Menkens v Wintour[2011] QSC 7

SUPREME COURT OF QUEENSLAND 

1. The plaintiffs, who are father and son, conduct a business as financial planners under the name Menkens & Associates. For some years prior to October 2005, the first defendant, Mr Wintour, was also a proprietor of that business.  It was and is conducted through the structure of the so-called Menkens & Associates Unit Trust, which I will call ‘the Trust’.  Until Mr Wintour’s departure, he and the plaintiffs were the trustees and each held ten of the 30 units. 

2. On 25 October 2005, the plaintiffs excluded Mr Wintour from the business, as they were entitled to do.  Pursuant to the terms of the written agreement between them, entitled the Unitholders Deed, the first plaintiff, Leo Menkens, was entitled to remove Mr Wintour as a trustee without cause and the plaintiffs were then entitled to an option to purchase his units.  As I have held in a previous judgment,^[1] they duly exercised that option and they are entitled to his units subject to their obligation to pay a price assessed according to cl 10.1 of that deed.  One issue to be determined by this judgment, which is the subject of Mr Wintour’s counterclaim, is the amount payable for those units.

3. The plaintiffs’ claim is that Mr Wintour wrongly caused former clients of Menkens & Associates to follow him to his own financial planning business, which he conducts through the second defendant, and which I will call ‘the defendants’ business’ or ‘the Stantium business’.  They claim that Mr Wintour acted in breach of his fiduciary duties, and in particular his duty as a trustee, in that he sought work from his former clients from Menkens & Associates and did so with the advantage of confidential information as to the clients’ contact details and their existing investments, thereby obtaining the patronage of some 55 of them.  Having been required to elect between equitable compensation and an account of profits,^[2] the plaintiffs seek equitable compensation, made up of the lost income from those clients to the date of the trial together with what is said to be the value of the lost goodwill in respect of those clients.

4. On the plaintiffs’ claim, the principal issue is whether Mr Wintour did breach his fiduciary duty, and in particular whether he used information which he had electronically copied in the week prior to his departure in 2005.  There are also substantial issues as to the proper quantification of compensation. 

Value of the units in the Trust

The valuation issues

5. Ultimately, the controversy about the value of the units involves the way in which, if at all, allowance should be made for what was agreed within the Unitholders Deed to be the so-called Preferential Draw. This was an entitlement of Leo Menkens to be paid from the profits of the business in priority to his son Reid Menkens and Mr Wintour.  That entitlement derived from an agreement between the parties made in 2000, when the three men began to carry on this business, originally as partners. 

6. The partnership took over the business which had been conducted, under the control of Leo Menkens, by Menkens & Associates Pty Ltd (‘MAPL’) as trustee of the Menkens Family Trust (‘MFT’). There is no contract document or other instrument which then formally recorded the terms by which the three individuals acquired this business. But it is common ground that the goodwill thereby acquired was to be paid for over time from the proceeds of the partnership business, and that the amount to be paid in total was $1,930,000.

7. According to the evidence of Reid Menkens, which was unchallenged in this respect, at the commencement of the partnership the partners discussed how this Preferential Draw was to be paid and how it was to be treated in the partnership accounts. He said that they discussed an alternative by which he and Mr Wintour might make “a capital payment up front”, which neither had the capacity to do, at least without borrowing a large sum from a bank.^[3]  They agreed that instead the same amount would be paid from the “pre-tax dollars” of the new business.  When asked whether there was at that time “any discussion about who the payment would be made to”, he said:

“… There was flexibility as to whether or not – the terms that were particularly used were so that as long as … the old trust … got the benefit …”

By “the old trust” he meant the MFT.  As to “pre tax dollars”, he was referring to the way in which he partners treated the payments in their accounts.

8. The Preferential Draw was treated in the accounts as follows. No payment in this respect was made in or for the period ending 30 June 2000. For the year to 30 June 2001, when the business was still conducted by the partnership, the profit and loss statement recorded income from commissions, consulting fees, interest and other income totalling $639,725.67, from which there was deducted an amount of $242,190.40 for so-called “commissions transferred”, resulting in what was there shown as “total income” of $397,535.27. This “commissions transferred” item was not referrable to any particular commissions. In truth, the item was the Preferential Draw. It was not shown amongst the expenses in the profit and loss statement, but instead was included in the calculation of the income. The resultant net profit, after expenses totalling $336,131.28, was $61,403.99. The accounts showed those profits distributed equally between the three partners. Amongst the partnership expenses were so-called management fees of $328,919.62. These were paid to a service company owned by the partners (‘the service company’) which effectively paid the expenses of the business and derived a profit of $73,270.

9. The so-called “commissions transferred” were recorded as income received by MAPL as trustee for the MFT. In the 2001 year it constituted most of the income of that trust which was shown to have derived a net profit of $71,995, distributed to a company called Menkens Holdings Pty Ltd. In this way $242,190.40 of the partnership’s profit was purportedly converted into income of the MFT. Within the partnership’s balance sheet as at 30 June 2001, there was no reference to anything in respect of the Preferential Draw. In particular, there was no amount shown as a liability which was referrable to it.

10. The three partners then decided to conduct their business through a unit trust. The relevant accounts became those of the Trust beginning with the year to 30 June 2002. The profit and loss statement for the Trust for that year showed, in the same way, an item “commission transferred”, this time in an amount of $233,678, in the calculation of the gross income. Again, that sum was paid to the MFT. The partnership also conducted the business during the early part of that year. According to its accounts, $99,601.30 was deducted from gross income for “commissions transferred”. Again, that was shown as income in the accounts of the MFT. In total then, the MFT was paid $333,279 for that year for what was, in truth, the Preferential Draw.

11. In the 2003 year, the profit and loss statement for the trust showed commission transferred in an amount of $193,017. Again, that appeared in the income of the MFT.

12. In the 2004 year, the commission transferred was shown as $269,079 and in the 2005 year, the amount was $380,335. In each case, those amounts appeared as income in the accounts of the MFT.

13. From the evidence of Mr Lytras, an expert accountant called in the plaintiffs’ case, it seems that there were Preferential Draw payments totalling $126,276.52 made in the period between 1 July 2005 and Mr Wintour’s departure on 25 October 2005.  Accordingly, of the apparently agreed amount of $1,930,000 to be paid as the Preferential Draw, in total $1,544,177 was paid, leaving a balance of $385,823.  The plaintiffs do not claim any of the balance from Mr Wintour.  But they argue that it is to be brought into account as a liability in calculating the value of the trust fund of the Trust as at October 2005 and thereby in the valuation of Mr Wintour’s units. 

14. There is a handwritten document signed by the partners and dated 12 August 2004 which purports to record the then state of the Preferential Draw. The amounts vary from those which were shown in the accounts to which I have referred. The amount said to be “outstanding” at the end of the year to June 2004 was $440,445, that is to say this was the stated “deficit” in relation to an agreed payment of $386,000 per year for the four years to that point in time. According to the financial statements, which were included in the tax returns for the various entities, the “deficit” as at 30 June 2004 would have been $506,435.^[4]  The figures within the finalised accounts, which became included in the tax returns, would appear to be more reliable.  The evidence in Mr Wintour’s case did not challenge them and I accept their accuracy in that respect. 

15. As mentioned already, there was no document which recorded the terms of the sale of the business to the partnership. Nor was there a document which recorded the transfer of the business from the partnership to the trust. The Trust Deed of the Trust, which is dated 11 September 2001, makes no reference to the Preferential Draw. It was made between the three individuals as the “Trustee” and the same individuals as unitholders, in that respect each holding for a discretionary trust under his control.

16. The Unitholders Deed was signed by the three, again in their respective capacities as trustees and unitholders. It is dated 12 December 2001. It defined the term “Preferential Draw” as “the annual drawings to which LIGM (Leo Menkens) shall be entitled to receive for the Preferential Draw Period as described in Clause 4.6”. It defined the term “Preferential Draw Period” as “the period of time calculated in years over which LIGM shall be entitled to receive the Preferential Draw as detailed in Clause 4.6”.

17. Clause 4 of the Unitholders Deed provided as follows:

“4.ACCOUNTING

4.1The net profits and losses of the Trust shall be calculated in accordance with the provisions of the Trust Deed.

4.2Subject to the provisions of Clause 4.6 below, the net profit as determined in accordance with the Trust Deed shall, subject to available cash and to the working capital needs of the Trustees, be distributed quarterly in each Financial Year, such payments to be made as close as practical to the last days of January, April, July and October of each year in respect of the quarter ending on the relevant prior month.

4.3In the event of the Trustees incurring a loss, subsequent net profit shall be used to redeem the loss before further distributions.

4.4Nothing in this Deed shall affect the present entitlement of the Unitholders to the income of the Trust for the purposes of Division 6 of the Income Tax Assessment Act.

4.5Nothing in this clause shall restrict the right of the Trustees to determine to accumulate income under the Trust Deed.

4.6Notwithstanding the provisions of this Clause 4 or any other contrary provisions of this Deed and the Trust Deed, the parties record and agree that LIGM shall be entitled to receive the Preferential Draw for the Preferential Draw Period, the exact terms and conditions of which are to be mutually agreed between the parties and recorded by way of Trustees Resolution.  Further terms of the Preferential Draw are as follows:

4.6.1the annual Preferential Draw of LIGM shall not be less than $386,000.00 (three hundred and eighty six thousand dollars) per annum;

4.6.2the Trustees, by unanimous agreement, shall have the power to extend the Preferential Draw Period;

4.6.3that in the event of the death of LIGM, the Preferential Draw shall automatically cease and all rights pertaining thereto shall be extinguished forthwith inclusive of any right of the Legal Personal Representative of the estate of LIGM for any balance of the Preferential Draw for the year in which the death of LIGM occurred, it being agreed by the Trustees that the Preferential Draw to be received by LIGM shall only be calculated up to and including the date of death of LIGM.”

18. The Preferential Draw Period was also relevant in other ways. Clause 5 gave Leo Menkens the effective control of the Trust’s business during that time. This included the power to dismiss a trustee, which Mr Menkens exercised by dismissing Mr Wintour on 24 October 2005.  That dismissal engaged cl 8.14 of the Unitholders Deed, which conferred upon the plaintiffs as the other unitholders the option to purchase Mr Wintour’s units which, as already noted, they then duly exercised on 25 October 2005.  By cl 8.14.4, the price for those units was and is to be calculated “on the basis set out in the previous subclause”, which was cl 8.13. 

19. By cl 8.13.1, the price was to be determined as follows:

“The price of units in the Trust shall be determined in accordance with the provisions of the Trust Deed and as if the Unitholders had requested the Trustees to make a determination of the value of the units, but subject to the basis of valuation as set out under Clause 10 of this Deed.”

20. Clause 12 of the Trust Deed provided as follows:

“12.VALUATION OF THE FUND

The Trustee may at any time and shall if requested by an Ordinary Resolution of the Unitholders cause a valuation of the property and assets of the Trust Fund to be made by such competent valuers or experts as the Trustee may decide and the value of a Unit shall be determined by dividing the value of the Trust Fund less all liabilities of the Trustee in respect of the Trust Fund by the number of Units (excluding Special Units) on issue at the date of valuation.”

21. Clause 10 of the Unitholders Deed relevantly provided as follows:

“10.VALUATION

10.1Unless specific provisions of this Agreement specifically provide to the contrary, the value of each unit, for the purpose of calculating the value of Sale Interests shall be the value determined on the following basis:

10.1.1The value of goodwill of the Business shall be equal to the net profit of the Business (after Trustees’ remuneration, if any) for the preceding Financial Year.

10.1.2The value of plant and equipment shall be its depreciated value under the Income Tax Assessment Act as recorded in the accounts of the Trust.

10.1.3The value of interests under leases of plant and equipment from banks or finance companies or from the Australian Institute of Management - Queensland Division shall be the depreciated value of that plant and equipment under the Income Tax Assessment Act as if the Trustees were the owner of the plant and equipment and had claimed deductions for depreciation in the same manner as they had for plant and equipment owned by it less the payout obligations under the lease as if the lease was paid out at the time of calculation.

10.1.4To the extent that the value of debtors of the Business and of entitlements to payment in respect of recoverable work in progress of the Business (after allowing for creditors of the Business) are or will be reflected in net income of the Trust, that value shall be included from the value of the ordinary units.”

22. Clause 20 of the Unitholders Deed provided for what were described as “related loans”. It was agreed that save for cl 20.2, loans by unitholders or their associates would be on certain terms, such as being interest free and repayable upon a certain period of notice.  Clause 20.2 provided as follows:

“20.2Notwithstanding the provisions of Clause 20.1 the Parties record and agree that for the Preferential Draw Period, no loans, other than that of LIGM, as referred to in Clause 20.1, shall be entitled to be called up, it being understood by the Parties that LIGM shall have preference to the payment of the Preferential Draw for the Preferential Draw Period and any further period that the Preferential Draw may be due but yet unpaid.  In this regard:

20.2.1any part of the Preferential Draw which is due but unpaid shall be subject to the provisions of Clause 20.1 and shall remain at call without the right to accrue interest;

20.2.2any part of the Preferential Draw which is due but unpaid shall be a liquidated debt due by the Trustees to LIGM or his nominee.”

23. There are two questions as to the impact or otherwise of the Preferential Draw upon the valuation of Mr Wintour’s units.  The first is whether the Preferential Draw is relevant to the calculation of the net profit of the Business for the purposes of cl 10.1.1, by which the value of goodwill is to be the net profit for the preceding financial year.  The plaintiffs say that, consistently with the accounts which were prepared year by year, the Preferential Draw affected the amount of net profit by reducing the Trust’s gross income.  Mr Wintour’s case is that the Preferential Draw was not properly brought into account in the calculation of net profit;  rather it was in the nature of a distribution of the profit. 

24. Secondly, the plaintiffs argue that the unpaid portion of the agreed sum of $1,930,000, which I have found to be $385,823, was within the category of “liabilities of the Trustees in respect of the Trust Fund”, as that expression was used in cl 12 of the Trust Deed.  The plaintiffs say that in the valuation of the units it should be brought into account as such; Mr Wintour says otherwise.  Each of these questions requires some further discussion of what were the respective rights and obligations for this Preferential Draw.

The Preferential Draw – what was it?

25. Clause 4.6 of the Unitholders Deed recorded that Leo Menkens was entitled to receive the Preferential Draw. But the deed expressly left it open to the parties to agree upon the “exact terms and conditions”. In that respect, there is a document dated 6 February 2002, headed “Resolution of Trustees of the Menkens & Associates Unit Trust”, which was signed by each of the three trustees and was in these terms:

“TRUST INCOME DISTRIBUTION:

IT WAS NOTED that:

1. The trustees are trustees of the Menkens & Associates Unit Trust (“the Trust”), as constituted by Deed of Trust dated 11th Sept, 2001 (“the Trust Deed”).

2. The unitholders of the Trust have consented in terms of Clause 14.10 of the Trust to the trustees exercising their discretion under Clauses 14.3.1 or 14.4. 1.

3. Under the Trust Deed, the trustees have the discretion to make interim distributions of net income at any time during any year.

4. In terms of Clause 4.6 of the Unitholders Deed (“the Deed”) the trustees and unitholders shall mutually agree the terms and conditions of the Preferential Draw due to Leo Ignatius George Menkens (“LIGM”), or his nominee.

IT WAS RESOLVED, that pursuant to the power in the Trust Deed to make income distributions from the Trust;

5. to make the discretionary distributions of income as per paragraphs 14.3 and 14.4 of the Trust Deed;

6. that LIGM will be paid the sum of $386,000 as at 30th June 2001 which sum shall be deemed to be the Preferential Draw due to LIGM in terms of the Deed;

7. that the sum referred to in Clause 6 above shall be deemed to be the (first, second, third, fourth, fifth, sixth) annual payment due to LIGM in terms of the Deed.”

26. As already noted, it is common ground that at some stage agreement was reached for a Preferential Draw of $1,930,000 to be paid at $386,000 per year.^[5]  It is also common ground that “the year ended 30 June 2001 which pre-dated the commencement of the Trust [was agreed to] be taken as the first year of the Preferential Draw Period”.^[6]  However, the parties did not agree that $386,000 would be paid in each and every year, irrespective of whether there was a profit derived by the business or the extent of that profit.  What they agreed was as to how any profit was to be drawn or distributed.  They agreed that all of the profit, for any year until it exceeded $386,000, would be paid to Leo Menkens. 

27. When they agreed, as Reid Menkens related, that these draws would be made “in pre-tax dollars”, they intended that the Preferential Draw would be treated in the accounts as it was, in the way I have described: by adopting the fiction that the amount so paid to the MFT was not part of the income which had been derived by the business but was instead “commission transferred”. But the amounts so “transferred” were in every respect income derived by the Menkens & Associates Unit Trust. No amount “transferred” could be identified with a transaction for which the MFT might have had some claim to a commission or fee which had been payable and paid to Menkens & Associates.

28. Nor could the amount paid as the “commissions transferred” be regarded as an expense of conducting the business of the Trust or partnership.

29. The profit and loss statement for each of the four years ending 30 June 2005 showed that the Trust broke even, i.e. its income equalled its expenses. Thus what was paid by way of the Preferential Draw was in truth the amount of the net profit of the Trust, which should have been disclosed as such in the profit and loss statements. The same goes for the profit and loss statement of the partnership for its trading during that part of the year ending 30 June 2002 until the business was taken over by the Trust.

30. In the Unitholders Deed, cl 4.2 prescribed the terms for the distribution of net profit, which they expressed to be subject to cl 4.6.  The parties there accurately recorded the true nature of the Preferential Draw.

31. In relation to the first question, which is the assessment of the goodwill of the Trust business according to cl 10.1.1, the issue is whether the Preferential Draw should be brought into account in the calculation of “the net profit of the Business (after Trustees’ remuneration,^[7] if any) for the preceding Financial Year”.  That expression means, in my view, the true net profit, rather than whatever profit was represented in the accounts which were presented to the Commissioner of Taxation.  The amount of the net profit was thereby unaffected by the Preferential Draw.  Consequently, the goodwill of the business was to be valued by the true net profit, which was effectively the amount paid to the MFT for the year ended 30 June 2005 in the sum of $380,335. 

32. The second question is whether there is anything of the (unpaid) Preferential Draw should be included within the “liabilities of the Trustee in respect of the Trust Fund”, as that term is used in cl 12 of the Trust Deed.  The balance sheets for the Trust contain no reference to anything for the Preferential Draw.  But again, they are not determinative. 

33. Clause 20.2 of the Unitholders Deed, which is set out above, was an agreement that any part of the Preferential Draw which was “due but unpaid” was to be a debt due by the trustees to Leo Menkens, payable at call but without interest. This suggests that such part of the Preferential Draw which was not “due but unpaid” was not to constitute a debt of the trustees. But what was meant by “due but unpaid”?

34. This was an agreement for the drawing or distribution of net profits. Accordingly, nothing became due to Leo Menkens except to the extent of the net profit of the Trust. Because the net profit in no year reached the agreed sum of $386,000, Mr Menkens^[8] was entitled to all of the net profit year by year.  But he was paid the net profit for each of the four years commencing with the year to June 2002 (which was the first of the years of the conduct of the business of the Trust).  Accordingly, so far as cl 20.2 was concerned, there was no amount which became due to Mr Menkens but which remained unpaid. 

35. The plaintiffs argued that what should be brought into account here is such part of the agreed sum of $1,930,000 which was not paid by the partnership or the Trust. However, that balance had not become due to Leo Menkens. Any liability to pay any of that balance would have come into existence only upon the derivation of further profits. I would accept that “liabilities of the trustee” would include a prospective liability, in the sense of existing liability to be discharged at a future date. But I am not persuaded that “the liabilities of the Trustee in respect of the Trust Fund”, as at October 2005, should be quantified by including an amount which might never have become payable.

36. Moreover, the Preferential Draw was not in any way incurred by any of the three principals as a trustee of the Trust, and in particular a liability incurred in the course of conducting the Trust’s business.  Rather, it was an agreement between the three as unitholders for the distribution of profits, if and when derived.  The “liabilities of the Trustee” were liabilities incurred only in the capacity as trustees of the Trust.

37. The inclusion of this balance of $385,823 would be inconsistent with the apparent intention of cl 12 of the Trust Deed which, it should be noted, was not limited to the present circumstance of a valuation of units under cl 8.13.1 of the Unitholders Deed.  The purpose of cl 12 was to facilitate at any time a valuation of the units, but more particularly a valuation according to the then assets and liabilities of the Trust.  At least arguably, it might have been relevant to consider this potential liability (for the Preferential Draw out of further profits) if valuing the units held by Reid Menkens or Mr Wintour, because in one sense, their units might have been less valuable than those of Leo Menkens whilst he was entitled to that preference in the drawing of profits.  But cl 12 of the Trust Deed did not distinguish between units or unitholders.  Clause 12 required a particular method of valuation of a unit, which was one upon what might be described as a net assets basis.  In turn, that was the method of valuation required in the present context by the Unitholders Deed (subject to certain other matters being assessed according to cl 10.1 of that instrument). 

38. The result is that I do not accept the argument that the sum of $385,823 of the sum of $1,930,000 should be brought into account in valuing Mr Wintour’s units. 

39. However, it is necessary to say something more about the profits of the partnership for the year ended June 2001. In that year, not all of the net profit of the business was paid to Leo Menkens (or more precisely, at his direction to the MFT). An amount of $61,403.99 was not so distributed. Of course, this was prior to the creation of the Trust and the commencement of the business as conducted by the Trust. But the plaintiffs allege, and the defendants admit, that it was agreed that “the year ended 30 June 2001 which pre-dated the commencement of the Trust would be taken as the first year of the Preferential Draw Period”. By doing that, they agreed that the sum preferentially drawn within that year, which was $242,190, was to be allowed against the total of $1,930,000. But it is another thing to say that they thereby agreed that the balance of the profit which had been derived by the partnership during that year ($61,403) was to become in some way part of “the liabilities of the Trustee in respect of the Trust Fund” within cl 12 of the Trust Deed or that it was to be regarded as an amount due but unpaid, thereby being a “liquidated debt due by the Trustees” according to cl 20.2.2 of the Unitholders Deed.  And according to the partnership accounts for the 2001 year, that profit of $61,403 was distributed to the partners, in equal shares.  Leo Menkens thereby received a third of it, or $20,468.  That sum of $61,403, or some part of it, did not in some way become part of the liabilities of the three principals as trustees of the Trust. 

The price for Mr Wintour’s units

40. Consequently, the plaintiffs’ arguments as to the impact of the Preferential Draw provisions must be rejected. Mr Lytras has prepared a number of alternative valuations of the units as at the relevant date, according to whether one or both of those arguments is to be accepted. In particular, he has calculated the value of the units upon the bases that the Preferential Draw is irrelevant to both the valuation of goodwill (according to cl 10.1) and the valuation of the net assets of the fund under cl 12 of the Trust Deed.  Upon those bases, he has calculated that the units had a value of $12,053.40 each, resulting in Mr Wintour’s ten units being worth $120,534.  In my conclusion, the units should be so valued. 

41. Had that sum of $61,403, being the amount of the net profits for the 2001 year which were distributed to the partners but not by the Preferential Draw, been brought into account as a liability, the effect would have been to reduce the value of Mr Wintour’s units by one third of that sum, amounting to a value for his units of $100,066.  But as I have said, that sum should not be brought into account.

42. I should also mention another variable in Mr Lytras’s calculations, which is according to whether the assets and liabilities of the service company should also be included. Were they to be included, the result would be to increase the value of Mr Wintour’s ten units from $120,534 to $144,460.  But in my view they should not be included.  They were the net assets of the service company and not assets of the Trust.  Mr Wintour has other rights in relation to the service company. 

43. The result is that the plaintiffs became entitled to Mr Wintour’s units at that price of $120,534.  According to cl 8.14.5, the purchase price was to be paid on settlement, which was to take place “30 days following that two months period”.  In the present circumstances, that was the two month period allowed for the exercise of the option to acquire Mr Wintour’s units, as set out in cl 8.14.2.  The position would appear to be then that settlement was to have occurred effectively three months from 25 October 2005, being 24 January 2006.

The plaintiffs’ claims

44. In essence, the plaintiffs make two complaints. The first is that Mr Wintour secretly copied records of Menkens & Associates which were relevant to clients and used that information to facilitate the transfer of their business to the defendants.  I will refer to the clients who did transfer to the defendants’ business as ‘the transfer clients’.  The information relevantly comprised what is described as contact details, being names, addresses and telephone numbers.  By this means Mr Wintour was able to locate people to whom he had provided services when he was at Menkens & Associates and approach them to use his new business.  It is also claimed that he copied what are called, at least within this case, the contract numbers for clients.  A client’s contract for an investment or insurance would be given a unique number by the financial institution.  This was relevant for the financial adviser’s income, because the institution paid commissions and other fees to whatever adviser its records recognised for a particular contract number. 

45. A client might move from one financial adviser to another, but with no change to his or her investments. In such a case, as occurred here, the contract number would remain unchanged but the institution would be provided with a document signed by the client and addressed to the institution, evidencing the transfer of the business to the new adviser. It was only by that means that the institution would pay fees and commissions referrable to that particular contract to the new adviser. To complete such a form of transfer, the contract number or numbers for that particular client’s investments or insurance had to be inserted. The plaintiffs’ case is that Mr Wintour was able to transfer business to his company by inserting in the transfer forms the relevant contract numbers in each case, which he had collected from Menkens & Associates shortly before his departure. 

46. Secondly, and more generally the plaintiffs claim that Mr Wintour acted wrongfully in approaching persons who had been clients of his at Menkens & Associates in order to attract them to his new business, regardless of whether he used any information such as the contact details or contract numbers. 

47. The major factual issues in this case concern that first complaint: the alleged use of contact details and contract numbers. Mr Wintour strenuously denies that he used or attempted to use such information.  He says that he was able to locate former clients from information within his memory or by tracing them to their workplace.  Many of them worked at hospitals where Mr Wintour, whilst at Menkens & Associates, had successfully promoted his services at seminars held for the staff.  As for the contract numbers, he says that in each case he obtained those numbers from the clients themselves, by asking them to look at their own documents.  The plaintiffs accept that clients could have looked at their own records and identified the relevant contract numbers.  But they say that in truth Mr Wintour already had the numbers, which he was then able to include within the transfer documents, thereby facilitating the transfer of business to him.  As to the complaint of his approaching clients, Mr Wintour seems to accept that he did so.  But he denies that this in itself was wrongful. 

48. The insurance and investments of clients of Menkens & Associates were with an institution called Charter Financial Planning Limited (‘Charter’), a wholly-owned subsidiary of AXA. Other relevant institutions were another two subsidiaries of AXA, the insurance company AC&L and a company called Summit, apparently an investment vehicle. The form of transfer document to which I have referred was used for business with AXA, AC&L and Summit. It was a printed form which required the investor to complete it by nominating the new adviser and specifying the contract numbers, as well as the name and address of the investor. I will refer to it as ‘the AXA form’.

49. Menkens & Associates received its fees and commissions from Charter rather than from the client, even where the fee was for advice to the client on appropriate investments. Its income consisted of commission paid on new insurance products, what was called a trail commission on renewal of insurance products, commissions and trail commissions on investments and fees for advice. This type of business is apparently quite profitable. And as I will discuss in relation to the quantification of the plaintiffs’ claim for compensation, a “book” of clients can be bought and sold by the financial planner, and the price for a book of say 50 clients with an annual turnover of $150,000 might be of the order of 3.5 times that turnover.

Events prior to Mr Wintour’s departure

50. As I have discussed, the profits of the business went effectively to the MFT. Mr Wintour’s remuneration was mainly through a relatively modest salary paid to him by the service company.  Mr Wintour became dissatisfied with a business structure which was dominated by Leo Menkens through the Preferential Draw regime.  Reid Menkens gave evidence that he and Mr Wintour would go “cap in hand” to his father each year under this structure, which allowed Leo Menkens to remove a trustee upon terms, so Leo Menkens then maintained, which would have the outgoing trustee paid nothing. 

51. In 2005 Reid Menkens set about preparing a review of the business and plans for its development. He claimed that in this process, Mr Wintour was uncooperative, and did not respond to his requests for supposedly confidential meetings, meaning discussions which would not be disclosed to his father or to Mr Hallahan, an accountant whose practice had been aligned with Menkens & Associates.  Mr Wintour denies that he was uncooperative but that issue is not particularly relevant.  What is relevant is that, by a document prepared by Reid Menkens in this process in the week prior to Mr Wintour’s departure, Mr Wintour’s dissatisfaction and his own intended departure from the business were recorded.  Reid Menkens there wrote that Mr Wintour felt that he was “not in control of his own destiny”, that he was “excluded from management” of the business, that he would never “be involved” because he was not part of the Menkens family, that Menkens & Associates was perceived by staff and outsiders as “Leo’s business” and that Mr Wintour perceived the business as being run as a “family business”.  This document was tabled by Reid Menkens at a meeting with his father and Mr Wintour on Friday, 21 October 2005.  Before discussing that meeting, it is necessary to refer to events earlier in that week. 

52. On Monday, 17 October, there was a meeting between Mr Wintour and Reid Menkens.  I accept his evidence that Mr Wintour then told him that he was considering leaving Menkens & Associates, but that he did not disclose that to his father until the meeting of 21 October. 

53. On Wednesday, 19 October, Mr Wintour did not go to work.  He says that he worked from his computer at home.  As I discuss below, he then copied, from his work computer to his home computer, extensive records containing information about clients.  Also on 19 October, Mr Wintour’s phone records reveal he spoke to a Mr Bryant, who was involved in a business which provided IT services, and in particular services for software that was described as the “ACT!” database which was then used by Menkens & Associates.  It was also software used by Mr Wintour in his new business.  Again, this was on a day when Mr Wintour was not at work, supposedly through ill health.  In his evidence, Mr Wintour suggested that he was probably speaking to Mr Bryant about some problem he had experienced with the database, but ultimately he could offer no explanation for this conversation.  It is likely that this was part of his planning for his new business.

54. During this week and also earlier (14 October) Mr Wintour’s phone records show that he made several calls to a number belonging to Mr Ewald, who was at Charter/AXA.  Mr Wintour did not seek to explain these calls as involving ordinary business for Menkens & Associates.  Given Mr Ewald’s particular position, it would appear that the subject of these discussions was his proposed departure and his appointment as an authorised representative of Charter in his new business.  There were two such conversations on 17 October and another one on 20 October, together with a relatively short call on 22 October.  In his evidence Mr Wintour was not forthcoming on this subject, but he ultimately conceded, when confronted with his phone records, that he had conversations with Mr Ewald in which it was likely that he said something about his dissatisfaction with Menkens & Associates. 

55. Then there was the meeting on Friday, 21 October. The document tabled by Reid Menkens referred to Mr Wintour’s intended departure from the business.  The plaintiffs said that they wanted him to stay and he was asked to think about it over the weekend.

56. In the early hours of the morning of Saturday, 22 October, again as I will discuss, he copied extensively from the electronic files of Menkens & Associates.

57. On the morning of Monday, 24 October 2005, Mr Wintour met the plaintiffs at their office.  He told them that he wanted to stay at Menkens & Associates for a few months but then to leave taking his clients.  The response of Leo Menkens was to strongly reject that proposal and to exercise his power to remove forthwith Mr Wintour as a trustee.  Mr Wintour left the premises that day. 

After the departure

58. Mr Wintour began to set up his new business immediately.  It was conducted under the name Stantium, through the second defendant of which he was the sole director and shareholder.

59. His evidence was that he obtained the contact details, by which he was able to approach those who had been his clients at Menkens & Associates, from several sources such as the White Pages, Google searches and, in the case of some clients, by obtaining details from other clients.

60. Apparently not all of his clients from Menkens & Associates were persuaded to go to his new business. But the 50 or so who did transfer to his business were apparently critical to its performance in the first year or so. In the (part) year to 30 June 2006, the revenue of the defendants’ business was about $89,000, of which about $75,000 was attributable to clients from Menkens & Associates. The balance would not have paid the expenses of $36,000, let alone paid some profit or salary to Mr Wintour.^[9]  In the following year, the income of the defendants’ business was about $306,000, of which the fees from these transfer clients was about $196,000.  The expenses were about $54,000, again not including any salary for Mr Wintour. 

61. Mr Wintour did not claim that these figures were unexpected or that he believed, when he left Menkens & Associates, that he would have more “new” business rather than being so reliant upon that of the transfer clients.  The relevance of these figures is that they confirm the likelihood that Mr Wintour planned his departure intending to attract the business of the transfer clients.  That provided a particular incentive for him to copy data from Menkens & Associates to facilitate the attraction of their business. 

62. Before going to what use Mr Wintour made of the electronic files which he copied from Menkens & Associates, I will discuss the evidence of those transfer clients who gave evidence.

Evidence of clients

63. In the defendants’ case, there were ten witnesses who had been clients of Menkens & Associates and who transferred their business to the defendants. Their evidence was relevant in two respects. The first was that each said that Mr Wintour asked him or her to supply the contract numbers in order to complete the necessary forms for the transfer of their business.  Secondly, each was called to say why he or she transferred the business to the defendants, which was potentially relevant to whether this client was lost by Menkens & Associates because of the alleged misconduct of Mr Wintour. 

64. The first of these witnesses was Ms Moroney. She is employed as a midwife. She became a client of Menkens & Associates in about 2002/2003. After Mr Wintour’s departure, she went to Menkens & Associates one day expecting to see him when she was introduced to Ms Wilmot.  She says that after that meeting she decided not to stay with Menkens & Associates.  At about the same time Mr Wintour rang her.  It appears that this was in December 2005.  She was clear in her recollection that it was Mr Wintour who wrote the contract numbers on the relevant transfer form but that he did so from documents which she had brought along to her meeting with him.  She appeared to be a credible and reliable witness, notwithstanding that it was Mr Wintour who approached her and asked her to give evidence, with the potential for her being influenced in her recollection that comes from that circumstance. 

65. Ms Page is a hospital switchboard operator. When she was a client of Menkens & Associates she dealt with Mr Wintour, but also with others.  Like other clients of Menkens & Associates, she received a letter advising of Mr Wintour’s departure.  After receipt of that letter, she paid another visit to Menkens & Associates.  But at about this time she had a chance encounter with Mr Wintour at the hospital where she worked, following which he rang her at work seeking her business.  She had some personal connection with him in that he was a friend of her sister’s family.  Nevertheless, his telephone call to her appears to have been causative of the transfer of her business.  She said that Mr Wintour asked her for the contract numbers for the necessary forms to be completed.  She appeared to be a credible and reliable witness.

66. Mr Power had known Mr Wintour for about 20 years.  They were friends as were their wives and families.  Mrs Power, and subsequently Mr Power, were clients of Menkens & Associates.  Reid Menkens was their main contact.  The Wintour and Power families socialised on the afternoon of 12 March 2006.  Mr Wintour sent an email to Mr Power on the following morning, enclosing a form for the transfer of their business which he asked them to sign and return to him.  The email asked them to provide their policy numbers in the form.  Mr Power produced in evidence the attachment to that email, which was the client transfer form with no contract number there appearing.  He then said that he had typed in the contract numbers on the form, which was returned to Mr Wintour.  But in a summary of his proposed evidence, the contents of which Mr Power said he had approved, it was said that Mr Power’s recollection was that Mr Wintour inserted the contract numbers from information provided by Mr Power in a further meeting.  There is therefore that inconsistency which is some cause for concern as to the reliability of his evidence.  However, the documentary evidence of that email with its attachment^[10] is persuasive.  I find that Mr Wintour did ask Mr Power for the contract numbers and that the forms were completed in that respect from information supplied by Mr Power.  It is more likely that, as Mr Power said in evidence, the numbers were typed in by him rather than given to Mr Wintour in a meeting because if that had occurred, the forms are likely to have been completed by Mr Wintour in his handwriting (as were the forms of other clients).  The form which was emailed to the Powers had been completed by Mr Wintour inserting their dates of birth.  Mr Power said that their birth dates were known to Mr Wintour because of their long friendship and they regularly sent each other birthday cards.  As to the causation question, the Powers were old and close friends of the Wintours and more probably than not they would have gone to him when they needed further assistance.  For that reason, the plaintiffs ultimately abandoned their claim in respect of these clients. 

67. Ms Tritton is a retiree living in Brisbane. She became a client of Menkens & Associates around 2003, having been directed to Mr Wintour by her son-in-law who had heard him speak at a seminar.  Not all of her dealings at Menkens & Associates were with Mr Wintour.  At about the end of October or the beginning of November 2005, Mr Wintour telephoned her at home and left a message that he had called.  She rang him back and was told that he had left Menkens & Associates.  Ms Tritton denied that he said something to the effect that he would be able to do her work, saying that instead she had asked him whether he could do so.  She signed a letter which Mr Wintour prepared and which is dated 2 November 2005.  It is addressed to Menkens & Associates asking them to urgently deliver all of her documents and files.  But it seems that this was not signed and returned by her on or about that date.  She agreed that at the same time that she received this letter, she also received from Mr Wintour some other documents.  One was a so-called client election form, with the typed part of which is to the effect that the signatory wished to remain a client of Mr Wintour and all files were to be given to him.  Ms Tritton signed this document and wrote her name and address upon it.  It is dated in handwriting 20 December 2005, but not in her handwriting.  It appears that she returned this to Mr Wintour undated.  The other document was an AXA form, which Ms Tritton completed by writing in her name and address as well as, perhaps significantly, her date of birth.  She then signed the document.  There is other handwriting on the document which is not hers, including its date which is 20 December 2005.  This is Mr Wintour’s handwriting.  He wrote in the details of her contract and account numbers.  Ms Tritton was adamant that she recalled giving Mr Wintour those contract numbers, which she had been able to do from correspondence she had received over time from Menkens & Associates.  Again, her evidence must be assessed in the light of the fact that it was Mr Wintour personally who approached her to be a witness.  Her recollection did not seem perfect but that does not mean that in essence her evidence is unreliable.  Overall, it appeared to be persuasive on the question of the contract numbers.  I find that it was Mr Wintour who approached her and, I infer, persuaded her in one or more telephone conversations to sign and return these documents thus transferring her business.

68. Mrs Galloway works in an administrative position at a university. She had been a client of Menkens & Associates for only about three months prior to Mr Wintour’s departure, during which time he had performed her work.  She learnt of his departure from the standard letter sent by Menkens & Associates.  She and her husband were concerned that Mr Wintour would not be handling their affairs.  They did nothing to transfer their business at that stage.  She said that they “continued on as it was at that stage with their paperwork and everything with Menkens” before “some months later, … Mr Wintour sent us an invitation to his social function at his premises. … It was either the opening of it or a Christmas function”.  She and Mr Galloway went to that function and decided that they would transfer their business because they had been happy with Mr Wintour’s services.  They signed a number of documents to effect that transfer on 23 February 2006.  On two of those documents they inserted their dates of birth.  On the same documents there is also Mr Wintour’s handwriting, where he completed the details of their contract numbers.  On one of those forms, three contract numbers were written, on the other were those numbers and a further number which, as appears from an email sent by Mr Wintour to Charter on 8 March 2006,^[11] was inserted by him subsequently.  Nevertheless, Mrs Galloway’s evidence that, as requested by Mr Wintour, the Galloways provided him with documents from which he took the contract numbers, was persuasive.  It also clearly appears from her evidence that they were persuaded to transfer their business only after his approach, asking them to the function in December 2005.  In the meantime, they had had some not insignificant further business with Menkens & Associates and I infer that it was only because of that approach, taken together with their favourable impression of Mr Wintour, that they transferred their business.

69. Ms Schukraft is a retiree who became a client of Menkens & Associates when she met Mr Wintour at her then workplace at a hospital.  Most of her dealings with Menkens & Associates were through Mr Wintour but some were through Ms Wilmot.  She received the standard letter from Menkens & Associates that Mr Wintour had departed the firm.  Not long after that she went to see Ms Wilmot and was introduced to Leo Menkens, with whom she was not impressed.  Subsequently, she received a letter from Mr Wintour.  He sent her some documents for her signature being the client election form, the AXA form and a draft letter to Menkens & Associates asking for delivery of all her files.  She signed those documents inserting her address and date of birth.  On the AXA form, the contract numbers were written in by Mr Wintour.  On one document her signature was dated by her 14 November 2005 and upon another it was 16 November 2005.  She said that she rang Mr Wintour and arranged to meet him.  She took all of her documents to that meeting and it was from those documents that he inserted the contract numbers.  When asked why she chose to leave Menkens & Associates she said that:

“Well, because I didn’t know the others very well and I knew Rob and I knew he was giving me good advice and I just wanted to be with him.  I mean, you know, it’s like choosing a doctor, you want to go to somebody you think you can trust, and that certainly was – is the case.”

However, as she admitted in cross-examination, in the year or so prior to Mr Wintour’s departure she had had very little contact with him, dealing instead with others at Menkens & Associates. Again, her evidence must be assessed with the circumstance that it was Mr Wintour who approached her to be a witness.  Overall however, her evidence appeared to be credible and reliable. 

70. Ms Wilson is a nurse who first met Mr Wintour in about 2003.  She was impressed with his presentation at a seminar and consequently took her business to him at Menkens & Associates.  She had some dealings with Ms Wilmot but said that she had expressed a preference for dealing with Mr Wintour only whilst he was at that firm.  She recalls hearing from a work colleague that he had left Menkens & Associates and that about the same time, he rang her.  She was sent the client election form, the AXA form and a letter addressed to Menkens & Associates asking for delivery of her files.  She signed them and dated two of them 10 November 2005.  She recalled that they were signed at a meeting with Mr Wintour in an office, she believed the office of Summit, and that Mr Wintour then completed the contract numbers from files which she had brought along to the meeting.  That was inconsistent with the summary of her evidence, the accuracy of which she had previously confirmed.  In that summary, she said that she had given Mr Wintour the contract numbers by telephone.  Ultimately, her evidence remained that she had provided the contract numbers although she could not recall precisely how and when she had done so.  Notwithstanding that inconsistency, she was apparently persuasive in maintaining that she did provide the contract numbers to him.  As to causation, she said that had she simply contacted Menkens & Associates and found that Mr Wintour was no longer there, she would have made attempts to find out where he was.^[12]  She said she attempted to find out where he had gone, looking in the White Pages.  In her case, it is somewhat more likely that she would have gone to Mr Wintour even had he not telephoned her, given her lack of contact with others at Menkens & Associates.

71. Ms Lee-Tannock is a stenographer employed at a hospital. She and her husband were clients of Menkens & Associates, dealing with Mr Wintour, from about 2001.  After he left, they were invited to a meeting with Leo Menkens when they were told of Mr Wintour’s departure.  Ms Lee-Tannock says that she asked about his whereabouts but was told that they were unknown.  Subsequently, Mr Wintour telephoned her.  Her evidence was that during this first call from Mr Wintour, he asked for and she provided the contract numbers from documents kept at her house.  She and her husband signed documents for the delivery of their files to Mr Wintour as well as the AXA form.  Their signatures were dated 8 and 10 November 2005.  On the AXA form, the contract numbers were inserted by Mr Wintour’s handwriting.  There are two versions of this AXA form in evidence.  The difference is that one contains an extra contract number, again in Mr Wintour’s handwriting.  Clearly, Ms Lee-Tannock and her husband signed only one document and this contract number was added subsequently.  Again, her evidence is affected by the fact that she was contacted by Mr Wintour for the purpose of her giving evidence.  It seems that her husband was also contacted, but for reasons which are not explained, he was not called.  Mr Wintour at first gave evidence that he did not think that he had received the contract numbers directly from Ms Lee-Tannock and her husband, but that he had found them in files sent by Menkens & Associates.  But that was shown to be incorrect because the AXA form with the numbers inserted was submitted on 20 December 2005 and the file was not delivered until, at the earliest, 26 January 2006.  Mr Wintour then said that he must have received the contract numbers directly from the clients.

72. Ms Lachman worked as an immunologist at a hospital. When she was a client of Menkens & Associates she dealt only with Mr Wintour.  After Mr Wintour’s departure, she met Leo Menkens.  She said she was not impressed with him, finding him unprepared for the meeting and knowing nothing about her particular position.  At one point, she recalled Mr Wintour had told her “he was leaving the company” but ultimately she was unsure about that.  She signed two documents each dated 12 December 2005.  One authorised the delivery of all files to Mr Wintour.  The other was headed “Transfer of Servicing Rights Request Form”, in which her three contracts were identified by numbers handwritten by Mr Wintour.  She had no actual recollection of the circumstances, but she had the strong view that she had provided the numbers to Mr Wintour because she would have considered it to be unethical for Mr Wintour to have taken those numbers from the Menkens & Associates records.  On the causation question, she impressed as someone who was not happy to stay with Menkens & Associates, following her meeting with Leo Menkens.  As to the contract numbers, she impressed as a very organised person who is likely to have been able to provide that information from her own records.  But her evidence has limited weight for the fact that she has no actual recollection of doing so.

73. Mr Bradley is a university lecturer. He and his wife were clients of Menkens & Associates, dealing mostly with Mr Wintour.  They received a letter from Menkens & Associates advising of Mr Wintour’s departure.  He says he endeavoured to locate him and thinks he probably did an internet search.  But soon after that, he received a message, a letter he thought, from Mr Wintour advising that he had left the practice and where he was now located.  He and Mrs Bradley signed a document for the delivery of their files and an AXA form, each being dated by them 7 November 2005.  Mr Bradley recalled that he gave those numbers to Mr Wintour having extracted them from files which he kept in his garage.  He read them to Mr Wintour over the telephone.  He said that the forms were returned with the information as to the contracts still in blank and that it was after then that Mr Wintour had asked him for the contract numbers.  When asked in cross-examination whether he had an actual recollection of Mr Wintour ringing him to request the contract numbers, he said that he remembered “having quite a few files on my desk so that I could take those details from the files. … It was a little bit involved, having quite a few files.  I recall which ones Mr Wintour had initiated for us and his name was on those files, so it was those numbers that I extracted for him”.  This happened, he said, within a week of his sending the forms back to Mr Wintour.  He said that he followed Mr Wintour to his new business because he wanted to maintain the existing professional relationship he had enjoyed with him.  Mr Bradley was an impressive witness.

74. Mr Peter Wintour is Mr Wintour’s brother.  He was a client who transferred from Menkens & Associates.  Ultimately, the plaintiffs abandoned their claim in respect of his work, conceding that he would have gone to his brother in any event.  Nevertheless, he gave evidence as to the question of contract numbers.  Peter Wintour recalled his brother ringing him several times on or about the day that he was dismissed from Menkens & Associates.  He recalled one particular phone call, which he received a day or two after his brother’s departure, in which his brother asked him to provide his contract numbers.  He replied that he did not have them because he was then in Kyogle on business and that the details were in files at his house on the Gold Coast.  He said that therefore he drove to the Gold Coast that night, went to the files and extracted the contract numbers, drove back to Kyogle the following morning to resume work and then telephoned his brother to give him those numbers.

75. There is an email which Peter Wintour sent to his brother on the morning of 3 November 2005, in which he wrote “Info as requested. You may need to complete some details and I do not have the details with me”. The attachment to that email was an AXA form signed by Peter Wintour, but with the contract numbers not inserted. Notwithstanding that evidence, he maintained that he had provided the numbers to his brother a few days earlier. He said that by then he had thrown away the piece of paper upon which he had recorded the numbers. There is no explanation of why this email of 3 November did not say something to the effect of “I gave you the policy numbers a week ago. You must have them”.

76. There are three AXA forms for Peter Wintour. The first is unsigned but is dated 27 October 2005. It has been completed in the first defendant’s handwriting, including the specification of contract numbers. The second is dated 3 November 2005 and is signed by Peter Wintour. But again the contract numbers have been written in by the defendant, consistently with that email of the same date. The third appears to be that which was signed on 3 November 2005 but with the addition of a further contract number. Peter Wintour’s evidence was that this was a number which he gave to his brother “at a later date”. He said that one night he recalled receiving a letter from that institution containing “a reminder notice or something” and going to the file and looking at it and saying to himself that he had missed one of the numbers. His evidence was that he then rang his brother and gave him that number.

77. Peter Wintour is obviously sympathetic to his brother’s case and antagonistic towards the plaintiffs. Ultimately, I am unable to accept his evidence that he provided any contract numbers to the defendant. His recollection is difficult to reconcile with the email of 3 November 2005. And it is unlikely that he would make a special trip from Kyogle to the Gold Coast to retrieve the contract numbers during his work week at Kyogle, because there was no apparent urgency which would require him to do that rather than, for example, waiting until the weekend when he normally returned to the Gold Coast. It is more likely that he has given that testimony knowing that his brother’s case would have to meet the evidence of the first-mentioned AXA form, which the defendant had completed and dated 27 October 2005. This means that the first defendant had extracted and retained at least those contract numbers. However, it may be that the first defendant decided to extract his brother’s contract numbers from the Menkens & Associates records, although he did not do so with other clients.

Client details and computer records

78. Shortly prior to his departure, Mr Wintour extensively copied details of clients from the server at Menkens & Associates to a computer at his home (‘the home computer’).  The details of that copying are not in dispute and are the subject of careful analysis by a computer expert, Mr Byrne, who was called in the plaintiffs’ case. 

79. The plaintiffs say that it should be inferred that this information, and in particular the contact details and contract numbers of clients, was used by Mr Wintour and his company to gain those clients for the Stantium business.  The defendants deny any such use and according to Mr Wintour’s evidence the copying of these records has, in every respect, an innocent explanation, which is that either Mr Wintour was doing work for Menkens & Associates at home or he was preparing his case for meetings with the plaintiffs on 21 and 24 October 2005. 

80. The plaintiffs’ case is that the copying of these electronic records was undertaken simply to prepare for Mr Wintour’s proposed new business and that this activity had begun by at least August 2005.  However, it is necessary to consider only the activity from September 2005, when the activity was far more extensive and difficult for Mr Wintour to explain, especially when it occurred after his meeting with Reid Menkens on 17 October.

81. As noted above, Menkens & Associates used a software program called ACT! which stored information in relation to clients including their contact details. It was also used to record dealings with clients. Mr Wintour used the same software in his Stantium business.

82. On each of 16 September, 23 September and 4 October 2005, Mr Wintour sent copies of the ACT! database to his home computer.  Mr Wintour’s explanation for this activity was that the Menkens & Associates’ terminal server was too slow and that by this means he could work on the database from his home and bypass the server.  As for just what work he was doing on the database, he said that he was preparing for a meeting with his partners and in particular he was “looking at the number of clients that each of the partners had and doing, in the contact list, various manipulations of the data within the database”.^[13]  He said this “related to the amount of work and effort that each adviser had gone to in terms of contacting those people that are actually in the database”.^[14]  More generally, he said that he was looking at this to analyse the level of activity of each of his partners, in order to advance his case at the anticipated meeting.  He claimed that the meeting, which became that on Friday, 21 October was postponed many times.

83. On 19 October, when he was away from work supposedly through illness, Mr Wintour accessed the Menkens’ server from his home computer and over a period of about an hour and a half, emailed a number of files from his office email address to his personal email address.  They included files which contained the contract numbers for clients.  One such file was described as “MasterCopy.xls” which contained a spreadsheet containing information as to some 11,893 clients.  It was almost up to date, in that it was compiled up to some day in October 2005.  Another of those files was described as “MasterCopy.xls.csv”, which contained a list of clients with information as to some 8,267 client contracts, compiled up to 25 September 2005, which again recorded contract numbers. 

84. Mr Wintour’s evidence was that he wanted information from these files and others which he emailed from work to home that day in order to prepare for his meeting with the plaintiffs scheduled for that Friday, 21 October.  That is not a compelling explanation, when it is seen that there were other files which would have more readily provided the relevant information for that meeting, particularly in respect of the earnings of the business attributable to each of its principals.  An example is a file which Mr Wintour emailed to his home address on the morning of Sunday, 23 October which contained a spreadsheet with the file name “2005/2006Commission.xls”.  That was a routinely prepared document which clearly set out the respective earnings attributable to each of the advisers and the respective percentages of the total earnings of the business.

85. In the early hours of 22 October, Mr Wintour went to work at his home computer. Between 1.11am and 5.41am on that day, Mr Wintour accessed the Menkens server from the home computer and copied some 645 files to what was described as his “private user folder” on that system.  Those files included a list of his client contacts from the ACT! database, client details of five of his best clients, a further list of all contacts of the firm from the ACT! database and later (at about 3.11am) the whole ACT! database.  He also created “zip” files, by which he compressed the contents of files he had that morning exported to his private folder.  As Mr Wintour conceded in evidence,^[15] one purpose of creating a “zip” file is to make it quicker to send by email, although he said another purpose was to “save space”.  By 5.41am, he had created a list of clients and their details, which he at that time emailed to his home email address.  The email attached an Excel spreadsheet with the file name “051022.xls”.  It was a list of 81 clients with details of their insurance cover, including the monthly premium.  It did not contain contact details or contract numbers.

86. Mr Wintour gave various explanations for his work over these early hours of 22 October.  He said that he was “getting information to make a decision … when I went in to see the partners on the Monday [24 October]”.  Another was that he regularly worked on weekends and was simply doing Menkens & Associates work.  In that respect he gave this explanation:^[16]

“What I was doing at the time was … you can sort and manipulate the data to an extent within this database management system itself and one of the things I did infrequently – but I would say probably yearly – and sometimes if I saw extreme errors in the database, I would export the records in the database into Excel which enabled me to manipulate the data in a better way.”

As to why he then made a complete copy of the ACT! database, he claimed that he was doing some maintenance work but could not recall precisely what work.^[17]  Mr Wintour’s explanation for the 81 client spreadsheet, which was a list of Summit personal superannuation clients, was that he was checking whether the premium amounts for those clients were accurate.

87. Mr Wintour was unable to give any precise explanation for why he created these “zip” files and in particular why he “zipped up” files containing detailed information about clients. He cannot recall any other occasion in which he had so copied any complete client file.^[18]

88. On Sunday, 23 October, at about 8.21am, he emailed from his work email address to his private email address an Excel spreadsheet which recorded the earnings for the various advisers, including the principals. It is difficult to see that this document did not contain effectively all of the information which Mr Wintour may have required in order to argue his case at his meeting with the plaintiffs.

What records did Mr Wintour keep?

89. The electronic files so far discussed left the Menkens & Associates system by their being emailed to Mr Wintour’s home email address.  At one point in his cross-examination, Mr Wintour was asked whether he took any step on or after 24 October to delete the emails which he had sent to that address from Menkens & Associates, to which he responded no.  He was asked whether he retained full access to any such emails until that home email account had been closed, to which he answered “that would make sense … yes”.  He said that he would “find out” when it was that he ceased to have access to emails at that address.  On the next day of the trial, he said that he had found that he ceased to have the account in September 2006.  But he then seemed to dispute that he had had access to any document which had been emailed to that address up to that point in time.  He sought to explain this by saying that, as was the fact, he had returned the home computer to Menkens & Associates (it being the Trust’s property) on 26 October 2005 and that “I then didn’t have them because they’d already been placed on that other computer”.^[19] 

90. In October 2005, he set up a new email account connected with the Stantium business. He said that his records indicated he was still using his former private email address for about two weeks until he had this new email address. At least after the return of what had been his home computer, he was using a laptop computer which he said he acquired on 26 or 27 October 2005. Ultimately, his evidence was that although he sent and received emails at his private email address for those two weeks or so, he was unable to read emails which had been sent to that address prior to his acquisition of the laptop computer. In other words, he was unable, so he said, to read the emails which he had sent to his private email address and which were on the home computer, once he had returned it to Menkens & Associates on 26 October.

91. As Mr Wintour admits, immediately after his departure from the Menkens & Associates office, he copied from the home computer to a CD Rom a number of the files which he had copied to the home computer from the Menkens & Associates system.  He said he could not remember what files he had copied and he claimed to have destroyed the CD after receiving legal advice later that same day.  The legal advice was “in terms of what I could and couldn’t do”.^[20]  It is probable that what he copied to the CD at least included that which he had bothered to email to himself on that home computer within the preceding week.  It is likely then that the CD included files which contained contact details and contract numbers for clients, including those who subsequently transferred their business to Stantium. 

92. Mr Wintour cannot now say that after the supposed destruction of that CD and the return of the home computer, he was without the means to retrieve any of the electronic files which he had copied.  That is because there is at least one file from Menkens & Associates which is demonstrated to have remained within his possession.  That file is described as “051021ACTExport.xls”.  I will refer to it as ‘the discovered file’. 

93. It was discovered by the plaintiffs in the course of these proceedings in this way. After a contested application before Mackenzie J, it was ordered that the defendants disclose the database maintained by them in conducting the Stantium business, by producing the hard drive and permitting the plaintiffs to take copies. In December 2006, Mr Johnson, an independent IT consultant engaged by the plaintiffs, went to Stantium’s premises to undertake that exercise.  He “captured” the hard drive by making three copies.  One was kept by him ultimately for the plaintiffs’ inspection, another was retained by the defendants and the third was placed in the custody of the Court.  According to the terms of the orders made by Mackenzie J, the defendants were able to exclude information for which there was a claim for legal professional privilege.  It was also consistent with those orders that material which was not directly relevant to an issue could be excluded.  Mr Wintour and others assisting him then met Mr Johnson to undertake the deletion of privileged and irrelevant material from the copy retained by Mr Johnson for the plaintiffs.  Amongst that which was deleted was the discovered file.  But its presence on the Stantium hard drive as at December 2006 was revealed by Mr Byrne’s forensic examination of Mr Johnson’s capture of that hard drive.  Mr Byrne’s examination identified a deleted file with that description “051021ACTExport.xls”.  Mr Byrne’s unchallenged opinion is that this file was deleted after Mr Johnson’s capture of the hard drive, because the process used by Mr Johnson would not copy deleted files.  And as I have said, the defendants retained a copy of the hard drive as made by Mr Johnson, from which that evidence could have been challenged if it was incorrect.

94. Ultimately, the defendants’ case conceded that the discovered file must have been on the Stantium hard drive as at December 2006, having originally been upon the Menkens & Associates system. Mr Wintour could not explain how it came to be there.  Nor could he explain why he, or someone acting under his direct supervision on the day, saw fit to delete the file from Mr Johnson’s copy of the capture of his hard drive.  I allow for the possibility of an error in good faith by that deletion.  But that is a faint possibility.  And most importantly is the unexplained presence of this Menkens file on the Stantium database.

95. How did the discovered file find its way to the Stantium database? From his examination of the home computer, Mr Byrne was able to conclude that the discovered file (bearing the same description “051021ACTExport.xls”) had been opened on Mr Wintour’s home computer from a CD on about 24 October 2005. As I have discussed, on that day Mr Wintour admits that he copied Menkens & Associates’ material to a CD. 

96. The metadata in the (deleted) discovered file on Mr Johnson’s capture of the Stantium server shows that the file was last saved on 25 October 2005 and that it was attached to an email from the email address “[email protected]”, which was Mr Wintour’s work email address when he as at Menkens & Associates. 

97. Mr Byrne was also able to identify a link file created on the Stantium server which revealed that the discovered file was opened from a “Drive D” on 16 April 2007. The same link file revealed that the original file on “Drive D” was copied to that location on 3 November 2005. The laptop computer, which Mr Wintour acquired immediately after his departure, had a D:Drive.^[21] 

98. As Mr Wintour conceded in cross-examination, the discovered file was derived from the file “051021Export.xls”.^[22]  This was one of the files which Mr Wintour had created in the early hours of Saturday, 22 October when transferring material from the Menkens & Associates database to his private folder.  That file contained two worksheets, one called “Original Data” and the other “Rob’s clients”.  The latter differed from the former in that it eliminated what Mr Wintour said he had identified as errors in the former.^[23]  It contained about 1,600 contact records identifying the details, including client contact details, from the Menkens & Associates database.^[24]  Mr Wintour sought to explain the creation of this corrected version of the worksheet by saying that his purpose was to assist staff of Menkens & Associates to correct errors.  But quite apart from the circumstance of his imminent departure (regardless of whether he anticipated the particular course of events of 24 October), the creation of this corrected version of the worksheet, by deleting what was said to have been the errors in the “original data” worksheet, would not have highlighted those errors for others.

99. In Mr Johnson’s capture of the Stantium database, there were contact details for the person whose name appeared only as “Andrew?”. Nothing appeared by way of contact details or other information apart from a mobile phone number. That particular entry was part of that which was deleted by Mr Wintour, in the process of deleting supposedly irrelevant material from Mr Johnson’s copy.  But it is relevant because the same entry appeared as the first of the clients within “051021Export.xls”, i.e. it appeared within the file created on 22 October from the Menkens database.  The possibilities are that Mr Wintour “populated” his Stantium database from information within the file “051021Export.xls” copied from Menkens & Associates or that quite independently, he made exactly the same entry within the Stantium database for a prospective client.  Mr Wintour suggested that it was the latter, this being a person whom he had met who had given him “an old business card” from which he had, in each of his businesses and at quite different times, entered the same details.  But the fact that he deleted this reference in March 2007 from Mr Johnson’s copy does suggest that he saw its potential to provide evidence, or further evidence, that this part of the Stantium database was derived from something which he had copied from Menkens & Associates. 

100. The discovered file was derived from some of the material which Mr Wintour had copied in the early hours of 22 October.  His explanation for the work he did in the middle of that night is impossible to accept.  In truth, he was involved in this exercise at this extraordinary time of night because, planning to depart Menkens & Associates, he was compiling material about his existing and potential clients to assist in transferring them to his new business.  It is highly likely that the material, at least within this file “051021Export.xls”, was considered by him to be particularly useful, containing as it did contact details and other personal details of some 1,600 or so clients.  In particular he thought it important enough for it to be amongst the material which he copied to the CD on 24 October.

101. I infer that this file was copied to the CD Rom from which it was opened on about 24 October on the home computer. By some means, whether by the original CD being not in truth destroyed or some other means, the file was copied to the D:Drive on Mr Wintour’s laptop on 3 November 2005 and thereafter the information was available to be entered on the Stantium database.  The precise path of the file may be uncertain, but in my view the evidence well proves that Mr Wintour deliberately retained information, as now appearing on the discovered file, from that which he had secretly taken from the Menkens & Associates records shortly before his departure.  The discovered file in itself contained contact details sufficient to easily facilitate his approaches to potential clients, including those who did transfer their business to Stantium.

The defendants’ use of confidential information

Client contact details

102. I find that this information had a causal connection with his success in attracting the transfer clients to Stantium. Without that information, perhaps he would have been able to locate some of the clients. But I reject his evidence that he was well able to locate them, and in truth did locate them, by other means such as the White Pages or internet searches. Indeed, the fact that he took the trouble to copy these electronic files and to keep the information as he did shows the utility of it.

The contract numbers

103. The discovered file did not contain contract numbers. I am asked to infer that by some other means contract numbers were retained by him. As already noted, they were within the files emailed to his home email address on 19 October. It may be that there were other occasions on which he was transporting files from his work computer to his home computer because, as the plaintiffs’ argument points out, the discovered file was not within any identified email sending that file. Again, the fact that he saw fit to email those files to his private email address indicates what he perceived to be their utility in his then proposed business. I reject his evidence that he emailed those files on 19 October simply to prepare for the meeting of 21 October. As discussed, there was material which was directly relevant to whatever case he might have been thinking of advancing at that meeting, but it is difficult to see the particular relevance of the information emailed on 19 October in that respect. The fact that he had seen fit to surreptitiously copy this material shows that it is unlikely that he would be willing to destroy it, especially given his sense of grievance against the plaintiffs and what must have been his anger at being summarily dismissed with the plaintiffs saying, at the same time, that he was entitled to nothing for his share. And the fact that the discovered file reveals that he did not destroy all such material adds to the likelihood that he did not destroy other material containing the contract numbers. That information was useful not only for dealing with AXA or one of the other institutions in effecting a transfer. It was also essential that he have those contract numbers because of the fact that all fees and commissions, including trail commissions, were paid by reference to those numbers. It was the means by which he would be able to check that Stantium and not Menkens & Associates was receiving income referable to a client who had transferred. There were compelling reasons then for him to endeavour to keep this information.

104. There is no direct evidence that he did keep the contract numbers, such as there is with the contact details (through the evidence of the discovered file). It is possible, as the plaintiffs suggest, that Mr Wintour kept the contract numbers on his laptop computer during the relevant period in late 2005 and early 2006 because on Mr Wintour’s evidence, he did not download his database onto the defendants’ server until late in 2006, by which time there may have been no need to put the documents which he had emailed to himself on 19 October 2005 upon that server. There is no evidence which directly contradicts that of any of the ten transfer clients who were called in the defendants’ case, that they provided their contract numbers to Mr Wintour.  Some of those witnesses were more persuasive than others.  But overall I am persuaded to accept that each of them in some way provided Mr Wintour with the contract numbers relevant to his or her business. 

105. The plaintiffs argue that Mr Wintour may have retained the contract numbers but pretended to clients, or at least to some clients, that he did not have them.  They say that this was to disguise the fact that he had kept the contract numbers, his plan being that if the client could provide them, that would suffice; but if the client could not provide them he would be able to complete the forms.  Having regard to the underhanded way he set about compiling this material and also the way in which he sought to cover his tracks by, in particular, his deletion of the discovered file from Mr Johnson’s copy of his database, the plaintiffs’ suggestion has force.  Mr Wintour said that he received legal advice immediately after his dismissal.  I infer that he understood that an obvious use of the contract numbers would be likely to be challenged by the plaintiffs.

106. The plaintiffs’ case is enhanced by the apparent absence of any notation of contract numbers upon the Stantium database. There is no electronic record, as might have been expected having regard to Mr Wintour’s practice when he was at Menkens & Associates of consistently noting details about and communicating with clients in the ACT! database, of any communication from a client advising of contract numbers.  On Mr Wintour’s version, he recorded the contract numbers in his new business simply by scanning copies of the signed transfer documents upon which he had handwritten the numbers.  This is unlikely, given his previous practice with identical software at Menkens & Associates.

107. Overall, I am persuaded that Mr Wintour did by some means retain the information comprising contract numbers, which he had copied from the records of Menkens & Associates.  In the cases of the ten transfer clients who were called, I am satisfied however that he did not use them, except perhaps to check that the numbers which they had provided corresponded with his information.

108. As to the other transfer clients, there is some substance to the plaintiffs’ case that the actual use of the contract numbers should be more readily accepted, because it should be inferred that their evidence would not have assisted the defendants’ case. But overall the question is whether it is more likely than not that, in those instances, client by client, the contract numbers as Mr Wintour had kept them were in fact used by him. From the ten witnesses who were called, I infer that Mr Wintour adopted a practice of asking the clients to bring along their documents or otherwise provide him with the contract numbers.  And from that evidence, it appears that the identification of contract numbers was not a difficult or burdensome exercise for clients.  It is probable that some clients would have found it to be so, therefore in some instances it is possible that Mr Wintour did resort to the information which he held.  But whether he did so and to what extent remains a matter of speculation and ultimately it is for the plaintiffs to prove his misuse of the information or, more generally, that the loss of a client’s business was the result of this breach of his fiduciary duty.  So far as the contract numbers are concerned, I am not prepared to conclude, in the case of any of the clients for whom a claim is now made, that Mr Wintour used the client’s contract numbers other than to the extent of perhaps checking the accuracy of what the client had provided to him in that respect.  There are two clients, Ms Price and Mr Wichgers, who may be relevant in that respect.  On the transfer form for Ms Price, one contract number was written by her and the other by Mr Wintour.  His explanation was that she had given him the two numbers during a telephone conversation and he wrote them down asking her at the same time to complete the form.  When she returned the form he saw that one number was missing and so inserted it himself.  That is possibly true but it is unlikely.  In the case of Mr Wichgers, one form was submitted to AXA which had three contract numbers and on the following morning another form was submitted with an additional contract number, suggesting that the fourth number came from information held by Mr Wintour.  But if Mr Wintour did use confidential information to insert the extra contract number in these cases, this cannot be said to have resulted in the loss of the client, who had by then decided to transfer to the defendants’ business.

109. No claim is now made in relation to the loss of the business of Mr Wintour’s brother.  As I have discussed, I was not persuaded by his evidence to accept the explanation provided for the handwritten contract numbers as they appear in the draft transfer form which Mr Wintour prepared and dated 27 October.  In this instance, I infer that unsurprisingly Mr Wintour was not so concerned to pretend that he did not have the contract numbers. 

110. Counsel for the plaintiffs described their clients’ primary case as being that Mr Wintour breached his fiduciary duty as a trustee by the wrongful gathering and use of information, and in particular the contact details and the contract numbers.  On my findings, that case is established insofar as the collection and maintenance of the electronic material which contained that information are concerned.  As for the use of that information, I have found that the contact details were used, but the same is not established for the contract numbers.

Breaches of duty

111. The legal questions which were debated concerned the extent of Mr Wintour’s fiduciary duty both before and after his departure and a further question, apparently resolved by my previous judgment,^[25] of whether compensation can be recovered for the loss of a client who in any event would have gone to the defendants. 

112. As to that first question, the plaintiffs’ case was that irrespective of the use of the electronic material, Mr Wintour was bound not to approach clients of Menkens & Associates.  Clearly, he did so, at least for the clients who did transfer their business to him. 

113. By paragraph 17 of the statement of claim, the plaintiffs alleged that in his capacity as trustee, Mr Wintour gained a knowledge of information in relation to each client.  Paragraph 17 identified certain kinds of information, two of which were the contact details and contract numbers.  But there are other kinds of information which were pleaded, including the fact that a person was a client of Menkens & Associates and had obtained advice from it.  All of this information was together defined in the pleading as “the Information or Knowledge”. 

114. By paragraph 25 of the pleading, the plaintiffs alleged that Mr Wintour “used the Information or Knowledge to canvass, request, petition or solicit or attempt to persuade clients of Menkens & Associates to move to the Stantium Business …”.  By paragraph 26, they alleged that “as a consequence of the use by the First Respondent of the Information or Knowledge a number of the clients of Menkens & Associates have transferred their business from Menkens & Associates to the Stantium Business …”.  Paragraph 27 alleged that that use of the Information or Knowledge was in breach of Mr Wintour’s fiduciary duty, which (by paragraph 10) was alleged to have “continued subsequent to 25 October 2005”.  Paragraph 28 alleged that the same use of the Information or Knowledge constituted a “breach of the equitable obligation of confidence owed to the Applicants …”.

115. The second defendant’s liability was pleaded to be as a knowing participant in Mr Wintour’s breach of fiduciary duty or breach of his equitable obligation of confidence, or as a knowing recipient of the fruits of that conduct.^[26]  Clearly, any requisite knowledge of the second defendant is proved, Mr Wintour being its sole director and shareholder.  And clearly it participated in that the approaches were made to clients by Mr Wintour on its behalf. 

116. The essence of each of these complaints is a misuse of information. In particular, the plaintiffs’ case extends to the proposition that Mr Wintour was precluded from approaching clients of Menkens & Associates because he knew them as such.  I do not accept that proposition. 

117. Generally, a fiduciary obligation does not continue to exist after the termination of the fiduciary relationship: Attorney-General v Blake;^[27] Prince Jefri Bolkiah v KPMG (a firm).^[28]  However, a duty of confidentiality arising out of a fiduciary relationship survives, to some extent, the termination of that relationship, for which in Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies 4^th ed at [5-010] there is given the example of confidential information gained by a solicitor while acting for a client.^[29]  The authors provide another example as being “the duty of an employee who contributed to the asset of the employer not to use information about it, obtained during the employment, so as to deprive the employer of the opportunity to use the asset profitably”, for which they cite Co-ordinated Industries Pty Ltd v Elliott.^[30]  But contrary to the plaintiffs’ submission, that case cannot be likened to the present.  The “asset” there was the opportunity to win a particular contract from a potential customer, for which the employee had been actively involved in preparing plans, specifications, a budget and a development application for the proposed construction work.  Hodgson CJ in Eq said that the chance of obtaining that contract could be fairly regarded as an asset of the plaintiff to which the employee continued to have a fiduciary obligation after termination of his employment, “because he had contributed substantially to that asset” but stressed that his finding related “only to the particular job, and not to the customer generally or to any other use which [the employee] might wish to make of his knowledge or skill”.^[31] 

118. The present case is closer to the claim against an accountant who had set up her own practice, attracting clients of her previous employer, in Weldon & Co Services Pty Ltd v Harbinson.^[32]  In distinguishing the facts from Co‑ordinated Industries Pty Ltd v Elliott, Bryson J there said that it was a case where the employee was seeking the advantage of continuing a particular job on which he had been engaged, whereas in the case before him, “the defendant was seeking retainers which would bring her future work on taxation returns, statutory records and accountancy support which it was obvious that clients were likely to require, but which did not involve continuation of existing commissions or particular jobs which had been broken off by her leaving”.^[33]  Bryson J said:^[34]

“Plaintiff’s counsel sought to bring the defendant’s exploitation of these opportunities within the principle relating to diversion of a maturing business opportunity which the employer is actively pursuing, stated in the judgment of Laskin J in Canadian Aero Service Ltd v O'Malley & Anor (1973) 40 DLR (3d) 371 at 381-382.  There have been many applications of this principle.  It is based on the fiduciary duty incurred by officers and highly places employees with respect to commercial opportunities which, although they are not property, are accorded much the same protection.  A maturing business opportunity often takes the form of an opportunity to supply some services or goods which is approaching the stage where a contract can be formed but has not yet reached it; an unconscionable diversion of such an opportunity to the employee who was managing the employer’s interests may be restrained.  This however is a different subject to the former employee’s canvassing customers, including customers who are quite likely to require further services of a kind supplied in the past, for the supply of further services.  The distinction, which is difficult to elucidate fully but usually well recognisable on the facts, is one between canvassing a customer and intercepting a maturing business opportunity which the employer was actively pursuing.”

In a sense, a trailing commission might be said to be the result of services provided in a previous year, when the client’s original investment was made, so that in one way the client with that investment might be described as an “asset”.  Nevertheless, in terms of the distinction described in that passage, the present case is about canvassing customers rather than “intercepting a maturing business opportunity.”

119. Accordingly, the plaintiffs’ case was put too widely, insofar as it claimed that Mr Wintour remained under a fiduciary obligation, after his departure, not to approach clients of Menkens & Associates for their business, even without the use of any information which prior to his departure he had wrongfully collected and retained.  In particular, the mere use of his knowledge that a person was a Menkens client, in order to approach that client, would not have been a breach of any fiduciary obligation or duty of confidence.  Ordinarily, an employee’s duty of good faith, during his or her employment, will be breached by copying lists of customers so that they can be used after the cessation of the employment to compete with the employer’s business, but there will be no breach of the employee’s duty of good faith simply by canvassing the former employer’s customers after the employee has departed.^[35]

120. However, there was another basis for alleging that Mr Wintour was bound not to approach Menkens clients, even without using any of the information which he had wrongfully gathered.  Under the principle in Trego & Smith v Hunt,^[36] where the goodwill of a business is sold, the vendor may set up a rival business but is not entitled to canvass the customers of the old firm.  As Muir J said in Fisher, Kelly, Fisher, Racegale Pty Ltd & Waltint Pty Ltd v GRC Services Pty Ltd and Ors,^[37] the restriction on canvassing customers appears to be based on the principle against a grantor derogating from the grant.  The principle applies to partnerships, where an outgoing partner receives a payment for his share which includes a payment for the goodwill of the partnership business.^[38]  I have held that Mr Wintour was entitled to a substantial (rather than nominal) sum for his units, which was calculated by reference to, amongst other things, an allowance for goodwill.  But as I discuss below, the evidence fairly establishes that the goodwill component, agreed upon within cl 10.1.1 of the Unitholders Deed as being “the net profit of the Business for the preceding Financial Year”, was much less than its value in a market where “books” of clients are bought and sold by financial planners.  The plaintiffs’ witness Mr Kenyon said that a book of clients could be sold for something in excess of three times the recurring gross income (as distinct from profit) from those clients.  And as Mr Wilson for the defendants submitted, this was a compulsory disposition of the units, consequent upon the decision by Leo Menkens to dismiss Mr Wintour as a trustee, so that the case may be outside the Trego principle, which has not been applied in some cases involving the compulsory disposition of a partner’s share.^[39]  However they were cases where the outgoing partner was not privy to the contract for the disposition of his interest, so that arguably they would not assist Mr Wintour. 

121. Ultimately it would, in my view, be inappropriate to determine the applicability of the Trego principle in the present case.  It was not raised on the pleadings and had it been raised, it may have caused a wider factual inquiry.  And there was little in the submissions on this point:  it arose only in the course of an exchange with counsel as to the relevant authorities involving the question of fiduciary duties of outgoing partners.  In particular, there was no substantial argument as to the relevance of the Unitholders Deed having provided for an allowance for goodwill but in something less than its true value.

122. The Trego principle is unlikely to have made for a different outcome, having regard to my findings on the use of the contact details.  On those findings, the canvassing of clients was wrongful in that it involved the use of the contact details which were within the information gathered and retained by Mr Wintour during the fiduciary relationship for his purpose of competing with the business of the Trust.

123. Returning to the fiduciary duty case, the defendants submitted that the terms of the Unitholders Deed, by which Leo Menkens was given effective control during the Preferential Draw Period, in some way qualified the extent of Mr Wintour’s duties as a trustee.  It was pleaded and argued that his position should be regarded as that of a salaried partner.  But even upon that basis, a senior employee would have been in breach of a duty of confidence and good faith to his employer by gathering and using the information as Mr Wintour did.  In any case, it cannot be disputed that he was a trustee and in my view, there is no basis for diminishing the extent of his obligations as such.  The agreed regime within the Preferential Draw Period may have been, in hindsight, something to which Mr Wintour should not have agreed.  But he did so agree, without any qualification of the duties which he assumed as a trustee.  Moreover, if the analogy of a partnership is apt, he was not a salaried partner, but instead was entitled to an equal share of the “partnership” profits, subject of course to the obligation which he undertook in relation to the Preferential Draw.  As the present case shows, upon his departure, albeit involuntarily, he did become entitled to a substantial payment. 

124. I should note also the submission for the plaintiffs that another alleged particular of his breach of fiduciary duty was his contact with representatives of AXA/Charter and the representative of the software company, as part of his preparations for the Stantium business, prior to his departure. It is unnecessary for me to determine whether they were of themselves breaches of fiduciary duty. But it has been held that acts done by directors which are preparatory to competition are not necessarily in themselves a breach of duty.^[40]

Conclusions as to breaches of duty

125. Once it is accepted that Mr Wintour owed the usual duties of a trustee, it follows that he breached those duties by secretly copying electronic records of the Trust’s business in order to facilitate his winning the work of clients of that business in his proposed undertaking. This information about clients, in particular their contact details and their contract numbers, was not publicly available, and Mr Wintour had proper access to it only if furthering the interests of the Trust. It was confidential information which, after he ceased to be a trustee, he was obliged not to use, having collected and retained it in breach of his duty. He wrongfully used the contact details in order to identify, locate and canvass potential clients.

Compensation

126. Although the plaintiffs made extensive submissions as to the effect of the case law on this question, I adhere to the views expressed in my judgment in 2009 in these proceedings, and in particular to the proposition that whilst equitable compensation is not to be assessed according to principles for the recovery of damages at common law, it is necessary to inquire whether the alleged loss would have happened but for the breach.^[41]  I have to admit to a difficulty in understanding precisely the boundaries of the alternative proposition advanced by the plaintiffs.   

127. The defendants could have conducted their undertaking as long as they did not approach the clients of Menkens & Associates to have them transfer their business, at least by the use of the contact details. The approaches to the clients, I have found, in each case involved the use of the client’s contact details. The approach to the clients was relevantly facilitated by that use. But absent that approach, would the client have gone to the defendants?

128. Some of those who gave evidence strongly asserted that they would have done so. It is not so unlikely that they would have found the defendants, had Mr Wintour not found them first. Mr Wintour was an active and successful promoter of his services, as he had demonstrated at Menkens & Associates by activities such as the seminars which he presented to staff at hospitals.  On the other hand, many clients would have placed less importance on their particular relationship with the adviser.  It is likely that many would have considered that with their relevant superannuation and investments already in place, there was little point in transferring their business. 

129. The plaintiffs submitted that I should keep in mind that many of those who had been Mr Wintour’s clients did not transfer to his new business.  Not much can be made of that, in my view, other than it supports my impression that some clients would be more minded to change than others.  On the other hand, the defendants submitted that from the fact that the transfer clients went to the defendants, I should infer that they were all in the category of those who would have transferred in any event.  That does not follow.  The direct approach to the client which was made by Mr Wintour is likely to have been influential in some cases, which is undoubtedly why it was done. 

130. The plaintiffs must prove that the business of these clients was lost as a result of the defendants’ misconduct, in that it would not have happened but for that misconduct. The plaintiffs argued, at least at one point, that they had proved that matter as follows. It was said that without the misconduct before his departure, Mr Wintour would not have been confident enough in his ability to attract clients of Menkens & Associates, and because of the importance of their work to his proposed business, he would not have been confident enough to leave Menkens & Associates. So the position would have been that there would have been no competing business and no loss of clients to it. I do not accept that this is the relevant inquiry. Mr Wintour felt very much aggrieved by the regime at Menkens & Associates. He was minded to move although not in the circumstances under which he did depart. He is likely to have left and started a competing business without this misconduct having occurred. And the fact is that the departure of Mr Wintour was brought about by his being dismissed as a trustee, although his misconduct was then unknown. There is an element of artificiality then in the plaintiffs maintaining that, absent Mr Wintour’s misconduct, he would have remained. The relevant inquiry is to see what business would have been lost absent the canvassing of these clients, conducted as it was with the wrongful use of confidential information.

131. Of the ten transfer clients who did give evidence, I find that each would have remained with Menkens & Associates but for the defendants’ misconduct, except for Mr and Mrs Power, Mr and Mrs Bradley, Ms Lachman, Ms Moroney, Ms Schukraft and Ms Wilson.  From the discussion above in relation to these witnesses, it should appear that each expressed a particular degree of confidence in Mr Wintour.  Perhaps they are examples of a type of client for whom the personal relationship was particularly important.  But there remains the question of the 40 or so transfer clients who did not give evidence.  The plaintiffs argued that I could draw an inference that their evidence would not have been favourable to the defendants.^[42]  Their absence as witnesses is not explained.  It would be natural for them to be called in the defendants’ case, rather than by the plaintiffs, because they are clients of the defendants and have been so now for some years.  An extra 40 or so witnesses would have further lengthened this already lengthy proceeding.  It would have added at least some days to the overall trial.  I am prepared to infer that their evidence would not have been especially helpful to the defendants’ case.  That having been said, it does not follow that it would have been particularly adverse to that case:  it may have been inconsequential.

132. I have difficulty in accepting that each and every of these 40 or so clients would have remained at Menkens & Associates, and not gone to the defendants’ business at some time, had he or she not been directly canvassed by Mr Wintour using the contact details. For example, it is possible that some would have simply been encountered by Mr Wintour at his or her workplace, because much of his business seems to have come from particular workplaces such as hospitals.  And the nature of the services provided was not such as to require constant attention by the planner week by week or month by month, at least for every client.  So some may have left it at least until towards the end of that financial year before going to their financial planner.  I also have to consider that several clients who did give evidence expressed strong opinions about their impression of Leo Menkens.  Their assessments may or may not have been fair, but they indicate that it is unlikely that each and every one of these 40 clients would have been sufficiently confident in him to remain with Menkens & Associates.  Overall, I am satisfied that generally it was likely that clients who were not directly canvassed would have stayed with Menkens & Associates, so that for the most part the plaintiffs have proved their case.  But there should be some discount to allow for the fact that probably not each and every client would have stayed, and that a relatively small percentage would have gone to the defendants in any event.  That discounting is necessarily imprecise, because it is a matter of impression. 

133. The outcome then is that the plaintiffs have proved that they lost most of the transfer clients by the defendants’ misconduct. Mr Lytras has written several reports which address the amount of the plaintiffs’ loss. In his most recent report dated 2 March 2010, he has set out what he described as “the Lost Recurring Revenue” attributable to the transfer clients as totalling $156,614.^[43]  This total represents the annual ‘recurring’ commission revenue from the transfer clients.  The contribution by each transfer client to that total is set out in the same report.^[44]  In those calculations he has already excluded Mr and Mrs Power.  Excluding also Mr and Mrs Bradley, Ms Lachman, Ms Moroney, Ms Schukraft and Ms Wilson, the total would reduce to $137,693 or about 87.9 per cent of Mr Lytras’s figure.  Based on the findings in the previous paragraph about other clients, I will proceed on the basis of 80 per cent of Mr Lytras’s figure, which is $125,290.

134. Mr Lytras said that the Trust has suffered losses of two kinds. The first is a loss of the profits, which would have been derived from the transfer clients in the period commencing on 18 November 2005 until the trial. Mr Lytras took the revenue earned by the second defendant from the transfer clients in its business and assumed that the same revenue would have been derived by the plaintiffs had they retained those clients.  It seems that Ms Bundesen, the accountant who was called by the defendants, had been critical of that assumption.  In one report which she wrote, which the defendants chose not to tender, she worked instead from the revenue from those clients whilst they were at Menkens & Associates.  However, those figures do not appear in the evidence.  I accept Mr Lytras’s approach. 

135. To calculate the plaintiffs’ loss of net profit, Mr Lytras had to assess the likely expenses which would have been incurred by Menkens & Associates in order to derive that extra income. He assumed that those clients could have been serviced by an extra full time employee, described as a para-planner. He also included some incremental costs to allow for extra administration and other overheads. Again no contrary evidence from Ms Bundesen or any other expert was tendered. I accept Mr Lytras’s calculation of the likely extra costs to Menkens & Associates had they retained the transfer clients. It follows that I accept that from 18 November 2005 until 24 January 2010,^[45] there were lost profits from the transfer clients of, in total, $317,056.  Because the revenue earned by the second defendant includes clients who would have gone to the defendants in any event, it is necessary to reduce the lost revenue by 20 per cent so that it becomes $571,431.  But it is not shown that those relatively few clients would have made any significant difference to the costs. In particular, it is not shown that the cost of the (extra) para-planner would decrease commensurately.  Accordingly the (adjusted) lost profits to 24 January 2010 would be $174,198. 

136. The other component of the plaintiffs’ claim is what is said to be the capital value of the fees attributable to the transfer clients. This is the value of the goodwill to the transfer clients, calculated by applying a multiple to that figure of recurring revenue of $156,614. The comparable figures year by year from 18 November 2005 are set out in Mr Lytras’s most recent report. The highest was $160,241 in the year ended 30 June 2008. In the following year the revenue fell to $136,088, which I accept could be explained by the change in the economy. In the period from 18 November 2005 to 30 June 2006 the income derived by the second defendant from the transfer clients was $59,209, which converted to an annual figure, would be but $96,472.  However, that figure would not be representative, at least because many of the clients did not transfer until well after 18 November 2005.  Notably the figure for the year ended 30 June 2007 was $159,527.  Overall, I accept the opinion of Mr Lytras that the figure of $156,614 represents an appropriate estimate of the recurring revenue of these clients.  Reduced by 20 per cent, the amount becomes $125,290. 

137. The capital component is derived by applying a multiple, which can be seen to be based upon the prices for the trading within a market in Australia of books of clients. Mr Kenyon is an experienced broker in that market. According to his evidence, the average of the multiples for the many transactions in which his firm has been involved has been 3.35, and 3.3 over the 12 months to 30 June 2010. The multiple tends to increase with a smaller book of clients, such as would be represented by this group of clients, compared with a larger group involving say $400,000 worth of recurring revenue. As it happened the plaintiffs sold some of their goodwill by selling a book of clients in 2007. The sale price was $1,348,372, which was expressed within the contract of sale to be the result of applying a multiple of 3.25 to a recurring revenue of $414,883. According to the evidence, the market multiples have not varied significantly since 2005. This suggests that for a given amount of recurring revenue, the capital component to be awarded in this case would not have differed significantly according to when this case had been tried from 2005 until the present. Clearly however, the total amount of lost profits, i.e. the amount of the first component which is claimed, has increased year by year. In that way, the amount of compensation would have been different had this case been heard, say, three years ago. In these circumstances, the defendants argue that to allow both components would involve some double counting.

138. I am persuaded to allow both components. I accept that there is a considerable goodwill attaching to an existing client base or a part of that client base. The evidence of Mr Kenyon, which is substantially unchallenged, well demonstrates that there is a substantial and active market in which the price is usually quantified by reference to a multiple within a comparatively small range. By these events the plaintiffs lost a substantial part of their goodwill in late 2005/early 2006. There remains a loss to the Trust of that kind, because that goodwill has not been replaced. The Trust is without this book of clients as of today, and what must now be restored to the Trust involves, at least, the present value of that which was lost by the defendants’ conduct. In this respect, there is a difference between equitable compensation and common law damages. As Street J said in Re Dawson:^[46]

“The obligation to restore to the estate the assets of which [the fiduciary] deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not at the date of deprivation.  In this sense the obligation is a continuing one and ordinarily, if the assets are for some reason not restored in specie, it will fall for quantification at the date when recoupment is to be effected, and not before.”

Accordingly, Mr Lytras’s estimate of the value of the lost goodwill was rightly one which (at the time of his report) was a current estimate. 

139. But that would not adequately compensate the Trust, because in the meantime it has suffered losses year by year. Put another way, the plaintiffs have proved that but for the defendants’ misconduct, they would now be better off by having the saleable asset of the goodwill of these clients as well as the profits which would have been derived from them year by year. They must be also compensated for the loss of those profits. But because the capital component is to provide the equivalent of the restoration of that goodwill to the Trust at the present day, there should be no award of interest on that component.

140. Ultimately, Mr Lytras’s calculation of the first component, given in oral evidence but not in a report, was $355,640 up to 16 August 2010. This came from adding $177.59 profit per day to the calculations in his most recent report.^[47]  By my reduction for the clients who would have transferred in any event, that daily amount would become $84.55.^[48] 

141. I will apply that from 24 January 2010 until 23 February 2011, resulting in another $33,397. Accordingly, by the reduction of Mr Lytras’s calculation to allow for those clients transferring in any event, the amount under the first component would be $207,595.^[49]  I will allow interest on those lost earnings at 5 per cent simple interest per annum for five years.^[50]  That interest will be allowed in the sum of $51,898. 

142. On the second component there is an argument as to the appropriate multiple. Mr Lytras has no direct experience by which to assess that matter.  He has a judgment based upon information from Mr Kenyon and his firm.  Mr Lytras has applied a multiple of 3.75, which appears to be too high.  I do not see that the circumstances prove that this collection of clients would be valued in the market by such a comparatively high multiple.  From Mr Kenyon’s evidence, I think the better estimate would be a multiple of 3.3.

143. The defendants argued that the appropriate multiple would be less for the fact that although Mr Wintour was under some impediments in attracting the business of these clients, he was free to compete with the plaintiffs’ business and in that way the circumstances might be thought to be different from those which would often prevail in transactions in this market. Mr Kenyon agreed that in general, where there was a seller who was now competing with the purchaser of a book of clients, that circumstance “would contain a larger element of risk than would normally be experienced”.^[51]  But he said that this risk would normally be met by the purchaser of the book of clients asking for a comparatively larger “back-ended payment”, meaning an amount by which the ultimate price would be reduced if clients did not stay with the purchaser.  Mr Kenyon said that normally the purchaser would pay 60 per cent to 80 per cent of the agreed price “up front” with the balance retained against that prospect, whereas in the circumstance where the seller was free to compete, the up front payment might be of the order of 50 per cent or 60 per cent.  This suggests that the multiple itself would not be much affected, i.e. that the agreed price would not be much affected but it would be the timing of its payment which would differ.  In my view, the fact that Mr Wintour was able to compete does not affect the valuation of this goodwill.  This is because the goodwill in question involves only those clients who would have stayed with the plaintiffs had Mr Wintour been competing but not wrongfully. 

144. I will adopt a multiple of 3.3. As I have said, the recurring revenue attributable to the (relevant) transfer clients is $125,290. Applying the multiple of 3.3, this produces an amount of $413,457. I accept Mr Lytras’s opinion that this should be reduced by 2 per cent for the so-called retention provision. The result is that for the second component the amount of $405,187 should be allowed.

145. The outcome then on the plaintiffs’ claim is as follows:

146. The second defendant has been joined as an accessory according to the so-called second limb of Barnes v Addy.^[52]  It is and was Mr Wintour’s alter ego and there is no submission that its liability does not correspond with that of Mr Wintour. 

147. Accordingly upon the plaintiffs’ claim, there will be judgment for the plaintiffs against the first and second defendants in the sum of $664,680. 

148. As I have determined, Mr Wintour was entitled to the sum of $120,534 from about 24 January 2005.  He should have interest at that sum at 10 per cent which I will round to $73,325.  He is entitled to that sum against the plaintiffs, but not in the capacities in which they sue as plaintiffs.  Accordingly, there will be no set-off of the claim and counterclaim.  On the counterclaim there will be judgment for Mr Wintour against the defendants by counterclaim in the sum of $193,859.