New South Wales Court of Appeal CITATION: Milltec Australia Pty Ltd v Burnes & Anor [2006] NSWCA 13 HEARING DATE(S): 23 September 2005 JUDGMENT DATE: 13 February 2006 JUDGMENT OF: Handley JA at 1; Hodgson JA at 29; Campbell AJA at 30 DECISION: (1) Appeal as of right dismissed as incompetent.; (2) Leave to appeal granted limited to grounds 6 and 7 of the notice of appeal of 2 November 2004.; (3) Summons for leave to appeal otherwise dismissed.; (4) Appeal allowed in part.; (5) Declare that the first respondent is accountable to the appellant for the profit of $21,500 made by him from the sale of a second hand Buhler separator and a second hand ribbon mixer to OBP Pty Ltd invoiced to that company on 25 May 2000.; (6) Order that the first respondent pay $21,500 to the appellant together with interest at Court rates from 1 June 2000.; (7) Appeal otherwise dismissed and orders 1-7 and 9-11 made by Cripps AJ on 6 July 2004 confirmed.; (8) The appellant is to pay one-half of the respondents' costs of the appeal, the objection to competency and the summons for leave to appeal. CATCHWORDS: APPEAL – competency – amount involved – claim and value must be capable of reasonable support - CONVERSION – claim to bare declaration and inquiry without proof of cause of action misconceived - JUDGMENTS AND ORDERS – claim to declaration and inquiry as to damages – cause of action must be established at trial – inquiry consequential - D LEGISLATION CITED: Supreme Court Act 1970 Brightside & Carbrook (Sheffield) Co-operative Society Ltd v Phillips [1964] 1 WLR 185 Cole v The Commonwealth (1961) 106 CLR 653 CASES CITED: Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 McGrory v Alderdale Estate Co Ltd [1918] AC 503 McKenna & Armistead Pty Ltd v Excavations Pty Ltd (1956) 57 SR (NSW) 515 Milltec Australia Pty Ltd (Appellant/Claimant) PARTIES: Wayne Burnes (First Respondent/First Opponent) Milling Process Services Pty Ltd (Second Respondent/Second Opponent) FILE NUMBER(S): CA 40637 of 2004; CA 40301 of 2005 COUNSEL: N Cotman SC/K Odgers (Appellant/Claimant) D Smallbone (Respondents/Opponents) SOLICITORS: McCabe Terrill (Appellant/Claimant) Doherty Partners (Respondents/Opponents) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): SC 4309 of 2001 LOWER COURT JUDICIAL OFFICER: Cripps AJ IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40637/04 CA 40301/05 HANDLEY JA HODGSON JA M W CAMPBELL AJA 13 FEBRUARY 2006 MILLTEC AUSTRALIA PTY LTD v WAYNE BURNES & ANOR CATCHWORDS APPEAL – competency – amount involved – claim and value must be capable of reasonable support CONVERSION – claim to bare declaration and inquiry without proof of cause of action misconceived JUDGMENTS AND ORDERS – claim to declaration and inquiry as to damages – cause of action must be established at trial – inquiry consequential FACTS The claimant, as defendant below, had cross-claimed against the plaintiff and a company through which he traded for equitable compensation, a declaration of conversion in respect of plant and equipment and an inquiry as to damages, and an account of profits. The trial Judge dismissed the cross-claim. The cross-claimant appealed as of right but the respondent objected to the competency of the appeal on the ground that it did not involve a claim to $100,000 or more (Supreme Court Act s 101(2)(r)). The claimant applied for leave to appeal in the event that its appeal was held to be incompetent. HELD: (1) The appeal did not involve claims "susceptible of reasonable support" (Cole v The Commonwealth (1961) 106 CLR 653, 656) to an amount of $100,000 or more and would be dismissed as incompetent; (2) There was no substance in the application for leave to appeal in respect of the claim to equitable compensation against the personal opponent for competing, while a director, with the cross-claimant; (3) The claim to a bare declaration of conversion and an inquiry as to damages without pleading or proving an act of conversion, or identifying the chattels converted was misconceived (McGrory v Alderdale Estate Co Ltd [1918] AC 503, 511); (4) Leave to appeal in respect of those claims would be refused; (5) The trial Judge had erred in rejecting the cross-claimant's claim for an account of profits against the plaintiff as its director for diverting to himself profitable corporate opportunities to which the cross-claimant was entitled (Cook v Deeks [1916] 1 AC 554); (6) Although that claim had not been pleaded the evidence which established it was led at the trial without objection, and the cross-claimant was entitled to appropriate relief; (7) Leave to appeal in respect of the claim for an account of profits would be granted and the appeal to that extent allowed. ORDERS (1) Appeal as of right dismissed as incompetent. (2) Leave to appeal granted limited to grounds 6 and 7 of the notice of appeal of 2 November 2004. (3) Summons for leave to appeal otherwise dismissed. (4) Appeal allowed in part. (5) Declare that the first respondent is accountable to the appellant for the profit of $21,500 made by him from the sale of a second hand Buhler separator and a second hand ribbon mixer to OBP Pty Ltd invoiced to that company on 25 May 2000. (6) Order that the first respondent pay $21,500 to the appellant together with interest at Court rates from 1 June 2000. (7) Appeal otherwise dismissed and orders 1-7 and 9-11 made by Cripps AJ on 6 July 2004 confirmed. (8) The appellant is to pay one-half of the respondents' costs of the appeal, the objection to competency and the summons for leave to appeal. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40637/04 CA 40301/05 HANDLEY JA HODGSON JA M W CAMPBELL AJA 13 FEBRUARY 2006 MILLTEC AUSTRALIA PTY LTD v WAYNE BURNES & ANOR Judgment 1 HANDLEY JA: The proceedings comprise an appeal, an objection to competency, and a summons for leave to appeal from a decision of Cripps AJ in the Equity Division. The underlying issues arose on the cross-claim by the defendant against the plaintiff and the company through which he carried on business. The relief sought was equitable compensation for losses incurred by the cross-claimant as a consequence of the plaintiff's breaches of duty as a director (para 10), an account of profits as a consequence of his breach of fiduciary duty and his company's knowing participation (para 12), a declaration that the cross-defendants had converted items of the cross-claimant's plant and equipment (para 12(a)), and an inquiry as to damages before a Master (para 12(c)). 2 Paragraphs 5 and 6 of the statement of cross-claim alleged misuse by the plaintiff of knowledge acquired in his position as managing director of the cross-claimant "to obtain benefits … at the expense of the cross-claimant". The particulars alleged acts by the plaintiff which involved the second cross-defendant carrying on a competitive business. One of these particulars, (vi), alleged that the second cross-defendant "utilised the Cross-Claimant's … equipment without compensating the Cross-Claimant for such use". 3 Paragraph 7 alleged that the plaintiff "misappropriated money belonging to the cross-claimant to his own … use". Particular (viii) was "material sold to OBP Milling $25,000". Paragraph 8 alleged that "in the premises" the plaintiff had breached his fiduciary duty to the cross-claimant. 4 The declaration sought in respect of the conversion of the cross-claimant's plant and equipment and the consequential inquiry as to damages were not supported by anything else in the pleading other than para 5(vi) which referred to the second cross-defendant's use of the cross-claimant's equipment. The acts alleged to constitute conversion were not pleaded, and the plant and equipment were not particularised. 5 The trial Judge held that the plaintiff had not breached his fiduciary duty as a director by establishing the second cross-defendant and carrying on business through it of a kind that he had previously carried on through the cross-claimant. At a shareholders meeting of the cross-claimant on 24 May 2000 attended by all three shareholders (blue 39) agreement was reached that the cross-claimant should be "closed down", its existing work completed and new work allocated to the companies of the shareholders in accordance with their skills and experience. Thus any new mechanical work was to be carried out by Milltec Mechanical Installations Pty Ltd as the plaintiff's new company was to be called. It later adopted other names. 6 At a further meeting of shareholders on 6 June (blue 51) Mr Hefer is recorded in the minutes as saying "the close down of Milltec (Australia) P/L is put indefinitely on hold". No resolution to that effect was recorded and the parties continued to implement aspects of the close down agreed at the meeting of 24 May. In any event one or even two of the parties cannot unilaterally terminate or suspend a tripartite agreement. 7 The Judge held that the plaintiff's conduct after 24 May must be assessed in the context of the arrangements then entered into by the parties (red 28N). On this basis he found that the plaintiff did not do anything that was not approved by his fellow shareholders with respect to changing the name of his company and using the word Milltec (red 28N). 8 There is no evidence of the value of this claim and no substance in the challenge to this part of the Judge's decision. The cross-claimant's right of appeal in this respect is valueless, and cannot establish or contribute towards a credible claim that the appeal involves an amount of $100,000 or more (Supreme Court Act s 101(2)(r)). The cross claimant's appeal in this respect is not "susceptible of reasonable support": Cole v The Commonwealth (1961) 106 CLR 653, 656. 9 The Judge did not refer in his reasons to the claim in conversion. The transcript of the oral argument at the trial establishes that this claim was not abandoned and the Judge erred in failing to deal with it. However the claim as pleaded and presented was bound to fail because of its pleading deficiencies which were not cured by evidence at the trial. 10 The plaintiff may have had the cross-claimant's leave and licence to take and use its plant and equipment for mechanical work required for customers on hand on 24 May. Even if para 5(vi) of the cross-claim is treated as relevant to this claim the better view is that the mere use of a chattel without more, particularly by a bailee, is not a conversion: McKenna & Armistead Pty Ltd v Excavations Pty Ltd (1956) 57 SR (NSW) 515, 517. 11 A plaintiff is not required to particularise the chattels alleged to have been converted in all circumstances. This is the general rule but, where a plaintiff gives all the particulars he can, his statement of claim will not be struck out because he cannot particularise the actual goods converted. Thus where an employer alleged that its storekeeper had been stealing its goods for 13 years it could allege a general deficiency up to the value of the defendant's assets which could not be explained by his earnings and the living expenses of himself and his family: Brightside & Carbrook (Sheffield) Co-operative Society Ltd v Phillips [1964] 1 WLR 185 CA. 12 The cross-defendants did not press for particulars of the claim in conversion but were not bound to do so. The cross-claimant did not plead facts which established that it could not give proper particulars of the items alleged to have been converted. Because there was no identification of those items there was no evidence before the Judge of their value. An attempt was made to put evidence before this Court but it was not fresh evidence and it could not be received for this purpose. In any event there remained many areas of dispute because of the equipment allegedly taken back by the other shareholders (blue 146-7, black 87, 135) and equipment in a container which became the subject of an insurance recovery (C/A T 32-3). 13 The claims to a bare declaration and an inquiry as to damages were misconceived. The claim was for damages for a common law tort and the onus on a plaintiff who does not prove his damages, but seeks an inquiry for this purpose, is to establish his cause of action at the trial. A plaintiff is not entitled to an inquiry to discover whether or not he has a cause of action. The rights of the parties must be determined at the trial and any accounts or inquiries which are then ordered "follow merely consequentially": McGrory v Alderdale Estate Co Ltd [1918] AC 503, 511 and generally Spencer Bower Turner & Handley "Res Judicata" 1996 pp 76-8. 14 There being no evidence of the conversion of particular goods and no evidence of the value of such goods the appellant is unable to establish that the right of appeal in respect of this part of its cross-claim could either establish or contribute towards a credible claim that the appeal involves an amount of $100,000 or more (Supreme Court Act s 101(2)(r)). 15 The remaining claim relates to two items of second hand plant sold by the cross-defendants to OBP Milling for $23,000 (blue 24, 107-8). The appellant therefore had no appeal as of right and its appeal was incompetent. There are no grounds for the grant of leave to appeal in respect of the first two claims and to that extent leave to appeal should be refused. 16 The remaining claim was hinted at in para 7 of the cross-claim and particular (viii) "material sold to OBP Milling $25,000". 17 The evidence that emerged during the trial did not establish a misappropriation but did establish that the plaintiff diverted to himself a commercial opportunity which came to his knowledge in the course of the cross-claimant's business long before the agreement of 24 May 2000. This established a claim in accordance with Cook v Deeks [1916] 1 AC 554 for an account of the profits he derived from exploiting this commercial opportunity for his own benefit. 18 General claims for breach of fiduciary duty were pleaded in paras 5 and 8 of the cross-claim which did not cover this claim. However evidence supporting this Cook v Deeks claim was led at the trial without objection based on the pleadings, and that objection cannot be taken later: Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666. 19 The trial Judge rejected this claim on the ground that the circumstances of the acquisition of this plant were not really investigated (red 30B-G). The Judge said that the cross-claimant's case was that it owned this plant and the plaintiff had converted it to his own use and forged documents to support his claim to the proceeds of sale. He said that the plaintiff had not been cross-examined to establish that he had taken a secret commission. However, with respect, the cross-claimant's claim was not based on that breach of fiduciary duty. 20 The Judge's reasons for rejecting the Cook v Deeks claim cannot be supported. The acquisition and sale of this equipment were investigated at the trial and a prima facie case was established. The plaintiff made no attempt to prove that he had the informed consent of his fellow directors and shareholders. The amount involved is not large but the claim was established as I shall demonstrate. In these circumstances the smallness of the amount is not a proper reason for refusing to grant leave to appeal but will be relevant on costs. I would therefore grant leave to appeal limited to this issue. 21 The claim concerned in part the purchase and sale of a Buhler separator. This was purchased by the plaintiff from Starch Australasia for $1500 on 8 February 2000 (blue 104) and was invoiced to him on 17 February (blue 134). It had become redundant in the hands of that company because of its purchase of a new machine installed by the cross-claimant (blue 21, 25, 81). 22 The initial approach by Starch for the sale of the old machine was made to Mr Inauen an employee of the cross-claimant (blue 22). The plaintiff then negotiated with a Mr Colin Atkinson of Starch who he had known for several years through the milling industry (black 205). The negotiations took place at that company's premises where the plaintiff was helping to install the new machine (black 209). 23 The cross-claimant's business included the reconditioning and sale of second hand plant and equipment (blue 21, 47, 67-8) and the sale of scrap metal (blue 51). 24 There was a dispute between the plaintiff and Mr Inauen as to whether the latter reconditioned the Buhler separator at the cross-claimant's workshop in the course of his duties as its employee. This conflict was not resolved by the trial Judge but this is not necessary. If the machine was reconditioned the work was done at the cross-claimant's premises, by its employees, during ordinary working hours. If it was not reconditioned nothing has to be deducted from the sale price to arrive at the profit for which the plaintiff is accountable. 25 This machine and a ribbon mixer were sold to OBP Milling in Brisbane for $15,000, and $8000 respectively, and were dispatched by carrier on 20 March 2000. The cross-claimant was invoiced for the freight on 31 March (blue 106). On 25 May the second cross-defendant invoiced the buyer for the price (blue 24), and it was paid by cheques dated 31 May for $22,000 and 12 July for $1000 (blue 107-8). The second cross-defendant paid Starch for its machine on 1 August (blue 134-5). 26 The ribbon mixer was probably acquired in November 1999 (black 210), without the plaintiff having to pay for it. There is no evidence that it was reconditioned but equally no suggestion that any work on it was done by persons other than employees of the cross-claimant. 27 In these circumstances the plaintiff is accountable to the cross-claimant for his net profit on these transactions of $21,500. An order should be made to this effect carrying interest from 1 June 2000 at Court rates. 28 The appellant has substantially failed and the bulk of the time of the hearing was taken up with the competency of its appeal, the claim for conversion, and the other claim for breach of fiduciary duty which failed. The order for costs made by the trial Judge should not be disturbed and I would order that the appellant pay one-half of the respondent's costs of the appeal, objection to competency and summons for leave to appeal. The following orders should be made: (1) Appeal as of right dismissed as incompetent. (2) Leave to appeal granted limited to grounds 6 and 7 of the notice of appeal of 2 November 2004. (3) Summons for leave to appeal otherwise dismissed. (4) Appeal allowed in part. (5) Declare that the first respondent is accountable to the appellant for the profit of $21,500 made by him from the sale of a second hand Buhler separator and a second hand ribbon mixer to OBP Pty Ltd invoiced to that company on 25 May 2000. (6) Order that the first respondent pay $21,500 to the appellant together with interest at Court rates from 1 June 2000. (7) Appeal otherwise dismissed and orders 1-7 and 9-11 made by Cripps AJ on 6 July 2004 confirmed. (8) The appellant is to pay one-half of the respondents' costs of the appeal, the objection to competency and the summons for leave to appeal. 29 HODGSON JA: I agree with Handley JA. 30 M W CAMPBELL AJA: I agree with Handley JA. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.