FEDERAL COURT OF AUSTRALIA Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 10) [2023] FCA 1656 File number: VID 1157 of 2017 Judgment of: BEACH J Date of judgment: 21 December 2023 Catchwords: CORPORATIONS – assessment of damages – adoption of report of special referees – compensatory damages – exemplary damages – additional damages under s 115 of Copyright Act 1968 (Cth) – orders made Legislation: Copyright Act 1968 (Cth) s 115 Federal Court of Australia Act 1976 (Cth) ss 37P(2), 54A Cases cited: Directed Electronics OE Pty Ltd v Gridtraq Australia Pty Ltd [2023] FCAFC 149 Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 8) [2022] FCA 1404 Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 9) [2023] FCA 462 Re Hallett's Estate (1880) 13 Ch D 696 Re Oatway [1903] 2 Ch 356 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Number of paragraphs: 134 Date of hearing: 14 December 2023 Counsel for the Applicant Mr M Wise KC and Ms N Hickey Solicitor for the Applicant: K & L Gates Counsel for the Seventh Respondent: Mr C Mills appeared on his own behalf. Counsel for the other Respondents: No appearance ORDERS VID 1157 of 2017 BETWEEN: DIRECTED ELECTRONICS OE PTY LTD (ACN 130 647 737) Applicant AND: OE SOLUTIONS PTY LTD (ACN 119 188 019) First Respondent HANHWA AUS PTY LTD (ACN 614 943 092) (IN LIQUIDATION) Second Respondent HAN HWA HIGHTECH AUSTRALIA PTY LTD (ACN 153 718 435) (and others named in the Schedule) Third Respondent order made by: BEACH J DATE OF ORDER: 21 DECEMBER 2023 OTHER MATTERS: Defined terms in these orders have the same meaning as those in the orders made in this proceeding on 29 March 2023. THE COURT ORDERS THAT: 1. The Fourteenth Respondent be substituted with Daniel Peter Juratowitch, in his capacity as Trustee of the Bankrupt Estate of Johnny Meneses and the title of the proceeding be amended accordingly. 2. Pursuant to s 54A(3) of the Federal Court of Australia Act 1976 (Cth) and rule 28.67(1)(a) and (e) of the Federal Court Rules 2011 (Cth), the report of the Honourable Peter Riordan KC and Mr Greg Meredith (being the Referees appointed pursuant to previous orders) delivered on 31 October 2023 (the Referees' Report) be adopted in whole. 3. Meneses, Mills, Hanhwa Korea, Leemen Korea and Ryan Lee are jointly and severally liable to pay Directed the sum of $139,320,383 in damages. 4. Meneses, Mills, Hanhwa Korea, Leemen Korea and Ryan Lee are jointly and severally liable to pay Directed the sum of $26,347,772, being compound interest on the sum of $139,320,383 at the rate of 4% above the Cash Rate Target from time to time set by the Reserve Bank of Australia in accordance with paragraph 2.2 of the Federal Court of Australia General Practice Note – Interest on judgments (GPN-INT), compounded on yearly rests to 15 November 2023. 5. Hanhwa Korea and Leemen Korea are jointly and severally liable to pay Directed the sum of $2,000,000 in exemplary damages. 6. Ryan Lee is liable to pay Directed the sum of $1,500,000 in exemplary damages. 7. By reason of their conduct in causing Directed to purchase product at marked up prices from OE Solutions without disclosing that OE Solutions was owned by Meneses, OE Solutions and Meneses are jointly and severally liable to pay Directed the sum of $665,400. 8. Meneses, Mills, Hanhwa Korea, Leemen Korea and Ryan Lee are jointly and severally liable to pay Directed the sum of $1,000 for infringements of Directed's copyright. 9. Mills is liable to pay Directed the sum of $250,000 in additional damages for infringements of Directed's copyright, pursuant to section 115(4) of the Copyright Act 1968 (Cth). 10. Hanhwa Korea, Leemen Korea and Ryan Lee are jointly and severally liable to pay Directed the sum of $50,000 in additional damages for infringements of Directed's copyright, pursuant to section 115(4) of the Copyright Act. 11. It is declared that Directed is and has been at all material times the beneficial owner of copyright in the following documents since their date of creation: (a) DIR6200 Works: (i) Master Feature List for the DIR6200; (ii) Equalizer Graphs and Drawings for the DIR6200; (iii) User's Manual for the DIR6200; and (iv) Graphical User Interface (GUI) for the DIR6200; and (b) DIR8000 Works: (i) Master Feature List for the DIR8000; (ii) GUI for the DIR8000; and (iii) Renderings for the DIR8000. 12. Directed: (a) is entitled to and has an equitable charge over 9 Palm Grove Boulevard, Aspendale Gardens VIC 3195 (Aspendale Gardens Property), being the property more particularly described in Certificate of Title Vol 10440 Fol 979 in respect of Meneses' interest in the Aspendale Gardens Property to secure payment of the sum of $1,120,223.97; (b) subject to (c), is entitled to be subrogated to the rights of Westpac Banking Corporation (Westpac) in respect of its mortgage registered on the title to the Aspendale Gardens Property (Aspen Gardens Mortgage), with respect to Meneses' interest in the Aspendale Gardens Property in the sum of $1,120,223.97 (Aspendale Gardens subrogation right); and (c) is entitled to enforce the Aspendale Gardens subrogation right only after Westpac has been repaid in full the amount secured by the Aspen Gardens Mortgage. 13. Directed: (a) is entitled to and has an equitable charge over 15 Jarrod Drive, Hastings VIC 3915 (Hastings Property), being the property more particularly described in Certificate of Title Vol 10940 Fol 511 in respect of Meneses' interest in the Hastings Property to secure payment of the sum of $40,000; (b) subject to (c), is entitled to be subrogated to the rights of Westpac Banking Corporation (Westpac) in respect of its mortgage registered on the title to the Hastings Property, with respect to Meneses' interest in the Hastings Property in the sum of $40,000 (Hastings subrogation right); (c) is entitled to enforce the Hastings subrogation right only after Westpac has been repaid in full the amount secured by the Hastings Mortgage. 14. OE Solutions, Meneses, Mills, Hanhwa Korea, Leemen Korea and Ryan Lee are jointly and severally liable to pay Directed's costs of the proceeding from 29 March 2023 (including Directed's costs of the reference to the Referees including any of the Referees' fees paid by Directed) in a lump sum in an amount to be determined by a Registrar of the Court and in accordance with such directions as the Registrar considers appropriate. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BEACH J: 1 On 11 April 2023, I appointed the Honourable Peter Riordan KC and Mr Greg Meredith as special referees pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) principally to undertake an assessment of damages. 2 The reference followed an extensive trial which had proceeded before me on questions of liability, injunctive and declaratory relief and also on limited issues of quantum regarding secret commissions. On 24 November 2022, I published reasons for judgment on such liability questions (Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 8) [2022] FCA 1404). In these further reasons I have adopted my earlier definitions. 3 On 29 March 2023, I made declarations with respect to the liability of the respondents, granted certain injunctions and made orders for the repayment of secret commissions by Meneses to Directed in the sum of $1,319,352. I also dismissed certain claims, made costs orders and also extended time for the filing of any appeal or application for leave to appeal. Annexure A to these reasons are one set of my orders made on 29 March 2023 which dealt with some of these matters. 4 I also directed that there be an inquiry with respect to damages payable at common law, in equity or under statute to Directed by Meneses, OE Solutions, Mills and the Hanhwa Parties, and with respect to Directed's claims of beneficial ownership in specified copyright works. I also directed that the quantum of secret commissions payable by the Hanhwa Parties and interest payable thereon be determined by me on the papers. 5 As I say, on 11 April 2023 I ordered that the questions set out in an annexure to the reference order be referred to the referees to conduct an inquiry and to provide a report with reasons answering the questions. The formal reference order is set out in annexure B to these reasons. 6 On 12 May 2023, I published reasons with respect to the secret commissions and relevantly found that Ryan Lee was liable for the sum of $976,697.00, Hanhwa Korea was liable for the sum of $814,802.00 and Hanhwa Aus was liable for the sum of $161,866.00 (Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 9) [2023] FCA 462). I made consequential orders on 19 May 2023. 7 On 6 September 2023, the Full Court dismissed an appeal that had been pursued by Directed against my other final orders concerning the dismissal of the claims against the Gridtraq Parties (Directed Electronics OE Pty Ltd v Gridtraq Australia Pty Ltd [2023] FCAFC 149). Nothing further needs to be said about that aspect of the case for present purposes. 8 On 31 October 2023, the referees delivered their report including extensive spreadsheets. Annexure C to these reasons sets out their answers to the referred questions. I have adopted their report and findings in the following fashion and made the necessary consequential orders. 9 Now I would not normally publish separate written reasons dealing with such an adoption and the making of consequential orders. But given that I have made a general damages award of $139,320,383 against the relevant respondents, an exemplary damages award of $2,000,000 against Hanhwa Korea and Leemen Korea and an exemplary damages award of $1,500,000 against Ryan Lee, a little more needs to be said by way of explanation. But I have eschewed any elaborate exegesis on any legal topic save that I have had to sprinkle some equity over the tracing and subrogation questions. Question 1 10 The first question had 4 parts predicated on the following findings made by me: Further, each of these units (except the LM18H for Hino) has led to the cessation of supply by Directed of the AV units and their accessories that it was then supplying to the OEMs concerned. The LM18I continues to be supplied by Hanhwa Korea and Leemen Korea (in respect of the accessories) to Hanhwa Aus, and Hanhwa Aus continues to supply it to IAL. The LM19M, LM19F and LM19U are all in active supply as well. (J[2683]). 11 Let me address each part in turn. Question 1 Part 1 [I]f, but for the wrongful conduct found, the OEMs and any of them had decided not to replace the DAVE with any AV Units sourced from Directed but instead to secure supply of a replacement AV Unit from a third party or parties: (a) what is the length of time it would have taken for any such third party to develop a new AV unit with navigation software and telematics capability tailored to the OEMs requirements and Australian conditions (Development Period)? 12 The referees summarised my findings of the months required for development of the various stages in the following table: Product Design Mechanical Hardware Software Total Dev Period DIR6200 DAVE 13 5 5 5 28 13 or 14 DIR8000 20 HAU8000 4.5 4 8.5 LM181 IAL 4 3.5 7.5 LM19F6.2 Fuso 3 2.5 3 3.5 12 LM19F7 3.5 2.5 3 3.5 12.5 LM19M6.2 Mercedes 3 2.5 3 3.5 12 LM19M7 3.5 2.5 3 3.5 12.5 LM19UD6.1 UD Trucks 3.5 2 3.5 3.5 12.5 LM19UD8 20 3 3.5 3 29.5 20 or 21 13 Directed conceded that the period required to develop the units is not the aggregation of the times for each stage because the stages of development can overlap. However, as I observed, these abbreviated development timeframes were the product of the springboard effect and indicated that the development undertaken in respect of another product was used in order to undertake the design and development of the subject unit. 14 The referees accepted that an allowance of 18 months for a third party to develop a new AV Unit with navigation software and telematics capability tailored to the OEMs requirements and Australian conditions was appropriate. Question 1 Part 2 & 3 [I]f, but for the wrongful conduct found, the OEMs and any of them had decided not to replace the DAVE with any AV Units sourced from Directed but instead to secure supply of a replacement AV Unit from a third party or parties. (b) would Directed have continued to supply the DAVE to the OEMs during the Development Period until it was replaced (Interim Period) and, if so: (i) at what price; (ii) for how long? (c) would the OEMs have continued purchasing Telematics Units and/or Services from Directed for use in conjunction with the DAVE during the Interim Period and, if so: (i) at what price; (ii) for how long? 15 In the referees' opinion, Directed would have continued to sell the DAVE and the Telematics Units and/or Services for use in conjunction with the DAVE to the OEMs in the Interim Period. In particular, in 2017, Directed was the market leader in Australia for the supply of AV Units and accessories to OEMs. In 2017, Isuzu was the market leader and the other OEMs followed what it was purchasing. And Hino continued to purchase AV Units supplied from Directed throughout the period. 16 The OEMs would have continued to purchase AV Units and accessories from Directed during the Interim Period at the same prices for which each had been purchasing from Directed. There was no evidence or contention that there was any reason why the OEMs would have ceased purchasing from Directed but for the intervention of the Hanhwa Parties. 17 The referees have also had regard to the following matters relating to each of the relevant OEMs. 18 With respect to IAL, STI Technologies Pty Ltd, Directed's related company, designed and manufactures Directed's Telematics Unit in Australia. From 2014 to 2017, Directed was the incumbent supplier to IAL and fleet buyers of Isuzu trucks of the DAVE and Directed Telematics Unit. From August 2014 to March 2017, IAL's instruction to Directed was that the SuperDAVE was required to have Telematics connectivity and functionality. Isuzu confirmed that it required Directed's Telematics for the SuperDAVE, by emails exchanged between Isuzu and Directed on 15 and 16 June 2016, and by email of 16 November 2016, stating that Isuzu wanted a standard option fitment of the Directed Telematics Unit with the SuperDAVE. Further, Isuzu indicated to Directed that it intended for Telematics to be standard fit in each of the AV Units to be supplied by Directed to Isuzu. 19 Both the SuperDAVE and HAU8000 were specified to have Telematics capability. The Master Feature List ('MFL') recorded the SuperDAVE as having Telematics capability. 20 With respect to Fuso, between 2013 and 2017, Directed had been the incumbent supplier to Fuso of AV Units, accessories and Telematics Units. There were not that many options available to Fuso for a suitable alternative supplier of AV Units for supply into the Australian OEM market. The versions of the DAVE which Directed supplied to Fuso being the DIR6150F and DIR6150FB had a five year life of supply from 2013 to 2018. 21 With respect to Mercedes, between 2013 and 2017, Directed had been the incumbent supplier to Mercedes of AV Units, accessories and Telematics Units. The Telematics Unit was a standard fit in Mercedes vehicles with a Directed AV Unit and Directed also supplied Telematics Services to Mercedes fleet customers. The version of the DAVE which Directed supplied to Mercedes being the DIR6160 had a six year life of supply from 2013 to 2019. 22 With respect to UD Trucks, between 2012 and 2019, the Telematics Unit was a standard fit in their vehicles with a Directed AV Unit and Directed supplied Telematics Services to UD Trucks fleet customers. After ceasing purchasing Directed AV Units, UD Trucks continued to buy Telematics Units and Services from Directed. Question 1 Part 4 [I]f, but for the wrongful conduct found, the OEMs and any of them had decided not to replace the DAVE with any AV Units sourced from Directed but instead to secure supply of a replacement AV Unit from a third party or parties. (d) if the answers to (b) and/or (c) are in the affirmative, what is the probable date on which the DAVE and/or Telematics Units and/or Services would have been replaced such that the supply of the DAVE and/or Telematics Units and/or Services to Isuzu and other OEMs would have ceased? 23 On the basis of the assumptions identified by Directed, a cessation date of 1 September 2018 was reasonable. Question 2 24 The second question was expressed in the following form: Further or in the alternative, but for the wrongful conduct found, was there any and, if so, what was the % prospect that, the OEMs and any of them would have decided to replace the DAVE with any AV Units sourced from Directed being either: (a) the SuperDAVE (or any derivative of same); or (b) another new AV Unit (in conjunction with a third party supplier)? (New Directed Agreement). 25 It is appropriate to break up this question. Question 2 Part (a) % prospect that the OEMs would have decided to replace the DAVE with the SuperDAVE (or derivative of same). Evidence with respect to IAL 26 In summary, the relevant evidence with respect to IAL includes the following. 27 Directed was the incumbent supplier to IAL and fleet buyers of Isuzu trucks of the DAVE and Directed Telematics Unit. 28 Isuzu did not have many options to purchase AV Units from an alternative supplier. Directed had most of the Australian and New Zealand market for the supply of AV Units to the OEMs prior to Hanhwa entering the market in 2017. 29 From 2009 to 2017, Directed was the key technology supplier and developer of electronics and systems to Isuzu, and at least to Mr Siolis' knowledge, the sole supplier of AV Units. 30 By 2017, Isuzu had been closely involved in the design and development of the SuperDAVE for over two and a half years. In particular, Isuzu sought and had been consulted about the development of what became the SuperDAVE. Isuzu had advised and approved of the concept and design of the SuperDAVE and requested modifications to samples provided. Isuzu agreed to the parties working towards a mid-2017 launch. Isuzu emailed Directed on 15 November 2016, seeking a full proposal from Directed that addressed a list of specific requirements for the supply of the SuperDAVE which included standard fitment of the Directed Telematics Units, with up to six months of included subscription and the cost of ongoing subscription to Telematics after the first six months, with an aim for the subscriptions to subsidise the initial hardware cost of the Directed Telematics Units. By December 2016, virtually all development and approval processes had been completed except for the negotiation of terms of supply including pricing. And Directed could provide the SuperDAVE to IAL in accordance with IAL's desired timeframe. 31 Isuzu demonstrated an intention to purchase the SuperDAVE including by doing the following. It purchased the HAU8000, which was the SuperDAVE with a different name and only minor modifications, and the LM18, which was the HAU8000 with cosmetic changes only. And it continued to make purchases of a SuperDAVE equivalent after becoming aware of this proceeding. 32 Directed would have been prepared to sell the SuperDAVE to Isuzu at $1,292 per unit, being the price Isuzu purchased the HAU8000 from Hanhwa in 2017. 33 In the referees' opinion, absent the wrongful conduct of the relevant respondents, it was "virtually certain" that IAL would have contracted with Directed to replace the DAVE with the SuperDAVE. 34 They considered the prospect that the Hanhwa Parties would have entered into competition with Directed by opening a business in Australia, without the springboard of the despoiling conduct, to be negligible. 35 The despoiling conduct was so integral to the Hanhwa business plan that the referees considered that the prospects of the Hanhwa Parties proceeding to establish a competitive business on a fair and proper basis to be speculative at best. 36 Further, whether or not Hanhwa did establish a competitive business without the despoiling conduct, they found that but for the wrongful conduct the Hanhwa Parties would not have been in a position to offer IAL the HAU8000 by the date it was required. 37 Further, IAL would not have been diverted from contracting to purchase the SuperDAVE from Directed for the following reasons. The SuperDAVE was a suitable product because it was in substance the same as Hanhwa's HAU8000, which was acquired by IAL. Further, IAL had been closely involved in the development of the SuperDAVE, which had been designed and manufactured in accordance with the bespoke requirements of IAL. On the evidence, it is to be inferred that the only reason that IAL selected the HAU8000 was its price. Further, if the Hanhwa Parties had terminated the Hanhwa Korea Agreement in about September 2016, they would not have been in a position to offer a competing product until sometime in mid-2018. In particular, Hanhwa had no experience in creating the associated documentation such as the PPAP. And further, the uncontested evidence is that Directed would have been prepared to sell the SuperDAVE to Isuzu at $1,292 per unit, being the same price that Isuzu purchased the HAU8000 from Hanhwa in 2017. Evidence with respect to Mercedes, Fuso and UD Trucks 38 The relevant evidence includes the following. 39 In 2017, Directed was the market leader in Australia for the supply of the relevant products and had been supplying UD Trucks since 2011 and Fuso and Mercedes since 2013. 40 The other OEMs were likely to follow the lead of IAL/Isuzu as the market leader. 41 Directed had employees, other than Meneses, who were experienced in design, testing, documentation and promotion of AV Units. 42 The SuperDAVE variant for the OEMs could have been supplied within three months of order and would have had the features required. 43 The Hanhwa Parties, assuming they terminated the Hanhwa Korea Agreement from September 2016, would have had the following disadvantages. They would have required 18 months to complete the IAL Unit and a further three months to complete a Unit for the other OEMs. Further, they had no existing relationships with the OEMs. The extent to which Meneses could have assisted the Hanhwa Parties would have been restricted by his six month restraint clause. Further, they would almost certainly have lost the opportunity to supply IAL, and therefore could not have promoted themselves to the other OEMs as being the incumbent supplier to IAL. 44 In the referees' opinion, absent the wrongful conduct of the relevant respondents, there was a strong probability that Mercedes, Fuso and UD Trucks would have each contracted with Directed to replace the DAVE with the SuperDAVE. In particular, they have referred to the following. They do not consider that the Hanhwa Parties would have established a competitive business in Australia absent the despoiling conduct. Each of Mercedes, Fuso and UD Trucks purchased new AV Units similar to, and based on, the SuperDAVE. Directed was the market leader in Australia for the supply of the relevant products and there was no evidence of any competitive available product in Australia other than from Hanhwa Aus. Prior to the diversion of the Directed business to Hanhwa Aus, Directed had been the long term incumbent supplier to UD Trucks, Fuso and Mercedes; and there was no evidence there was any reluctance to purchase from Directed. 45 Accordingly, the referees accept that there was a 95% likelihood that Mercedes, Fuso and UD Trucks would have purchased the SuperDAVE in the assumed circumstances. Question 2 Part (b) … % prospect that the OEMs would have decided to replace the DAVE with another new AV Unit (in conjunction with a third party supplier)? 46 The evidence relevant to this issue includes the following. 47 Directed succeeded in developing and winning the contract to supply Hino from the Hanhwa Parties in the following circumstances. Directed had been supplying Hino from at least 2013. After a request from Hino for a new unit with a bigger screen, between November 2017 and November 2018, Directed developed the Directed New AV Unit through alternative contract manufacturers. It competed on a head to head basis with Hanhwa Aus. It entered into the New Directed-Hino Supply Agreement with Hino against the bid of the Hanhwa Parties. And it commenced supply to Hino in late 2018. 48 Directed had a significant head start over the Hanhwa Parties for the following reasons. It was the incumbent supplier to the OEMs. Unlike the Hanhwa Parties, it had the capacity to manufacture Telematics and supply associated Services. It did not have to start from scratch because it could avail itself of SuperDAVE development to about September 2016 together with business records, PPAPs, specifications, MFLs, GUIs, pricing information and cost breakdown comparisons. It had done extensive development work with NavNGo on the new navigation system for the SuperDAVE. And Directed had employees, other than Meneses, who were experienced in design, testing, documentation and promotion of AV Units and the development of the SuperDAVE. Further, the extent to which Meneses could have assisted the Hanhwa Parties would have been restricted by his six month restraint clause. 49 Now Directed's submissions before the referees assumed for the purposes of answering Question 2(b) that absent the despoiling conduct, Hanhwa would have established a competing business to Directed in Australia and each of the OEMs would have decided to replace the DAVE with another new AV unit, not the SuperDAVE or a derivative. 50 The referees considered that the prospects of the first assumption occurring were negligible. Further, there was no evidence as to why the OEMs would have decided not to proceed with the SuperDAVE or a derivative. 51 However, on these assumptions, the referees accepted that absent wrongdoing by the Hanhwa Parties, it is very likely that Directed would have retained the business of the OEMs with the development of a new AV unit. The referees considered 20% to be a realistic reflection of the risk that the OEMs would have contracted for a new AV unit with the Hanhwa Parties or an unidentified third party supplier. 52 Accordingly, the referees found that there was an 80% likelihood that the OEMs would have purchased an alternative AV unit from Directed with respect to another AV unit in conjunction with a third party supplier. Question 3 53 The third question was posed in 4 parts. The first two parts were in the following form: If the answer to Question 2 is in the affirmative (i.e., there was such a prospect): (a) what would have been the commencement date of the New Directed Agreement; (b) what would have been the term of the New Directed Agreement… … IAL New Directed Agreement 54 With respect to the term of the IAL New Directed Agreement, the relevant evidence was as follows. 55 Directed had supplied the DAVE to IAL for six years. 56 Isuzu had been closely involved in the design and development of the SuperDAVE for over two and a half years and a launch in mid-2017 had been agreed. 57 By 2017 IAL had substantially approved of the SuperDAVE, and an agreement on price would have been reached. 58 IAL entered into a three year contract with the Hanhwa Parties to supply the HAU8000 and the LM18I; and Isuzu has purchased the LM18I for nearly five years. 59 Isuzu NZ has purchased LM18I from Hanhwa NZ for five years and is continuing to do so. 60 Fuso has purchased LM19F from Hanhwa Aus for five years, and but for my decision would have continued to do so. 61 UD Trucks has purchased LM19UD from Hanhwa Australia for five years, and but for my decision would have continued to do so. 62 Hino has purchased the Directed New AV Unit for five years. 63 The evidence of Mr Siolis was that Directed was the exclusive supplier of AV Units and accessories to each of Isuzu and Isuzu NZ from 2012 to 2017 and the OEMs do not have two suppliers of AV Units during the term of a supply agreement. 64 With respect to the commencement date of the IAL New Directed Agreement, the relevant evidence was as follows. Mr Siolis estimates that it would have taken six to nine months for Directed to obtain an alternative supplier for the SuperDAVE. Directed's advantages included that it could directly access its own confidential information, which Hanhwa needed to develop from scratch. SuperDAVE was to be the first Android compatible Unit in Australia and Directed had extensive experience in the development of navigation equipment with NavNGo and in particular with IAL's specific requirements. Directed was able to achieve a 12 month development period with a third party supplier for the Hino AV Unit. Further, the referees found that it would have taken the Hanhwa Parties 18 months to develop a competing unit. 65 The evidence supports the conclusion that, absent the wrongful conduct, Directed would have entered into a contract to supply the SuperDAVE to IAL in approximately August 2017 and would have supplied IAL for five years. 66 In particular, the evidence of the advanced stage of consultation and negotiation between IAL and Directed through 2016 and 2017 strongly supports the probability of a start date by August 2017. 67 The inference is that IAL would have acquired the SuperDAVE from Directed for the same periods that IAL acquired the SuperDAVE equivalent from Hanhwa. In fact, it is likely that, without this litigation, the risk of the period of IAL's purchases from Hanhwa being less than five years is outweighed by the prospect that the period may well have continued for in excess of five years. Fuso New Directed Agreement 68 With respect to the commencement date and term of the Fuso New Directed Agreement, the relevant evidence is as follows. 69 In 2017, Directed was the market leader in Australia for the supply of AV Units and accessories to the OEMs and the incumbent supplier of AV Units and accessories to Fuso, and had been since 2013. In late 2018, Fuso entered into a four year contract with Hanhwa Aus for the supply of LM19F, a version of the SuperDAVE. Fuso had purchased the LM19F from Hanhwa Aus for five years and but for my decision would have continued to do so. Fuso has been purchasing the LM19F from Hanhwa NZ for four years and is continuing to do so. Directed exclusively supplied Fuso with the DIR6150F and the DIR6150FB for five years from 2013 to 2018. And there were not many options available to Fuso for a suitable alternative supplier of AV Units for supply into the Australian OEM market. 70 The evidence supports the conclusion that absent the wrongful conduct, Directed and Fuso would have entered into a contract for the supply of the SuperDAVE to IAL in late December 2018 and supplied Fuso for five years. 71 With respect to timing, in the absence of evidence from Fuso or otherwise that the timing of its contract with Hanhwa Aus was only due to the SuperDAVE equivalent not being available earlier, it would be speculative to conclude that Fuso would have accepted the supply of the SuperDAVE equivalent earlier than when it in fact did. This conclusion is supported by the fact that Directed commenced supply to Hino, the one OEM it retained, in November 2018. 72 With respect to the period of supply, the evidence establishes that Fuso bought the SuperDAVE equivalent AV unit from Hanhwa from late 2018 for five years. There is no evidence that, absent the wrongful conduct, Fuso would have had any reason or real alternative but to purchase such a product from Directed, which previously had been its supplier. The Mercedes New Directed Agreement 73 With respect to the commencement date and term of the Mercedes New Directed Agreement, the relevant evidence was as follows. 74 In late 2018, Fuso entered into a four year contract with Hanhwa Aus for the supply of LM19F, a version of the SuperDAVE. Further, Hanhwa Aus had success in winning the Mercedes/Fuso (LM19M) contract. Mercedes and Fuso were both divisions of Daimler Group and Mercedes would have followed the lead of Fuso. Within three months of receipt of a commitment to order from Mercedes, Directed could have developed a version of the SuperDAVE and a version of NavNGo for supply to Mercedes. Fuso had purchased LM19F from Hanhwa Aus for five years, and but for my decision would have continued to do so. And Directed had been the exclusive supplier of a version of DAVE to Mercedes for six years, from 2013 to 2019. 75 Absent the wrongful conduct, Directed would have commenced supply of the SuperDAVE to Mercedes in approximately December 2018 and supplied Mercedes for five years, for the same reasons as with Fuso. The UD Trucks New Directed Agreement 76 The relevant evidence included the following. 77 In 2017, Directed was the market leader for the supply of AV Units and accessories to the OEMs. Directed had supplied UD Trucks with AV Units since 2011; and had supplied UD Trucks with a version of the DAVE from 2013 to early 2019. By late 2017, Directed could have promoted to UD Trucks that it had a contract in place with Isuzu, and other OEMs following Isuzu's lead. Directed could have developed a version of the SuperDAVE and a version of NavNGo for UD Trucks in three months. And UD Trucks has been purchasing the LM19U from Hanhwa Aus from early 2019 and is continuing to do so to date. 78 The evidence supports the conclusion that, absent the wrongful conduct, Directed and UD Trucks would have commenced supply of the SuperDAVE to UD Trucks from approximately December 2018 and would have supplied UD Trucks for five years, for similar reasons as with Fuso. 79 The evidence is that UD Trucks bought the SuperDAVE equivalent AV Unit from Hanhwa from early 2019 for over four years and have continued to do so. There is no evidence that, absent the wrongful conduct, UD Trucks would have any reason or real alternative but to purchase such a product from Directed, which had been its supplier until the intervention of Hanhwa. 80 The remaining parts of question 3 are in the following form: If the answer to Question 2 is in the affirmative (i.e., there was such a prospect): (a) …; (b) …; (c) would the OEMs have continued purchasing the DAVE from Directed pending the New Directed Agreement; (d) would the OEMs have continued purchasing Telematics Units and/or Services from Directed for use in conjunction with the SuperDAVE during the term of the [New Directed Agreement]? 81 The referees found that the OEMs would have continued purchasing the DAVE from Directed pending the New Directed Agreements, on the basis of the following evidence. Directed supplied Isuzu for six years. Directed supplied to Isuzu DAVE Units totalling 9,645 in calendar year 2016 and 10,444 in 2017. After Isuzu advised Directed that Hanhwa had won its business on 28 March 2018, it continued to place orders for the DAVE Units and accessories until 17 May 2018. Fuso, Mercedes and UD Trucks continued to buy DAVE Units until they decided to acquire supply of the SuperDAVE equivalents from Hanhwa Aus. 82 The referees further considered that the OEMs would have similarly continued to purchase the Telematics Units and/or Services because they were standard for customers such as IAL. Question 4 83 Let me turn to question 4 which was in the following form: Had Meneses and OE Solutions not engaged in the OE Solutions conduct as found at J[3998]: (a) would Directed have purchased the products it purchased from OE Solutions directly from Kenmarco; (b) if so, how much money would Directed have saved by purchasing those products direct from Kenmarco? 84 The referees considered that the answer to part (a) was "Yes" on the basis of the following findings made by me. 85 In the period between 2009 and 2017, Meneses, through his company, OE Solutions, on-sold electronic harness products to Directed after marking up the product prices from the original supplier, Kenmarco. I found that the sales were made at excessive prices through Meneses' dishonesty. Kenmarco had supplied Directed with other products directly. The evidence of Mr Siolis was that Directed could have obtained supply of harnesses from Kenmarco, and if he had been aware that OE Solutions was owned by Meneses, he would have immediately taken action to stop supply from OE Solutions and would have purchased all the harnesses directly from Kenmarco. 86 On the basis of my finding that the total mark-up that OE Solutions charged to Directed was $665,400, Mr Siolis' evidence about what he would have done if he had been aware that OE Solutions was a company owned by Meneses and in the absence of any evidence or submission to the effect that Directed could not have purchased the products at the same price as OE Solutions, the referees were satisfied that Directed would have saved the amount marked up by OE Solutions being $665,400. Question 5 87 Question 5 was in the following form: The amount of damages at common law, in equity or under statute to which Directed is entitled … 88 The referees made the following findings. 89 But for the despoiling conduct, the Hanhwa Parties would not have entered into competition with Directed by opening a business in Australia. 90 Directed would have supplied IAL with the SuperDAVE from August 2017 for a period of five years. 91 There is a 95% likelihood that Directed would have supplied the SuperDAVE (or a derivative) for a period of five years to Mercedes and Fuso from December 2018 and to UD Trucks from early 2019. 92 The OEM's would have continued purchasing the DAVE from Directed until Directed commenced supplying the SuperDAVE. 93 The OEMs would have continued purchasing Telematic Units and/or Services from Directed for use in conjunction with the SuperDAVE. 94 The uncontested evidence is that Directed would have been prepared to sell the SuperDAVE to Isuzu at $1,292 per unit, being the same price that Isuzu purchased the HAU8000 from Hanhwa in 2017. 95 Evidence for the purposes of assessing Directed's loss of profits included the following spreadsheets verified by Mr Floudas: (a) KF-3 - NEW ISUZU (SUPERDAVE) (b) KF-4 - FUSO NEW (SUPERDAVE) (c) KF-5 - MERCEDES NEW (SUPERDAVE) (d) KF-6 - UD TRUCKS (SUPERDAVE) (e) KF-1 - ISUZU CY2016 and CY2017 (DAVE) (f) KF-1 - FUSO CY2016 and CY2017 (DAVE) (g) KF-1 - MERCEDES CY2016 and CY2017 (DAVE) (h) KF-1 - UD TRUCKS CY2016 and CY2017 (DAVE) 96 The referees reviewed all of the spreadsheets to confirm calculation logic and arithmetical accuracy. In particular, they identified and rectified various errors. Further, they also checked and validated all inputs in the spreadsheets. 97 They have calculated the net damages as $139,320,383, as set out in the following table: 98 The detailed calculations are set out in the tables in the Excel document "Directed Electronics Damages and Interest". 99 In summary, the calculations of the lost profits, consequent on the lost sales of the Super DAVE or equivalents and Accessories to each of IAL, Fuso, Mercedes and UD Trucks, are premised on the following. Directed would have sold to the OEMs the same number of the SuperDAVE or equivalent AV Units and at the same price as the Hanhwa Parties sold to the OEMs. The cost of goods sold for the SuperDAVE or equivalent AV Units would have been the same as the average landed cost of the Directed New AV Unit supplied to Directed by the New Suppliers in the period 2018 to date. Directed would have sold the same quantity and type of Accessories to the OEMs as it did respectively in 2017; and the cost of goods sold and other expenses would have been same as that actually incurred by Directed in 2017. 100 The referees verified all components in the Excel document 'Directed Electronics Damages and Interest' by reference to the uncontested evidence in the affidavits of Mr Floudas and Mr Siolis. 101 After assessment of the annual lost profit, they completed the assessment as follows. They multiplied the per annum damages by 5, to calculate "Total Damages" estimated for 5 years. Further, a 5% risk adjustment to "Total Damages" of Fuso New, Mercedes New and UDs Trucks was applied to arrive at the "Risk Adjusted Damages". No risk adjustment was made for New Isuzu. The "Risk Adjusted Damages" for the three products, and "Total Damages" for New Isuzu, were divided by 12, to calculate the "Monthly Damages" claimed for SuperDAVE products. 102 The annual profits of DAVE products were divided by 12, to calculate "Monthly Profits" of DAVE products. Deductions were made to allow for the fact that Directed actually made sales of DAVE products to Isuzu until May 2018 (9 months after sales of the SuperDAVE or equivalents to Isuzu would have commenced), to Mercedes until February 2018 (3 months after sales of the SuperDAVE or equivalents to Mercedes would have commenced) and to UD Trucks (4 months after sales of the SuperDAVE or equivalents to UD Trucks would have commenced). 103 With respect to the respective liability of Hanhwa Korea, Leeman Korea, Ryan Lee, Meneses and Mills, they considered that each were liable for the full amount of the damages. 104 In the circumstances, they found that Hanhwa Korea, Leeman Korea, Ryan Lee, Meneses and Mills were each liable to Directed for damages in the sum of $139,320,383. 105 It was accepted by Directed that the damages quantified subsumed the claims for damages for infringements of copyright, such that Directed would only be entitled to an award of nominal damages for such infringements. Accordingly, the referees assessed nominal damages of $1,000 against each of Hanhwa Korea, Leeman Korea, Ryan Lee, Meneses and Mills for the infringements of copyright as found by me. 106 With respect to the claim for additional damages, pursuant to section 115(4) of the Copyright Act 1968 (Cth), it was accepted by Directed that it was not entitled to recover additional damages on top of its entitlement to exemplary damages from Hanhwa Korea, Leeman Korea, Ryan Lee, except for additional damages arising out of the infringement of the Directed Specification. Question 6 107 Question 6 was posed in the following form: Whether any property still in the hands of Meneses, OE Solutions, Mills and the Hanhwa Parties which is or is comprised of the traceable proceeds of such benefits (in whole or in part) derived from their liability, shall be subject to a constructive trust in favour of Directed or, alternatively, is impressed with a lien or charge to secure payment or compensation due to Directed? 108 Now any benefits obtained by a fiduciary as a result of a breach of his fiduciary duties are held by it as a constructive trustee. 109 Subrogation is an equity which arises from the conduct of parties in defined circumstances which make it unconscionable for the defendant to deny the priority interest claimed by the plaintiff. A recognised category of subrogation arises when a lender makes an unsecured loan which pays a secured creditor. In such circumstances there is a rebuttable presumption that the security is to be kept alive for the lender's benefit and the lender thereby subrogated to the rights of the secured creditor. 110 The right of subrogation has also been applied in circumstances where a fiduciary has misapplied funds in reduction of a mortgage. 111 In circumstances such as the present where the mortgage has not been fully repaid, the third party with rights of subrogation cannot exercise or interfere with the original mortgagee's security until that mortgage has been entirely repaid. 112 With respect to tracing principles relating to accounts which have the trustee's funds mixed with the trust money, the following may be noted. The rule in Re Hallett's Estate (1880) 13 Ch D 696 treats the defaulting fiduciary as having withdrawn and dissipated its own money first and allows the beneficiary to trace into the money remaining in the fund. So, there is no plain vanilla application of the rule in Clayton's Case. Further, the rule in Re Oatway [1903] 2 Ch 356 applies where the defaulting fiduciary has purchased an asset from money in the mixed fund and has dissipated the balance. The rule treats the asset as having been purchased with trust money. 113 Further, it seems well accepted that tracing cannot usually occur through a mixed account for any larger sum than the lowest balance between the time the beneficiary's money is deposited in or credited to the account and the time equity is called upon. 114 Further, in appropriate cases backward tracing may be legitimate, which is the process of tracing trust funds to an asset which was acquired prior to the trust funds being misapplied by the repayment of the loan funds used to purchase the asset. 115 In circumstances where the claimant can trace its money into the acquisition or improvement of an asset, the court may treat the asset as charged with the amount by which the respondent's interest has been enhanced by the use of the claimant's money. If the asset is jointly owned the court may limit the charge to the respondent's interest in the relevant asset. 116 The referees found that the amount of $1,120,223.97, being the total of received secret commissions of $1,150,330.97 paid by Meneses into one of his accounts, less the payments that preceded the registration of the mortgage, less the credit balance, was applied by Meneses in reduction of his mortgage in breach of fiduciary duty. 117 In the circumstances, Directed is entitled to a charge over and be subrogated to the Aspendale Gardens mortgage with respect to Meneses' interest in the Aspendale Gardens property in the sum of $1,120,223.97. 118 Further, Meneses' Hastings mortgage was reduced by the following sums traced from the OE Solutions account: $25,000 paid from the OE Solutions account on 6 July 2016; and $15,000 being 15 instalments of $1,000 paid out between 13 July 2016 and 27 January 2017 being the transfers made after receipt of the $10,000 and $5,000 on 13 July and 16 September 2016 respectively. 119 Directed can trace the money held on constructive trust paid from the OE Solutions account to other accounts. In the circumstances, Directed is entitled to a charge over and to be subrogated to the Hastings mortgage with respect to Meneses' interest in the Hasting property in the sum of $40,000. Question 7 120 Question 7 is in the following form: The amount of any exemplary damages payable to Directed by: (a) The Hanhwa Parties for inducing Meneses and Mills to breach the terms of their employment agreements with Directed ([1937]-[4001]); (b) Ryan Lee inducing a breach of the Hanhwa Korea Agreement ([1938]). 121 Now the Court's jurisdiction to award exemplary damages can arise when a defendant commits the tort of inducing a breach of contract, and particularly where it has acted with a conscious and contumelious disregard of another's rights. Such an award is available to punish the wrongdoer and to deter others from similar behaviour. 122 Exemplary damages will not be awarded if such an award will not serve a proper purpose in terms of punishment or if the defendant has already received a substantial punishment. 123 Further, there is no necessity for any proportionality between the assessment of exemplary damages on the one hand, and the assessment of compensatory damages on the other hand. Each such award serves a separate purpose. One may contrast this with the scenario where aggravated damages are sought over and above general damages. In that scenario, the unity of purpose is compensatory; but I note that in the present case aggravated damages were not sought. 124 Now the conduct of Hanhwa Korea, Leemen Korea and Ryan Lee in inducing Meneses and Mills to breach the terms of their employment agreements with Directed was conduct showing a conscious and contumelious disregard for Directed's rights. Their involvement in the despoiling conduct is such that it is appropriate to award exemplary damages to punish them and to deter them and others from committing like conduct in the future. 125 In assessing exemplary damages, it is necessary to have particular regard to the careful and planned inducement of Meneses and Mills to engage in what can only be described as egregious conduct towards their employer. Such conduct as described in my trial reasons has been further aggravated by the conduct of the Hanhwa Parties continuing to manufacture and sell, in Australia and New Zealand, AV Units which are substantially the same as the LM18I, LM19F and LM19U. 126 Having regard to the nature of the despoiling conduct and the need for an award to sting, in the circumstances of this case in my view an appropriate award of exemplary damages against Hanhwa Korea and Leemen Korea is $2,000,000. Such an award may seem large, but it is designed to significantly hurt. Moreover, I would reject the past practices of some judges who seem to have pussy-footed around and been parsimonious in their approach to such awards. 127 Now with respect to the finding that Ryan Lee induced Hanhwa Korea to breach the Hanhwa Korea Agreement, I found the following. 128 The Hanhwa Korea Agreement was an implied agreement which imposed on Hanhwa Korea obligations including to act in good faith, to not misuse Directed's confidential information and more specifically not to use any drawings, designs, specifications, MFLs, GUIs, manuals, tooling, prototypes, samples etc without Directed's permission which were paid for or supplied by Directed or which contained Directed's confidential information or embodied its intellectual property rights, and to give reasonable notice before termination (such notice being six months in the circumstances of this case). 129 In breach of the Hanhwa Korea Agreement, Hanhwa Korea failed to act in good faith towards Directed concerning its dealings with Meneses and Mills, in relation to the payment to Meneses/OE Solutions of secret commissions, encouraging and inducing Meneses and Mills to breach their employment agreements and statutory and fiduciary duties, the misuse of Directed's confidential information and the diversion of opportunities. 130 Ryan Lee knew there was an overarching agreement and of the relevant terms. 131 In my liability orders, I declared that Ryan Lee induced Hanhwa Korea and Leemen Korea to breach the Hanhwa Korea Agreement by participating in the Secret Commissions Conduct, the SuperDAVE Conduct, the D-Max Conduct, the Hino Conduct, the ICL Conduct, the misuse of Directed's confidential information, the inducement of Meneses and Mills to breach their employment agreements and statutory and fiduciary duties, the Polstar Software Conduct and the conduct in supplying the Hanhwa New AV Unit. 132 In the circumstances, the wrongdoing associated with the breach of the Hanhwa Korea Agreement induced by Ryan Lee was in substance to the same effect as the despoiling conduct associated with the breaches by Meneses and Mills of the terms of their employment agreements induced by the Hanhwa Parties. Accordingly, Ryan Lee should pay a total sum of $1,500,000 for exemplary damages. Conclusion 133 I have made the necessary orders consequential upon my adoption of the special referees' findings. 134 Finally, I should record my considerable appreciation for the skill and efficiency with which the special referees carried out the task set for them. I certify that the preceding one hundred and thirty-four (134) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach. Associate: Dated: 21 December 2023 Annexure A Annexure B Annexure C: Answers to Referred Questions SCHEDULE OF PARTIES VID 1157 of 2017 Respondents Fourth Respondent: LEEMEN AUS PTY LTD (ACN 621 821 190) Fifth Respondent: HANHWA HIGHTECH CO., LTD Sixth Respondent: JOHNNY MENESES Seventh Respondent: CRAIG MILLS Eighth Respondent: KICHANG (RYAN) LEE Ninth Respondent: NATHAN MENESES Tenth Respondent: GRIDTRAQ AUSTRALIA PTY LTD (ACN 154 515 394) Eleventh Respondent: WEBHOUSE SOFTWARE SOLUTIONS PTY LTD (ACN 152 567 416) Twelfth Respondent: LEEMEN CO. LTD Thirteenth Respondent: QUANTAM TELEMATICS PTY LTD (ACN 159 485 051) Fourteenth Respondent: MATHEW TERENCE GOLLANT, IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF JOHNNY MENESES