more senior at Haymans.[39]
  5. [97]
    He was cross examined about the August meeting. He specifically rejected the suggestion that Mr Stockill said he was “fucked” and going to lose his job over the unauthorised supplies. Mr Johnston suggested that these statements were the sort of thing he would recall if they had been made. He also agreed that Mr Stockill did not appear stressed.
  6. [98]
    He explained that his failure to raise the issue of Mr Stockill’s claims with Haymans’ management arose from the fact that he had not been provided at the meeting with documents to prove Mr Stockill’s claims. His evidence was he was not supplied with any materially relevant documents until November 2013. He said his response in the meantime after the August 2013 meeting was to stop trading with Haymans.
  7. [99]
    He reiterated his version as to the November 2013 events: he did not meet Mr Stockill at all. He also denied recalling frequent telephone calls from Mr Stockill between August and November 2013. He also agreed with Mr Coveney that, after his reconciliation of the documents delivered, he took no steps to dispute or query the claim.
  8. [100]
    Mr Coveney also cross examined Mr Johnston about the reasons for GMJ’s winding up. He said the major concern was the Haymans’ account issues and that there were some taxation issues, though he could not recall the amounts. The Report as to Affairs (RATA) was later tendered. It showed some $250,000 owing to the Australian Taxation Office (ATO) for GST, it showed debts to a number of suppliers including Haymans and identified the unauthorised credit supply claim made in this proceeding as disputed.[40]
  9. [101]
    Mr Coveney then cross examined Mr Johnston at length on the company trading account statements. The ultimate purpose of that cross examination was summarised in the exhibits tendered by Mr Coveney in his closing, which summarised the evidence Mr Johnston gave.
  10. [102]
    First, the statements showed payments to GMJ by builders totalling $1,068,955.76 in the period April to August 2013 inclusive (which would cover work done and supplies acquired from March to July 2013 assuming payment of progress claims the month after work was done).[41]Mr Coveney relied on this to support the inference that some $200,000 to $300,000 worth of supplies were needed in this period. He said the Court could also draw the inference that Haymans supplied these goods to a large degree by the unauthorised supplies.
  11. [103]
    Second, some $78,500 was paid to Korr Electrical in circumstances Mr Johnston could not explain.[42]There were also small amounts paid to another related company. This was said to be evidence, added to other evidence adduced, from which I would “be more comfortable in drawing the conclusion that it's more likely than not that Mr Johnston's business scruples did not prevent him from engaging in the conduct to induce or otherwise be involved in Mr Stockill's conduct so that he could obtain a benefit for himself.”[43]
  12. [104]
    Third, that there were transfers of some $707,000 out of GMJ’s account from April to August 2013 for which Mr Johnston could not recall a purpose. This was said also to support the conclusion stated in the previous paragraph.
  13. [105]
    Fourth, there were payments of $77,500 to the personal accounts of Mr and Ms Johnston; seemingly relevant for the same purpose.
  14. [106]
    Ultimately, Mr Coveney put to Mr Johnston (and asked me to infer) that Mr Johnston operated GMJ as a cash machine to fund his lifestyle and other companies, had no intention of paying Haymans and used Haymans in part to fund that conduct. Mr Johnston rejected that suggestion.

Mr Stockill’s cross examination of Mr Johnston

  1. [107]
    Mr Stockill had Mr Johnston identify a series of examples where orders were sent to Haymans with a purchase order number given (then or subsequently) by email and then delivery of the items ordered established by a signed delivery manifest. Exhibits 40 to 42 contained a number of examples from the March to April 2013 period.
  2. [108]
    Mr Stockill moved to the supply by Haymans of a switchboard and intercom. Both items were the subject of emailed purchase order numbers and informal orders sent by Mr Stephenson to Mr Stockill by email on 20 March 2013. Both were the subject of sales orders prepared by Haymans which identified the costs of the items as $16,728.23 and $6,884.06 respectively, a total of $23,612.29. Signed delivery manifests were identified for delivery of the goods. Mr Johnston identified the signature as being that of an employee, Matthew Fordham. Delivery was shown as occurring on 22 March 2013.[44]Mr Johnston also accepted that the statement of account for GMJ with Haymans did not show in March, April or any month that these goods were supplied and invoiced.[45]There was no suggestion from Mr Johnston that the goods were paid for by cash on delivery.
  3. [109]
    Mr Stockill’s effective cross examination on this issue established that goods worth $23,612.29 were ordered at a time when the credit limit was $20,000 and a substantial part of that credit limit was absorbed by other sales (see the March statement in Exhibit 35), and that those goods, though supplied, were never invoiced. I do not know if they were ultimately invoiced as part of the reconciliation in November 2013.
  4. [110]
    Mr Johnston accepted that he would expect to be invoiced for goods supplied. He rejected the suggestion that that did not happen because GMJ was “on stop credit and he knew it”. It should be noted that that order was made on the same day as the credit limit increase application (Exhibit 6). Further, the goods were supplied just three days before approval of the increase was notified (see Exhibit 7). When asked if he could account otherwise for being supplied but not invoiced, he said was not on site at the time and would not necessarily have known the goods were supplied at the time. He could not otherwise account for what occurred.
  5. [111]
    Mr Johnston rejected the suggestion that the increase in the credit limit from $20,000 to $50,000 was because of unauthorised supplies and rejected that he was told at the time that there had been such supplies.
  6. [112]
    He also said he could not recall conversations about the audit and needing to pay $10,000 promptly because of irregularities.

Uncontentious facts

  1. [113]
    The resolution of this proceeding depends primarily on the dealings between Mr Stockill and Mr Johnston. It is convenient to first set out the uncontentious facts.
  2. [114]
    Haymans supplied GMJ with electrical products through its Ipswich branch from at least 2010. From September 2012, GMJ operated a credit account with Haymans with a credit limit of $20,000. That account operated within terms until about March 2013. By 13 March 2013, GMJ was at its credit limit. On 12 March 2013, GMJ paid $7,370.29 into the account. That payment appears to have been allocated to clearing the prior month’s invoices, not credit purchases shown in the March statement.[46]
  3. [115]
    Mr Johnston knew that once at its limit, GMJ could not obtain further goods from Haymans on credit. On 20 March 2013, Mr Johnston applied in writing for an increase in the credit limit to $50,000. That increase was approved and notified on 25 March 2013. On 25 and 26 March 2013, some $24,323.24 was charged to the GMJ account, taking the sum supplied on credit to over $44,000.
  4. [116]
    Also on 20 March 2013, a switchboard and intercom were ordered by Mr Stephenson on behalf of GMJ valued at a total of $23,612.29. They were delivered on 22 March 2013. This order was not invoiced then or at all (at least prior to November 2013).
  5. [117]
    During 2013, GMJ engaged in substantial contracting works. In the March to August period it was paid some $1,000,000 for that work. GMJ was operating successfully at this time. It appeared to have substantial cash flow and Mr Johnston gave evidence that he had no concerns for GMJ’s solvency until December 2013.
  6. [118]
    GMJ started April 2013 with about $5,600 in available credit.[47]GMJ then added credit purchases of $9,754.48 by 3 April 2013. At that time, GMJ would have been at its credit limit of $50,000 (and, in fact, over by some $4,000). No credit was available from 3 April to 11 April. On 12 April 2013, GMJ paid the overdue amount from the February account shown in the March 2013 statement of $12,938.94. Thus there would have been roughly $8,000 of available credit. Over 16 and 17 April, credit purchases were recorded in Haymans’ account for GMJ taking the company once again to its credit limit.
  7. [119]
    GMJ started May 2013 with no available credit. On 10 May 2013, it paid the overdue amount from March 2013 of $31,396.50 identified in the April 2013 statement.[48]That created available credit of that amount from 10 May 2013. All but some $240 of that available credit was absorbed by credit purchases recorded in Haymans’ account for GMJ from 13 to 18 May 2013. By 18 May 2013, GMJ was back at its credit limit.
  8. [120]
    On at least a couple of occasions in April and May 2013, Mr Stockill rang Mr Johnston and told him that GMJ was at its credit limit and payment was required. (Mr Stockill says, of course, that there were many other telephone calls with more direct content).
  9. [121]
    In May 2013 (Mr Stockill says at the start of May, Mr Johnston says the end of May), Mr Stockill arranged to meet Mr Johnston. He met him at GMJ’s office at Chester Street, Fortitude Valley. Mr Stockill told Mr Johnston that he had supplied a substantial sum of Haymans stock which he had not invoiced (Mr Johnston says $75,000, Mr Stockill’s evidence was from $150,000 to $200,000).
  10. [122]
    Some documentation to support the assertion made by Mr Stockill in the May meeting was provided then or soon afterwards. The extent and detail of this documentation is disputed. It is not disputed that Mr Johnston made no extra payments, nor that he did not take up Mr Stockill’s complaints with senior management of Haymans.
  11. [123]
    Haymans records for the GMJ account show that between June and July 2013 it continued to operate in the manner identified above in relation to the March to May 2013 period: that is, the overdue payment for the penultimate month in each case was made around the middle of the month, thus reducing the credit limit, and then sales were entered as credit sales up to the $50,000 limit fairly soon after the payment of the overdue sum.
  12. [124]
    So for the June 2013 statement:
    1. (a)
      The account was at the credit limit on 1 June 2013 (or very near);
    2. (b)
      There were no material debits to the account until 14 June 2013;
    3. (c)
      The payment of the overdue amount for April identified in the May 2013 statement of $18,589.45 was made on 12 June 2013, creating available credit within the limit of that amount;
    4. (d)
      That available credit was absorbed by credit purchases recorded in Haymans’ account for GMJ between 14 to 18 June 2013; and
    5. (e)
      By 18 June the account was back at its credit limit.
  13. [125]
    For the July 2013 statement:
    1. (a)
      The account was at the credit limit on 1 July 2013 (or very near);
    2. (b)
      There were no material debits to the account until 9 July 2013;
    3. (c)
      The payment of the overdue amount for May identified in the June 2013 statement of $31,147.49 was made on 8 July 2013, creating available credit within the limit of that amount;
    4. (d)
      That available credit was absorbed by credit purchases recorded in Haymans’ account for GMJ on 9 to 15 July 2013 (with some very small entries afterwards); and
    5. (e)
      By 15 July the account was again very close to its credit limit of $50,000.
  14. [126]
    Before considering the August 2013 statement, the second meeting must be mentioned.
  15. [127]
    It is uncontentious that a second meeting occurred between Mr Johnston and Mr Stockill. Both men say in their s. 92 statements that this meeting occurred in or about August 2013 and that Mr Stockill reiterated that GMJ owed Haymans money for supplies on credit outside the credit limit.
  16. [128]
    It is also uncontentious that Haymans ceased supplying GMJ around this time. Nothing else about the ending of supply is agreed. Mr Stockill says it happened in July 2013, when the promises of payment he alleges were made in May and June were not kept. Mr Johnston says it occurred after the August meeting because of his concern about Mr Stockill’s allegations.
  17. [129]
    The next uncontentious event is the 23 August 2013 request for an increase in the credit limit to $100,000. That request is in writing and witnessed by Mr Stockill. The reason it was made is disputed.
  18. [130]
    It is also uncontentious that at about the same time, GMJ made a payment of $10,000 on its account with Haymans: the August 2013 statement shows that this payment was received in two $5,000 amounts on 2 September 2013. It will be recalled that Mr Stockill’s evidence was that Mr Johnston made these payments after Mr Stockill told him that the auditor had found that amount supplied to GMJ but not invoiced. Mr Johnston did not remember that.
  19. [131]
    The next relevant point of agreement relates to November 2013. Both parties agree that Mr Stockill provided a box with documents relevant to his assertion that unauthorised supplies had been made by him to GMJ. There is no agreement about how that occurred. In particular, Mr Johnston rejects any meeting occurred. Mr Stockill said they did meet.
  20. [132]
    It is uncontentious that there was then a meeting involving Ms Johnston and Mr Osborne on 19 November 2013 at which Mr Osborne asserted that GMJ owed $281,295.57 above the amount shown on the GMJ account and that Mr Stockill had delivered documents to support that conclusion.
  21. [133]
    It is uncontentious that Mr Johnston made no effort to query or challenge that claim thereafter. He put GMJ into administration in December 2014.

Resolving the conflicting accounts of Messrs Stockill and Johnston

The competing versions summarised

  1. [134]
    It is convenient to summarise the two versions.
  2. [135]
    The version Mr Stockill contended for seems to be this:
    1. (a)
      Mr Stockill had an on-going professional relationship with Mr Johnston and spoke regularly with him prior to March 2013 about their respective businesses;
    2. (b)
      Mr Johnston started ordering goods over the credit limit in March 2013, asking Mr Stockill to make such supplies and promising payment;
    3. (c)
      At that time (mid-March 2013) and regularly thereafter, Mr Stockill told Mr Johnston that the supplies over the $20,000 limit were “off the books”, or possibly “under the counter”, and that he could lose his job as a result of making such supplies;
    4. (d)
      The unauthorised supplies was the reason Mr Johnston sought and obtained the increase in the credit limit for GMJ on 20 March 2013;
    5. (e)
      Thereafter, during April 2013, Mr Johnston kept ordering goods on credit when he knew GMJ was at its credit limit, Mr Stockill kept supplying despite that fact, and Mr Stockill told him regularly that he could lose his job for making unauthorised supplies;
    6. (f)
      Throughout this period, Mr Stockill regularly asked for payment for the unauthorised supplies and Mr Johnston promised payment would be made;
    7. (g)
      By early May 2013, there had been unauthorised supplies of between $150,000 and $200,000. Mr Stockill met with Mr Johnston and told him that and provided evidence. Mr Johnston promised to pay two instalments of $75,000 in May and June and pay the GMJ account as well;
    8. (h)
      No such payments were made, but Mr Stockill kept supplying in June 2013 because he was in so deep with GMJ. Mr Johnston kept promising payment;
    9. (i)
      In July 2013, Mr Stockill stopped supplying GMJ;
    10. (j)
      In August 2013 he met with Mr Johnston, told him he was in deep trouble over the unauthorised supplies, gave Mr Johnston a copy of the sale orders for those supplies and asked for payment. A little later Mr Johnston rang and offered a $75,000 payment, and offered to analyse the sales orders;
    11. (k)
      On 23 August 2013, Mr Johnston agreed to seek an increase in the credit limit to cover some of the unauthorised supplies;
    12. (l)
      Also in late August he paid $10,000 to cover an unauthorised supply discovered by a Hayman’s auditor;
    13. (m)
      GMJ did not meet promises to pay and Mr Stockill went to Mr Gallard in early November 2013. He then analysed all the documents he had in relation to the unauthorised supplies, matching GMJ purchase order to TOB, to delivery evidence. This was used to generate tax invoices for some $285,000 worth of products. Copies were also delivered to Mr Johnston; and
    14. (n)
      Mr Stockill would never have supplied any goods to GMJ if Mr Johnston had not promised that GMJ would pay.
  3. [136]
    Mr Johnston’s version is as follows:
    1. (a)
      He had no on-going contact or relationship with Mr Stockill prior to March 2013;
    2. (b)
      He knew nothing about the unauthorised supplies by Mr Stockill either in March 2013 or at any time prior to the May 2013 meeting. However, he gave oral evidence that he approached Mr Stockill to increase the credit limit in March 2013 because he was aware he had a large amount of work in prospect;
    3. (c)
      So far as he was aware, he kept the GMJ account in order, paying the overdue amount each month and not ordering goods on credit when the credit limit was reached. When the credit limit was reached goods were paid for with cash. He was rung a couple of times about the credit limit and made payments to stay within terms;
    4. (d)
      The May 2013 meeting came as a complete surprise. Mr Stockill mentioned unauthorised supplies of $75,000 and Mr Johnston did not accept that that had occurred, nor that the documents supplied made out that claim;
    5. (e)
      He did not have on-going discussions with Mr Stockill prior to the August meeting. He was again surprised by Mr Stockill’s assertions, though Mr Stockill did not say he was going to lose his job and was not stressed at the meeting. He ignored the complaints;
    6. (f)
      He does not recall the $10,000 payment;
    7. (g)
      He only agreed to seek the increase in the limit on 23 August to avoid the risk of that Mr Stockill had some merit in what he said and because he was near the limit;
    8. (h)
      After that meeting he decided not to order any more goods with Haymans but otherwise took no steps in response to Mr Stockill’s assertions; and
    9. (i)
      He did not meet Mr Stockill in November 2013. He did review the documents Mr Stockill delivered but could not reconcile them and took the matter no further.
  4. [137]
    In resolving this inconsistency, it is important to bear in mind the following:
    1. (a)
      First, the plaintiff (and Mr Stockill as plaintiff) bears the onus of proof. I must be positively satisfied on the balance of probabilities of key factual matters in their version of events to find their claims made out. Further, to the extent the plaintiff’s case or Mr Stockill’s case rely on allegations of dishonesty or moral turpitude by Mr Johnston, the principles in Briginshaw v Briginshaw[49] must be kept in mind;
    2. (b)
      Second, it is not the case that the Court must choose one version over the other. Parts of the evidence of a witness might be accepted and other parts rejected; and
    3. (c)
      Third, in cases of this kind, considerable assistance is derived from contemporaneous documents and uncontentious events, and the inherent probability or otherwise of the differing accounts in the light of those matters.
  5. [138]
    On the last point:
    1. (a)
      No diaries or telephone records were produced by any witness to corroborate their version;
    2. (b)
      No third party witnesses were called who might have cast light on matters (such as, for example, Mr Stephenson); and
    3. (c)
      The documents said to have been assembled by Mr Stockill in November 2013 which evidenced the unauthorised supply by reference to GMJ orders, sales orders and evidence of deliveries were not put before the Court, although one can infer that some of those documents were tendered (see paragraphs [152] to Error! Reference source not found. below).

Demeanour

  1. [139]
    Mr Stockill presented as very affected by these events. They caused his dismissal in disgrace from Haymans, a company for which he had worked in good standing for over 20 years. He recognised that he had committed a fundamental error of judgment and was determined to accept responsibility for it at this trial, despite the terms of the defence he initially filed. It was also plain that he considered Mr Johnston to have been responsible for his errors by his promises of payment.
  2. [140]
    Although I _____ Mr Stockill was trying to tell the truth, in those circumstances, it seemed to me that the possibility of unintentional reconstruction of the detail of events by Mr Stockill, particularly early in the process of unauthorised supply, was a real possibility, particularly prior to May 2013. However, as will be seen, other evidence strongly corroborates his overall version of events.
  3. [141]
    Mr Johnston presented as an entirely different kind of witness. He was not emotional about the events, or did not appear as such. He answered questions directly and decisively on the key issues. This is subject to the frequency of his evidence that he did not recall why certain events occurred. He gave that answer in circumstances where, on some occasions, it seemed to me that a person of his obvious intelligence would have some recollection to provide. His inability to recall why some $707,000 was transferred out of the GMJ account in just a few months in 2013 was hard to accept as genuine, especially when the company was insolvent by December 2013. Despite his effective style in the witness box, I did not form the view that Mr Johnston was a reliable historian. Overall, his lack of recollection of significant events led me to conclude his evidence was evasive when he was confronted with difficult points for his case. The contemporaneous documents strongly reinforced that conclusion. 

General attacks on Mr Johnston’s credit

  1. [142]
    There were a number of general attacks on Mr Johnston’s credit. Mr Coveney pointed to the following matters;
    1. (a)
      Mr Johnston’s evidence about alternative suppliers during the relevant period emerged during cross examination and was not corroborated by payments from the company trading account;
    2. (b)
      Mr Johnston’s inconsistent evidence about commercial relationships between GMJ and his other companies;
    3. (c)
      The unexplained transfers of over $700,000 out of GMJ’s accounts;
    4. (d)
      The rocky histories of Mr Johnston’s other companies; and
    5. (e)
      Mr Johnston’s bitter experience of being bankrupted on personal guarantees.
  2. [143]
    Ultimately, Mr Coveney’s submission is that these matters tended to show Mr Johnston as a person whose lack of commercial morality would permit him to take advantage of the situation in which Mr Stockill put himself.
  3. [144]
    It is certainly correct to say that taken together there are real grounds for concern about Mr Johnston’s commercial history generally and the dealings in the trading account of GMJ justify some suspicion as to the approach Mr Johnston takes to the conduct of business affairs. The apparent success of GMJ during 2013 and its sudden insolvency in December 2013 with large debts to the ATO and the question of the unauthorised supplies are particularly concerning. On the other hand, there was no evidence of any complaint or action by the liquidator of GMJ in respect of the affairs of GMJ or any other company controlled by Mr Johnston which had failed. Despite that, these matters do provide a basis for some caution in accepting Mr Johnston’s evidence about the affairs of GMJ.
  4. [145]
    More damaging to Mr Johnston’s credit are the objective indicators identified below which favour Mr Stockill’s account in key respects and his evasiveness referred to in paragraph [141] above.

Mr Stockill’s previous statement

  1. [146]
    The main factor relied upon as going to Mr Stockill’s credit was the inconsistencies between Mr Stockill’s evidence in his affidavit dated 3 June 2014 and his evidence at this trial, referred to in paragraphs [66] to [67] above.
  2. [147]
    Those material inconsistencies related to:
    1. (a)
      Mr Stockill’s evidence in that affidavit that branch managers had discretion on credit supplies above the approved limit, contrary to his evidence at trial; and
    2. (b)
      Mr Stockill’s evidence in that affidavit that there was no agreement on credit supplies: he made the decision on a case by case basis whether to supply, contrary to his evidence that he had an agreement and made the decision to supply based on promises of payment by Mr Johnston.
  3. [148]
    These inconsistencies do affect Mr Stockill’s credibility. He knew that he should tell the truth in this affidavit. The picture it paints is materially different from the picture now painted in relation to the agreement and reliance on Mr Johnston’s on-going promises of payment. However, much of Mr Stockill’s account is supported by objective circumstances of the dealings between the parties and, as I have said, I think he was doing his best to tell the truth at this trial.

The documentary record of dealings between GMJ and Haymans

  1. [149]
    A reliable source of contemporaneous evidence which can assist in the resolution of this proceeding is the business and accounting records produced by the parties over the relevant period.
  2. [150]
    First, there are the monthly statements. I have already analysed the monthly statements for GMJ issued by Haymans.[50]They show a pattern from April 2013 to August 2013 as follows (with minor irrelevant deviations):
    1. (a)
      At the end of the month, the account would be at its limit (or as near as makes no difference);
    2. (b)
      Around mid-month, the overdue amount from the previous statement would be paid, creating some available credit under the limit;
    3. (c)
      Immediately on the making of that payment, a series of larger orders were added to the Credit Facility until it was nearing the limit;
    4. (d)
      Thereafter smaller orders were added until the Credit Facility was effectively at the limit; and
    5. (e)
      No more transactions occurred until after the next payment.
  3. [151]
    This unusual pattern might be coincidence if it occurred once or twice, but for it to occur five times in a row is highly improbable. In my view it provides clear corroboration of Mr Stockill’s evidence that he was invoicing unauthorised credit supplies as there was capacity under the Credit Facility to do so, starting with the larger sums immediately after a payment was made which created available credit under the Credit Facility, then filling in the remaining balance with smaller sums.
  4. [152]
    Second, there is evidence of purchase orders from GMJ[51]and signed delivery manifests.[52]The purchase orders show GMJ ordering goods on certain dates, though they do not show the value of those goods. The delivery manifests show goods being delivered to GMJ by Haymans on certain dates, though they do not show the value of those goods (except where delivery is vouched by a signed sales order, which occurs rarely). The value of these orders is not in evidence but there are a significant number of them and their number alone makes it hard to infer other than that they involved orders of significant value.
  5. [153]
    Further, Mr Johnston gave the following evidence:
    1. (a)
      That GMJ did not order goods or receive goods from Haymans when the credit limit was reached except when goods were urgently needed, and in that case the product would be purchased using the GMJ debit card, with only very minor exceptions.[53]
    2. (b)
      In cross examination, Mr Johnston was asked if he would have told his staff not to order from Haymans while the GMJ account was at the credit limit. He answered that he may have.[54]Some circumspection in answering that question is probably justified give that the credit status of the account changed so frequently. However, his evidence was that ordering or receiving goods when the GMJ account was at the credit limit should not have been a frequent occurrence.
  6. [154]
    The purchase orders in evidence unequivocally show the contrary to this evidence.
  7. [155]
    Exhibits 38 to 43 contain 64 purchase orders covering the period 14 March 2013 to 15 July 2013. Those exhibits show that:[55]
    1. (a)
      12 purchase orders were submitted while GMJ was on “stop credit” (as the parties described being at the credit limit) between 19 April and 5 May 2013;
    2. (b)
      21 purchase orders were submitted while GMJ was on stop credit between 18 May and 13 June 2013; and
    3. (c)
      Seven purchase orders were submitted while GMJ was on stop credit between 24 June and 3 July 2013.
  8. [156]
    Although the value of these orders is not in evidence, this is a substantial number of orders. It is difficult to put all of these down to oversight or accident. It is very unlikely that GMJ would be making repeated orders if those goods were not being supplied. This evidence supports Mr Stockill’s evidence that GMJ were regularly ordering goods which Haymans were supplying during a stop credit period. It is also materially inconsistent with Mr Johnston’s evidence as to GMJ’s response to the stop credit situation. It is possible that some of these orders might have been paid by cash, but there is no evidence of that.
  9. [157]
    Exhibits 39 to 43 also contain signed delivery manifests. Exhibit 39 also contains examples of delivery proved by sales orders. Those documents do not so clearly speak for themselves as the signed manifests, and I leave them out of my analysis.
  10. [158]
    The delivery manifests sometimes have the annotation “Trade Cash Sale”. I assume that that means what it says. I leave those out of my analysis, but they are very much the minority. Even with those excluded, there are still some 27 separately itemised orders delivered in the stop credit period between 18 May and 13 June alone.[56]It is not possible to tell the value of these deliveries, but that fact that they were occurring at the level shown during the stop credit period supports Mr Stockill’s evidence that he was causing Haymans to supply despite the credit limit being reached. Also, one can rationally infer these supplies were on credit, given that in other cases they are annotated as being a “Trade Cash Sale”. It is also materially inconsistent with Mr Johnston’s evidence as to GMJ’s response to the stop credit situation.
  11. [159]
    Annexure A also shows numerous delivery manifests attesting to deliveries in other stop credit periods.
  12. [160]
    The purchase orders and delivery manifests tendered in evidence are an incomplete picture of the dealings between GMJ and Haymans. However, they support Mr Stockill’s evidence that there were unauthorised supplies on a significant scale occurring during stop credit periods in April, May and June 2013. They show a pattern of conduct directly inconsistent with Mr Johnston’s evidence that, when at stop credit, GMJ only ordered urgently needed goods from Haymans and paid cash.
  13. [161]
    That evidence does not necessarily lead to an inference that Mr Johnston had been told what Mr Stockill was doing and was encouraging that conduct with promises of payment from the first discussion in late March 2013. However, it certainly creates objective circumstances where such an inference could more confidently be reached. At the least it makes it hard to accept that Mr Johnston did not know GMJ was ordering and receiving goods on credit outside the limit, with authority of his employers.

The intercom and switchboard supply

  1. [162]
    It is convenient here to deal with the evidence of the intercom and switchboard, which were ordered and delivered but not invoiced at the time, or at all. That is further evidence of a large order being made when GMJ was on stop credit. The order would have greatly exceeded the limit at the time it was sent. It was sent on the same date that the increase in the credit limit was signed by Mr Johnston: 20 March 2013. However it was supplied before that increase was approved and it is evident that it was supplied but never invoiced. That means that the approximately $24,000 worth of supplies invoiced immediately on approval of the increase in the limit applied to other supplies.
  2. [163]
    In those circumstances, this strongly supports an inference that Mr Johnston knowingly ordered supplies above the credit limit with Haymans in March 2013 as well. I do not accept his evidence that he might not have known that these items were supplied. They were very expensive items in the scheme of GMJ’s dealings with Haymans. They were obviously important items for the job to which they were sent. Mr Johnston was clearly the guiding mind of GMJ’s operations. He would have known if such important items were not supplied.

Inferences from GMJ’s supply needs

  1. [164]
    Mr Coveney submitted I could infer that the unauthorised supplies of the order contended for by the plaintiff and Mr Stockill occurred and that Mr Johnston knew that was happening, by an analysis of GMJ’s need for electrical goods to carry out its work in the relevant period.
  2. [165]
    As I have said, it was uncontentious at trial that between the beginning of April and the middle of August 2013, GMJ did work which resulted in payments of $1,068,995.76. Mr Johnston said that the component of the cost of sales for GMJ referable to goods supplied with work was 20 to 30 per cent. That was not disputed by the plaintiff or Mr Stockill. That meant that over those five months, GMJ needed between $200,000 and $300,000 in electrical goods.
  3. [166]
    The plaintiff submitted that I could infer that there were substantial unauthorised supplies from two matters:
    1. (a)
      First, the authorised supplies did not cover the supplies required; and
    2. (b)
      Second, I could not infer that material quantities of goods were obtained from another supplier.
  4. [167]
    There are some difficulties with that submission.
  5. [168]
    Assuming that there is at least one month lead time between a product being bought and payment claims being paid for work done using the products (and it would be at least one month) it is uncontentious that GMJ paid Haymans a total of approximately $131,000 for supplies provided by Haymans to GMJ during March to July 2013 being:
    1. (a)
      $31,396.50 paid for March supplies;
    2. (b)
      $18,589.45 paid for April supplies;
    3. (c)
      $31,147.49 for May supplies; and
    4. (d)
      $18,704 for June supplies.
  6. [169]
    Further, GMJ ordered (though did not pay for), supplies worth $31,223.53 in July 2013.
  7. [170]
    Depending on whether one takes the higher or lower percentage, the amount unaccounted for could be as little as $70,000. That is far short of the $275,000 said to have been provided as unauthorised supplies. If the 30 per cent figure is adopted, it becomes a more substantial figure, some $170,000, but still well short of the figures which were contented.
  8. [171]
    On the other hand, it does sustain a broad inference that some material additional source of supply (other than supply by Haymans shown on the monthly statements) must have existed.
  9. [172]
    One inference that could be drawn, especially given the evidence of orders and deliveries during the stop credit periods identified in the next section, is that there were unauthorised supplies, just not of the magnitude alleged by the plaintiff or Mr Stockill.
  10. [173]
    The other inference that could be drawn is that there were other sources of supply for GMJ. Mr Johnston gave evidence that there were other suppliers though this period. He said that supplies over April and May 2013 were from three suppliers (see paragraph [93] above). He later gave evidence in cross examination that there were at least two other companies which supplied the Wheller on the Park project: Stephenson Electrical and Middys.[57]
  11. [174]
    Mr Coveney asked me to infer that that evidence was unreliable. He submitted that reading the evidence as a whole suggests that the evidence of other suppliers was given when the witness realised the need to explain the source of the quantity of goods needed by GMJ. He said that inference was also supported by the lack of entries in the company trading account showing payments to other suppliers.
  12. [175]
    The evidence that there were other sources of supply over the relevant period did come up for the first time in cross examination and after being challenged on how the necessary supplies were sourced, and one might be cynical about that. Certainly other suppliers are not referred to in Mr Johnston’s statement (though his statement is not inconsistent with that fact). Mr Coveney’s submission that the company’s trading account supports the inference cannot be unconditionally accepted. That assumes that other suppliers were paid from that trading account. No basis was established in cross examination for me to draw that inference. Further, when buying on cash terms, the practice seems to have been to use the GMJ credit card.
  13. [176]
    However, given the magnitude of the admitted purchases from Haymans and the lack of any documentary evidence of any other significant supplier, I am persuaded to infer that Haymans was the main supplier to GMJ up to August 2013.
  14. [177]
    The evidence supports the finding that Haymans was GMJ’s major and most important supplier up to August 2013. Further, the evident extent of the dealings with Haymans over that period even when on stop credit tends to support that inference. I reject Mr Johnston’s evidence to the contrary.

Other factors generally favouring Mr Stockill’s account

  1. [178]
    There are a number of objective facts which rationally tend to support Mr Stockill’s account which can be identified in the evidence.
  2. [179]
    First, there is the response of Mr Johnston to the May 2013 meeting. On Mr Johnston’s version, he was confronted with a person who he did not know well accusing his company of owing some $75,000 more than was shown on its statements resulting from orders he says would not have been made and who later gave him documents he thought were false. To simply ignore this and continue dealing with Haymans as he had before is an unusually mild response to say the least, especially where he apparently permitted his staff to continue to order and receive goods during the stop credit periods in May, June and July. Even if the meeting occurred at the end of May, which seems more likely, there is evidence of dealings thereafter.
  3. [180]
    Further, Mr Stockill’s evidence that he told Mr Johnston that he could lose his job over the unauthorised supplies at the May 2013 meeting is very likely to be true. On any view, Mr Stockill had grounds for some was alarm by the time that meeting occurred and if so, it seems to me almost certain Mr Stockill would have said something like this at the May meeting. I do not accept Mr Johnston’s evidence in cross examination that Mr Stockill never said such a thing at that meeting.
  4. [181]
    Second, there is Mr Johnston’s evidence as to his response to the August meeting. Although he says he was shocked by Mr Stockill’s demands for $120,000, he once again denies Mr Stockill was agitated or told him that he was in deep trouble if the money was not paid by GMJ. He expressly denied Mr Stockill told him he would be “fucked” if the money was not paid.
  5. [182]
    Again it is almost certain in my view that Mr Stockill presented as agitated at this meeting and warned Mr Johnston that he would be in trouble at work if the unauthorised supplies were not paid: that was clearly the situation in which Mr Stockill found himself, even on Mr Johnston’s version of that meeting. Again, this is inconsistent with Mr Johnston’s evidence that Mr Stockill never said he could lose his job over the supplies. I reject that evidence.
  6. [183]
    Also, if it was phlegmatic not to take up Mr Stockill’s complaints with Haymans’ management in May, it was remarkable that he did not do so in August if he did not believe there was merit in what Mr Stockill said. I find that he did believe that there was merit in Mr Stockill’s complaints.
  7. [184]
    Third, this conclusion is reinforced by:
    1. (a)
      The signing of the application for further credit on 23 August 2013. The suggestion this was done just in case, if he did not believe that there was merit to Mr Stockill’s demands, is inherently improbable. Doing so amounted to an implied recognition of the validity of those complaints and Mr Johnston was in my view a canny enough businessperson to see that. I do not think it probable he would have signed that document if his real position was that no such sums could be owed; and
    2. (b)
      The payment of $10,000 to cover the sums found to be due by the audit.
  8. [185]
    This latter event strongly favours the conclusion that Mr Johnston, at least by August 2013, accepted that there was merit in Mr Stockill’s claims. The fact that he does not recall the payment or why it was made it is difficult to accept, particularly as it occurred around the same time as the August 2013 meeting. It is difficult to think of a reason Mr Johnston would make a $10,000 payment just because Mr Stockill demanded it to protect his position unless he accepted there was merit in Mr Stockill’s demands.
  9. [186]
    Fourth,  as explained above, the business records proved in the trial tend to support Mr Stockill’s version by demonstrating that:
    1. (a)
      From March 2013, he permitted unauthorised supplies on credit for which he issued tax invoices as credit became available under the credit limit following payments by Mr Johnston; and
    2. (b)
      From April 2013 at least, there were a significant number of instances where good were ordered and supplied even though GMJ was on stop credit.

Findings

  1. [187]
    Taken together, the matters in paragraphs [139] to [186] above sustain the findings that:
    1. (a)
      GMJ ordered and received significant quantities of goods above the $20,000 credit limit in March 2013 and while on stop credit from March to August 2013; and
    2. (b)
      From March 2013, Mr Johnston knew that those supplies were made by Mr Stockill without authority from his employer and could result in Mr Stockill losing his job; 
    3. (c)
      Mr Stockill told Mr Johnston at the May and August 2013 meetings that was occurring and that he would lose his job if the unauthorised supplies were not paid for; and
    4. (d)
      From at least May 2013, Mr Johnston gave assurances to Mr Stockill that GMJ would pay for unauthorised supplies.
  2. [188]
    These findings involve rejection of significant parts of Mr Johnston’s evidence. It might be thought that this means I ought to accept all of Mr Stockill’s evidence in preference to Mr Johnston’s evidence, particularly as to events prior to the May 2013 meeting. In particular:
    1. (a)
      That they had on-going contact and dealings with each other from 2012;
    2. (b)
      That from March 2013, Mr Johnston gave Mr Stockill on-going assurances that GMJ would pay for those unauthorised supplies and continued to place orders to obtain them.
    3. (c)
      That Mr Stockill and Mr Johnston had an express oral agreement that Mr Stockill would supply goods on credit over the limit and conceal the supplies from Haymans; and
    4. (d)
      That Mr Stockill told Mr Johnston from at least the time of the credit limit increase application on 20 March 2013 that he was making unauthorised supplies which could result in him losing his job.

Discussions prior to May 2013

  1. [189]
    Much turns on findings as to the content and nature of discussions prior to May 2013. As to that, I am not persuaded that the contact between the gentlemen was as great as Mr Stockill described in the period up to September 2012. He was asked about specific discussions and events which would make good the proposition of extensive on-going contact, but I found his responses unpersuasive. However, I do not accept Mr Johnston’s evidence of little or no contact. I find that from at least March 2013 until the May 2013 meeting, there was regular telephone contact between the men relating to supplies while the GMJ account was on stop credit.
  2. [190]
    The evidence that supports that conclusion (apart from Mr Stockill’s direct evidence) is as follows:
    1. (a)
      There must have been discussions that led to the credit application on 20 March 2013 to increase the credit limit and those discussions must have related to the over-run;
    2. (b)
      I accept Mr Stockill’s evidence about the work concerning the Logan Job as being the genesis for the over-run of the $20,000 credit limit in March 2013. His explanation of how that situation developed seems credible and was not directly disputed by Mr Johnston. He did not suggest for example that there was no such Logan Job or no need for the goods discussed in the passage at paragraph [36] above;
    3. (c)
      There was also the purchase orders for the intercom and switchboard placed on 20 March 2013. It is unlikely that the fact that this large order would also be outside the existing credit limit would not have been the subject of discussions at that time; and
    4. (d)
      There is of course the evidence of quite numerous purchase orders being placed and goods being delivered while the GMJ account was at the credit limit. It is very likely Mr Stockill would have been concerned to make sure that supplies on credit outside the limit would be paid for, and would have called to confirm that would occur.
  3. [191]
    All these events could not have occurred without on-going discussions. Although I consider Mr Stockill’s evidence to have probably overstated the contact prior to March 2013, the matters in the previous paragraph support the conclusion that there would have been consistent on-going contact from March to May 2013. Mr Johnston’s evidence that there was no meaningful contact is impossible to accept in the light of those facts. This also supports a finding that Mr Johnston knew during the period March to May 2013 that goods were being delivered on credit outside the credit limit.
  4. [192]
    As to the content of the discussions, for reasons I give below I do not accept that they included an express oral agreement in the form alleged for unauthorised supplies, nor do I accept that prior to the May 2013, Mr Stockill told Mr Johnston he would lose his job by reason of the payments. I do, however, accept that when Mr Johnston and Mr Stockill were in communication about purchase orders over the credit limit in March and April, Mr Johnston expressed a wish to be supplied anyway and gave assurances of payment.
  5. [193]
    The latter finding requires some more consideration. To be clear, I find that from March 2013, Mr Johnston gave assurances to Mr Stockill that he would cause GMJ to pay for unauthorised credit supplies by saying he would “get it sorted” or similar words.
  6. [194]
    That finding is inconsistent with the pleaded April, May and June representations in Parts D, F, H and I of the statement of claim. Mr Johnston denied making any of them. Mr Stockill did not give evidence in writing or orally which made good any of these detailed allegations. Rather, Mr Stockill gave oral evidence of more generalised representations. He said on a number of occasions that Mr Johnston regularly told him, when pressed for payment, that he would “get it sorted out” or make similar promises of payment. He said he first raised the need for payment when Mr Johnston ordered goods above the $20,000 limit in March 2013 and did so consistently thereafter. I accept that evidence. (He also gave some vague evidence about statements by Mr Johnston about payment claims but I am not persuaded that had any relevance to Mr Stockill even if it was said. As Mr Stockill said, he was more interested in “the fact that the money was coming”.[58])
  7. [195]
    I accept that, despite Mr Johnston’s denials, because in my view Mr Stockill would have been concerned to ensure that payments of unauthorised credit supplies were going to be made. One would expect a person in Mr Stockill’s position to be so, given his personal exposure. Similarly, it would be surprising that Mr Stockill would have continued to make supplies which threatened his employment without some reassurance from Mr Johnston, particularly as the evidence supports the view that Mr Johnston started with substantial orders over the credit limit in March 2013 and appears to have continued with that conduct thereafter.
  8. [196]
    As will be seen, however, I do not think Mr Stockill became alarmed about the situation until the lead up to the May 2013 meeting.

The “lose my job” statements

  1. [197]
    While I consider that the objective circumstances broadly sustain Mr Stockill’s account, I am not satisfied that he made the “lose my job” statements prior to the May 2013 meeting. Those statements appear to me likely to be the subject of reconstruction by Mr Stockill, albeit unintended. My reasons for that conclusion are as follows.
  2. [198]
    First, the gravamen of Mr Stockill’s evidence in his statement is that he began supplying on credit outside terms because of his own judgment that GMJ would pay based on his own knowledge of its affairs, taken with Mr Johnston’s reassurances and GMJ’s good trading history. Even allowing for the possibility that the Mr Stockill’s statement of 2013 was not a full account, it seems unlikely these central conversations would have been omitted, particularly as the “lose my job” statement appears in respect of the May 2013 meeting (see paragraph 59 of Exhibit 21). They also are generally inconsistent with the evidence in paragraphs 37 and 38 of his affidavit in the summary judgment application.
  3. [199]
    Second, while it is possible that Mr Stockill was so alarmed as to warn Mr Johnston in stark terms of the risk to him of unauthorised supplies, I am not persuaded that is so. Mr Stockill in my view clearly made the judgment that unauthorised supplies were not a significant risk to him, at least in the earlier stages of his conduct. I do not think he would have started making such supplies if he was concerned about the outcome. While that concern might have begun to mount during April, I do not think it is likely to have become significant until the lead up to the May 2013 meeting. That is consistent with his statement at paragraph 59 where he says that at “that meeting I put my heart on my sleeve, and told Greg that I was going to loose [sic] my job over this, and that I kept supplying him with the goods on the understanding he would make payment in full”.[59]The tenor of this evidence is that it was at that meeting that he took the step of telling Mr Johnston of his fears.
  4. [200]
    That is not to say that Mr Johnston did not know that there would be consequences for Mr Stockill if GMJ did not pay for the supplies. In fact, I find to the contrary. As explained in paragraph [187], Mr Johnston knew that the supplies were unauthorised to the extent they involved credit over the approved limit. I have also found he requested supply despite that situation and received such supplies. I am satisfied that he knew that a consequence of those supplies if detected before payment, would most likely be that Mr Stockill would lose his job. If he did not consciously form that view, it was only because he chose not to think about it.

The alleged Credit Limit Circumvention Agreement

  1. [201]
    Mr Stockill has consistently maintained that he had an express oral “agreement” with Mr Johnston in March or April 2013 to make credit supplies over the credit limit and conceal them from Haymans by not billing them. I do not accept any such an express oral agreement was made.
  2. [202]
    There is no mention of the agreement in Mr Stockill’s statement at exhibit 21. The evidence given by Mr Stockill set out at [36] and [37] does not make good the express agreement alleged, even if the evidence at [37] is accepted, which it is not. In particular, there is no express discussion of the method by which Mr Stockill was going to conceal the supplies from Haymans
  3. [203]
    Further, I do not accept that responsibility for the initial unauthorised supplies in March 2013 lies entirely with Mr Johnston. Mr Stockill’s evidence on this is at best inconsistent. Even Mr Stockill’s evidence about the Logan Job amounts to no more than Mr Johnston asking to be supplied with a general promise to pay. In my view, Mr Stockill initially permitted the unauthorised supplies on his own initiative which were regularised by the increase in the credit limit on 25 March 2013.
  4. [204]
    Finally, Mr Stockill gave persuasive (and emotive) evidence which could explain why he would decide, unilaterally, to start making substantial unauthorised supplies to GMJ and to do so until it became problematic in May 2013. He had lost a key client in the branch and he felt responsible for the on-going employment of his staff.
  5. [205]
    There remains the question, however, of whether, and if so when, Mr Stockill told Mr Johnston how he was concealing the unauthorised supplies. I am not certain that Mr Stockill expressly told Mr Johnston the procedure he followed to deliver stock on credit outside the credit limit. The evidence to that effect had the flavour to me of reconstruction. However, there is not much to the process:  Mr Stockill supplied the goods and kept records of the sales order and delivery but did not issue a tax invoice. If Mr Johnston was not expressly told this, it would have been obvious to someone with his background and experience that that must be what was occurring, especially when he received his monthly Haymans statements which did not show the unauthorised supplies. If he did not actually know that, it was only because he chose to close his eyes to that matter.

Haymans’ claims against Mr Stockill

The pleaded case

  1. [206]
    The plaintiff pleaded that Mr Stockill owed fiduciary duties arising from his position as a Profit Centre Manager:
    1. (a)
      Not to be in a position of conflict of duty and personal interest; and
    2. (b)
      Not to obtain any unauthorised benefit from his fiduciary position.
  2. [207]
    It also pleaded that Mr Stockill, as an employee, owed the statutory duties arising under s. 182(1) Corporations Act not to improperly use his position to gain an advantage for himself or another or cause detriment to the plaintiff.
  3. [208]
    Those duties were said to be breached in two ways:
    1. (a)
      By Mr Stockill entering into the so-called Credit Limit Circumvention Agreement whereby Mr Stockill promised to supply goods on credit to GMJ outside the credit limit and undertook not to bill the supplies to the Credit Facility until there was credit available; and
    2. (b)
      By Mr Stockill in fact supplying goods to GMJ on that basis.
  4. [209]
    The plaintiff alleged that none of that conduct was done with their authority.
  5. [210]
    The plaintiff contended that Mr Stockill’s conduct was in the interests of or for the benefit of either GMJ or himself, was not in the interests of, or for the benefit of, the plaintiff and was to the plaintiff’s detriment.
  6. [211]
    The plaintiff claimed loss from Mr Stockill as equitable compensation or damages under s. 1317H Corporations Act. The amount claimed was the unpaid amount of goods allegedly supplied over the credit limit, pleaded as being $275,797.50.

General principles

Fiduciary duty as employee?

  1. [212]
    A fiduciary duty is a duty of loyalty. It requires person A, in certain circumstances, to act in a manner which puts the interests of person B ahead of their own personal interests or other interests or duties. The fiduciary must act selflessly and with undivided loyalty to the interests of beneficiary.
  1. [213]
    As Gibbs CJ observed: “The authorities contain much guidance as to the duties of one who is in a fiduciary relationship with another, but provide no comprehensive statement of the criteria by reference to which the fiduciary relationship may be established.”[60]There are many legal relationships which are recognised as giving rise to fiduciary duties: trustee/beneficiary, lawyer/client. However, fiduciary duties can arise in other circumstances which call for the recognition by the law of an obligation to act in the interests of a specific person, rather than in self-interest or in the interest of others.
  2. [214]
    The plaintiff submits that the relationship of employer and employee is an established category of legal relationship which attracts fiduciary obligations. The plaintiff relies on Hodgson v Amcor [2012] VSC 94, where Justice Vickery summarised the authorities in that regard as follows:

Fiduciary Duty of Employee

1359  The fiduciary duty, as it applies to the ordinary relationship of employer and employee at common law is one importing implied duties of loyalty, honesty, confidentiality and mutual trust.

1360  McHugh J, in Concut Pty Ltd v Worrell in quoting from the judgment of Dixon and McTiernan JJ in Blyth Chemicals Ltd v Bushnell said:

At common law:

[c]onduct which in respect of important matters is incompatible with the fulfilment of an employee's duty, or involves an opposition, or conflict between his interest and his duty to his employer, or impedes the faithful performance of his obligations, or is destructive of the necessary confidence between employer and employee, is a ground of dismissal ... [T]he conduct of the employee must itself involve the incompatibility, conflict, or impediment, or be destructive of confidence. An actual repugnance between his acts and his relationship must be found. It is not enough that ground for uneasiness as to its future conduct arises.

1361  In Blyth Chemicals Ltd v Bushnell Starke and Evatt JJ said:

The mere apprehension that an employee will act in a manner incompatible with the due and faithful performance of his duty affords no ground for dismissing him; he must be guilty of some conduct in itself incompatible with his duty and the confidential relation between himself and his employer.

1362  In Hivac Ltd v Park Royal Scientific Instruments Ltd the issue was explained in the following terms:

... it has been said on many occasions that an employee has a duty of fidelity to his employer. As a general proposition, that is indisputable. The practical difficulty in any given case is to define exactly how far that duty of fidelity extends ...

[Footnotes omitted]

  1. [215]
    It is to be observed that in that case, his Honour was dealing with very senior employees. It might be thought that the statement of principle in paragraph [1359] was made in that context and accordingly was not sensitive to the circumstances of other kinds of case, and perhaps tends to elide fiduciary and contractual duties. Certainly, the passages cited appear to focus on contractual as well a fiduciary duties.
  2. [216]
    If one focusses just on fiduciary duties, Professor Dal Pont presents a subtler picture. He writes:[61]

Employees owe a duty of fidelity to their employer sourced from an implied term of the employment contract. It is thus ordinarily a breach of contract for employees during their employment to embark upon a business competing with that of the employer, or to take an opportunity within the sphere of the employer’s business, without the employer’s fully informed consent.

As fidelity and loyalty are similar concepts, the boundary between a duty of fidelity, and the full force of fiduciary duties, is inexact…  The issue is likely to be ultimately one of degree, involving inquiry into whether the relationship in question needs protection exceeding that prescribed by the terms of the employment contract. Employees owe fiduciary duties if the nature of the employment relationship demands a standard of loyalty exceeding the duty of fidelity prescribed by contract. The employee’s position and responsibility in the employer’s business is probative to this end: the more senior the employee, and the greater the latitude afforded to the employee by the employer, the greater the employer’s vulnerability to the potential misuse of that position of power by the employee.

Green and Clara Pty Ltd v Bestobell Industries Pty Ltd illustrates circumstances in which an employee may owe fiduciary duties. The respondent secured a major building contract for Stage 1 of a medical centre. The appellant, whilst acting as the respondent’s state manager, established a company through which he successfully tendered for the contract for Stage 2 of the medical centre. The respondent also tendered for the contract. The appellant’s senior managerial post in the respondent, coupled with the confidential information to which he was thus privy, attracted fiduciary duties to the respondent, ruled the Western Australian Full Court. By tendering against his employer the appellant placed himself in a duty-interest conflict situation, and used knowledge gained as manager to tender (and profit) on behalf of his own company.

[Footnotes omitted]

  1. [217]
    Professor Dal Pont also refers to Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341, where Foster J relevantly observed:
  1. Mr Huckstep and DBR put in issue the question of whether Mr Huckstep owed any fiduciary duties to B&A. Counsel for those parties submitted that the relationship between B&A and Mr Huckstep was fully regulated by Mr Huckstep’s AWA and there was no room for the superimposition of any fiduciary duty.
  1. Employer/employee relationships fall within the category of accepted fiduciary relationships. Courts have repeatedly said that the relationship is “fiduciary” in nature. For example, Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (Hospital Products) at 96–97 said:

The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman ([1967] 2 A.C. 46, at p.127), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of', and "in the interests of' signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.

  1. However, while it seems generally accepted that senior employees with managerial responsibilities will owe fiduciary duties, it is also generally accepted that the same cannot be said of all employees.
  1. In my judgment, the question is one of degree. Matters relevant to determining whether such a duty exists in any given employer/employee relationship include the following: How much latitude is the employee afforded by the employer and how great is the employer’s vulnerability to the potential misuse of the position of power granted to the employee? Another way of looking at the matter is to regard a fiduciary duty as being imposed on the employer/employee relationship if the nature of that relationship demands a standard of loyalty exceeding the duty of fidelity prescribed by the relevant employment contract.
  1. [218]
    In EagleBurgmann Australia Pty Ltd v Leabeater (2012) 219 IR 449 at 461–462, Nicholas J observed:

[64]  Fiduciary obligations in the employment context are not limited to senior executives and officers, and may in appropriate circumstances extend to other employees (Colour Control Centre Pty Ltd v Ty (1995) 39 AILR 5-058 per Santow J).

[65] In Spotless Group Ltd v Blanco Catering Pty Ltd (2011) 212 IR 396 Mansfield J observed:

  1. It is plain that an employee is not entitled to use knowledge of opportunities or other advantages arising out of their employment to make personal gain: Robb v Green [1895] 2 QB 1, certainly without the informed consent of the employer. That extends to the use of trade secrets or other less confidential information obtained during employment for personal advantage, provided the information was not routinely available in the market place. In Esme Pty Ltd v Parker [1972] WAR 52, an employee used his knowledge of his employer’s quotation techniques to tender for a contract in competition with his employer. His conduct was found to be in breach of duty even though his employer’s quotation was unlikely to have been accepted in any event, regardless of the tendering by the employee. In Coordinated Industries v Elliott (1998) 43 NSWLR 282 at 287, it was said that where knowledge of a business opportunity was acquired in the course of employment, which opportunity may never have been pursued by the employer, it is enough to show that such knowledge was gained in the course of the employment to prevent the employee, without proper disclosure, from using it.
  1. [219]
    The plaintiff abandoned its case based on an alleged breach by Mr Stockill of his employment contract. The plaintiff must therefore bring Mr Stockill within the scope of the above principles to succeed against him on this cause of action.
  2. [220]
    It is also to be observed that the proscriptive duties breached were pleaded[62]as being:
    1. (a)
      Mr Stockill putting himself in a position of conflict of duty and personal interest; and
    2. (b)
      Mr Stockill using his position to obtain a benefit for himself.
  3. [221]
    The latter allegation can be disregarded. There was no evidence that Mr Stockill sought to obtain, or actually received, a benefit for himself. The plaintiffs did not contend that he did.
  4. [222]
    The question then is whether Mr Stockill put himself in a position of where his duty to Haymans (assuming a fiduciary obligation arose) and his personal interest were in conflict.
  5. [223]
    A fiduciary is in a position of conflict when there is a real and sensible possibility of conflict between a duty to act in the interests of the beneficiary (in this case Haymans) and a personal interest. In Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 198–199, the majority (McHugh, Gummow, Hayne and Callinan JJ) observed:

The words of Frankfurter J in Securities and Exchange Commission v Chenery Corporation bear repetition. His Honour said:

“But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?”

In particular, the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is “a conflict or a real or substantial possibility of a conflict” between personal interests of the fiduciary and those to whom the duty is owed. That is how the matter was put by Mason J in Hospital Products. Similar reasoning applies where the alleged conflict is between competing duties, for example, where a solicitor acts on both sides of a transaction.”

[Footnotes omitted]

  1. [224]
    Further, Deane J relevantly observed in Chan v Zacharia:[63]

There is a wide variety of formulations, of the general principle of equity requiring a person in a fiduciary relationship to account for personal benefit or gain. The doctrine is often expressed in the form that a person “is not allowed to put himself in a position where his interest and duty conflict” (Bray v. Ford) or “may conflict” (Phipps v. Boardman) or that a person is “not to allow a conflict to arise between duty and interest”: New Zealand Netherlands Society ‘Oranje’ Inc. v. Kuys. As Sir Frederick Jordan pointed out, however (see Chapters on Equity, 6th ed. (Stephen) (1947), p. 115, reproduced in Jordan, Select Legal Papers (1983), p. 115), this, read literally, represents “rather a counsel of prudence than a rule of equity”: indeed, even as an unqualified counsel of prudence, it may, in some circumstances, be inappropriate: see, e.g., Hordern v. Hordern; Smith v. Cock. The equitable principle governing the liability to account is concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement “in which he has, or can have, a personal interest conflicting ... with the interests of those whom he is bound to protect” (per Lord Cranworth L.C., Aberdeen Railway Co. v. Blaikie Brothers) or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed.

[Footnotes omitted, underlining added]

  1. [225]
    Those comments would apply with equal force to a claim for equitable compensation as is sought in this case. As to the kinds of matters which can constitute a relevant conflict of duty and personal interest, the Full Federal Court observed in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 as follows:

[179]  The concept of “duty” in the “conflict of duty and interest” formula of the first of these is convenient shorthand. It refers simply to the function, the responsibility, the fiduciary has assumed or undertaken to perform for, or on behalf of, his or her beneficiary. What that function or responsibility is, is a question of fact. It may be narrow and circumscribed, as is often the case with specific agencies; it may be broad and general, as is characteristically the case with the functions of company directors; its scope may have been antecedently defined or determined; it may have been ordained by past practice; it may be left to the fiduciary’s discretion to determine; and it may evolve over time as is commonly the case with partnerships. Put shortly the actual function or responsibility assumed determines “[t]he subject matter over which the fiduciary obligations extend” for conflict of duty and interest and conflict of duty and duty purposes: Birtchnell at 408. As Lord Upjohn noted in Boardman v Phipps [1967] 2 AC 46 at 127:

Having defined the scope of those duties [undertaken or assumed by the fiduciary] one must see whether he has committed some breach thereof by placing himself within the scope and ambit of those duties in a position where his duty and interest may possibly conflict. It is only at this stage that any question of accountability arises.

[180] One comment should be made about the term “interest” as used in the conflict formula. Put compendiously, the term signifies the presence of some personal concern of possible pecuniary value in a decision taken, or a transaction effected, within the scope of a fiduciary’s duties. Importantly for present purposes, it may be a contingent or expectant one, as where a trustee uses a trust’s shareholding in a company to vote himself onto the company’s board from which position he will be likely to derive directors’ fees: see eg Re Macadam; Dallow v Codd [1946] Ch 73 at 81; or where a dealing with an agent proceeds on the assumption that a success fee is to be paid if a transaction is effected: McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579.

 [Underlining added]

  1. [226]
    It can be seen that it is not sufficient generally to assert a breach of fiduciary duty by Mr Stockill placing himself in a position of conflict of duty and personal interest. To establish an entitlement to remedy it is necessary:
    1. (a)
      To identify a fiduciary duty owed to Haymans within the scope of the obligations owed by Mr Stockill as Profit Centre Manager;
    2. (b)
      To identify the personal interest relied upon by Haymans; and
    3. (c)
      To identify some acts by Mr Stockill in pursuit of that interest.

Breach of s. 182(1) as an employee

  1. [227]
    Section 182(1) Corporations Act provides:

Use of position–civil obligations

Use of positiondirectors, other officers and employees

  1. (1)
    A director, secretary, other officer or employee of a corporation must not improperly use their position to:
  1. (a)
    gain an advantage for themselves or someone else; or
  1. (b)
    cause detriment to the corporation.

Note: This subsection is a civil penalty provision (see section 1317E).

  1. (2)
    A person who is involved in a contravention of subsection (1) contravenes this subsection.

Note 1: Section 79 defines involved.

Note 2: This subsection is a civil penalty provision (see section 1317E).

  1. [228]
    This provision applies to every employee, no matter how low in the corporate structure. This seems odd because the other categories of person identified in that section are persons who, in general terms, have some role in guiding the affairs of the corporation.
  2. [229]
    Where Mr Stockill was arguably not receiving any personal benefit (but rather was seeking to obtain sales for the benefit of the plaintiff) it might be wondered whether his conduct involved an improper use of his position to gain a benefit for GMJ or to cause detriment to GMJ. That involves two questions:
    1. (a)
      What kind of conduct is “improper” for the purposes of the section?
    2. (b)
      What is the role of subjective purpose in determining whether conduct was carried out “to gain” a benefit for GMJ or “to cause” a detriment to Haymans?
  3. [230]
    As to the former proposition, the plaintiff submitted as follows:
  1. Improper use is an objective standard of impropriety. In R v Byrnes,[64]the High Court stated:

“Impropriety does not depend on an alleged offender’s consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case.

  1. There does not need to be an intent to cause detriment to the corporation for there to be improper use of position.[65]In Chew v The Queen[66], Dawson J (who agreed with the reasons for judgment of Mason CJ, Brennan, Gaudron and McHugh JJ) considered that “it is clear enough that a director of a company may act improperly with no intention of acting dishonestly or otherwise than in the best interests of the company as a whole.”[67]A dishonest use of a director’s position would necessarily mean that the use was also improper, but not every improper use of position is necessarily dishonest.[68]

[Footnotes in original]

  1. [231]
    Those submissions can be accepted.[69]
  2. [232]
    Those principles, however, do not address the second question posed above. Whether impugned conduct can be characterised as being “to gain” or “to cause” the identified outcome is a separate element of the cause of action from whether the impugned conduct is improper. In R v Byrnes, the majority held:[70]

The Court of Criminal Appeal appears to have understood Chew as holding, if there be no intent to cause detriment to the corporation, there is no improper use of position. There are two fallacies in that reasoning. The first fallacy flows from a failure to appreciate that “improper use” and purpose (or intention) are different elements of the offence and may be established by evidence of difference circumstances. Although evidence of the same mental state may suffice in some cases to establish both elements, it does not follow that the element of improper use cannot be established unless there is evidence of a state of mind that detriment will be caused to the corporation.

The second fallacy is that an absence of purpose to cause detriment to the corporation negates the existence of a purpose to gain an advantage for the alleged offender or another person.

  1. [233]
    In this case, the second question in paragraph [229](b) above assumes particular importance. Mr Stockill received no payment, kick-back or favours from GMJ or Mr Johnston and did not bargain for any or seek any. Further, he says he believed GMJ would pay for the unauthorised supplies, which would have been of benefit to Haymans. On the other hand, the outcome of his conduct was a detriment to Haymans and a benefit to GMJ. Those circumstances raise the question as to whether the word “to” in s. 182(1) means “in order to” (focussing on the subjective purpose of conduct) or “so as to” (focussing on objective causation). This question was authoritatively determined by the High Court in Chew v R (1992) 173 CLR 626. In that case, the Court construed s. 229(4) Companies (Western Australia) Code. It provided:

An officer or employee of a corporation shall not make improper use of his position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation.

[Underlining added]

  1. [234]
    Also relevant to the judgment is the then s. 229(3) (the equivalent of s. 183(1) Corporations Act)  which provided;

An officer or employee of a corporation, or a former officer or employee of a corporation, shall not make improper use of information acquired by virtue of his position as such an officer or employee to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation.

  1. [235]
    Dealing with that provision, the majority concluded that, properly construed, s. 229(4) required subjective intention to bring about the identified result. Their Honours relevantly held:[71]

The sense in which the word "to" is used in association with the infinitive may be purposive ("in order to") or causative ("so" or "so as to", though "so as to" may sometimes signify purpose rather than result). It is common to use "to" with the infinitive in the sense of "in order to" so as to express purpose, particularly in an adverbial clause, as an adjunct. No doubt the use of subordinators such as "in order to" or "so that" is more frequent and makes for more precise expression. However, that circumstance does not of itself justify the conclusion that the use of "to" with the infinitive in an adverbial clause as an adjunct is usually causative, for that is not the case.

On the other hand, the presence of a comma which makes an adverbial clause a disjunct, rather than an adjunct, may indicate that consequence, not purpose, is intended. Result clauses differ syntactically from purpose clauses, the former being disjuncts whereas the latter are adjuncts. The presence of the comma before "to gain" in s.229(4) is significant because it separates the prohibition against making improper use of position from what follows, suggesting that what follows is separated from (and thus is a consequence of) the conduct which is the subject of the prohibition. Such a separation is not readily reconciled with a purposive construction because then the conduct which is the subject of the prohibition is more restricted and should be expressed in terms of making improper use of position in order to gain an advantage or cause a detriment so that the purposive limitation becomes an integral element in the expression of the prohibition.

It is curious that, in the respect just mentioned, sub-s.(4) differs from sub-s.(3) which has no comma separating "officer or employee" from "to gain". It is all the more curious because sub-s.(4) seems, as a matter of legislative history, to have evolved from sub-s.(3) which, unlike sub-s.(4), was to be found in the original s.124 of the uniform Companies Act 1961 and in the section as amended in 1973. Section 229(4) was introduced for the first time in 1981 and it follows, subject to differences attributable to the differences in subject-matter, the structure and language of s.229(3). It is not easy to assign a reason for the absence of the comma in one sub-section and its presence in the other. However, it is scarcely to be supposed that sub-s.(4) was so drafted with a view to departing from the model in sub-s.(3) from which it evolved. In this situation, we are not inclined to treat sub-s.(4) as relevantly different from sub-s.(3) which, according to its natural reading and subject to the influence of its context, would prima facie be read in a purposive sense.

In resolving the question of interpretation, no assistance is to be derived from the language of the sub-section itself. The juxtaposition of the prohibition against making improper use of position with the reference to gaining an advantage might perhaps be thought to support a purposive construction but the reference to causing a detriment possibly works the other way.

Some assistance can be gleaned from the rest of s.229. Section 229(1), which obliges an officer to "act honestly in the exercise of his powers and the discharge of the duties of his office", imposes a higher penalty where the offence was committed "with intent to deceive or defraud the company, members or creditors of the company or creditors of any other person or for any other fraudulent purpose". No other sub-section draws any distinction between an offence committed with an intent to deceive or defraud and an offence committed without such an intent. However, the penalty prescribed for an offence against sub-s.(4), as with sub-s.(3), is $20,000 or imprisonment for five years or both, which is the same penalty as that prescribed for an offence against sub-s.(1) where that offence is committed with intent to deceive or defraud. The magnitude of the penalty prescribed by sub-ss.(3) and (4) and its correspondence with that prescribed by sub-s.(1)(b) suggests that sub-ss.(3) and (4) should be given a purposive rather than a causative construction.

We are unable to discern any other indications of relevant statutory intention from the context. The historical and contextual relationship of s.229(4) with s.229(3) leads us to the conclusion that "to" in s.229(4) should be read as "in order to". Had we not come to that conclusion, we would have considered that the provision was ambiguous in that respect. In that event, all other indicia having failed, the provision, being penal in character, should be interpreted in favour of the strict, that is the purposive, meaning in preference to the causative meaning.

It follows that we do not agree with the respondent's contention, accepted by Murray J. in the Western Australian Court of Criminal Appeal, that s.229(4) is satisfied by a willed act performed by an officer or employee of a corporation which can be categorized as an improper act and which in fact gains an advantage or causes a detriment within the terms of the sub-section. Nor do we agree with the view expressed by Malcolm C.J. that s.229(4) is satisfied by a deliberate act or combination of acts done by a director as such,

"with knowledge that what is being done is not for the purpose of furthering any interest of the company, but (of) achieving a collateral purpose which will gain an advantage for himself or another, or cause a detriment to the company".

It is a corollary of the interpretation which we favour that the accrual of an advantage or the suffering of a detriment is not an element of the offence. Thus, an officer who makes improper use of his or her office in order to gain an advantage is guilty of an offence, even if his or her purpose be thwarted as, for example, by the grant of an injunction preventing execution of an instrument or implementation of a transaction. Section 229(6) is consistent with this approach because it conditions the making of an order for payment on the corporation suffering loss or damage.

In the course of argument, it was suggested that it was not necessary to establish that an accused person perceived that the alleged advantage or detriment was an advantage or detriment. We do not read the provision in that way. Once one concludes that there is a purposive element in the offence, it is necessary to establish not merely that the accused intended that a result should ensue, but also that the accused believed that the intended result would be an advantage for himself or herself or for some other person or a detriment to the corporation.

The accused's state of mind is relevant not only to the requirement of purpose but also to the element of improper use of his or her position. If, for example, an accused person reasonably but mistakenly believed that a particular transaction which he or she authorized was genuinely for the benefit of the corporation, that belief may, in an appropriate case, be material in determining whether the accused person can be held criminally responsible for using his or her position in a manner which would objectively be seen to be improper.

[Footnotes omitted, underlining added]

  1. [236]
    That approach was confirmed by the Court in R v Byrnes[72] and applied to s. 182(1) by the New South Wales Court of Appeal in Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659 at [84]-[85] and in Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179 at [78] and at [216].[73]
  2. [237]
    Further, I note that the pesky comma which gave the High Court cause for reflection in the first underlined section of the passage from Chew v R set out above has disappeared from s. 182(1). The approach in Chew plainly applies to s. 182(1) Corporations Act.

Analysis of the plaintiff’s claims against Mr Stockill

Was Mr Stockill a fiduciary?

  1. [238]
    Each of Mr Johnston and Mr Stockill put in issue the existence of the fiduciary duties alleged in their defences.
  2. [239]
    The only facts pleaded by the plaintiff to sustain the conclusion that Mr Stockill was a fiduciary in equity (as opposed to having implied duties of loyalty under his employment contract) was that Mr Stockill was employed as a Profit Centre Manager. The mere description of Mr Stockill in that way is not necessarily enough to establish that Mr Stockill owed fiduciary as well as contractual duties of loyalty. It tells one nothing about how much latitude he was afforded by Haymans nor how vulnerable Haymans was to the potential misuse of such powers as he had in that role. Nor does it say anything about whether the relationship with Haymans was of such a nature that it demanded a standard of loyalty exceeding the duty of fidelity prescribed by the relevant employment contract (to paraphrase Foster J in Bayley & Associates).
  3. [240]
    The evidence at trial provided more context for the resolution of this question. Some evidence favoured the plaintiff and some favoured Mr Stockill. None of this evidence was contentious.
  4. [241]
    The facts which might be thought to favour the recognition of an equitable duty were as follows:
    1. (a)
      Mr Stockill was the manager of the Ipswich branch and the senior employee of Haymans at that location.
    2. (b)
      Mr Stockill’s position was such that it was possible for him to make the unauthorised supplies without being detected in the ordinary course of Haymans’ business.[74]It appeared that the risk of detection arose from the Haymans audit process (which Mr Stockill was able to frustrate in any event, as we have seen already), or from a whistle blower in his own branch.
  5. [242]
    These considerations tend to support the conclusion that Haymans was vulnerable to Mr Stockill using his position of independent authority as manager of the branch to undertake unauthorised credit supplies. A further consideration that arises from those matters is this: while Mr Stockill did not seek or receive a bribe for unauthorised supplies, it might be argued that someone in his position could have done so. Such payment could probably not be recovered in contract nor would a restitutionary remedy arise absent a finding that there was a breach of fiduciary duty in the first place.[75]That possibility might be thought to suggest that equitable duties should arise such that equitable remedies permitting the recovery of such a payment are available.
  6. [243]
    On the other hand, the following matters might be thought to favour the conclusion that no equitable duty should be added to the contractual duty:
    1. (a)
      While Mr Stockill was manager of the branch, he was not a senior manager in the sense of having any role in the conduct of all or a material part of Haymans’ business. His annual salary was $65,000 per year. He had about six staff under his supervision. In the scheme of Haymans’ activities, his branch was not large, turning over around $4,000,000 per year and was just one of nearly 200 across Australia. By comparison, the Fortitude Valley branch had 50 employees and turnover of some $50,000,000 per annum.
    2. (b)
      Mr Stockill did not have any discretion in respect of credit supplies. The approval of credit was a centralised procedure, and he had no discretion to permit credit other than as approved by the credit department. That means that Haymans was not vulnerable to Mr Stockill exercising a discretion conferred on him improperly. Their vulnerability was to him disobeying instructions. In that sense, he was in no different a position to any other employee who is obliged to follow the instructions of his employer.
    3. (c)
      Mr Stockill was not left unsupervised even in carrying out the credit policy. His work was subject to checks by audits and presumably irregularities might have been detected or reported through the stocktake process or indeed by his subordinate staff (though Mr Stockill was quick to take full responsibility for what occurred and to exonerate his staff from any responsibility).
  7. [244]
    Mr Stockill could hardly be considered to be in the same category of employee as the employee considered by Justice Foster in Bayley & Associates, who was described by his Honour in the following terms:
  1. A finding that a particular relationship is fiduciary in character does not necessarily, set the metes and bounds of the content of the fiduciary obligation. It is always necessary to analyse the circumstances of the particular case in order to arrive at the specific ascertainment of the particular obligations owed and thus what acts or omissions would amount to a breach of those obligations.
  1. In the present case, Mr Huckstep occupied the position of General Manager of B&A. The only person within B&A who was senior to him was Ms Bayley herself. She, of course, was the Managing Director and one of only two directors. She was a co-owner of the company and thus the business. Mr Huckstep was, therefore, the most senior employee of B&A apart from Ms Bayley. His job description […] makes clear that he had significant responsibility for managing both the staff and the business of B&A and, as part of being rewarded with that responsibility, had significant access to B&A’s confidential information, business plans and facilities. He was virtually in the position of being a third director. Ms Bayley trusted him and had great confidence in his ability. B&A was very vulnerable to any breach by Mr Huckstep of his AWA and of his common law duty of fidelity. He was in a very significant managerial position.
  1. In my judgment, these factors inevitably lead to the conclusion that Mr Huckstep’s relationship with B&A was fiduciary in nature. In my judgment, he owed to B&A the fiduciary duties pleaded and relied upon by B&A in para 7 of the ASC.
  1. [245]
    Further, the cases seem to recognise that fiduciary duties will be added to contractual duties of loyalty where an employee is in a position which confers on the employee a broad discretion as to how they carry out their duties or where the employee has responsibility and power over a substantial part of the employer’s undertaking, or both.[76]In either situation, employers can be seen to have placed special trust and confidence in the judgment of the employee which places the employer at particular risk if the employee abuses that trust.
  2. [246]
    That is not this case. Mr Stockill was a manager of the most modest kind, with no formal discretion in relation to credit supplies. His conduct occurred within that part of his role which was limited by credit rules and subject to regular scrutiny. I am not persuaded that his conduct in relation to this part of his role as employee is such as to call for the law to recognise fiduciary duties in equity in addition to his implied obligations in contract, particularly where his conduct did not involve bargaining for some improper payment or benefit.
  3. [247]
    This conclusion seems to result in the unsatisfactory position that if Mr Stockill had bargained for a kick-back or accepted a bribe, that amount would not be recoverable by his employer. If that consideration was sufficient to engage broad fiduciary duties, however, then every employee, no matter how modest, would have such duties imposed on them. The authorities I have referred to suggest that is not the law, but do not grapple with this issue.[77]
  4. [248]
    The answer to this might lie in the identification of a narrow and particular fiduciary duty owed by “ordinary” employees. A fiduciary duty does not exist at large, its scope must be identified by the particular circumstances of the relationship in which it is said to arise. In my view, it would be open to recognise a general duty of all employees not to permit his or her duty to his or her employer to come into conflict with his or her personal interest in obtaining a kick-back or bribe. A duty of that limited scope would still recognise that “ordinary” employees do not owe broader fiduciary duties.
  5. [249]
    This question is a potentially complex one. It was not addressed in submissions. And the question of the duties owed in relation to bribes or secret commissions does not arise in this case. On the authorities as I analyse them in the context of this case, I do not accept that Mr Stockill owed fiduciary duties as alleged in the statement of claim in addition to duties of loyalty owed in contract. I note that the contract case, though pleaded, was abandoned in submissions (presumably because no basis for third party liability was advanced against Mr Johnston on the contract case).

Did Mr Stockill breach the pleaded fiduciary duty?

  1. [250]
    If I am wrong on that conclusion, I now turn to consider whether Mr Stockill has breached the pleaded fiduciary duties. It will be recalled that this question depends upon whether Mr Stockill allowed his duty to Haymans to conflict with his personal interest.
  2. [251]
    That question must be resolved on the following findings of fact:
    1. (a)
      Mr Stockill deliberately made unauthorised credit supplies to GMJ;
    2. (b)
      Mr Stockill did so knowing that such supplies were prohibited by Haymans’ policy;
    3. (c)
      Mr Stockill initiated (though at Mr Johnston’s request) the making of unauthorised supplies in March 2013;
    4. (d)
      Mr Stockill never had discussions with Mr Johnston that gave rise to an oral agreement that he make the unauthorised supplies and conceal them from Haymans;
    5. (e)
      However, Mr Stockill did make the supplies in the belief that GMJ would ultimately pay for the unauthorised supplies and, at least initially, on the basis that GMJ’s track record and work flow justified that belief (along with Mr Johnston’s reassurances of payment);
    6. (f)
      Mr Stockill continued making such supplies after he began to have doubts Haymans would be paid because he was already committed;[78]and
    7. (g)
      Mr Stockill did not seek nor receive any payment or other tangible personal benefit from GMJ for making the unauthorised supplies.
  3. [252]
    The question then is how this conduct amounts to a breach of the duty alleged in the statement of claim. Prior to final submissions, I queried how the plaintiff would make out a breach of the pleaded duty in the context of the facts as they then appeared.[79]
  4. [253]
    The plaintiff did not directly grapple with this issue. The final submissions stated:
  1. The evidence that the third defendant breached those duties is as follows:
  1. (a)
    the plaintiff did not authorise the third defendant to extend credit to the first defendant in excess of its credit limit;
  1. (b)
    third defendant knew that he had no authority to do so; and
  1. (c)
    he deliberately decided to continue to supply the first defendant, even though he knew that he was not supposed to after it had reached its credit limit.
  1. The third defendant’s decision to continue supply to the first defendant in excess of its credit limit, whilst on one view well-intentioned, had the following effects:
  1. (a)
    it conferred an advantage on the first defendant, which received stock without being required to pay its account down to below its credit limit;
  1. (b)
    it caused a detriment to the plaintiff, in that the plaintiff lost the protection of the credit hold policy which ordinarily would have prevented the first defendant from receiving further stock after its credit limit was reached
  1. In each of the above cases, the outcome was intended by the third defendant. He deliberately abrogated the plaintiff’s credit policy, knowing it to be wrong. He may have hoped that the decision would ultimately prove to be a beneficial one for the plaintiff, but that is not the point. He intended to continue supplying goods to the first defendant, and therefore intended that the respective advantage and detriment described above would come about.
  1. In those circumstances, it is submitted that the third defendant breached his fiduciary and statutory duties owed to the plaintiff. He also breached the terms of his employment agreement.
  1. [254]
    It will be noted that these submissions do not address the pleaded fiduciary duties at all. There is no written submission identifying the personal benefit obtained by Mr Stockill from his conduct nor any personal interest which, in the circumstances, there was a real and sensible possibility that he would prefer over his duty to Haymans.
  2. [255]
    In oral submissions, Mr Coveney submitted that the personal interest which Mr Stockill was trying to secure was business for the branch of which he was manager in circumstances where that business could not be seen to be in Haymans’ interest because Haymans prohibited it. This was not pleaded. Indeed, there is no specific allegation anywhere in the pleading:
    1. (a)
      That identifies the personal interest of Mr Stockill said to give rise to the conflict of duty and interest; nor
    2. (b)
      That alleges that Mr Stockill in fact preferred his personal interests over those of the plaintiff (see paragraphs 31 and 32 of the statement of claim).
  3. [256]
    In my view, the submission was not within the scope of the pleadings and it is not open now to advance it. It might be argued that the issue became a live one at the trial because some evidence was given on the position of the branch and Mr Stockill’s concerns for his staff after losing Queensland Rail as a client. However, the proposition that a party has permitted a matter to become an issue de facto at trial by the way the trial was conducted must be applied with particular care where there are self-represented litigants. A fortiori where Mr Stockill was not focussed on his rights as against the plaintiff at the trial but rather was generally in the same interest as the plaintiff and focussed on his case against Mr Johnston.
  4. [257]
    Even if the issue was permitted to be considered, I am unpersuaded Mr Stockill’s conduct was for his personal benefit. The factual foundation for such a conclusion was not laid. True it is that Mr Stockill was concerned about the performance of the branch following the loss of Queensland Rail and that he felt responsibility for his staff. However, there was no evidence that the branch was likely to close or that he was subject to performance reviews which put pressure on him to increase sales in the branch or suffer negative consequences in his employment. There was no evidence that he stood to gain from commission, salary increases or promotion by increasing turnover at the branch. Even if this issue could properly be raised, I do not find that Mr Stockill, by the conduct in paragraph [251] allowed his duty to Haymans conflict with his personal interests.
  5. [258]
    There is another way that the facts could be formulated into a breach of fiduciary duty by Mr Stockill of the kind pleaded:
    1. (a)
      His duty could be said to be not to take advantage of his de facto power, as a manager of a branch not under direct supervision, by breaching the credit policy of Haymans;
    2. (b)
      His personal interest could be said to be the interest which he had in protecting his own employment once he began making unauthorised supplies. That interest arose because Mr Stockill was aware that he would be dismissed for making such supplies and therefore had a personal interest in protecting himself once that conduct started, and thus an incentive to continue making supplies after he thought it was no longer in Haymans’ interest to do so; and
    3. (c)
      Mr Stockill acted in pursuit of that personal interest by continuing to make unauthorised supplies well after he believed that there was a risk that GMJ might not pay for them.
  6. [259]
    The difficulty I have with approaching the matter on this basis is that it was not pleaded. Nor was this point argued. Ultimately, I do not think it open on the pleadings to adopt this approach, particularly as it was not specifically contended for by the plaintiff. That conclusion applies with additional force given that Mr Stockill was self-represented. In any event, the position of conflict would only have arisen once Mr Stockill realised he was in difficulties with his unauthorised credit supplies which on one view only occurred after substantial supplies had been made.
  7. [260]
    I am not satisfied that the plaintiff has made out the breaches of fiduciary duty pleaded.

Did Mr Stockill breach s. 182(1)?

  1. [261]
    The plaintiff’s written submissions on that matter appear in the extract set out in paragraph [253] above.
  2. [262]
    Some might think that Mr Stockill’s conduct fell short of dishonesty because it was not directed at obtaining some bribe or other personal benefit for himself. However, it was conduct which was consciously wrongful and against company policy, as Mr Stockill frankly conceded. Further, he took deliberate steps to conceal that conduct by not entering credit transactions on GMJ’s account and later, by concealing the conduct from the Haymans’ auditor in August 2013. That conduct was possible because of his position at the Ipswich branch. In those circumstances, his conduct was improper in the sense described in paragraph [230] above.
  3. [263]
    The difficulty for the plaintiff is in relation to the second element, the need to prove that the impugned conduct was ‘to cause a detriment’ to Haymans or ‘to gain a benefit’ for GMJ. As explained above, it is necessary for the plaintiff to establish that Mr Stockill’ subjective purpose was to cause one or both of those outcomes from his conduct.
  4. [264]
    Paragraph 27 of the plaintiff’s written submissions refers to the effects of Mr Stockill’s conduct. Those effects are the result of Mr Stockill’s conduct. Paragraph 27 speaks to what Mr Stockill’s conduct caused, not to his intention. By itself, that submission does not apply the law as developed in Chew v R.
  5. [265]
    Paragraph 28 seeks to address that shortcoming by alleging that Mr Stockill must have intended to benefit GMJ and harm Haymans because that was the result of his actions. That is, one should infer his state of mind from the outcome of his conduct. There is no reason in principle why a court cannot in appropriate circumstances infer that a party intended the foreseeable consequences of his or her acts. However, it must be kept in mind that when that occurs, the Court is drawing an inference as to the person’s actual state of mind.
  6. [266]
    In my opinion, the circumstances of this case do not sustain the inference because it is contrary to evidence which I have accepted. I have found that Mr Stockill believed at all times that Mr Johnston’s company would pay for the goods supplied at least until June 2013. Indeed his conduct is irrational absent that belief. His belief (optimistic, even naïve, though it might seem in hindsight) was that the unauthorised supplies on credit would be paid for, to the benefit of Haymans, in the same way as the authorised supplies on credit. In those circumstances, his intention was that the unauthorised supplies benefit Haymans. He certainly could not on any view be held to have intended detriment to Haymans. Contrary to the submission in paragraph 28 of the plaintiff’s submissions, the fact that Mr Stockill hoped (and in fact believed) that the decision would prove beneficial is the point.
  7. [267]
    For this reason, the claim against Mr Stockill for breach of s. 182(1) is dismissed.
  8. [268]
    I add the following observations.
  9. [269]
    First, it does not assist the plaintiff to point to the limited evidence that Mr Stockill was motivated by a concern about the shortfall in sales at his branch following the loss of Queensland Rail for the reasons given in paragraphs [256] and [257], which apply mutatis mutandis to the s. 182(1) claims. And further, even if that was his intention, he did not intend detriment to Haymans.
  10. [270]
    Second, even if I had not made the findings as to Mr Stockill’s intention which I have made, it would be difficult to justify drawing any such adverse inferences where the suggestion that his intention was in fact to cause benefit to GMJ and detriment to Haymans was not dealt with in the evidence at all. This might have been an area where the plaintiff would have been permitted to cross examine by leading questions if it had emerged when Mr Stockill was questioned on these issues that he would give evidence contrary to Haymans’ interests (as it is almost certain he would have).

Concluding observation

  1. [271]
    It is perhaps understandable that full attention was not given at trial to the specific legal points upon which the case against Mr Stockill had foundered. The plaintiff was confronted with a co-operative third defendant and a direct opponent in the second defendant. However, while Mr Stockill did not actively contest the plaintiff’s case, nor did he ever consent to judgment. The gravamen of his position was to try to tell the truth as he saw it. He made no concessions on the law. Even if he had, the case against him would still have had to be proved against Mr Johnston to make good the accessory liability alleged.
  2. [272]
    The claims against Mr Stockill are dismissed.

Haymans’ Claims against Mr Johnston

Introduction

  1. [273]
    Haymans’ claims against Mr Johnston were as an accessory to the breaches of fiduciary duty and statutory duty alleged against Mr Stockill. The dismissal of Haymans’ claims against Mr Stockill means that the claims against Mr Johnston must also be dismissed.
  2. [274]
    However, I will consider the claims against Mr Johnston on the following basis:
    1. (a)
      That Mr Stockill owed fiduciary duties to Haymans;
    2. (b)
      That Mr Stockill breached those duties by making unauthorised credit supplies to GMJ because he favoured GMJ’s interests over his duty to Haymans; and
    3. (c)
      That Mr Stockill breached s. 182(1) because his purpose was to benefit GMJ or cause detriment to Haymans, or both.

Mr Johnston’s accessory liability for breach of fiduciary duty

The Law

  1. [275]
    Mr Coveney for the plaintiff summarised the law in respect of liability for knowing assistance in breach of fiduciary duty as follows:
    1. (a)
      In Barnes v Addy,[80]Lord Selbourne LC said:

[S]trangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

  1. (b)
    The necessary elements of liability under what is often called the “second limb” of Barnes v Addy, as conventionally understood, are:[81]
    1. (i)
      the existence of a fiduciary duty owed by the fiduciary (as trustee or otherwise);
    1. (ii)
      a “dishonest and fraudulent design” on the part of the fiduciary;
    1. (iii)
      assistance by the third party in that design; and
    1. (iv)
      knowledge on the part of the third party of the circumstances constituting that design.
  2. (c)
    A third party will not be liable for knowing assistance unless he or she knew, or had a reason to know, of the dishonest and fraudulent design on the part of the fiduciary.[82]Dishonesty (in the context of a dishonest and fraudulent design) amounts to a transgression of ordinary standards of honest behaviour. It is not necessary to demonstrate that the person thought about what those standards were.[83]It is also not necessary to show that the third party acted dishonestly.[84]Such liability is distinct from the liability of a third party who procures or induces a breach of fiduciary duty.
  3. (d)
    A third party might also be treated as a participant in a breach of trust where the third party knowingly induced or immediately procured a breach of duty where the fiduciary acted with no improper purpose.[85]The liability of a person who induces or procures a trustee to commit a breach of trust does not turn on the quality of the breach. There is no requirement that the breach of trust be of sufficient gravity to answer the description of “dishonest and fraudulent design”.[86]
  1. [276]
    Those propositions can be accepted. There are some matters which require further consideration.
  2. [277]
    First, the distinction identified between Barnes v Addy liability and liability from procuring a breach of trust was recognised by the High Court in Farah and discussed as follows:[87]
  1. As conventionally understood in Australia, the second limb makes a defendant liable if that defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary.
  1. Several points of a general nature should be made here. The first concerns the scope of the second limb. This was not expressed by Lord Selborne LC as an exhaustive statement of the circumstances in which a third party who has not received trust property and who has not acted as a trustee de son tort nevertheless may be accountable as a constructive trustee. Before Barnes v Addy, there was a line of cases in which it was accepted that a third party might be treated as a participant in a breach of trust where the third party had knowingly induced or immediately procured breaches of duty by a trustee where the trustee had acted with no improper purpose; these were not cases of a third party assisting the trustee in any dishonest and fraudulent design on the part of the trustee.
  1. Secondly, the distinction has been recognised in the Australian case law but, on one reading of Royal Brunei Airlines Sdn Bhd v Tan, may have been displaced by the Privy Council in favour of a general principle of “accessory liability” expressed as follows:

“A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. ‘Knowingly’ is better avoided as a defining ingredient of the principle.”

  1. Thirdly, whilst the different formulations of principle may lead to the same result in particular circumstances, there is a distinction between rendering liable a defendant participating with knowledge in a dishonest and fraudulent design, and rendering liable a defendant who dishonestly procures or assists in a breach of trust or fiduciary obligation where the trustee or fiduciary need not have engaged in a dishonest or fraudulent design. The decision in Royal Brunei has been referred to in this Court several times but not in terms foreclosing further consideration of the subject in this Court, in particular, further consideration of the apparent necessity to displace the acceptance in Consul Development Pty Ltd v DPC Estates Pty Ltd of the formulation of the second limb of Barnes v Addy were Royal Brunei to be adopted in this country. Until such an occasion arises in this Court, Australian courts should continue to observe the distinction mentioned above and, in particular, apply the formulation in the second limb of Barnes v Addy.

[Footnotes omitted]

  1. [278]
    It can be seen that the High Court has maintained the distinction between second limb Barnes v Addy and procuring a breach of trust. The statement of claim in this case is cast as advancing the former claim: see paragraphs 55AB to 56A.
  2. [279]
    Second, knowing participation requires acts of participation in the dishonest breach of trust with knowledge of the facts that amount to that dishonest breach. In Farah Constructions the High Court confirmed that constructive knowledge is not sufficient to attract liability under the second limb of Barnes v Addy. The Court said:
  1. What is required by the requirement of “knowledge” expressed in the second limb?
  1. In the passage in which Lord Selborne formulated the second limb in terms of assisting with knowledge in a dishonest and fraudulent design on the part of the trustees, he contrasted those “actually participating in any fraudulent conduct of the trustee” and those “dealing honestly as agents”.
  1. As a matter of ordinary understanding, and as reflected in the criminal law in Australia, a person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest by those standards. Further, as early as 1801, Sir William Grant MR stigmatised those who “shut their eyes” against the receipt of unwelcome information.
  1. Against this background, it has been customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA:

“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”

In Bank of Credit and Commerce International (Overseas) Ltd v Akindele (BCCI), Nourse LJ observed that the first three categories have generally been taken to involve “actual knowledge”, as understood both at common law and in equity, and the last two as instances of “constructive knowledge” as developed in equity, particularly in disputes respecting old system conveyancing. After noting that in Royal Brunei the Privy Council had discounted the utility of the Baden categorisation, Nourse LJ in BCCI went on to express his own view that the categorisation was often helpful in identifying the different states of knowledge for the purposes of a knowing assistance case.

  1. Although Baden post-dated the decision in Consul, the five categories found in Baden assist in an analysis of that for which Consul provides authoritative guidance on the question of knowledge for the second limb of Barnes v Addy.
  1. Thus, support in Consul can be found for categories (i), (ii) and (iii). Further, Consul also indicates that category (iv) suffices. However, in Consul, Stephen J held that knowledge of circumstances which would put an honest and reasonable man on inquiry, later identified as the fifth category in Baden, would not suffice. Gibbs J left open the possibility that constructive notice of this description would suffice. Barwick CJ agreed with Stephen J.
  1. The result is that Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the second limb of Barnes v Addy, but does not travel fully into the field of constructive notice by accepting the fifth category. In this way, there is accommodated, through acceptance of the fourth category, the proposition that the morally obtuse cannot escape by failure to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons.
  1. These conclusions in Consul as to what is involved in “knowledge” for the second limb represent the law in Australia. They should be followed by Australian courts, unless and until departed from by decision of this Court.
  1. [280]
    This point is of some relevance in this case where, even on Mr Stockill’s evidence, he never expressly told Mr Johnston that he was acting dishonestly.

The plaintiff’s case on knowing assistance

  1. [281]
    The plaintiff pleaded as follows:[88]
    1. (a)
      That Mr Stockill’s unauthorised supplies amounted to a dishonest and fraudulent design on his part; and
    2. (b)
      That Mr Johnston had actual or constructive knowledge that the conduct was in breach of Mr Stockill’s fiduciary duties and knowingly participated in it.
  2. [282]
    The reference to constructive knowledge is irrelevant as explained in the above extracts from Farah. The allegations said to sustain the second proposition were not identified in the pleadings specifically as acts from which knowledge was inferred or acts of participation. The pleading simply recited reliance on the matters in Parts C, F to J, M and N:
    1. (a)
      Part C recited the fiduciary and s. 182(1) Corporations Act duties Mr Stockill is said to have owed Haymans;
    2. (b)
      Part F, H and I pleaded the detailed representations said to have been made by Mr Johnston to Mr Stockill in April, May and June 2013 to the effect that GMJ would pay for unauthorised credit supplies; 
    3. (c)
      Part G pleaded the Credit Limit Circumvention Agreement;
    4. (d)
      Part J alleged that in the year to September 2013, the plaintiff supplied goods to GMJ pursuant to the credit agreement and the alleged Credit Limit Circumvention Agreement to the value of $335,797.50; and
    5. (e)
      Part M pleaded Mr Stockill’s alleged breaches.
  3. [283]
    Part N is a key part in this case. It deals with knowledge. It alleges, against Mr Johnston:
  1. At all times material to this proceeding:
  1. (a)
    the first defendant, by the second defendant;
  1. (b)
    the second defendant; and
  1. (c)
    the fourth defendant;

knew:

  1. (d)
    that Mr. Stockill was an employee of the plaintiff; and
  1. (e)
    or ought reasonably to have known, that  Mr. Stockill owed the Fiduciary Duties and the Statutory Duty to the plaintiff; and
  1. (f)
    that Mr. Stockill was only authorised to cause the plaintiff to supply Goods to the first defendant on credit to the value of the Credit Limit.; and
  1. (g)
    that Mr. Stockill was not authorised to enter into the Credit Limit Circumvention Agreement;
  1. (h)
    that Mr. Stockill was not authorised to engage in the Mr. Stockill Unauthorised Conduct; and
  1. (i)
    >that by engaging in the Mr. Stockill Unauthorised Conduct Mr. Stockill was acting in breach of the Fiduciary Duties and the Statutory Duty he owed to the plaintiff.
  1. The knowledge of the second defendant referred to in the preceding paragraph arises out of the following facts:
  1. (a)
    Mr. Stockill told the second defendant that he was employed by the plaintiff as branch manager
  1. (b)
    the second defendant repeatedly dealt with Mr. Stockill at the Plaintiff’s Premises while conducting business with the plaintiff;
  1. (c)
    Mr. Stockill told the second defendant that he was only authorised to cause the plaintiff to supply Goods to the first defendant on credit to the value of the Credit Limit;
  1. (ca)
    in or around March or April 2013, Mr. Stockill told the second defendant that he would lose his job if he caused the plaintiff to supply Goods to the first defendant on credit above the value of the Credit Limit;
  1. (d)
    the second defendant’s entry into the Credit Limit Circumvention Agreement; and
  1. (e)
    common knowledge about the way business is conducted.
  1. [284]
    I have already found that from March 2013, when Mr Stockill regularly asked about payment for unauthorised supplies, Mr Johnston made promises of payment in general terms like “I’ll sort it out”. I do not accept that the more detailed representations pleaded were made. I have already rejected the pleaded Credit Limit Circumvention Agreement. I have already dealt with the alleged duties and their breach above, and also the basis upon which I am considering Mr Johnston’s liability.
  2. [285]
    That leaves two issues: knowledge and the alleged unauthorised supplies.

Mr Johnston’s knowledge

  1. [286]
    To recap:
    1. (a)
      I have found that Mr Johnston, from at least March 2013, expressly and impliedly sought supply on credit outside the credit limit by asking it be done and by placing orders when at the limit;
    2. (b)
      I have found that Mr Johnston knew that Mr Stockill was not authorised as branch manager to do this; and
    3. (c)
      I have found that Mr Johnston knew that if GMJ did not pay for the unauthorised supplies, or if those supplies were detected, that Mr Stockill would likely be dismissed, even though Mr Stockill did not expressly tell him this until the May 2013 meeting.

Mr Johnston’s acts of assistance

  1. [287]
    As I have said, the statement of claim does not expressly identify the acts of assistance relied upon.
  2. [288]
    However, within the scope of the pleading, the following acts can be found as potentially relevant:
    1. (a)
      Mr Johnston’s requests (express or implied) for unauthorised supply coupled with promises of payment; and
    2. (b)
      Mr Johnston’s conduct in permitting GMJ to receive and take the benefit of the unauthorised supplies.
  3. [289]
    The latter point raises the question of what evidence there is of the extent of unauthorised supplies beyond the specific evidence already dealt with. This is not a straightforward issue. I deal with this below when considering quantum. For present purposes the evidence shows that there were material quantities of items ordered and delivered in April, May and June while credit was unavailable.

Analysis

  1. [290]
    In my view, on the assumed breach identified in paragraph [274](b) above, Mr Johnston would have been liable for knowing assistance in those breaches of fiduciary duty by Mr Stockill.
  2. [291]
    First, in my view, making unauthorised supplies knowing them to be prohibited by company policy was dishonesty by Mr Stockill in the relevant sense. While Mr Stockill was not seeking and did not receive any tangible benefit from his conduct, he nonetheless knew his action was not permitted, he accepted it could only be done by abusing his opportunity to ignore the credit policy as manager at Ipswich, and he took active steps to conceal his conduct.  It is fair to recognise that Mr Stockill did not present as a dishonest person, but his conduct on this occasion was dishonest in the equitable sense.
  3. [292]
    Second, the acts of Mr Johnston in paragraph [288] above amounted to acts of assistance in that breach. The requests for unauthorised supply along with assurances of payment contributed materially to Mr Stockill’s decision to begin and continue his breaches. Further, the acts of receiving the goods were necessary for the breaches to occur at all.
  4. [293]
    Third, Mr Johnston’s knowledge as found in paragraph [286] is sufficient to fix him with knowledge of all the essential elements of Mr Stockill’s dishonest breach. He plainly knew that supplies were being made above the credit limit from prior to the increase application signed on 20 March 2013, indeed I have found that he asked for that to occur. It makes no difference in my view that he was not expressly told until May 2013 that Mr Stockill feared losing his job, nor that he might not have been told prior to then how the deception of Haymans was occurring. As I have said, he would have known these matters based on his own evidence and the context of the discussions in March to May 2013. If he did not consciously form the conclusion that what Mr Stockill was doing was wrongful and deceptive of his employer, that might take the case outside category (i) in the Baden scale: actual knowledge.[89]However it would meet the test for knowledge in category (iv) and possibly category (ii) and (iii) as well.
  5. [294]
    Accordingly, if it were established that Mr Stockill breached his fiduciary duty as employee by making the unauthorised supplies to GMJ, then I would have found that Mr Johnston was knowingly involved in that breach of duty so as to make him liable in equity, together with Mr Stockill, for the loss flowing from that breach.

Mr Johnston’s liability for accessory liability for breach of s. 182(1)

  1. [295]
    Accessory liability arises under s. 79 Corporations Act which provides:

79   Involvement in contraventions

A person is involved in a contravention if, and only if, the person:

  1. (a)
    has aided, abetted, counselled or procured the contravention; or
  1. (b)
    has induced, whether by threats or promises or otherwise, the contravention; or
  1. (c)
    has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
  1. (d)
    has conspired with others to effect the contravention.
  1. [296]
    The provision casts a wider net than the second limb of Barnes v Addy. It appears to include conduct which would be caught by a claim in equity for procuring a breach of trust discussed in Farah (see paragraph [277] above).
  2. [297]
    The plaintiff relied on the same facts to sustain the accessory liability claim under s. 79 and the Barnes v Addy claim. Further, there were no facts which I could have taken into account, but did not, because of limits in the range of the Barnes v Addy claim. In that context, it would be odd if there was a different outcome between the fiduciary and statutory claims unless that was driven by the different formulation of the primary breaching conduct. I do not see that the assumed breaches I am considering are materially different.
  3. [298]
    Nonetheless, Mr Coveney helpfully referred me to a recent authoritative statement of the law applicable to accessory liability for breaches of, inter alia, s. 182(1) Corporations Act: Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited [2017] FCAFC 74. In that case the Court was also dealing with alternative claims framed by reference to second limb Barnes v Addy and s. 79 Corporations Act. The Court held:
  1. The requirement of being knowingly concerned in a statutory contravention, such as in s 79(c) has been discussed in many cases. Most recently, in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) [2015] FCA 342; 235 FCR 181 at 255-258 [397]-[411], White J examined the principles, as did the Full Court on appeal in Gore v Australian Securities and Investments Commission [2017] FCAFC 13.
  1. The principal authorities to which reference must be made are Yorke v Lucas [1985] HCA 65; 158 CLR 661; Giorgianni v The Queen [1985] HCA 29; 156 CLR 473; and Pereira v Director of Public Prosecutions [1988] HCA 57; 82 ALR 217. From these cases it can be taken that actual knowledge of the essential facts constituting the contravention is necessary; Yorke v Lucas 158 CLR at 670, Giorgianni 156 CLR at 506-507; and Pereira 82 ALR at 220.
  1. Nevertheless, dishonesty itself, for instance, is not to be viewed from the perspective of the morally obtuse. Such is to be gauged (subject to the statutory context) by the standards of ordinary, decent people: Peters v The Queen [1998] HCA 7; 192 CLR 493 at 504 [18]; Macleod v The Queen [2003] HCA 24; 214 CLR 230 at 245 [46].
  1. Whether actual knowledge exists for the purposes of s 79 will be a question of proof and evidence. If circumstances are such as to indicate to an ordinary, decent person that the relevant facts exist, that may be open as an evidential conclusion.
  1. Little is to be gained by a comparison between the textual expression of the Barnes v Addy second limb test and the authorities on s 79.
  1. [299]
    In my view, those observations do not lead to any different conclusion in this claim than in the Barnes v Addy claim on the facts in this case. If I had found that Mr Stockill acted with the purposes alleged by the plaintiff, I would have found that Mr Johnston was an accessory to such a breach of s. 182(1) Corporations Act.

Haymans’ remedies

  1. [300]
    Haymans seeks equitable compensation or damages or alternatively damages  pursuant to s. 1317H Corporations Act against both Mr Stockill and Mr Johnston. Section 1317H provides:

1317H Compensation orders—corporation/scheme civil penalty provisions

Compensation for damage suffered

  1. (1)
    A Court may order a person to compensate a corporation, registered scheme or notified foreign passport fund for damage suffered by the corporation, scheme or fund if:
  1. (a)
    the person has contravened a corporation/scheme civil penalty provision in relation to the corporation, scheme or fund; and
  1. (b)
    the damage resulted from the contravention.

The order must specify the amount of the compensation.

Note:  An order may be made under this subsection whether or not a declaration of contravention has been made under section 1317E.

Damage includes profits

  1. (2)
    In determining the damage suffered by the corporation, scheme or fund for the purposes of making a compensation order, include profits made by any person resulting from the contravention or the offence.

Damage includes diminution of value of scheme or fund property

  1. (3)
    In determining the damage suffered by the scheme or fund for the purposes of making a compensation order, include any diminution in the value of the property of the scheme or fund.
  1. (4)
    If the responsible entity for a registered scheme is ordered to compensate the scheme, the responsible entity must transfer the amount of the compensation to scheme property. If anyone else is ordered to compensate the scheme, the responsible entity may recover the compensation on behalf of the scheme.
  1. (4A)
    If the operator of a notified foreign passport fund is ordered to compensate the fund, the operator must transfer the amount of the compensation to the fund property. If anyone else is ordered to compensate the fund, the operator may recover the compensation on behalf of the fund.

Recovery of damage

  1. (5)
    A compensation order may be enforced as if it were a judgment of the Court.
  1. [301]
    As I understand it, no claim for equitable damages arises from a breach of fiduciary duty: that remedy arises in different circumstances.[90]Equitable compensation is, of course, available for breach of fiduciary duty. Under the second limb of Barnes v Addy and s. 182(2) Corporations Act, Mr Johnston would be exposed to liability measured in the same way.
  2. [302]
    Causation does not give rise to difficulties in this case. For each claim, the same loss is advanced: the price for the supplies on credit to GMJ to the extent that they were not within the credit limit and remained unpaid. It is not difficult to conclude that that loss would have been caused by the breaches assumed: it was the direct consequence of Mr Stockill’s extension of unauthorised credit. There was no challenge at trial to this proposition.
  3. [303]
    However, Mr Johnston disputed the quantum of that loss. Haymans’ position is summarised in Mr Coveney’s submissions as follows:
  1. The plaintiff led evidence from Mr Osborne and Mr Hart to prove the quantum of its loss. That evidence included:
  1. (a)
    an account statement dated 31 January 2014 showing the unpaid amount as $325,797.50;
  1. (b)
    a Payment History Enquiry Report showing all payments made by the first defendant and showing an unpaid balance of $325,797.50; and
  1. (c)
    all invoices for the goods supplied to the first defendant.
  1. Further to the above, the third defendant gave evidence of the process of invoicing the first defendant for the unauthorised supplies. This was arrived at by the third defendant personally matching sales orders with delivery dockets. In cross-examination by the second defendant, the third defendant stated that he was “100% sure that the goods on TOBs under GMJ Electrical Products were all delivered to the correct sites under the understanding of the purchase orders that were provided.”  That evidence was not seriously challenged by the second defendant.
  1. On the basis of the above, it is submitted that the plaintiff has proved that there remains an unpaid balance of $325,797.50 in respect of goods supplied to the first defendant which were not paid for. Allowing for the agreed limit of the Credit Facility of $50,000 (which the plaintiff accepts that it was on risk for) the amount of the plaintiff’s loss and damage is $272,797.50.

[Footnotes omitted]

  1. [304]
    The statements in paragraph 45 are correct. The question arose as to whether those documents were admissible for the truth of their contents. They were proved to be copies of records contained in Haymans’ books of account. They are admissible for the truth of their contents under s. 84 Evidence Act so long as they meet the requirements of s. 85(1) Evidence Act. That provision states:

An entry or a copy of an entry in a book of account shall not be admissible in evidence under this division unless it is first proved that the book was at the time of the making of the entry 1 of the ordinary books of account of the undertaking to which it purports to relate and that the entry was made in the usual and ordinary course of that undertaking.

  1. [305]
    The tax invoices and the entries relating to the unauthorised supplies were all generated in mid-November 2013 based on a reconciliation by Mr Stockill following his confession to Mr Gallard, as referred to in paragraph 46 of Mr Coveney’s submissions.
  2. [306]
    Given Mr Johnston was self-represented, I queried with Mr Coveney whether in those circumstances the entries relating to the unauthorised supplies were made in the “usual and ordinary course” of Haymans’ undertaking.[91]
  3. [307]
    Mr Coveney submitted that they were. He submitted that the process followed by Mr Stockill was in fact the usual and ordinary process for making and recording supplies by Haymans, it was just that there was a delay of some months between the raising of the supply order and the receipt of evidence of delivery and the generation of the tax invoice. That submission can be accepted as correct.
  4. [308]
    It might be queried whether  the making of the entries up to seven months after they would normally be made satisfies the requirement that the entries were made in the “usual and ordinary course” of Haymans’ undertaking. However, in my view they were. The process followed was the one usually followed prior to entering a sale and generating a tax invoice. There is no reason why the delay in the final step would, of itself, mean the entry was not made in the ordinary course, reading that as referring to ordinary procedure. That conclusion is reinforced by Mr Stockill’s evidence that he was confident that the invoiced goods were supplied based on his matching of sales orders and delivery dockets.
  5. [309]
    Even if that were not correct, the entries relied upon would be admissible in my view under s. 1305 Corporations Act read with s. 286.[92]
  6. [310]
    Even if the tax invoices and the entries based upon them are admissible, Mr Johnston contended that I should not act on them. He pointed to:
    1. (a)
      The lack of any third party supervision, checking or auditing of Mr Stockill’s work;
    2. (b)
      The fact that the documents said to have been relied upon were not produced; and
    3. (c)
      The fact that the work was done seemingly in a 36 hour stretch under pressure from his superiors to quickly reconcile the unbilled items.
  7. [311]
    [To that list might be added the consideration that the total amount ordered from Haymans is high compared to the overall need of GMJ for the period April to July 2013 inclusive. It was established above that GMJ in fact paid $131,000 over that period into the credit account. Together with $275,797.50, that gives a total for goods supplied of over $400,000, quite a bit more than might be expected based on the estimate of the work done during that period, which had a maximum estimate of about $300,000. However, those calculations were very rough and did not sufficiently allow for timing differences between when work was done and when it was paid for.]
  8. [312]
    Those considerations do not persuade me that the figure calculated by Mr Stockill is materially incorrect. The urgency and intensity of the work is no reason to believe it was done substantively incorrectly. Further, the lack of supervision and audit is no reason to reject Mr Stockill’s evidence as to how the entries in the accounts were generated.
  9. [313]
    Further, Mr Johnston could point to no reason to think that Mr Stockill would exaggerate or overstate the extent of his wrongdoing in making unauthorised supplies. It was in his interest to minimise his wrongdoing. Nothing was suggested to him in cross examination to the contrary.
  10. [314]
    Accordingly, I find that the loss arising from the unauthorised credit supplies was $275,757.50.
  11. [315]
    If I had been persuaded that Mr Stockill breached his equitable or statutory duties to Haymans, I would have awarded judgment against both Mr Stockill and Mr Johnston in the amount of $275,757.50 

Mr Stockill’s claims against Mr Johnston

  1. [316]
    Mr Stockill advanced two claims against Mr Johnston:
    1. (a)
      First, that he was entitled to contribution or indemnity from Mr Johnston in respect of any liability he was found to have for a breach of fiduciary or statutory duty to Haymans; and
    2. (b)
      Second, that Mr Johnston was knowingly concerned in misleading or deceptive conduct by GMJ in representing it would pay for unauthorised supplies and failing to warn of the risks which might have attended that expression of future conduct.
  2. [317]
    There were no submissions at all on the first claim and no submissions of law on the second. Not surprisingly, Mr Stockill had little grasp of the legal issues. He addressed the broad factual proposition which generally informed both claims: that Mr Johnston’s representations that GMJ would pay for unauthorised supplies turned out to be wrong. However, Mr Stockill took neither the law nor the facts any further than that.
  3. [318]
    Both causes of action raised substantial issues of law and fact. None of these were addressed, much less developed, in Mr Stockill’s submissions. It might be understandable that Mr Stockill was unable to do so, but in my view it goes beyond the duty of this Court to him as a litigant in person to identify and address the many issues which arise. A fortiori where the defendant to those claims is himself a litigant in person who was entitled to respond to Mr Stockill’s claim on the basis of the inadequate submissions made in favour of it at trial.
  4. [319]
    The question of the claims between Mr Stockill and Mr Johnston inter se arise only if my conclusions on the claims against Mr Stockill are wrong. It is not therefore necessary to deal with them further in this judgment.

Orders

  1. [320]
    The plaintiff’s claim is dismissed. Mr Stockill’s third party claim is dismissed. I will hear the parties as to costs.

Annexure A

Exh Ref Number

Document  Type

Date Email Sent / Goods Delivered

Email sent by

Order Number

Exh 39 - 1

Delivery Manifest

12/03/2013

NA

111228

Exh 39 - 1

Delivery Manifest

12/03/2013

NA

-

Exh 39 - 1

Delivery Manifest

12/03/2013

NA

130309

Exh 39 - 1

Delivery Manifest

12/03/2013

NA

130310

Exh 39 - 2

Delivery Manifest

13/03/2013

NA

130309

Exh 39 - 2

Delivery Manifest

13/03/2013

NA

130313

Exh 38 - 1

PO Email

14/03/2013

Tim Stephenson

-

Exh 39 - 3

Delivery Manifest

14/03/2013

NA

130312

Exh 39 - 3

Delivery Manifest

14/03/2013

NA

130314

Exh 39 - 5

Delivery Manifest

19/03/2013

NA

130312

Exh 40 - 1

PO Email

19/03/2013

Tim Stephenson

130321

Exh 40 - 1

Delivery Manifest

19/03/2013

NA

130321

Exh 43

PO Email

20/03/2013

Tim Stephenson

130324; 130325

Exh 39 - 6

Delivery Manifest

20/03/2013

NA

130319

Exh 39 - 7

Delivery Manifest

21/03/2013

NA

130315

Exh 39 - 7

Delivery Manifest

21/03/2013

NA

130321

Exh 39 - 7

Delivery Manifest

21/03/2013

NA

130322

Exh 39 - 7

Delivery Manifest

21/03/2013

NA

130323

Exh 39 - 7

Delivery Manifest

21/03/2013

NA

130328

Exh 39 -7

Delivery Manifest

21/03/2013

NA

130330

Exh 43

Sales Order

21/03/2013

NA

130325

Exh 38 - 2

PO Email

22/03/2013

Tim Stephenson

130333

Exh 43

Delivery Manifest

22/03/2013

NA

130204; 130325

Exh 39 - 8

Delivery Manifest

25/03/2013

NA

130337

Exh 39 - 8

Delivery Manifest

25/03/2013

NA

-

Exh 39 - 9

Delivery Manifest

27/03/2013

NA

-

Exh 41 - 4

PO Email

8/04/2013

Tim Stephenson

130407

Exh 41 - 4

Delivery Manifest

9/04/2013

NA

130407

Exh 41 - 5

PO Email

9/04/2013

Tim Stephenson

130408

Exh 41 - 5

Delivery Manifest

9/04/2013

NA

130408

Exh 41 - 5A

PO Email

11/04/2013

Tim Stephenson

Nil

Exh 41 - 5A

Delivery Manifest

12/04/2013

NA

Nil

Exh 38 - 3

PO Email

16/04/2013

Tim Stephenson

130417

Exh 38 - 4

PO Email

17/04/2013

Greg Johnston

130418

Exh 41 - 6

PO Email

17/04/2013

Tim Stephenson

130419

Exh 39 - 12

Sales Order

18/04/2013

NA

-

Exh 39 - 12

Delivery Manifest

18/04/2013

NA

130419

Exh 39 - 12

Delivery Manifest

18/04/2013

NA

-

Exh 39 - 15

Sales Order

18/04/2013

NA

-

Exh 41 - 6

Delivery Manifest

18/04/2013

NA

130419

Exh 38 - 5

PO Email

19/04/2013

Tim Stephenson

130424

Exh 39 - 18

Delivery Manifest

22/04/2013

NA

130420

Exh 41 - 7

PO Email

23/04/2013

Greg Johnston

130428

Exh 41 - 7

Delivery Manifest

23/04/2013

NA

130428

Exh 38 - 6

PO Email

26/04/2013

Tim Stephenson

-

Exh 38 - 7

PO Email

29/04/2013

Tim Stephenson

130431

Exh 38 - 8

PO Email

29/04/2013

Matthew Fordham

-

Exh 39 - 16

Delivery Manifest

29/04/2013

NA

-

Exh 42 - 10

PO Email

29/04/2013

Tim Stephenson

130429

Exh 42 - 10

Delivery Manifest

29/04/2013

NA

130429

Exh 38 - 9

PO Email

30/04/2013

Greg Johnston

-

Exh 38 - 10

PO Email

30/04/2013

Greg Johnston

-

Exh 38 - 11

PO Email

30/04/2013

Tim Stephenson

130433

Exh 38 - 12

PO Email

1/05/2013

Matthew Fordham

-

Exh 39 - 17

Delivery Manifest

1/05/2013

NA

130430

Exh 39 - 17

Delivery Manifest

1/05/2013

NA

130431

Exh 39 - 17

Delivery Manifest

1/05/2013

NA

-

Exh 39 - 17

Delivery Manifest

1/05/2013

NA

130433

Exh 38 - 13

PO Email

2/05/2013

Greg Johnston

130503

Exh 42 - 11

PO Email

2/05/2013

Tim Stephenson

130501

Exh 42 - 11

Delivery Manifest

3/05/2013

-

130501

Exh 38 - 14

PO Email

8/05/2013

Tim Stephenson

130506

Exh 38 - 15

PO Email

14/05/2013

Tim Stephenson

-

Exh 42 - 15

PO Email

14/05/2013

Tim Stephenson

130508

Exh 42 - 15

Delivery Manifest

14/05/2013

NA

130508

Exh 39 - 22

Delivery Manifest

14/05/2013

NA

-

Exh 39 - 22

Delivery Manifest

14/05/2013

NA

-

Exh 39 - 22

Delivery Manifest

14/05/2013

NA

-

Exh 39 - 23

Delivery Manifest

15/05/2013

NA

-

Exh 39 - 23

Delivery Manifest

15/05/2013

NA

130509

Exh 38 - 16

PO Email

16/05/2013

Greg Johnston

-

Exh 38 - 17

PO Email

16/05/2013

Tim Stephenson

-

Exh 38 - 18

PO Email

20/05/2013

Matthew Fordham

-

Exh 38 - 19

PO Email

21/05/2013

Tim Stephenson

130511

Exh 39 - 26

Delivery Manifest

21/05/2013

NA

-

Exh 39 - 26

Delivery Manifest

21/05/2013

NA

130508

Exh 39 - 26

Delivery Manifest

21/05/2013

NA

130511

Exh 39 - 26

Delivery Manifest

21/05/2013

NA

130326

Exh 39 - 26

Delivery Manifest

21/05/2013

NA

130326

Exh 39 - 26

Delivery Manifest

21/05/2013

NA

130326

Exh 39 - 26

Delivery Manifest

21/05/2013

NA

130326

Exh 39 - 26

Delivery Manifest

21/05/2013

NA

130326

Exh 38 - 20

PO Email

22/05/2013

Tim Stephenson

130512;130513

Exh 38 - 23

PO Email

23/05/2013

Tim Stephenson

130512

Exh 38 - 21

PO Email

24/05/2013

Matthew Fordham

-

Exh 38 - 22

PO Email

24/05/2013

Tim Stephenson

130514

Exh 38 - 24

PO Email

24/05/2013

Tim Stephenson

-

Exh 39 - 27

Sales Order

24/05/2013

NA

-

Exh 39 - 27

Delivery Manifest

24/05/2013

NA

130512

Exh 39 - 27

Delivery Manifest

24/05/2013

NA

-

Exh 39 - 27

Delivery Manifest

24/05/2013

NA

-

Exh 38 - 25

PO Email

28/05/2013

Tim Stephenson

130517

Exh 38 - 26

PO Email

28/05/2013

Tim Stephenson

130518

Exh 38 - 27

PO Email

28/05/2013

Tim Stephenson

130519

Exh 39 - 29

Sales Order

28/05/2013

NA

-

Exh 39 - 29

Delivery Manifest

28/05/2013

NA

130517

Exh 39 - 29

Delivery Manifest

28/05/2013

NA

130518

Exh 39 - 29

Delivery Manifest

28/05/2013

NA

130519

Exh 39 -29

Sales Order

28/05/2013

NA

-

Exh 38 - 28

PO Email

29/05/2013

Tim Stephenson

130522

Exh 38 - 29

PO Email

30/05/2013

Greg Johnston

-

Exh 38 - 30

PO Email

30/05/2013

Tim Stephenson

-

Exh 39 - 31

Delivery Manifest

30/05/2013

NA

-

Exh 39 - 31

Delivery Manifest

30/05/2013

NA

130521

Exh 39 - 31

Delivery Manifest

30/05/2013

NA

-

Exh 39 - 31

Delivery Manifest

30/05/2013

NA

-

Exh 39 - 31

Delivery Manifest

30/05/2013

NA

-

Exh 38 - 31

PO Email

3/06/2013

Tim Stephenson

130601

Exh 38 - 32

PO Email

3/06/2013

Tim Stephenson

130602

Exh 38 - 33

PO Email

3/06/2013

Matthew Fordham

-

Exh 39 - 33

Sales Order

3/06/2013

NA

-

Exh 39 - 33

Delivery Manifest

3/06/2013

NA

130601

Exh 39 - 33

Delivery Manifest

3/06/2013

NA

130602

Exh 39 - 35

Sales Order

4/06/2013

NA

-

Exh 39 - 35

Delivery Manifest

4/06/2013

NA

-

Exh 39 - 35

Delivery Manifest

4/06/2013

NA

-

Exh 38 - 34

PO Email

5/06/2013

Tim Stephenson

130604

Exh 39 - 36

Delivery Manifest

5/06/2013

NA

-

Exh 39 - 36

Delivery Manifest

5/06/2013

NA

-

Exh 39 - 36

Delivery Manifest

5/06/2013

NA

-

Exh 39 - 36

Delivery Manifest

5/06/2013

NA

130604

Exh 39 - 37

Sales Order

6/06/2013

NA

-

Exh 39 - 37

Delivery Manifest

6/06/2013

NA

-

Exh 39 - 38

Delivery Manifest

6/06/2013

NA

130604

Exh 38 - 35

PO Email

7/06/2013

Tim Stephenson

130610

Exh 38 - 36

PO Email

7/06/2013

Tim Stephenson

130611

Exh 39 - 39

Delivery Manifest

7/06/2013

NA

130608

Exh 39 - 39

Delivery Manifest

7/06/2013

NA

-

Exh 39 - 39

Delivery Manifest

7/06/2013

NA

130610

Exh 39 - 39

Delivery Manifest

7/06/2013

NA

130611

Exh 38 - 38

PO Email

12/06/2013

Tim Stephenson

130616

Exh 39 - 40

Delivery Manifest

12/06/2013

NA

130606

Exh 39 - 40

Delivery Manifest

12/06/2013

NA

-

Exh 38 - 39

PO Email

13/06/2013

Tim Stephenson

130618

Exh 39 - 42

Sales Order

13/06/2013

NA

-

Exh 39 - 43

Delivery Manifest

13/06/2013

NA

130614

Exh 39 - 43

Delivery Manifest

13/06/2013

NA

130616

Exh 39 - 45

Sales Order

13/06/2013

NA

 

Exh 39 - 45

Delivery Manifest

13/06/2013

NA

-

Exh 39 - 45

Delivery Manifest

13/06/2013

NA

TBA

Exh 39 - 46

Delivery Manifest

13/06/2013

NA

TBA

Exh 39 - 46

Sales Order

13/06/2013

NA

-

Exh 38 - 40

PO Email

14/06/2013

Tim Stephenson

130619

Exh 38 - 42

PO Email

14/06/2013

Ron Moss

-

Exh 39 - 44

Delivery Manifest

14/06/2013

NA

130604

Exh 39 - 44

Delivery Manifest

14/06/2013

NA

-

Exh 39 - 44

Delivery Manifest

14/06/2013

NA

-

Exh 39 - 44

Delivery Manifest

14/06/2013

NA

-

Exh 39 - 44

Delivery Manifest

14/06/2013

NA

-

Exh 39 - 44

Delivery Manifest

14/06/2013

NA

130616

Exh 39 - 44

Delivery Manifest

14/06/2013

NA

130620

Exh 38 - 43

PO Email

17/06/2013

Tim Stephenson

130622; 130624

Exh 39 - 47

Delivery Manifest

17/06/2013

NA

-

Exh 39 - 47

Delivery Manifest

17/06/2013

NA

-

Exh 38 - 44

PO Email

18/06/2013

Ron Moss

130605

Exh 39 - 48

Delivery Manifest

18/06/2013

NA

-

Exh 39 - 48

Delivery Manifest

18/06/2013

NA

-

Exh 39 - 48

Delivery Manifest

18/06/2013

NA

-

Exh 39 - 48

Sales Order

18/06/2013

NA

-

Exh 39 - 48

Delivery Manifest

18/06/2013

NA

-

Exh 39 - 48

Delivery Manifest

18/06/2013

NA

130618

Exh 39 - 48

Delivery Manifest

18/06/2013

NA

130605

Exh 39 - 48

Delivery Manifest

18/06/2013

NA

442086

Exh 38 - 41

PO Email

19/06/2013

Ron Moss

-

Exh 38 - 45

PO Email

24/06/2013

Matthew Fordham

-

Exh 38 - 46

PO Email

24/06/2013

Tim Stephenson

130631

Exh 38 - 47

PO Email

25/06/2013

Ron Moss

1300633

Exh 38 - 48

PO Email

27/06/2013

Ron Moss

1306037

Exh 38 - 49

PO Email

28/06/2013

Ron Moss

1306038

Exh 38 - 50

PO Email

1/07/2013

Ron Moss

130701

Exh 38 - 51

PO Email

3/07/2013

Greg Johnston

130703

Exh 38 - 55

PO Email

8/07/2013

Greg Johnston

130705

Exh 38 - 52

PO Email

12/07/2013

Greg Johnston

-

Exh 38 - 53

PO Email

12/07/2013

Greg Johnston

130707

Exh 38 - 54

PO Email

15/07/2013

Tim Stephenson

-

Annexure B

Exh 39 Ref Number[93]

Document  Type

Date Email Sent / Goods Delivered

Order Number

26

Delivery Manifest

21/05/2013

-

26

Delivery Manifest

21/05/2013

130508

26

Delivery Manifest

21/05/2013

130511

26

Delivery Manifest

21/05/2013

130326

26

Delivery Manifest

21/05/2013

130326

26

Delivery Manifest

21/05/2013

130326

26

Delivery Manifest

21/05/2013

130326

26

Delivery Manifest

21/05/2013

130326

27

Sales Order

24/05/2013

-

27

Delivery Manifest

24/05/2013

130512

27

Delivery Manifest

24/05/2013

-

27

Delivery Manifest

24/05/2013

-

29

Sales Order

28/05/2013

-

29

Delivery Manifest

28/05/2013

130517

29

Delivery Manifest

28/05/2013

130518

29

Delivery Manifest

28/05/2013

130519

31

Delivery Manifest

30/05/2013

-

31

Delivery Manifest

30/05/2013

130521

31

Delivery Manifest

30/05/2013

-

31

Delivery Manifest

30/05/2013

-

31

Delivery Manifest

30/05/2013

-

33

Sales Order

3/06/2013

-

33

Delivery Manifest

3/06/2013

130601

33

Delivery Manifest

3/06/2013

130602

35

Sales Order

4/06/2013

-

35

Delivery Manifest

4/06/2013

-

35

Delivery Manifest

4/06/2013

-

36

Delivery Manifest

5/06/2013

-

36

Delivery Manifest

5/06/2013

-

36

Delivery Manifest

5/06/2013

-

36

Delivery Manifest

5/06/2013

130604

37

Sales Order

6/06/2013

-

37*

Delivery Manifest

6/06/2013

-

38*

Delivery Manifest

6/06/2013

130604

39*

Delivery Manifest

7/06/2013

130608

39*

Delivery Manifest

7/06/2013

-

39*

Delivery Manifest

7/06/2013

130610

39*

Delivery Manifest

7/06/2013

130611

40*

Delivery Manifest

12/06/2013

130606

40*

Delivery Manifest

12/06/2013

-

Footnotes

[1] Exhibit 21, paragraph 40.

[2] Exhibit 21, paragraph 44.

[3] See the first page and second last page of Mr Stockill’s trial submission.

[4] Exhibit 25, paragraphs 27 and 28.

[5] Mr Stockill’s admissions might have been admissible against Mr Johnston by analogy with the cases dealing with civil conspiracy and preconcert in the criminal law: Ahern v R (1988) 165 CLR 87. This was not raised at the trial.

[6] Exhibit 9.

[7] Exhibit 10.

[8] Exhibit 12.

[9] TS2-7.13 to .14.

[10] Exhibits 21 and 22.

[11] J D Heydon, Cross on Evidence (Lexis Nexis) [17475].

[12] TS2-54.11 to .29.

[13] TS2-43.12 to 44.28.

[14] TS2-54 to 55.

[15] TS2-56.4 to .15.

[16] Exhibit 21, paragraphs 35 to 39.

[17] TS2-43 to 44.

[18] Exhibit 21, paragraphs 40 to 49 and see TS2-57.

[19] TS2-59 to 61.

[20] Exhibit 21, paragraphs 52 to 63.

[21] TS2-44 to 45.

[22] TS2-62.20 to .25.

[23] TS2-62.27; see also exhibit 21, paragraphs 66 to 72.

[24] TS2-64; see also exhibit 21, paragraphs 75 to 86.

[25] Exhibit 8.

[26] TS2-64.43 to 65.13.

[27] TS2-65.9.

[28] Exhibit 35.

[29] TS2-65.40 to .44.

[30] TS2-68.9 to .34.

[31] Exhibit 25.

[32] Exhibit 25, paragraph 7.

[33] And see his affirmation of that position in his cross examination at TS3-64 to 65.

[34] Exhibit 25, paragraph 39.

[35] Exhibit 25, paragraph 42.

[36] Exhibits 27 to 32.

[37] TS3-78.21 to .37.

[38] TS3-81.1 to .10.

[39] TS4-9.

[40] Exhibit 44.

[41] Exhibit 46.

[42] Exhibit 47.

[43] TS5-41.32 to .35.

[44] See Exhibit 43.

[45] See Exhibit 35.

[46] Exhibit 35: statement for March 2013.

[47] See Exhibit 35, the ending balance of the March 2013 statement.

[48] Note in fact $31,496.50 is overdue in the April 2013 statement; $31,396.50 was paid.

[49] (1938) 60 CLR 336.

[50] See paragraphs [118], [119], [123], [124] and [125] above.

[51] Exhibit 38 plus some examples in exhibits 40, 41, 42 and 43.

[52] Exhibit 39 plus some examples in exhibits 40, 41, 42 and 43.

[53] Exhibit 25, paragraphs 28-29.

[54] TS4-77.42 to .45.

[55] See Annexure A.

[56] See Annexure B.

[57] TS4-67.36 to .40.

[58] TS2-46.7.

[59] Exhibit 21.

[60] Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 68.

[61] Dal Pont, Equity and Trusts in Australia (7th ed, 2018, Thomson Reuters) at [4.285].

[62] Paragraph 8 of the statement of claim.

[63] (1984) 154 CLR 178 at 198.

[64] (1995) 183 CLR 501 at 514-515 per Brennan, Dean, Toohey and Gaudron JJ.

[65] Ibid at 512.

[66] (1992) 173 CLR 626.

[67] Ibid at 640.

[68] Kwok v R [2007] NSWCCA 281 at [80]

[69] See the fuller analysis of the authorities leading to this conclusion in R v Byrnes (1992) 183 CLR 501 at 513 to 515 per Brennan, Deane, Toohey and Gaudron JJ.

[70] (1995) 183 CLR 501 at 512.

[71] Chew v R (1992) 173 CLR 626 at 630-634.

[72] See the majority at 511-512, the point in R v Byrnes being that the need for intention in respect of the result of the impugned conduct did not exclude an objective test for whether that conduct was improper: see 512-513.

[73] And in Queensland see Australian Securities and Investments Commission v Sheers [2003] QSC 474 at [18].

[74] TS2-50.27 to .34.

[75] K Mason, J W Carter and G J Tolhurst, Restitution Law in Australia (3rd ed, 2016, LexisNexis Butterworths), as to remedies for breach of contract at 718-719 [1806]. The High Court does not appear to have dealt with the issue since this edition was published, and as to restitution for bribes see general Chapter 17.

[76] WA Fork Truck Distributors Pty Ltd v Jones [2003] WASC 102 (general manager); Weldon & Co v Harbison [2000] NSWSC 272 (highly salaried accountant in very small firm); Co-ordinated Industries v Elliott (1998) 43 NSWLR 282 at 288 (project manager); Warman International Ltd v Dwyer (1995) 182 CLR 544 (branch manager with independent operation of a relevant agency agreement); Able Tours Pty Ltd v Mann [2009] WASC 192 (operations manager); Deeson Heavy Haulage Pty Ltd v Cox [2009] QSC 277 (senior managers running the day to day business); EagleBurgmann Australia Pty Ltd v Leabeater [2012] NSWSC 573 (senior salesman); Investa Properties Pty Ltd v Nankervis (No 7) [2015] FCA 1004 (senior development manager).

[77] See also C Sappideen, P O'Grady, J Riley Maken’s Law of Employment (8th ed, 2016, Thomson Reuters) at [5.810] where the learned authors assume any bribe is recoverable as “damages to the employer of what was received” but the basis given for that observation is fiduciary duty cases.

[78] Exhibit 21, paragraph 69.

[79] TS4-91.

[80] (1874) LR 9 Ch App 244 at 251-252.

[81] Farah v Say-Dee (2007) 230 CLR 89 at 159 [160]; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at 361 [259].

[82] Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at 361 [259]. See also Nicholson v Morgan (No 3) (2013) 8 ASTLR 277 at 292-294 (per Edelman J).

[83] Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 at [124].

[84] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 160 [163].

[85] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 159 [161], citing Fyler v Fyler (1841) 3 Beav 550 at 561-561, 567-568.

[86] Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 at 627 [77].

[87] Farah Constructions Pty Ltd v Say-Dee Pty Limited (2007) 230 CLR 89.

[88] Plaintiff’s statement of claim paragraphs 29 to 32A, 35 to 36.

[89] Baden v Société Générale [1992] 4 All ER 161.

[90] G E Dal Pont, Equity and Trusts in Australia (7th ed, 2019, Thomson Reuters) at 1033-1034 [34.65]-[34.75].

[91] T1-94.9 to .10.

[92] ASIC v Rich (2005) 53 ACSR 752 and (2005) 54 ACSR 28; International Cat Manufacturing Pty Ltd & Anor v Rodrick [2010] QSC 30 at [15].

[93] Entries marked with an asterisk are “Trade Cash Sales”.

Close

Editorial Notes

  • Published Case Name:

    Metal Manufacturers Limited v GMJ Electrical Projects Pty Ltd & Ors

  • Shortened Case Name:

    Metal Manufacturers Limited v GMJ Electrical Projects Pty Ltd

  • MNC:

    [2019] QDC 62

  • Court:

    QDC

  • Judge(s):

    Porter DCJ

  • Date:

    29 Apr 2019

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2019] QDC 6229 Apr 2019Plaintiff's claim for breach of fiduciary duty and breach of s 182 of the Corporations Act 2001 (Cth) dismissed; third defendant's third party claim against the second defendant for contribution or indemnity dismissed: Porter QC DCJ.
Appeal Determined (QCA)[2020] QCA 4213 Mar 2020Appeal dismissed: Fraser and McMurdo JJA and Buss AJA.

Appeal Status

Appeal Determined (QCA)

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