New South Wales Supreme Court CITATION : Equity 8 Pty Limited v Shaw Stockbroking Limited [2007] NSWSC 413 HEARING DATE(S) : 20/11/06, 21/11/06, 22/11/06, 23/11/06, 24/11/06 JUDGMENT DATE : 2 May 2007 JURISDICTION : Equity Division JUDGMENT OF : Barrett J DECISION : Declaration to be made that agreement of July 2002 validly and lawfully terminated by defendant (Shaw). Damages to be paid to defendant/cross-claimant (Shaw) by plaintiff/cross-defendant (Equity 8). Equitable compensation to be rendered by certain other cross-defendants (Wookey and Cartesian Capital). CATCHWORDS : CONTRACTS - implied terms - where one company contracts with another to provide services of its employees - terms to be implied having regard to express terms and surrounding context - whether implied term justified termination for misconduct - CORPORATIONS - officers - paragraph (b)(ii) of "officer" definition - key risk management role carrying responsibility for preparation and delivery of budget - whether statutory duties breached - EQUITY - fiduciary duties - whether owed by person in key risk management role - whether fiduciary duty breached - CONTRACTS - breach of contract - various claims for damages - TRADE AND COMMERCE - misleading and deceptive conduct LEGISLATION CITED : Corporations Act 2001 (Cth), Division 1 of Part 2D.1, ss.9, 180(1), 181(1), 182(1) Trade Practices Act 1975. s.52(1) Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Faccenda Chicken Ltd v Fowler [1987] Ch 117 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 Minlabs Pty Ltd v Assaycorp Pty Ltd (2001) 37 ACSR 509 Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 CASES CITED : Re Morvah Consolo Tin Mining Co (1875) 2 ChD 1 Roxborough v Rothmans of Pall Mall Australia Pty Ltd (2001) 208 CLR 516 Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2007] NSWSC 104 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Smith v French [2000] VSC 381 State Bank of New South Wales Ltd v Currabubula Holdings Pty Ltd [2001] NSWCA 47 Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31 Warman International Ltd v Dwyer (1995) 182 CLR 544 Wessex Dairies Ltd v Smith [1935] 2 KB 80 Equity 8 Pty Limited - Plaintiff Shaw Stockbroking Limited - Defendant Shaw Stockbroking Limited - Cross-claimant PARTIES : Equity 8 Pty Limited - First cross-defendant Cartesian Corporate Finance Limited - Second cross-defendant Bruce John Wookey - Third cross-defendant Ross Martin - Fourth cross-defendant FILE NUMBER(S) : SC 2963/05 COUNSEL : Mr B.R. McClintock SC/Ms T.L. Wong - Plaintiff Mr D.J. Hammerschlag SC/Mr D.R. Stack - Defendant SOLICITORS : Gilbert + Tobin - Plaintiff Eastern Commercial Lawyers - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J WEDNESDAY, 2 MAY 2007 2963/05 EQUITY 8 PTY LTD v SHAW STOCKBROKING LIMITED & ANOR JUDGMENT Background 1 These proceedings arise from a contract made in July 2002 between the plaintiff, Equity 8 Pty Limited (which I shall call "E8"), and the first defendant, Shaw Stockbroking Limited ("Shaw"). It is alleged by E8 that Shaw has failed or refused to make to E8 certain payments required by the contract and that Shaw wrongfully purported to terminate the contract, in that it terminated summarily when termination required notice of at least three months. Shaw's defence, together with a cross claim filed by Shaw and its wholly owned subsidiary, Shaw Corporate Finance Pty Limited ("Shaw Corporate"), maintain claims to the effect that the summary termination of the contract was lawful and that both E8 and certain individuals are liable to Shaw and Shaw Corporate on the basis of breach of contract, misleading and deceptive conduct, breach of fiduciary duty and breach of statutory duty. Further explanation of the claims and the issues they raise will more conveniently follow a brief description of the factual background. 2 In early 2002, Mr Wookey and Mr Martin, two of the cross-defendants, were part of a group of corporate finance professionals employed by Bell Potter Corporate Finance Pty Limited ("BPCF"), a wholly owned subsidiary of Bell Securities and Commodities Group Pty Limited ("Bell"). Bell was a private client stockbroking and financial advisory firm with headquarters in Melbourne and offices in various parts of Australia. Mr Wookey was the leader of the group. In addition to Mr Wookey and Mr Martin, the members of the team included Mr Kidston, Mr Dacres-Manning, Ms Lardner, Ms Carter, Ms Roberts and Mr Wellham. It will be convenient to refer to this group as "the Team". 3 Towards the end of the first half of 2002, Bell executives approached Mr Wookey with a proposal that he and Mr Martin purchase the business of BPCF. Bell had, it seems, reached a point where it no longer saw a place for BPCF and the Team within its own operations. 4 Mr Wookey considered that purchase by him and Mr Martin of BPCF would present an opportunity for the Team's corporate finance expertise and skills to be deployed through an association with another stockbroking firm. Shaw was such a firm. Mr Wookey entered into discussions with Shaw through its managing director, Mr Shapiro. 5 On 7 June 2002, Mr Wookey caused E8 to be incorporated, intending that it would be the corporate vehicle through which the corporate finance services of the Team would be made available to a stockbroking organisation other than Bell. Mr Wookey and Mr Martin were (and remained) the only holders of ordinary shares in E8. 6 On 17 July 2002, Mr Shapiro, on behalf of Shaw, sent to Mr Wookey and Mr Martin a letter stating the terms on which E8 would provide the services of the Team to Shaw. This letter constitutes the only written evidence of the contract between E8 and Shaw. It is accepted on both sides that the letter contains the terms of a contract between those companies. It will be convenient to refer to it as "the July 2002 agreement". 7 It will be necessary to refer to certain of the express terms of the July 2002 agreement later. For the moment, it is sufficient to note the central features as follows: (a) Shaw was to form Shaw Corporate as a wholly-owned subsidiary, so that it could be "the sole corporate finance arm of Shaw", encompassing Mr Wookey, Mr Martin and the remainder of the Team, as well as Shaw's existing corporate department; (b) Shaw Corporate was to "engage Team's company, Equity 8, which will provide the services of Team's personnel"; (c) E8 was to be "an independent contractor and will be paid by" Shaw Corporate; (d) Shaw was to "assist in the administration of" E8, including on matters such as GST, fringe benefits tax, superannuation and payroll tax; (e) it was recognised that there would be "no change to Team's current method of operation"; (f) Shaw was to provide office space for the Team; (g) Shaw (or perhaps Shaw Corporate) was to meet E8's outgoings (including salaries and salary on-costs), on the footing that profits would form a bonus pool to be shared between the Team (or E8) and Shaw Corporate in such a way that Shaw Corporate received an increasing proportion as the pool became larger. 8 On 18 July 2002, the day immediately after the July 2002 agreement was made, Mr Wookey and Mr Martin completed the transaction which caused the tie with Bell to be broken. This involved purchase by E8 of the whole of the share capital of BPCF from Bell. Also on 18 July 2002, an agreement supplemental to this share purchase agreement was made between the same parties. It was referred to in the course of the proceedings as "the Clarification". I shall describe it accordingly. Shortly afterwards, the name of BPCF was changed to "Corporate Finance Counsel Pty Limited". At a later stage (following termination of the association between E8 and Shaw), there was a further name change to "Cartesian Corporate Finance Limited". That is the present name and I shall refer to this company from this point as "Cartesian", even though it may have had one of the other names at the time in question. 9 Shortly after the July 2002 agreement was concluded, members of the Team began to move into Shaw's premises and to provide services both to pre-existing clients serviced by the Team and to new clients sourced from Shaw's client base. 10 Tensions had developed by mid-2003. On 17 June 2003, Mr Shapiro signed a memorandum setting out a proposed basis for revision of the July 2002 agreement. He said, by way of background: "Shaw Corporate Finance Pty Ltd ('SCF') has now been operating for almost a year. There is little doubt that the past year has been one of the most difficult experienced in recent years for the whole corporate finance industry. As E8 had anticipated a far better performance in its budgets, the lower than expected revenues caused a strain between Shaw's management and board on the one hand and E8 and certain staff of SCF on the other hand. E8 has expressed its concerns about Shaw adviser support and other matters including process (CGC an example) and legal representatives." 11 Two months later, on 26 August 2003, Shaw gave to E8 a written request for information regarding a number of issues which, according to Shaw, were linked to Shaw's obligations to supervise and monitor "internal compliance policies and procedures in relation to its proper authority holders". It is relevant to note that, to the extent that there was a need for proper authorities, as contemplated by the Corporations Act licensing regime, to be held by E8 individuals whose services were, in accordance with the July 2002 agreement, provided to Shaw, those proper authorities were created under Shaw's licences. The individuals were, for licensing purposes, regarded as representatives of Shaw. 12 The request of 26 August 2003 was answered on 28 August 2003. Shaw made a further request on 24 September 2003. This was answered on 4 November 2003. A third request was made on 11 November 2003. There was a reply on 3 December 2003. 13 On 10 December 2003, Mr Shapiro called Mr Wookey and Mr Martin to a meeting and handed them a letter stating that Shaw was terminating the July 2002 agreement. Mr Shapiro instructed Mr Wookey and Mr Martin to leave Shaw's premises immediately, which they did. The issues 14 The pleadings raise principal issues as follows: (a) whether the summary termination of the agreement was justified as a consequence of breaches of it by E8; (b) if summary termination was not justified, whether there is to be implied into the July contract a term that a period of not less than three months notice was required for termination; (c) if summary termination was not justified, whether E8 has established any damage by reason of the summary termination and if so what the quantum is; (d) whether there is to be implied a term (even if E8 was in breach) that E8 would be entitled to a bonus payment on a pro rata basis and if so, what the amount of it is to be; (e) whether Mr Wookey and Mr Martin were "officers" who owed to Shaw Corporate during the period 22 July 2002 and 10 December 2003 the duties imposed by Division 1 of Part 2D.1 of the Corporations Act 2001 (Cth) and, if so, whether they breached those duties; (f) whether E8 and Mr Wookey and Mr Martin owed Shaw and Shaw Corporate fiduciary obligations and, if so, whether they breached those duties; (g) if so, whether the relevant Shaw entities suffered damage and what the quantum of damage is; (h) whether the conduct of E8 in respect of any of the matters referred to above was a breach entitling termination of the services arrangement; (i) whether Cartesian (earlier BPCF and CFC) knowingly participated in any breach of duty via any of E8, Mr Wookey and Mr Martin; (j) whether E8 made the representations referred to as the "bonus representation", namely, that Bell had refused to pay bonuses totalling $98,102.48 which were properly payable to the team and, if so, whether the representation was misleading or deceptive, or likely to mislead or deceive, and whether Shaw or Shaw Corporate suffered damage by that conduct and, if so, how much. The claims regarding implied terms 15 The July 2002 agreement contained no express term as to its duration. Nor was there any express term allowing either party to terminate, whether by notice, upon the happening of some event or otherwise. On its face, the agreement was to operate for an indefinite period and without any possibility of expiration or termination. There is no evidence that the parties actually discussed duration or termination. 16 There are contentions on both sides as to implied terms. Shaw maintains that there were implied terms which were breached by certain actions actually taken by E8 or courses of conduct actually engaged in by E8. If such implied terms are found to exist, they, or one or more of them, might provide a foundation for the action of Shaw in purporting to terminate the July 2002 agreement on 10 December 2003. In the light of one or more of the implied terms, it might be seen that E8 had committed a breach of contract amounting to repudiation so that Shaw thereby became entitled to treat the contract as at an end. It is Shaw's contention that summary termination was justified by breach of implied terms. 17 The implied terms for which Shaw thus contends are identified in paragraph 19 of the cross-claim, being terms (a) that E8 and the Team would supply their services exclusively to Shaw; (b) that E8 and the Team would do all that was reasonable to promote, develop and extend the business of Shaw and Shaw Corporate; (c) that E8 and the Team would not be directly or indirectly engaged, concerned or interested in any trade, business or occupation which is or may be in competition with the whole or any part of the business of Shaw and Shaw Corporate; (d) that E8 and the Team would act in the best interests of Shaw and Shaw Corporate; (e) that E8 and the Team would faithfully and diligently perform the duties required of them by Shaw and Shaw Corporate; and (f) that E8 and the Team would comply with all legislative requirements imposed on persons conducting business in the financial services industry. 18 While the content of each such alleged term refers to both E8 and the Team, it is not suggested that the individuals who made up the Team were contracting parties vis-à-vis Shaw – rather, that E8 was bound by the alleged terms both as to its own conduct and the conduct of the Team individuals, so that E8 is to be regarded as having given a promise that it would act (or desist from acting) in the specified way and that it would procure that each member of the Team would act (or desist from acting) in the same way. 19 E8 admits that the contract included the terms (b), (d), (e) and (f) above, but with the qualification, in each case, that the term applied only to work undertaken by E8 for Shaw and did not preclude the undertaking of work for other persons. E8 expressly denies the existence of the terms (a) and (c) above. Shaw contends that the qualification for which E8 contends in admitting terms (b), (d), (e) and (f) is inconsistent with those terms themselves. I do not think this is so: all the qualification means is that the words "in and about work actually done for Shaw" would be included after the initial "that" in each case. 20 E8 contends that the July 2002 agreement included a quite separate implied term. That term, as pleaded in E8's further amended statement of claim, is that "that if either party were to terminate, it would be obliged to give the other reasonable notice, being a minimum of 3 months, to enable an orderly transition for both parties". The quoted words appear in paragraph 12 of the pleading. The particulars to that paragraph are as follows: "The termination term is implied by reason of common practice in the industry and the fact that no reasonable person would terminate its arrangements under pre-existing contracts and enter into an agreement similar to the July 2002 agreement if they were not entitled to receive reasonable notice of termination of that agreement. Industry practice includes: (i) s 44(1)(b) Retail Leases Act 1994 (NSW) ('Notice to the lessee of lessor's intentions at end of lease') which provides that in respect of leases for a term of 12 months or more, a lessor must inform the lessee of his/her intention to terminate the lease by written notification not less than 6 months before the expiry of the lease. (ii) s 129 Conveyancing Act 1919 (NSW) ('Restrictions on and relief against forfeiture of lease') which provides that a right of re-entry or forfeiture under a lease for breach of any covenant, condition or agreement in the lease shall not be enforceable by any action unless and until the lessor serves on the lessee a notice inter alia specifying the particular breach and requiring the lessee to remedy the breach and the lessee fails within a reasonable time thereafter to remedy the breach complained of in the notice. (iii) s 85(1)(d) Conveyancing Act 1919 (NSW) ('Powers in lessor') which provides that a lessor may re-enter demised premises and determine the estate of the lessee where default is made in the fulfilment of any condition of the lease and such default is continued for a period of two months." The implied terms for which Shaw contends – legal basis 21 Shaw argues for the implication of terms (a) to (f) at paragraph [17] above (without the qualification E8 asserts: see paragraph [19]) in one of three distinct ways: first, as a necessary concomitant of express terms, in that those express terms could not operate according to the parties' manifested intention unless supplemented by the implied terms (see Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at pp.81-82); second, that the implied terms are necessary to give business efficacy to the express terms (BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266); and third, that the implied terms are necessary to secure to the contracting parties the full benefit of the contract (Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at p.607). 22 It may not be useful to seek alternative bases for implication in this way. The real question centres upon criteria most often associated with observations of members of the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337. A useful description of those criteria appears in the judgment of Tadgell JA (with whom Buchanan and Chernov JJA agreed) in Narni Pty Ltd v National Australia Bank Ltd [2001] VSCA 31 at [16]: "It is trite but nevertheless useful to recall that, as Mason J noted (with the concurrence of Stephen and Wilson JJ) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [(1982) 149 CLR 337], the implication of a term in a contract is designed to give effect to the parties' presumed intention. What his Honour there called 'the conditions necessary to ground the implication of a term' were summarized by the majority in BP Refinery (Westernport) Pty Ltd v Shire of Hastings [(1977) 180 CLR 266 at 283] thus '... (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract'. Although Codelfa and various other earlier and later decisions of the High Court indicate that the above-quoted formulation of principle may be regarded as authoritative, it is fair to say that some of the five conditions are sometimes seen to be difficult to apply and not always to serve as practical criteria. For example, Aickin J in Codelfa suggested that, in approaching 'the question whether there is to be a term implied into the contract', a consideration of the remark of the 'officious bystander' postulated by MacKinnon LJ, from which the condition numbered (3) evidently draws inspiration, is not always helpful or useful; and that 'it seems no longer the exclusive means of approaching the question'. The five conditions, although evidently expressed to operate cumulatively, may nevertheless overlap; and in some cases, I think this is one of them, a more simplified approach may be appropriate and permissible. Thus, in Marcan Shipping (London) Ltd v Polish Steamship Co (The Manigest Lipkowy) [(1989) 2 Lloyd's Rep 138 at 142] May LJ remarked - 'For my part, I think that reference to the officious bystander frequently does not assist in deciding whether or not a term is to be implied. Officious bystanders may well take different views depending on which side they happen to be standing. In my judgment it is quite clear from such cases as Liverpool City Council v Irwin [1997] AC 239, that the real basis upon which a term can be implied in contracts such as this is that they are necessary in order to make the contract work.' In the same case Bingham LJ expressed this succinct dictum on the point, 'I take it to be well-established law that a term will be implied only where it is necessary in a business sense to give efficacy to the contract or where the term is one which the parties must obviously have intended.'" 23 The task of the court must be undertaken with the degree of caution enjoined by Giles JA (with whom Heydon JA and Ipp AJA agreed) in State Bank of New South Wales Ltd v Currabubula Holdings Pty Ltd [2001] NSWCA 47 at [60] (reported on other matters at (2001) 51 NSWLR 399): "As is stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales at 346, the courts are slow to imply a term. It is not enough that it is reasonable to imply a term. It must be necessary to do so in order to give business efficacy to the contract and the term must be so obvious that it goes without saying; 'Further, there is the difficulty of identifying with any degree of certainty the terms which the parties would have settled upon had they considered the question'." 24 The same need for caution was referred to more recently in the following passage in the judgment of Kirby J in Roxborough v Rothmans of Pall Mall Australia Pty Ltd (2001) 208 CLR 516 at p.575: "Whatever may be the precise legal criterion for implying terms into a contract upon which the parties have not expressly agreed, it would always be necessary for a court of our legal tradition to be very cautious about the imposition on the parties of a term that, for themselves, they had failed, omitted or refused to agree upon. Such caution is inherent in the economic freedom to which the law of contract gives effect. Absent some statutory or equitable basis for intervention, it is ordinarily left to the parties themselves to formulate any agreement to which they consent to be bound in law. As MacKinnon LJ, who is usually credited with inventing the fiction of the 'officious bystander', admitted: '[I]n most ... cases the Court has ... to find ... the obvious common agreement, upon a matter as to which it must have the strongest suspicion that neither party ever thought of it at all, and that, if they had, they would very likely have been in hopeless disagreement what provision to make about it'." (According to Kirby J's footnote, the quoted passage comes from a lecture delivered by MacKinnon LJ at the London School of Economics on 3 March 1926 quoted by Phang, "Implied Terms, Business Efficacy and the Officious Bystander – A Modern History", (1998) JBL 1.) The implied terms for which Shaw contends - discussion 25 The question whether all or any of the terms for which Shaw contends are to be implied must be addressed, in the first instance, in the light of the express terms upon which the parties unambiguously agreed. 26 The first three express terms (clauses 1(a), 1(b) and 1(c)) provided for the creation by Shaw of a new wholly owned subsidiary (Shaw Corporate) and prescribed the new company's role as "the sole corporate finance arm of Shaw". It was to "include the existing Team personnel as well as the personnel of Shaw's Corporate Department", it being agreed that "there will be a 'one team' approach in effect a merger of the two operations". Clause 1(d) said that Shaw Corporate would "engage Team's company, Equity 8, which will provide the services of Team's personnel". 27 Clause 1(m) referred to E8 as "Team's corporate structure" and stated that it "will be an independent contractor and will be paid by SCF". Provisions such as clause 1(j) made it clear that "Team", that is in the context, E8, would be responsible for salary packages of its staff, while clauses and 1(i) and 1(j) indicated that Shaw might utilise the services of Shaw Corporate salaried staff for its own purposes, with the cost of that being borne by Shaw and not reflected in the bonus pool for which provision was made by clause 2. The arrangements in that clause were directed towards calculation of an annual "Bonus Pool to SCF". The components, as described, were essentially "Net receipts on Corporate Transactions" and "Expenses" (including salaries and oncosts of "Corporate Personnel, including assistants", and other "direct expenses" excluding rent and telephone on Shaw's premises), with the pool being the amount by which the net receipts exceeded 120% of the expenses. While the pool is expressed to be attributed "to SCF" (in such a way that there is allocated to "SCF" varying percentages of the "pool" as it increases), it is made tolerably clear that the pool's ultimate destination is Shaw Corporate's "personnel", that is both "Team" people and Shaw people working together in the "sole corporate finance arm of Shaw". The bonus provisions thus represent a means of allocating for application among that combined group of persons part of the profits generated by the "one team" engaged in the activities conducted by "a merger of the two operations". 28 The essence of the arrangement was that the "Team" led by Mr Wookey would join with Shaw's pre-existing corporate finance staff in a "one team approach" so that they were together "the sole corporate finance arm of Shaw". Given the nature of the business, it may be assumed that the emphasis was on the personal attributes of the individuals brought together as the "one team", in terms of both personal skills and client or market contacts. The group of persons was intended to be financially self-supporting, in the sense that their efforts would generate returns sufficient to meet the expenses of their operations, including remuneration of the individuals (excluding bonus). Profits were to be split between Shaw and the individuals according to the bonus pool provisions. 29 These people-based intentions and arrangements were to be accommodated within a particular corporate structure involving E8 and Shaw Corporate, with E8 being an "independent contractor" to Shaw Corporate and providing the services of Mr Wookey, Mr Martin and their colleagues to Shaw Corporate. There was a particular purpose to the way in which the corporate entities were used. It had to do with reduction of individuals' taxation liabilities. Each month, each individual whose services were provided by E8 received a sum by way of salary and a sum by way of loan. Shaw Corporate placed E8 in funds each month to enable it to make these payments. At the end of a financial year, E8 paid a dividend to each individual (who was, of necessity, a shareholder, albeit one holding shares other than ordinary shares, in cases other than Mr Wookey and Mr Martin). The dividend was equal to the outstanding loan, so that the loan was extinguished. The dividend was fully franked and thus more advantageous to the recipient, in net tax terms, than salary of equivalent amount would have been. 30 Despite the interposition of the corporate entities, the tax structuring and the reference to E8 as an "independent contractor", the underlying relationship was essentially the relationship of skilled market professionals with a market entity having need of their skills and contacts for the purpose of conducting its business. The essential reality of the arrangement is stated in clause 1(b): "SCF will be the sole corporate finance arm of Shaw and will include the existing Team personnel as well as the personnel of Shaw's Corporate Department." 31 The group of persons making up the "existing Team" was to form part of Shaw's "sole corporate finance arm". They were to be brought into Shaw's "sole corporate finance arm" by E8. I have not so far mentioned that Mr Wookey and Mr Martin were, as from late July 2002, on written employment contracts with E8. The employment was expressed to be "on a full-time basis", with the employee obliged to "provide your services exclusively to the company", that is, E8. The structure as a whole shows, in my view, that E8, in turn, would provide to Shaw Corporate the full extent of the services it enjoyed under these express contracts, that is, full-time services provided to the exclusion of any other person. 32 I am satisfied that, having regard to the express terms contained in the documents in evidence, the "Team" individuals whose services were made available by E8 to Shaw Corporate were intended to occupy, in relation to Shaw Corporate, a position akin to that occupied by an employee in relation to his or her employer. The analogy is not complete because the arrangements for remuneration differed significantly, as to methodology, from the simple and direct payment of salary or wages. There is also the point that there was no direct contractual relationship, at least in express terms, between any "Team" individual and Shaw Corporate. But Shaw Corporate was intended to receive the benefit of labour and application of skills by each individual in the same way as an employee would provide that benefit to his or her employer. E8, in effect, undertook to Shaw Corporate to cause the "Team" individuals to perform accordingly vis-à-vis Shaw Corporate, having, in the cases of Mr Wookey and Mr Martin, secured to itself by contracts with them the right and ability to honour that undertaking. 33 It follows, in my judgment, that part of the contractual commitment of E8 was to the effect that E8, in providing the services of the individuals contracted to (and those individuals themselves in performing the services to be provided by E8 to Shaw Corporate), would act as if the individuals were employees of Shaw Corporate. It must thus be taken to have been a contractual promise of E8, given to Shaw, that the individuals would act towards Shaw Corporate in the manner that employees, owing direct contractual obligations to their employer, would act towards their employer. 34 The required standards of conduct were such that each individual was expected to act qua Shaw Corporate in the same way as an employee owing a duty of fidelity and good faith to his or her employer would act towards that employer. Just as such a duty is implied in an employment contract so as to be binding upon the employee (see Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2007] NSWSC 104), so, in the present context, E8 was subject to an implied term which required it to see that the individuals whose services it provided to Shaw Corporate acted in the same way. 35 An employee breaches the implied contractual duty owed to his or her employer if the employee solicits the employer's customers to treat with the employee rather than the employer or diverts to the employee transaction opportunities which pertain to the employer's business and come to the employee during employment : see generally Wessex Dairies Ltd v Smith [1935] 2 KB 80; Faccenda Chicken Ltd v Fowler [1987] Ch 117. 36 Depending on circumstances, diversion of business opportunities by the employee to the employee may entail not only breach of contract but also breach of fiduciary duty: Warman International Ltd v Dwyer (1995) 182 CLR 544. In other ways too, an employee may sometimes owe fiduciary duties to his or her employer. 37 The implied terms of the contract between E8 and Shaw were such as to require E8 to procure conduct by the persons whose services were provided to Shaw Corporate consistently with due performance and observance of all these duties by an employee. Those persons, as employees of E8, were bound by the full range of usually implied terms so far as their performance qua E8 was concerned. And E8 was likewise subject to an implied term requiring it to make available to Shaw Corporate the full benefit of the contractual terms held by it from the individuals. 38 The importation, by implied term, of a regime having the same incidents as that of employer-employee means that rights of summary termination were also imported but with necessary modifications. An employer may dispense with the services of an employee summarily on account of a single instance of misconduct, provided that it is of sufficient gravity – that is, is sufficiently serious rationally to affect the employer's confidence in the employee. In the present context of indirect relationships, a single act by one individual (say, an act of wilful disobedience detrimental to Shaw Corporate's interests) would probably be insufficient to justify termination of the contract by Shaw (although it might well require E8 to remove the person from the Shaw Corporate relationship). 39 This implied term was such that a breach justifying summary termination by Shaw of its contract with E8 would occur if a single act of misconduct (or a series of such acts) was of such a quality to undermine, with objective justification, the confidence of Shaw Corporate in the collective capacity of the group of individuals provided by E8 to render faithful performance to Shaw Corporate. By this I do not mean that every one of the individuals would have to be found to have been guilty of misconduct – rather, that the misconduct would have to be of an institutional kind or endemic or pervasive so that it went beyond an isolated instance confined to an individual. The implied terms for which Shaw contends - conclusions 40 I have already mentioned the limited extent to which E8 accepts the implication of the terms for which Shaw contends: see paragraph [19] above. 41 In view of my characterisation of the contract at paragraphs [25] to [39], however, I am satisfied that all of the terms (a) to (f) are to be taken to be implied, without the qualification for which E8 contends (see paragraph [19] above). This is, in my view, a necessary consequence of the close analogy with any employment contract to which I have referred. Another necessary consequence is the importation of the implied term applicable as between employer and employee regarding termination for misconduct, although on the modified basis I have described. Approach to other issues 42 Having reached this point concerning implication of the terms for which Shaw contends, it is appropriate to consider the other bases upon which Shaw maintains that liability should be sheeted home to E8 and the other cross-defendants. Consideration should then be given to the questions of breach of contract and breach of duty as against Shaw. Once those matters have been dealt with, it will be clear whether there is a need to consider the question of implication and breach of the terms for which E8 contends. This is because the question of termination by Shaw without reasonable notice will not be relevant if the termination in fact effected by Shaw was for just cause. The officer question 43 It is alleged by Shaw and denied by E8 that Mr Wookey and Mr Martin were "officers" of Shaw Corporate as defined by s.9 of the Corporations Act and that each was therefore subject to the duties imposed by ss.180(1), 181(1) and 182(1) upon such "officers". 44 Shaw points, in this respect, to the paragraph (b) of the s.9 definition of "officer" of a corporation. That paragraph brings within the defined concept: "a person: (i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (ii) who has the capacity to affect significantly the corporation's financial standing; or (iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation." 45 Shaw says that both Mr Wookey and Mr Martin were "officers" of Shaw Corporate because of paragraphs (b)(i) and (b)(ii). 46 In relation to Mr Wookey, reference is made to a table of current salaries and responsibilities within Shaw Corporate prepared in July 2003. It is not suggested that this did not reflect the position at all material times. Mr Wookey's "management role" is there described as follows: "Heads Shaw Corporate Finance entity ('SCF'). · Overall staffing and approach of SCF · Manager SCF's interface with Shaw Stockbroking · Key sign-off for what is mandated in terms of reputation risk and underwriting risk · Preparation and delivery of SCF's budget." 47 The following entry concerning Mr Martin refers to him as assisting Mr Wookey "with overall management of SCF" – in other words, Mr Wookey had "overall management of SCF". 48 Mr Wookey accepted in cross-examination that the part of the July 2003 document referring directly to him was an accurate description of his functions within Shaw Corporate. Against that, however, he gave evidence that he did not attend Shaw Corporate board meetings, was not authorised to approve new mandates or sign cheques for Shaw Corporate, did not participate in any business strategy meetings of Shaw Corporate and was not authorised to employ or dismiss staff of Shaw Corporate. It was originally proposed (and envisaged by the July 2002 agreement) that Mr Wookey would become the managing director of Shaw Corporate. However, no such appointment eventuated. Mr Wookey was designated "Head of Corporate Finance". 49 I am satisfied that Mr Wookey was an "officer" of Shaw Corporation within paragraph (b)(ii) of the definition. As head of corporate finance, he had the functions described in the July 2003 document. Those functions included a key risk management role extending to reputation risk and underwriting risk. He was also responsible for both the preparation of Shaw Corporate's budget and its "delivery". In other words, he was in charge of not only financial planning but also devising and executing means to achieve projected financial performance. He was also in charge of management of risks of a particularly sensitive kind from the perspective of the financial standing of a corporate finance business. With those functions and responsibilities, he must be taken to have had the capacity to which paragraph (b)(ii) refers, that is, the capacity to affect significantly the financial standing of Shaw. He played a central role in devising financial strategy, the execution of that strategy and the management of important aspects of financial risk. And the description of Mr Martin's role in the July 2003 document indicates that Mr Wookey had "overall management" of Shaw Corporate. 50 It is to Mr Martin that I now turn. It is to be inferred from the July 2003 document that he assisted Mr Wookey in the latter's overall management role. He accepted in cross-examination that this was an accurate description. He said that, although Mr Wookey was not managing director of Shaw Corporate, Mr Martin regarded Mr Wookey as "managing director of everything we have done for the last 7 or 8 years"; and that Mr Martin had been "his offsider", or "second in charge". 51 Mr Martin's role was thus clearly a subordinate role. He was subject to the control of Mr Wookey as his superior. He assisted. He was a secondary operator. I infer from this that he lacked the freedom of action that Mr Wookey enjoyed. That, in my view, must have left him without the capacity envisaged by paragraph (b)(ii). 52 My conclusion is therefore that Mr Wookey was an "officer" of Shaw Corporate owing the duties referred to in ss.180(1), 181(1) and 182(1), but Mr Martin was not. 53 This finding in respect of Mr Wookey will be relevant to the assessment of not only Mr Wookey's own conduct as such but also the content of the implied terms to which E8 was subject. With one of the persons made available by E8 occupying the "officer" position I have described, the content of the implied terms must be taken to have been conditioned by a requirement that that person would perform his statutory duties. The fiduciary question 54 Shaw alleges that Mr Wookey and Mr Martin stood in a fiduciary relationship towards Shaw Corporate. 55 As regards Mr Martin, I do not think that there is a sufficient basis for any such finding. He was, as I have said, an "offsider" or "second in charge". If the relationships had been direct, rather than through an interposed contracting company, Mr Martin would have been regarded as a second-level executive employee of Shaw. The relationship would not have been one of reliance or vulnerability engendering fiduciary responsibility. 56 In the cases of Mr Wookey, however, the position is different. He, as I have said, played a key risk management role. He was "key sign-off for what is mandated in terms of reputation risk and management risk". As "key sign-off", he was presumably the senior arbiter on these matters. Risks of a kind crucial to a corporate finance business were thus put under Mr Wookey's stewardship. This, moreover, was in circumstances where he had responsibility for preparation and delivery of the business's budget. He was thus given the significant task of managing risk while at the same time ensuring financial performance. 57 These aspects of Mr Wookey's functions cause him to stand apart from the general run of operatives. Reliance was placed upon him in relation to tasks of special responsibility critical to the financial and reputational well being of the enterprise. The reliance and the trust that it involved caused him to owe fiduciary duties to Shaw Corporate according to principles discussed in Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 and on the bases emerging from cases such as Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371, Re Morvah Consolo Tin Mining Co (1875) 2 ChD 1, Smith v French [2000] VSC 381 and Minlabs Pty Ltd v Assaycorp Pty Ltd (2001) 37 ACSR 509. 58 On the basis referred to at paragraphs [37] to [39] above, the status of Mr Wookey as a fiduciary affected the content of the implied terms binding as between E8 and Shaw. The acts complained of 59 I proceed now to a consideration of the several acts or courses of conduct about which Shaw complains. 60 I shall first consider the evidence in relation to each and then assess the significance of the evidence and findings to the duties to which E8 and the other cross-defendants were subject. These, for reasons I have stated, are not confined to contractual duties. The bonus representation 61 The July 2002 agreement – which, as I have noted, was dated 17 July 2002 – contained a passage as follows: "6. BP BONUS PAYMENT SSL notes the comments by Team regarding the transition period and departure from BP. It is acknowledged that in the event that BP does not pay the anticipated bonus of between $200,000 to $300,000 then SHAW make up the shortfall on the due bonus." 62 The bonuses referred to are bonuses that individuals expected to receive from Bell based on the financial performance of the corporate finance operations. The expectation related to performance bonuses and related to individuals as members of the Bell Group staff. 63 On 18 July 2002 (the day immediately after the July 2002 agreement was struck), an agreement was made between Bell and E8 for the purposes of modifying the existing agreement between them for the sale and purchase of the shares in BPCF (now Cartesian). It is this modifying agreement that was referred to as "the Clarification". By the Clarification, it was agreed that Bell would, until 31 August 2002, allow BPCF (Cartesian) to collect trade debts outstanding at 30 June 2002 and that this would be on the basis that E8 would take the benefit of 35% of the receipts or recoveries and Bell would take 65%. Before the alteration, the benefit of the receivables accrued to Bell alone, in terms of the contract under which E8 purchased BPCF (Cartesian). The Clarification also said: "The accrual to Equity 8 (ie, the 35%) is in lieu of any JTPC performance based bonuses referred to in individual letters of offer, therefore it is expected that employees will waive their rights to any further bonus entitlement in their letter of resignation." 64 In due course, Shaw paid $98,182.48 in the belief that this sum was called for by clause 6 of the July 2002 agreement. Subsequently, when Shaw called for verification of the figure, E8 provided information only as to $57,156.02. 65 Shaw maintained in the proceedings that E8, through Mr Wookey, engaged in misleading or deceptive conduct by representing to Shaw that circumstances were such that, in terms of clause 6, the sum of $98,182.48 was properly payable by Shaw. The contention of E8, however, is that there was no such proscribed conduct on the part of E8, through Mr Wookey. 66 The way in which the claimed sum of $98,182.48 was calculated appears from a document delivered by Mr Wookey to Shaw. Subsequent email correspondence makes it clear that the document was represented to contain "a break-up for the Bell Potter Corporate Finance bonus accrual" – or, as Mr Wookey himself put it, "the summary workings of the accrual, which basically takes the Bell Potter numbers, recognises some direct collections we are completing, and reduces the expenses to reflect the correct Sydney team accrual". 67 It is said on behalf of E8 that, in the document thus delivered by Mr Wookey, the 35% of receipts under the Clarification was treated as a substitute for individuals' bonuses for the purposes of clause 6 of the July 2002 agreement. In other words, the submission runs, Mr Wookey had sought to apply and claim under clause 6 on the footing that the "anticipated bonuses" to which the clause referred were, in reality, the proceeds of the substituted arrangements involving 35% of receipts. 68 The document concerned does not reflect any such approach. Rather, it sets out a calculation of profit for the year ended 30 June 2002. The starting point is gross revenue, in the form of cash receipts and debtors. From these are deducted various items such as personnel costs, salaries, premises, communications and the like which, after a number of adjustments, result in "adjusted profit" of $365,521.38l. It is to that figure that 35% is applied to produce "bonus entitlement" which is then reduced by certain "expected recoveries on debtors" of $29,750 to give the "bonus top-up" of $98,182.48. There is thus a performance based approach consistent with the general basis applicable to the Bell bonus arrangement. 69 Mr Wookey referred to the basis of bonus calculation in an exchange of emails with Mr Sidney of Shaw in June 2003. He referred to individuals' employment contracts as to source of the bonus entitlement. He arranged for a copy of one such contract to be given to Mr Sidney, saying that all were the same. In response to a request for the BPCF (Cartesian) accounts for the year ended 30 June 2002 (which Mr Sidney understood to reflect the basis of the bonus calculation), Mr Wookey said that "the management accounts we have are not the basis of our contracted bonus". He continued: "You have a copy of the employment contract which specifically restricts the bonus pool to Sydney initiatives, before corporate overheads, a fact also reflected in meeting minutes which you also have." 70 The clear message here was twofold: first, that, as at June 2003, the individual employment contracts continued to be the source of a right or expectation in respect of bonus; and, second, that the "bonus pool" had regard to "Sydney initiatives and expenses, before corporate overheads" – clearly enough, some measure of profit or financial performance of the business. 71 The document provided by Mr Wookey as "the summary workings of the accrual" represented that there should have been a bonus calculated as 35% of an adjusted profit figure for the business, subject only to recognition of "some direct collections we are completing". This is consistent with the approach to which Mr Wookey referred in his email correspondence with Mr Sidney. The document does not identify the direct collections (as to 35%) under the Clarification as having taken the place of a bonus. Rather, the direct collections are shown as working to reduce an independently ascertained "bonus entitled at 35%" based on profit. 72 I am satisfied, having regard to clause 6 of the July 2002 agreement and the stated purpose of the correspondence in the course of which the calculations were given by Mr Wookey, that he represented to Shaw, by means of the calculation document and the correspondence (including the email correspondence with Mr Sidney), that the "anticipated bonus" to which clause 6 referred had not been paid by Bell to the extent of $98,182.48; also that the individual employment contracts continued to be the source of a right to or expectation of such a bonus. He accordingly represented to Shaw, for the purposes of clause 6, that "the shortfall on the due bonus" to which that clause referred was $98,182.48. 73 When Mr Wookey made these representations to Shaw, he knew that individuals' bonus rights, as against Bell, had been waived in accordance with the Clarification. He knew that the individual contracts were no longer the source of a right to or expectation of bonus. In his own case, he had expressly stated to Bell in writing that he waived his "entitlements as to bonuses due to me under contract with Bell Potter Securities for the year ending 30 June 2002". He knew that E8 had elected to take instead the benefit of the arrangement under which E8 was to have 35% of outstanding receivables as and when collected. The calculation in Mr Wookey's "summary workings of the accrual" show that he allowed to Shaw, as it were, some credit for receivables or, as he put it, "expected recoveries on debtors". But expected recoveries on debtors were not recognised by him as having replaced a bonus entitlement (as was in fact the case under the Clarification). 74 It follows that Mr Wookey's representations were misleading or deceptive. The true position with respect to bonus was that there was no longer any bonus entitlement or expectation under individuals' contracts. E8 had received as a substitute the product of the arrangement created by the Clarification concerning collection and sharing of receivables. It was accordingly misleading or deceptive to say that there was an entitlement or expectation based on an "adjusted profit" figure – even one reduced by certain "recoveries on debtors". 75 Mr Wookey and Mr Martin eventually conceded that "some amount is to be paid back to Shaw/SCF in relation to the bonus amount". This was stated in an email of 17 June 2003 sent by Mr Coleman of Shaw. On 8 August 2003, Mr Shapiro, on behalf of Shaw, wrote to the directors of E8 (for the attention of Mr Wookey) referring to "a number of issues which are still required to be finalised". He continued: "… and without prejudice to our rights in that regard we advise as follows … We are advised Equity 8 has accepted that the initial bonus paid by SHAW according to the Heads of Agreement dated 17 July 2002 ('Heads') can only be verified to the amount of $57,156.02. While SHAW is not completely satisfied that that the total initial bonus may have been due to E8 it wishes to finalise the Financial Statements for the year ended 30 June 2002 ('Year'). Accordingly, SHAW has paid to E8 and SHAW Corporate Finance ('SCF') all of the consultancy fees and salaries due for the Year and will pay the bonus due to SCF for the Year in accordance with the Heads less the difference of $41,026.46 on the initial bonus." 76 E8 says that this statement by Shaw that $41,026.46 should be offset against E8's 2003 bonus from Shaw was acceptance by Shaw of the position communicated by Mr Wookey, adjusted by the amount refundable in the light of the ability to verify only to the extent of $57,156.02; and that Shaw accordingly acquiesced in that position so that it cannot now be heard to complain. I do not accept that submission. The apparent acceptance or acquiescence was itself affected by Mr Wookey's misleading or deceptive representations. On 8 August 2003, Mr Shapiro continued to be under the misapprehension, produced in his mind by Mr Wookey's conduct, that the team members had been denied by Bell expected bonuses, when in reality the right or expectation in relation to bonuses as against Bell had been given up in return for the right to take 35% of collections. Mr Shapiro was never told about that. The Park Plaza fee 77 Before the Team joined Shaw, it had an established advisory connection with a company called Park Plaza Kemayan ("PPK"). On or about 29 July 2002 (that is, some eleven days after disengagement from Bell), - then still BPCF - entered into a written agreement with PPK to provide a scoping study on a capital raising strategy. On the same day, Cartesian issued an invoice for $11,000 to PPK. This was paid to Cartesian by PPK on 31 July 2002. Shaw in due course issued a scoping study to PPK. It was dated August 2002 and signed by Mr Martin ("Director, Shaw Corporate Finance") and Mr Wellham ("Associate Director, Shaw Corporate Finance). 78 E8 accepts that a written agreement was concluded between PPK and Cartesian on or about 29 July 2002 and that the invoice was issued and paid as outlined above. But E8 maintains that work in relation to the PPK scoping study assignment had begun in May or early June 2002 in anticipation of formal engagement and that the scoping study report had been completed by Cartesian by 29 July 2002. According to E8, although the report was dated August 2002, it had been completed earlier and held back until the engagement letter was finalised and the fee paid. 79 There is in evidence an email from Mr Martin to Mr Wan of PPK shown as sent at 12.38am on Thursday 1 August 2002. Mr Martin acknowledged having sent it from his home computer. The email reads as follows: "Simon, I do apologise for the delay in getting back to you. Please find attached the initial information that I require to get started on the Scoping Report. I have tried to make the task easier by seperating [sic] information that I require from Head Office and Information requirements that you may want to pass on to the Divisional managers. Please note - It is only a wish list and I will understand if all the information is not available! - most of the information should be readily accessible and will hopefully not create further work for your staff. I will be in contact with you soon. regards" 80 Shaw Corporate's "Active Transactions Report" dated 30 July 2002 contains a reference to a matter for client "PPK" with a transaction description simply "$5.5 million". The "role" is described as "Adviser/Manager". There is then a description "Mandated on 29 July 2002" and a reference to a "begin date" of "3Q'02" – no doubt a reference to the third quarter of 2002, commencing 1 July 2002. 81 Mr Martin's timesheet records for June and July 2002 are in evidence. They contain references to PPK on 15 July ("PP discussion re mandate"), 17 July ("PPK mandate negotiations") and 31 July ("Simon Wan"), but without references to time spent. There are some references to PPK in earlier timesheets of Mr Martin. Mr Wellham's timesheets record 17 hours of work for PPK on 15, 16, 17 and 29 July 2002. 82 It is Mr Martin's evidence that a mandate was prepared on about 17 or 18 July in the name of BPCF (that is, Cartesian) and that a first draft of the scoping report was well advanced by the time the fee was paid on 31 July. 83 Mr Martin accepts the content of his email of 1 August but points out that it was sent from home in the very early hours of the morning. He also notes that the recipient of the email, Mr Wan, sent it on to colleagues on the afternoon of the same day, describing it as "e-mail correspondence from Ross Martin of Bell Potter requesting a full range of additional information for them to do complete [sic] the scoping report". Mr Wan added: "It will take us a few days to put them together, therefore the distribution of the scoping report will probably be delayed by a couple of days." 84 E8 also points to the fact that the signed original report dated simply "August 2002" carries at the foot of each page a notation "Draft 12 – clean". 85 On the basis of this evidence, I am satisfied that Mr Wellham had done work on the PPK scoping assignment from mid July. Mr Martin may have done some work on it in June. During July, Mr Martin spent time on the PPK connection but principally (and perhaps solely) on negotiation and completion of the retainer arrangement. Although Mr Martin's email of 12.38am on 1 August referred to a need for information for him to "get started on the scoping report", Mr Wan's reference in the message to his colleagues to Mr Martin having requested "additional information" made it clear that some information had already been given. Also, Mr Wan's statement that the "additional information" was needed "for them to do complete [sic] the scoping report" indicates, by use of the word "complete" that, on Mr Wan's understanding, preparation of the report was already in progress. 86 My conclusion is that Mr Martin had had little involvement in the actual report preparation before 31 July but was aware that, as the timesheets show, Mr Wellham had been working on it. Having completed the retainer negotiation, issued the invoice on 29 July and received payment on 31 July, Mr Martin may be taken to have decided to take an active and personal role on 31 July. At home, late at night and probably without any real insight into what Mr Wellham had already done, he sent the 12.38am email which Mr Wan, probably aware of Mr Wellham's earlier efforts, viewed as a request for "additional information" necessary to "complete" a task already underway. Mr Martin himself said in the cross-examination that "there was certainly work done after 1 August to finish it off in a way that they wanted it" but as Mr Wan pointed out to his colleagues on 1 August, the request for information meant that distribution of the report "will probably be delayed for a couple of days". In summary, appreciable work had been done before 31 July 2002 and a spurt of effort occurred thereafter, once the fee was in hand. This produced, in August, a signed report marked "Draft 12", thus, to my mind, confirming that it marked the culmination of a process that had been in train for some time. 87 The invoice of 29 July 2002 was issued by BPCF (ie, Cartesian). The payment of 31 July 2002 was made to BPCF (ie, Cartesian). The scoping report, when issued in August, was issued by Shaw Corporate over the signatures of Mr Martin and Mr Wellham. Mr Wan had, on 5 August 2002, informed his PPK colleagues by email of advice from "Bell Potter" that they had "'merged' with Bell Stockbroking Limited" and that he had been assured that this would "not affect the mandate with them". 88 I accept that some of the work done which culminated in the issue of the scoping report was done before the relevant operatives became subject to the arrangements with Shaw. I am also satisfied that some of the work was done afterwards. Much more importantly, however, the final work product was represented to the client as the work of Shaw Corporate. There can be no doubt that, if the report had been faulty – for example, because negligently prepared or containing some error or misrepresentation – and the client had sought redress, it is Shaw Corporate that would have been sued. The concluding sentence of the report reads: "If you have any questions please do not hesitate to contact us via the details provided below." 89 Then there appear the signatures and particulars as follows: "Ross Martin Glen Wellham Director Associate Director Shaw Corporate Finance Shaw Corporate Finance Tel: (02)9238 1556 Tel: (02)9238 1852 rmartin@shawstock.com.au gwellham@shawstock.com.au" 90 Mr Martin was apparently quite content to fix Shaw Corporate with responsibility and liability for the content of the report yet to cause Cartesian to pocket the whole of the remuneration derived from its preparation. He obviously discarded the possibility that risk and reward should go together. The Delta Electricity fee 91 Shaw maintains that, on or about 26 June 2002, BPCF (ie, Cartesian) entered into an agreement to provide financial advice to Delta Electricity in relation to a proposed debt capital raising, that certain work was undertaken by Mr Martin and Mr Wellham on that assignment between 22 July 2002 and 31 July 2002, that BPCF (ie, Cartesian) issued invoices for a total of $331,772.80 to Delta for work undertaken up to and including 31 July 2002 and that, by about 30 September 2002, Delta had paid these invoices to BPCF (ie, Cartesian) or E8 or in part to one and in part to the other. Shaw further says that $13,681.25 of the total related to the work done by Mr Martin and Mr Wellham between 22 July 2002 and 31 July 2002. 92 E8 does not dispute these basic allegations. A mandate had been entered into by BPCF (ie, Cartesian) with Delta on 26 June 2002 and had been amended on 5 July 2002. Cartesian's billings to Delta included some time recorded by Mr Martin and Mr Wellham between 23 July 2002 and 30 July 2002. Mr Martin explained in evidence that, in accordance with his usual business practice, he waited for a natural break point in work before issuing an invoice. 93 In the case of the PPK assignment, it was significant that it was Shaw Corporate that was represented as the provider of the work product, with consequent responsibility, apart altogether from the question of when the actual work was done. There was no such apparent allocation of responsibility to Shaw Corporate in the Delta Electricity case. The allegation of diversion of money to Cartesian or E8 can depend only on the fact that some of the time covered by the billings fell after the complementation of the transfer to Shaw. That, to my mind, is a sufficient basis, given the nature of the commitment E8 undertook. 94 It was inconsistent with E8's contract with Shaw for any of the services of any personnel to be supplied to clients otherwise than on the footing that the remuneration generated by the services belonged to Shaw Corporate. 95 Mr Martin referred in his affidavit to conversations with Mr Shapiro at the time of transition in which he told Mr Shapiro that he and another were continuing to work at the Bell Potter office in Melbourne finishing off some mandates. He said that Mr Shapiro accepted this. However, it was put to Mr Martin that he did not tell Mr Shapiro that Cartesian would receive the fees for this, Mr Martin said, "Probably correct"; and that he could not recall having so informed Mr Shapiro. The conclusion must therefore be that Mr Shapiro was unaware that the "finishing off" work being performed by Mr Martin and another after commencement of the E8-Shaw arrangement was remunerative work for which Cartesian would be paid. The CGC fee 96 It is common ground that on or about 31 January 2003 Consolidated Gaming Corporation Ltd ("CGC") lodged with ASIC a prospectus in relation to an offer of shares at an issue price of 50 cents per share. On or about 24 February 2003, E8 forwarded an application for 200,000 shares in CGC at 50 cents per share. The application was made on behalf of Cartesian (then called "Corporate Finance Counsel Pty Limited"). 97 The application form and a covering letter are in evidence. The letter is on E8 letterhead and is signed by Mr Wookey. It begins, "I wish to apply for shares as part of the placement being made by CGC" and goes on to specify "Corporate Finance Counsel Pty Ltd" as "Name shares to be registered in". The application form itself refers to the applicant as "Corporate Financial Counsel P/L". It gives details of an accompanying cheque for $100,000, saying that the cheque was drawn on National Australia Bank, 271 Collins Street, Melbourne by "Bell Potter Corporate Fin". The cheque itself is also in evidence and is drawn by "Bell Potter Corporate Finance Limited" on account No. 540363195 (BSB 083-091). 98 It is necessary to refer also to certain email correspondence. On 6 February 2003, Mr Wookey wrote to Ms Huckel of Shaw (with a copy to Mr Shapiro) noting registration of the CGC prospectus and the likelihood that CGC shares would "re-list early next week". Mr Wookey then said: "Subject to price, it is my intention to acquire an interest in CGC shares over the course of the next month." 99 Mr Wookey continued: "As we have no current mandate, and given re-listing of the shares and the currency of the prospectus I do not foresee any impediment in [sic] my dealing in the stock, but I would welcome your comments and advice." 100 Ms Huckel replied on the same day expressing a view that Mr Wookey was "clear to buy or sell shares in the company". Her accompanying comments show that she had addressed the matter principally from an insider trading perspective. 101 Mr Wookey emailed Ms Huckel again on 19 February 2003 saying: "I expect that part of my interest may be taken up in Corporate Finance Counsel Pty Ltd which is wholly owned by Equity 8 Pty Ltd. Ross Martin and I are the only ordinary shareholders in Equity 8, but David Mackey, Simon Kidston and Nic Dacres Mannings have a beneficial interest in Equity 8, by virtue of preference share holdings. Could you please amend your records to reflect the relevant interests noted above. We will open SHAW accounts in the name of Equity 8 and Corporate Finance Counsel in due course." 102 Ms Huckel passed this message to Mr Shapiro who, on the same day, emailed Mr Wookey as follows: "Dear Bruce Further to our discussion this morning and your emails to Michelle. We need to resolve the CGC outstanding amounts by close of business tomorrow or we will be handing the matter over for collection. You confirmed this morning that you have no position in CGC at this stage and under the circumstances I cannot give you permission to acquire any CGC shares on market as per your request to Michelle. Once all outstanding issues are resolved with CGC we will reconsider the position." 103 To that point, the email correspondence had contemplated an on-market transaction. That was reflected in Mr Shapiro's email just quoted. Indeed, Mr Wookey's email of 19 February 2003 had contemplated that Cartesian would open a Shaw Stockbroking account for the purpose. An account with a stockbroker would have been necessary for an acquisition on-market, but not for an application for allotment. In addition, Mr Wookey's first notification had contained the words "subject to price" – something that would not have applied to an already issued prospectus and could only have contemplated the price fluctuations that the market produces. 104 In the events that happened, BPFC took an issue of shares in the way already mentioned. This had implications under Shaw's compliance manual which contained provisions to the following effect: "… all staff dealing must be conducted through accounts opened with the appropriate Group of SHAW Stockbroking …. It is stressed that this requirement applies to all share transactions on the Australian Stock Exchange. However, it should be noted that staff will continue to be able to invest in shares other than through SHAW Stockbroking, where the investment is made under the terms of a prospectus." 105 If matters had been left there, the only question arising would be whether the acquisition of shares by Cartesian by subscription and allotment was consistent with the compliance manual. But an added dimension comes from the fact that E8 subsequently invoiced CGC for, and was paid, a "placement fee". The invoice was dated 12 May 2003 and was for a sum of $5,000.00 described as follows: "Placement Fee due and payable for subscription of fully paid ordinary shares in Consolidated Gaming Corporation Limited in accordance with our letter of 24 February 2003 (copy attached). Placement Fee @ 5%X $100,000" 106 The invoice was issued by E8 and indicated that the cheque in payment was to be payable to E8. 107 The charging of the fee was something that had been foreshadowed from the beginning. On 21 February 2003 (some three days before the application was made), Mr Kidston (a member of the team) emailed Mr Wookey as follows: "Bruce · $22,000 was transferred from SHAW to E8 yesterday (20/2/03) · Spoke to Nick Tysing and confirmed we would lodge an application and cheque for $100k on Monday · Fee is 5% Price is $0.50 · Several parties are working on the remaining $250k but it is still available at this stage. · Share price was a bit soft for most of the day (around $0.55) SK" 108 The application by Cartesian was not made under any prospectus. This appears from the application form itself. It carries this form of acknowledgment: "By lodging this application form, I/We declare that the application is completed and lodged according to the Exempt Offer and the declarations/statements on the reverse of this application form and declare that all details and statements made by me/us (including the declarations on the reverse of this form) are complete and accurate. I/We agree to be bound by the Constitution of Consolidated Gaming Corporation Limited and agree to the issue to me/us of any number of ordinary shares equal to or less than the number of ordinary shares and the applicable number of options indicated in Section A above which may be issued to me/us pursuant to the Excluded Offer." 109 The expression "excluded offer" used in this form of acknowledgment formerly found a place in corporations legislation. It had a particular relevance to underwriting and sub-underwriting of issues of securities. Thus, ASIC's Policy Statement 61, as updated to December 2003, referred to provisions placing "excluded offers" of securities beyond the rules with respect to prospectuses. An offer or invitation to enter into an underwriting agreement was identified as a species of "excluded offer". 110 The "excluded offer" and "exempt offer" references in the form of acknowledgment executed by Cartesian show that the transaction took place outside the confines of a prospectus. It was, as the invoice confirmed, a placement. 111 Mr Wookey's original representation to Shaw was that he himself intended to acquire shares in CGC. He made that representation on 6 February 2003 in a context where CGC had recently obtained registration of a prospectus and it was expected that CGC shares would "re-list early next week". Some 13 days later, Mr Wookey informed Shaw of an expectation that "part of my interest" might be taken up "in" BPCF (ie, Cartesian), a wholly owned subsidiary of E8. Mr Shapiro, when he emailed Mr Wookey on 19 February 2003, assumed that the acquisition Mr Wookey had foreshadowed would be "on market". That was not surprising, in view of what Mr Wookey had said (see paragraph [103] above. Mr Shapiro expressly declined to give "permission" for any such transaction. 112 Five days later, on 24 February 2003, BPCF (ie, Cartesian), at the behest of Mr Wookey, made an application to CGC for an issue of 200,000 at 50 cents each. The application form referred expressly to "excluded offer" and "exempt offer", thus making it clear that it was not made under a prospectus. Three days before the application was made, Mr Kidston had told Mr Wookey that the fee was 5%. And E8 in due course received from CGC a "placement fee" of $5,000 in respect of the $100,000 subscription for the 200,000 shares. 113 Mr Wookey never disclosed to Shaw the true nature of the transaction. As far as Shaw was concerned, the chain of communication stopped at the point where Mr Shapiro refused permission for what he thought, understandably, was to be an on-market purchase. The Shaw compliance manual contained rules about "staff dealing". There is no suggestion that the rules did not apply to dealings by companies controlled by staff members. Indeed, only a cynical disregard for the spirit of the rules could warrant any such view. The rules were clear enough. All dealing was to be through accounts opened with Shaw, except where an investment was made under a prospectus. 114 The 24 February 2003 subscription contravened these rules. In addition, it was, in truth, a subscription for a placement for which a fee or commission was paid. The fee was an integral part of the arrangement from the beginning, as is made clear by Mr Kidston's email. As a placement, it was a transaction that lay within the ordinary course of the business of a stockbroking or corporate finance organisation accustomed to participating in underwriting and sub-underwriting, either for itself or for clients. A draft internal document of 28 August 2002 headed "Fees For Corporate Deals" makes it quite clear that Shaw Corporate, under the then new arrangements, was to be an active participant in underwritings and sub-underwriting. An employee of such an organisation who, for personal gain, took advantage of such an opportunity that came his way by reason of his contact with a client of his employer would clearly breach the duties owed by him as an employee. Client representations 115 Shaw makes complaint about certain notifications given by Mr Martin and Mr Wookey to clients about the move to Shaw. 116 On 31 July 2022, a circular was sent by email to several people at Delta Electricity. The thrust of the message was that BPCF (ie, Cartesian) was continuing in business, having "decided to strengthen a relationship with a second stockbroking group known as the Shaw Group". The circular then said: "BPCF and the stockbroking arm of the Bell Group will continue to work on corporate transactions as in the past, however, BPCF will now also be working with the Shaw Group and their stockbroking business." 117 The message cast Cartesian in an independent role, drawing on contracts with both Bell and Shaw. Hence: "… we will now be able to take our capital market offers to an enhanced distribution network of stockbrokers in both the Bell Potter network of offices and the Shaw Group's network of offices around Australia." 118 On 1 August 2002, Mr Wookey and Mr Martin sent an email to another client, Ebetonline, conveying essentially the same message. 119 On 3 September 2002, Mr Martin emailed Mr Welch of NSW Sugar (with a copy to Mr Malena of Delta Energy) saying that a "key shareholder in our Bell Potter Corporate Finance business recently sold down and the Shaw Group was introduced as a new shareholder". He also said that "we are the same business entity but some of our logistic details have changed to accommodate our new ownership structure". He gave "new bank account details" and asked that "current invoices" (detailing them) be paid into that account. The details given were those of the BPCF (ie, Cartesian) account with the National Australia Bank at 271 Collins Street Melbourne on which the cheque for the acquisition of the CGC shares was drawn in February 2003 (see paragraph [97] above). There was a concluding note that BPCF (ie, Cartesian) was "trading as Shaw Corporate Finance from August 2002". 120 Also on 3 September 2002, Mr Martin emailed Mr Sayers of Delta Electricity informing him of a change to "some of our logistic details" and identifying the Cartesian account with NAB in Melbourne as the desired destination for payment of "current invoices for work done for Delta Electricity by Bell Potter Corporate Finance", that being represented at the ongoing advisory entity into which Shaw had been "introduced as a new shareholder". There was a concluding note: "Bell Potter Corporate Finance will be trading as Shaw Corporate Finance from August 2002". 121 These emailed messages were deceptive. They did not reflect the true substance and effect of the July 2002 agreement under which Shaw Corporate was to be the sole corporate arm of Shaw, with "Team's company, Equity 8" providing "the services of Team's personnel" in the way the July 2002 agreement required. 122 The representations to the several clients sought to portray BPCF (Cartesian), after its sale by Bell to E8 and E8's commitment to the July 2002 agreement, as some sort of free and independent intermediary capable of delivering the services of Mr Wookey, Mr Martin and others on a basis warranting the payment of fees to and retention of fees by Cartesian as an independent operator. 123 Having regard to my findings as to the true nature and content of the July 2002 agreement, Cartesian was in no such position. The services of the relevant personnel were committed exclusively to Shaw Corporate by and through E8. 124 It was submitted on behalf of E8 that the impact of the several client communications to which I have referred was negated by a Shaw notice to clients dated 5 August 2002 and sent on a Shaw Corporate Finance letterhead over the signature of Mr Wookey. This, on the evidence, was sent to "the Team's key clients", including Delta Electricity and Ebetonline and its terms were approved by Mr Shapiro. 125 That circular may have dulled the impact of the messages of 31 July 2002 and 1 August 2002. More likely, it confused matters in that I am not satisfied that a recipient of the 5 August 2002 would have been disabused altogether of the misleading impressions created by the earlier messages. And, of course, whatever message of adherence to Shaw may have been conveyed by the notice to clients of 5 August 2002 was, in the case of NSW Sugar and Delta Electricity, contradicted by the subsequent emails of 3 September 2002 not only portraying BPCF (Cartesian) as an ongoing and independent operation but also giving details of the Cartesian bank account with NAB Melbourne for the payment of invoices. 126 Even after the general circular the clients of 5 August 2002, Mr Martin was at pains to emphasise to the client contacts to which the emails of 3 September 2002 were sent that BPCF – now Cartesian - was (and was to continue as) the provider of services. Those clients were led to believe that there was a shareholding connection with Shaw and that, while BPCF (Cartesian) would be "trading as" Shaw Corporate Finance, it was still Cartesian that was active – and active in a way that required the client to know of the NAB bank account for invoice payment purposes. 127 The reference to "new bank account details" (referring to the NAB account) in conjunction with the changes to "some logistic details" following introduction of Shaw "as a new shareholder" clearly implied that that bank account was to be used for invoice payment purposes as a consequence of the new connection with Shaw. In reality, of course, the bank account was not connected with Shaw. It was, as the CGC transaction shows, used as the repository for moneys to be kept outside Shaw's domain by E8, the owner of the share capital of Cartesian. 128 It is significant that it was E8, the party contracted to Shaw, that owned Cartesian following the separation from Bell Potter. The decision-makers within E8 were, by definition, the decision-makers within Cartesian. They, in September 2002, deliberately led clients to think that the BPCF (Cartesian) bank account with NAB – which had nothing to do with Shaw and E8's connection with Shaw – was the proper destination of payments for services rendered by BPCF "trading as Shaw Corporate Finance from August 2002". 129 Even allowing for the dulling by means of the general circular of 5 August 2002 to which I have referred, Mr Martin and Mr Wookey, knowing of the July 2002 agreement and its implications, led clients to believe in late July, in August and, in particular, in September 2002 that BPCF (Cartesian) was an operative service provider and that payments of its fees should be directed to a bank account which had nothing to do with Shaw and, in a corporate sense, was one place removed from E8. 130 Another matter should be mentioned in this connection. On 9 August 2002, Mr Wookey signed a letter on E8 letterhead addressed to ASIC concerning the dealers licence No 171251 held by BPCF (Cartesian). He explained that E8 had purchased the shares in that company and gave some background information about E8. He represented that the name of the company had been changed to Corporate Finance Counsel Ltd ("CFC"). He also said: "It is our intention to continue with CFC's established business of providing advice on capital formation, fund raising and equity advice and general corporate advice to companies and government and semi-government enterprises. We wish to continue to use the current dealer licence in the transitional phase before moving to an Australian financial services licence." 131 It is thus clear that the messages given to clients to the effect that BPCF (Cartesian) would remain an operative service provider was consistent with a description of projected activities given to the regulatory authority after the general circular of 5 August 2002 had been sent. The "proper responses" issue – letter of 26 August 2003 132 It is now necessary to traverse a chain of correspondence between Shaw and Mr Wookey (and, to a certain extent, Mr Martin) that began after Shaw had come to have doubts about the propriety of actions of and within E8. 133 On 26 August 2003, Mr Coleman, General Counsel of Shaw, wrote to "The Managing Director, Equity 8 Pty Ltd and Corporate Finance Counsel Ltd". The letter was marked for the attention of Mr Wookey and began "Dear Bruce". Mr Coleman sought clarification of a number of matters, having referred to "Shaw's obligations as licensee", including "the supervision and monitoring of internal compliance policies and procedures in relation to its proper authority holders". 134 The first matter covered by Mr Coleman was a letter of advice on the letterhead of Corporate Finance Counsel (now Cartesian) and signed by Mr Wookey. The letter was to the managing director of Pracom. Mr Coleman asked for a copy of the letter and to be informed of the basis on which the company that is now Cartesian (then CFC) was engaged by Pracom. After requesting certain other information, Mr Coleman asked question 4: "Please advise whether or not since 17 July 2002, CFC, Equity 8 Pty Ltd ('Equity 8'), or any SHAW Proper Authority holder employed or engaged by Equity 8 has received either directly or indirectly and fee, commission or other remuneration that has not been disclosed to SHAW." 135 Mr Coleman next referred to PPK. He mentioned the mandate of 29 July 2002 between PPK and BPCF (Cartesian) and to the invoicing of PPK of the same date. Certain particulars were requested. 136 Mr Coleman then moved on to CGC. He referred to the correspondence of February 2003 about proposed dealing in CGC shares. He then asked whether any fees had been paid by CGC in relation to the application for 200,000 shares by Cartesian (then Corporate Finance Counsel) or on any other application. 137 Finally, Mr Coleman asked whether Mr Wookey and E8 or either of them had opened dealing accounts with J B Were. If "yes", further particulars were sought. The "proper responses" issue – letter of 28 August 2003 138 Mr Wookey responded to Mr Coleman on 28 August 2003. He accepted that he had written a letter of advice to the managing director of Pracom on BPFC letterhead but said there had been no fee. He also said that BPFC had not undertaken any business activities beyond investing in listed shares since 17 July 2002. In further response to Mr Coleman's question 4 he said: "I have made enquiries of the associates and employees of Equity 8, and believe that if they or myself have received any income which should have been disclosed to Shaw it has been so disclosed. Unfortunately your question at 4, as framed is nonsense. For example, I generate income from yachting, trading motor vehicles, investing and real estate but do not believe Shaw requires disclosure of this income." 139 In relation to PPK, Mr Wookey represented that the report had been prepared by Mr Wellham and himself (ie, Mr Wookey) and, "while available around the middle of July, was not passed on to the client in the absence of a signed mandate letter". He further represented that the mandate was signed "at the end of July, at which time, the report was handed over and the associated $10,000 fee for this advisory work billed". He said further: "As the work was done by Bell Potter Corporate Finance … the moneys were received into that company's bank account." 140 In relation to CGC, Mr Wookey said: "CFC merely subscribed for shares in a placement, the subject of a Prospectus. Beyond publicly available information we have no knowledge as to the questions you raise. At the AGM of CGC we became aware that subscribers not introduced by Terrain securities were receiving a 5% rebate on their subscription. At the time of subscribing we believed that all of these fees accrued to Terrain, which was consistent with Shaw's original and subsequently aborted mandate. CFC sought and received this rebate on the shares it subscribed for in July of this year." 141 In relation to staff dealing, Mr Wookey said that he had made inquiries of the associates and employees of E8 and "believe that neither Equity 8 or [sic] any of its associates or employees operate any accounts with an ASX Participating Organisation other than Shaw". The "proper responses" issue – letter of 24 September 2003 142 Mr Coleman wrote at length to Mr Wookey on 24 September 2003. In relation to the Pracom matter, he alleged that Mr Wookey had, by his actions, misrepresented to Pracom that Shaw or Shaw Corporate was associated with Cartesian (then Corporate Finance Consultants, or CFC). Mr Coleman also said that Mr Wookey had acted as a representative of CFC without any proper authority from CFC and that this appeared to involve breach of statutory provisions and might have constituted unprofessional conduct under ASX business rules. It might, he said, also have caused Shaw to breach those rules. Mr Coleman also alleged breach of the July 2002 agreement. Finally, he alleged that certain responses in Mr Wookey's letter were incomplete and invited further particulars. 143 On the subject of PPK, Mr Coleman's letter of 24 September 2003 began by referring to the agreement for the sale of the shares in BPCF (Cartesian) by Bell Potter to E8. He drew attention to a provision stating, in effect, that E8 had no right to use the names "Bell", "Potter" and "Bell Potter". Mr Coleman went on to question two propositions: first, that the work done by Mr Martin on the PPK assignment was done while Mr Martin was on leave from Bell Potter and was not acting as a Bell Potter employee; and, second, that Mr Martin and Mr Wellham undertook advisory work for PPK on behalf of BPCF (Cartesian) while it was still owned by Bell Potter without being paid by PPK. Mr Coleman then made the point that Mr Martin was a Shaw proper authority holder when he signed the mandate of 29 July 2002, so that the financial adviser could only have been Shaw Corporate acting under Shaw's proper authority and licence. Mr Coleman alleged that breaches of the July 2002 agreement and Shaw's compliance manual were involved in the taking of the mandate by BPCF (Cartesian), as well as misrepresentation. He made the point that, in reality and in substance, the fee belonged to Bell Potter or Shaw. 144 In relation to CGC, Mr Coleman set out the email of 21 February 2003 from Mr Kidston to Mr Wookey (see paragraph [102] above). He then challenged Mr Wookey's statement in the letter of 28 August 2003 that it was at the annual general meeting of CGC (held, as the evidence shows, on 30 May 2003) that he became aware of the availability of a 5% rebate on subscriptions. Mr Coleman further pointed out that the CGC prospectus did not refer to rebates for subscribers but did refer to broker fees as an expense of the issue. Mr Coleman concluded, in relation to CGC, by observing that Cartesian "appears to have received a secret commission in the amount of $5,000 in July 2003". He communicated a demand by Shaw for that sum to be accounted for. 145 Mr Coleman next moved on to the matter of "staff dealing" and referred to information received from J B Were that accounts for Wokoey Pty Ltd and E8 were opened by J B Were on 1 August 2003 and closed by it on 15 August 2003. Mr Coleman also referred to an email from a person at J B Were to Mr Wookey on 20 June 2003 saying that J B Were would "send through some account opening forms and wholesale investor certificate this afternoon". Mr Coleman observed that no permission was sought from Shaw for the opening of the accounts on 1 August 2003 and that a breach of Shaw's compliance manual, policies and procedures appeared to have occurred. He then asked for specific information by way of five questions, adding that Mr Wookey did not appear to have correctly answered questions on the subject put to him in Mr Coleman's earlier letter. 146 Mr Coleman then turned to a new subject, so far as the correspondence commencing with his letter of 26 August 2003 was concerned. He referred to and set out in full clause 6 of the July 2002 agreement (see paragraph [61] above). He then referred to the Clarification of 18 July 2002 between Bell and E8 (see paragraphs [8] and [63] above) and to the correspondence and discussions involving Mr Wookey, Mr Martin, Mr Coleman himself and others concerning the claim for $98,182.48 claimed by E8 under clause 6. Having drawn attention to those matters, Mr Coleman asserted that, according to the revised arrangement with Bell (concerning 65%/35% split of receivables) no bonus was due to E8 under the Bell arrangement. Mr Coleman then dealt with an alternative proposition, namely, that the agreed 35% of receivables was in reality to be the bonus. On that basis, he said that, having regard to receivables identified in the modifying agreement of 18 July 2002 and others independently identified, the recovery by E8 under the 35% arrangement agreed with Bell would have yielded to E8 more than Shaw had paid in the belief that it was required by clause 6 to do so. Mr Coleman demanded repayment by E8. The "proper responses" issue – letter of 4 November 2003 147 The response to Mr Coleman's letter of 24 September 2003 took the form of a letter dated 4 November 2003 on E8 letterhead signed by both Mr Wookey and Mr Martin and addressed to the managing director of Shaw, with a copy to Mr Coleman. It began by referring to Mr Coleman's letter of 24 September 2003, Mr Coleman's letter of 26 August 2003 and "our response of 28 August 2003". After preliminary comments about finding "the entire process offensive and unprofessional" and about alleged breaches of contract and confidentiality, Mr Wookey and Mr Martin turned to the particular issues that had been raised. 148 In relation to Pracom, Mr Wookey enclosed a letter from the managing director of that company describing Mr Wookey as "a source of knowledge and personal advice to myself and Bruce Carter" over a period of ten or more years. Mr Wookey's assistance was said to have been without financial reward. The particular letter of advice that had prompted Mr Coleman's initial inquiry (see paragraph [134] above) was said by the writer to have been "an extension of our historical relationship", with no fee-paying professional assignment having been offered to Shaw or Mr Wookey. Mr Wookey and Mr Martin said that "the character of the relationship and advice was clearly known to both Shaw and the Pracom directors and was very clear from the outset". They went on to say that there were no misrepresentations by Mr Wookey or Cartesian to Pracom, its directors or its managing director as alleged. 149 Regarding the PPK matter, the essential message conveyed by Mr Wookey and Mr Martin in the letter of 4 November 2003 was that they had nothing to add to what had been said in the letter of 28 August 2003. 150 In relation to the CGC matter, the letter referred to the transaction as a "placement" attracting a fee and said: "Given the decision of the Shaw board to withdraw from the CGC mandate, we did not seek subscribers from Shaw advisers which may have attracted this fee, and none was receivable by Shaw …" 151 Regarding the matter of staff dealing, Mr Wookey enclosed a letter to him from an executive director of J B Were saying: "I can confirm that we received no express authority from you to open accounts at J B Were for either E8 or Wokoey Pty Ltd." 152 In relation to the matter of the Bell bonus, the first statement of Mr Wookey and Mr Martin was: "Equity 8 and Shaw have settled this matter (refer Harold Shapiro letter of 8 August 2003). In these circumstances, there would seem no point in further debate with Cameron. We understand – meeting with Harold on 24 October 2003 – that Harold is keen to get a response from us on the issues raised by Cameron." 153 There followed a long series of statements about invoices and work in progress, as dealt with in the agreements between Bell and E8. Then, having said that "[t]o our mind, the claims by Cameron for payments at 5 have no foundation in law or contract", Mr Wookey and Mr Martin referred to the claim for $41,026.46 in a way that related it to an expected discussion about bonus for "the 2003 profitable year". 154 After some passages not responsive to the issues Shaw had raised, Mr Wookey and Mr Martin said: "In summary, in response to the allegations against Equity 8 and its personnel it is clear that: (i) Pracom : there has been no conduct which constitutes a breach of the law. (ii) PPK : there has been no conduct which constitutes contract with SHAW or the law, and there is no basis for claim by either Bell Potter or SHAW. (iii) Consolidated Gaming : SHAW is not entitled to any fees, and there has been no conduct that would constitute a breach of law. (iv) Staff Dealing : there has been no conduct that would constitute a breach of duties." The "proper responses" issue – memorandum of 11 November 2003 (and reply) 155 On 11 November 2003, Mr Coleman wrote to Mr Wookey and Mr Martin asking for information about postal addresses and telephone numbers shown on BPCF (Cartesian) letterheads before 17 July 2002 and in the period 17 July 2002 to September 2002. He made it clear that he wished to know whose addresses and numbers they were. 156 By email sent on 3 December 2003, Mr Martin said that the combined knowledge of four named members of the Team was to the effect that neither of two postulated "scenarios" was valid: first, that the phone number did not exist and E8 knew it did not exist; and, second, the phone number was not at Shaw's premises and one or more E8 employees "could have been, while holding proper authorities from Shaw, providing corporate finance advice using premises other than" Shaw's premises. 157 This, of course, did not answer the questions asked by Mr Coleman. The termination letter 158 On 10 December, 2003, Mr Shapiro, managing director of Shaw, wrote to Mr Wookey as managing director of E8 in these terms: "Dear Bruce TERMINATION OF HEADS OF AGREEMENT ('CONTRACT FOR SERVICES') BETWEEN SHAW STOCKBROKING LTD ('SHAW'), SHAW CORPORATE FINANCE PTY LTD ('SCF') AND EQUITY 8 PTY LIMITED ('E8') We refer to Cameron Coleman's letters to you of 26 August and 24 September 2003 and his memorandum dated 11 November 2003. In our opinion, your responses of 28 August, 4 November and 3 December 2003 have failed to satisfactorily address our concerns (which have been supplemented by considerable additional material documentation and information we have obtained) and you have not provided us with acceptable reasons why we should not terminate the Contract for Services as foreshadowed in Cameron Coleman's letter dated 24 September 2003. In the circumstances, you have left us with no option but to terminate the Contract for Services, effective immediately. Consequently, the Proper Authorities issued by SHAW to Equity 8 employees will be cancelled forthwith. With the termination of the Contract for Services, E8 should take immediate steps to ensure its employees vacate SCF's premises. You are not permitted to remove anything from the premises, except under the supervision and with the approval of Cameron Coleman, Allan Zion or myself. The decision has not been taken lightly but has been forced upon us by your failure to adequately respond to our concerns. You may rest assured that we have ample evidence to substantiate the position we have taken. Yours faithfully SHAW Stockbroking Limited (sgd) HAROLD SHAPIRO Managing Director" Assessment 159 I now proceed to an assessment of the conduct of E8 in the context of the July 2002 agreement, including its implied terms (both the terms (a) to (f) at paragraph [17] above and the term as to summary termination referred to at [39]). 160 The assessment also covers matters relevant to the fiduciary duties of Mr Wookey and his duties as an office of Shaw Corporate. Specific conclusions – bonus representation 161 Mr Wookey and Mr Martin caused E8 to breach its contract with Shaw. Virtually from the beginning, they conducted themselves in a way that entailed breach by E8 of the implied terms set out at paragraph [17] above. 162 E8, through Mr Wookey, made to Shaw the misleading or deceptive representations on the Bell bonus issue to which I have referred at paragraph [74]. The true position was that the bonus entitlements or expectations as against Bell had been waived. E8, no doubt for what it regarded as good commercial reasons (among them certainty, one would infer), took instead the benefit of the arrangement under which it was to have 35% of receivables. 163 The misleading or deceptive representation by E8, through Mr Wookey, was that, having regard to clause 6 of the July 2002 agreement and the events that had actually happened, there had been a "shortfall on the due bonus" of $98,182.48 for the purposes of that clause. Shaw paid out $98,182.48 on the faith of that misrepresentation. When Shaw pursued the matter later, Shaw was told that E8 could only verify the sum of $98,182.42 to the extent of $57,156.02. 164 The true position is that, for the reason stated by Mr Coleman in his letter of 26 August 2003, E8 never had any entitlement to payment under clause 6. The expectation of bonus from Bell had been waived. There was therefore, as of 18 July 2002, no longer any such expectation. It was a breach of implied term (d) for E8 to represent that the expectation continued to exist when the claim for $98,182.42 was made. The representation was made in trade or commerce. The making of it was therefore conduct proscribed by s.52(1) of the Trade Practices Act 1975. 165 Shaw suffered loss or damage by reason of the breach of contract and the statutory misconduct. The loss or damage is the sum of $98,182.42 paid by it on the faith of the misleading or deceptive conduct, together with recompense for being kept out of that sum from the date of payment. Specific conclusions – Park Plaza fee 166 Mr Martin brought about a situation where personnel whose services E8 had agreed to provide to the Shaw Group pursuant to the July 2002 agreement committed Shaw Corporate to responsibility and liability for a scoping report issued in August 2002 and in respect of which a fee of $11,000 was received by Cartesian, a wholly owned subsidiary of E8, and not accounted for the Shaw Corporate. 167 This entailed a breach by E8 of the implied terms (d) and (e). 168 Shaw is accordingly entitled to recover from E8 as damages the fee of $11,000 together with recompense for having been denied that fee since the time it was received by Cartesian. Specific conclusions – Delta Electricity Fee 169 The basic conclusion here is as stated at paragraphs [94] and [95] above. 170 Shaw is entitled to recover from E8 as damages for breach of contract the sum of $13,681.25 referable to the period 22 July 2002 to 31 July 2002 together with recompense for having been denied that remuneration since the time it was received by Cartesian. Specific conclusions – the CGC fee 171 E8, through Mr Wookey, made misrepresentations to Shaw on the matter and engaged in conduct that was misleading or deceptive. The representation he originally made (and never varied) was that the acquisition of shares in CGC was to be on-market: hence the reference in 19 February 2003 email to Ms Huckel to the opening of Shaw accounts in the names of E8 and Cartesian (Corporate Finance Counsel). Mr Shapiro, who saw that email, referred expressly to the request "to acquire … CGC shares on market as per your request to Michelle". His assumption that the acquisition was to be on-market was engendered by the terms of "your request to Michelle", that is, Ms Huckel. 172 In fact, Mr Wookey caused E8 to forward to CGC an application for allotment made by E8's wholly owned subsidiary now called Cartesian together with that company's cheque. The application was not made under a prospectus. The making of it involved a breach of the Shaw compliance manual. It also flew in the face of the obvious intent of Mr Shapiro's message or instruction to Mr Wookey on 19 February 2003. 173 Mr Wookey knew at the time that E8 was to receive a fee of $5,000. He took no step to offer the fee-paying opportunity to Shaw Corporate. 174 The acts of E8 in causing and permitting its wholly owned subsidiary to subscribe for the CGC placement and in receiving a fee for doing so were breaches of the implied terms (a), (b), (c), (d) and (e). Shaw is entitled to damages for breach of contract in the sum of $5,000 together with recompense for having been denied that fee since the time of its receipt by E8. Specific conclusions – client representations 175 The making of the representations termed the "client representations" entailed breach of the implied terms (b), (c) and (d). No damages claim is made in respect of these breaches. Specific conclusions – proper responses 176 Mr Wookey and, to the extent of his participation, Mr Martin were not frank and forthright in their communications with Shaw in the course of the correspondence between 26 August 2003 and 3 December 2003. 177 Mr Wookey's purported response on 28 August 2003 to question 4 in Mr Coleman's letter of 28 August 2003 addressed the question only partially. The question referred to two companies (E8 and Cartesian, or Corporate Finance Consultants) and a number of individuals. Mr Wookey replied in respect of "the associates and employees of Equity 8", including himself. He did not refer to Cartesian (then Corporate Finance Counsel) which, of course, had received the PPK fee, or to E8 itself, which had received the CGC fee. If, by referring to "associates" of E8, he intended to include Cartesian, then his reply was false. 178 On the matter of the PPK fee, Mr Wookey's first and final position in the correspondence was simply that, as the work had been done by Cartesian, the fee was properly received into its bank account. He made no attempt to justify the fixing of Shaw Corporate with risk. In addition, his statement that the report had been "available around the middle of July" was false: in the early hours of 1 August, Mr Martin had asked for information material to the preparation of the report. 179 On CGC, Mr Wookey inaccurately represented the share issue as "a placement, the subject of a prospectus". He falsely stated that awareness of the availability of a 5% "rebate" arose only at the annual general meeting of CGC. As is shown by the notice of meeting in evidence, the annual general meeting was fixed for 30 May 2003. The notice was dated 30 April 2003. Given the statutory requirement that 28 days notice be given, I infer that the meeting proceeded to business on 30 May 2003 or, conceivably, on some later date as a result of adjournment. Yet Mr Wookey had been informed by Mr Kidston on 21 February 2003 that participation in the issue would attract a 5% fee. In addition to that, of course, the E8 invoice claiming the 5% fee was dated 12 May 2003, some eighteen days before the date fixed for the annual general meeting. 180 In relation to Pracom, Mr Wookey and Mr Martin portrayed Mr Wookey's role as having been that of a friend rendering assistance without expectation of reward. Why he should do so on the letterhead of Cartesian (by then Corporate Finance Consultants) rather than in his private capacity is not explained. 181 In relation to the staff dealing matter, it is noteworthy that the J B Were letter accompanying the letter of 4 November 2003 confirmed that no "express" authority had been received to open an account for E8 or Wokoey Pty Ltd. That did not deal fully with the questions put by Mr Coleman on the subject. 182 In relation to the Shaw questions about the bonus, Mr Wookey and Mr Martin, in their letter of 4 November 2003, made essentially three points: first, that the matter had been laid to rest by Mr Shapiro's letter of 8 August 2003; second, that the claim by Mr Coleman that no payment ever became due under clause 6 had no foundation; and, third, that the matter of the balance of $41,026.46 might be taken up in an expected discussion about bonus for 2003. The questions asked by Shaw were not answered. 183 Mr Martin's response of 3 December 2003 to Mr Coleman's memorandum of 11 November 2003 did not answer the questions asked. It showed a deliberate intention of not answering them. 184 The correspondence between 26 August 2003 and 3 December 2003 could only have consolidated in the minds of responsible officers of Shaw that E8, through Mr Wookey and Mr Martin, was unwilling to be frank and forthright in its communications with Shaw. The correspondence from E8 contained the false statements to which I have referred. It also failed to deal with questions that were of legitimate concern to Mr Shaw. The position of Mr Wookey as an officer and a fiduciary 185 As an officer of Shaw Corporate, Mr Wookey owed the statutory duties imposed by ss.180(1), 181(1) and 182(1) of the Corporations Act. Mr Wookey also owed fiduciary duties to Shaw Corporate. In particular, he was bound to subordinate his personal interests to those of Shaw Corporate. 186 It is contended by Shaw that, in the matter of the bonus representation, Mr Wookey breached his statutory duties and acted otherwise than in accordance with his fiduciary responsibility. I am not convinced that the allegation of breach of statutory duty can be sustained. In making the misrepresentations about the bonus entitlement and taking steps to obtain payment by Shaw to E8, Mr Wookey was not exercising his power as an officer of Shaw Corporate or discharging a duty to which he was subject as an office of Shaw Corporate (ss.180(1), 181(1)); nor was he using his position as an officer of Shaw Corporate (s.182(1)). He was acting in a capacity and interest that pertained to his personal welfare and that of his colleagues. He was, in short, acting for E8 to induce Shaw to make a payment to E8. 187 That, however, was potentially relevant to his fiduciary position. He was pursuing his own interests and those of his colleagues (ie, E8) at the expense of those of Shaw. Importantly, however, it was Shaw that was prevailed upon to make the payment of $98,182.48, not Shaw Corporate. The fiduciary obligations were owed by Mr Wookey to Shaw Corporate, not Shaw. It is therefore not possible to conclude that any fiduciary duty was breached when Mr Wookey made to Shaw the misrepresentations that caused Shaw to pay the $98,182.48. 188 A somewhat different analysis applies to Mr Wookey's conduct in relation to the CGC allotment and the $5,000 fee. Again, in pursuing the particular opportunity, he was not exercising his powers as an officer of Shaw Corporate or using his position as an officer. He was, for the personal benefit of himself and his colleagues, acting contrary to express instruction and the compliance manual to cause the personally owned vehicle to enter into a transaction of the kind that lay within Shaw Corporate's field of commercial activity and to obtain a fee accordingly. He was pursuing his own interests and those of his colleagues at the expense of those of Shaw Corporate. There was accordingly a breach of fiduciary duty. 189 Because of the breach of fiduciary duty, Mr Wookey is, with E8, liable for the sum referred to at paragraph [174] above. The position of Cartesian 190 One question remains in relation to the claims by Shaw, namely, as to the liability of Cartesian. 191 It is, to my mind, clear that Cartesian was knowingly concerned in the breach of fiduciary duty by Mr Wookey in relation to the CGC fee. It could only have acted at his behest and in furtherance of the plan of action he had conceived. Cartesian is therefore liable, along with Mr Wookey, in the way described at paragraph [174]. Conclusions – summary termination 192 I have already observed that the contract between Shaw and E8 was subject to an implied term allowing summary termination by Shaw as against E8 in case of a single act of misconduct by E8 personnel or a series of such acts of such a quality as to undermine, with objective justification, the confidence of Shaw Corporate in the collective capacity of the group of individuals provided by E8 to render faithful performance to E8 (see paragraph [39] above). 193 The findings I have made show that a series of acts of misconduct occurred providing ample objective justification for the loss by Shaw Corporate of the confidence to which I have referred. From the beginning, E8 personnel – particularly Mr Martin and to a lesser extent Mr Wookey – took steps to position BPCF (now Cartesian), just purchased from Bell, as an operational vehicle in the minds of clients. Clients were given its bank account details for future reference. Shaw was represented as a "new shareholder" and as a "second stockbroking group" with which BPCF had "decided to strengthen a relationship". Right from the outset, there was non-acceptance, in communications with clients, of the fundamental basis of the July 2002 agreement that "the existing Team personnel" would be part of "the sole corporate finance arm of Shaw". The capacity of BPCF (Cartesian) to operate independently was carefully cultivated. Mr Wookey subscribed to the same approach in his letter of 9 August 2002 to ASIC. 194 The leaders of the Team thus demonstrated a lack of loyalty and commitment to Shaw and Shaw Corporate from the beginning. Despite the express terms of the July 2002 agreement, they never embraced a "one team" approach. They carefully preserved a structure calculated to enable them to operate in the very field of business occupied by Shaw and Shaw Corporate. 195 The willingness of Mr Martin to cause BPCF (Cartesian) to pocket the fee for the PPK assignment which culminated in a report issued in the name of Shaw Corporate and in such a way as to attract responsibility and liability to Shaw was an example of lack of adherence to fundamental basis of the July 2002 agreement, as was the retention by Cartesian of the Delta fee attributable to work done after the move to Shaw Corporate. 196 The events involving the bonus representation and the CGC fee showed a lack of fair and frank dealing by the leaders of the Team in order to obtain financial advantage. Each course of conduct, if engaged in by an employee against an employer, would have justified summary termination of employment. The same lack of fair and frank dealing permeated the correspondence in the period 23 August 2003 to 11 December 2003. That too would have justified summary termination of a contract of employment. 197 An aspect of the implied terms was that E8 would procure conduct by the persons whose services were provided to Shaw Corporate consistently with the due performance and observance of the duties of an employee. Mr Wookey, for reasons I have stated, breached fiduciary duties owed to Shaw Corporate. There was accordingly a breach of that aspect of the implied terms. 198 The clear conclusion is that the implied terms referred to at paragraphs [37] to [39] was breached by E8 on several occasions and in serious ways. The termination, by the letter given to Mr Wookey and Mr Martin on 10 December 2003, was consistent with those implied terms and did not entail any breach of contract. The termination was amply justified by and consistent with the implied terms. E8's claims 199 This conclusion overtakes the contention of E8 that it was an implied term of the July 2002 agreement that a period of at least three months notice was required for termination. I would simply say, in relation to that, that the particulars of "industry practice" by reference to provisions of the Retail Leases Act and the Conveyancing Act (dealing with matters involving landlords and tenants) are, to my mind, foreign to common practice in the particular industry in which the parties operated and that, if reliance were to be placed on "industry practice" or "custom", it would have been necessary to prove the relevant practice or custom by evidence: see Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31 at [22]. No such evidence was adduced in this case. 200 There is, however, another aspect of E8's claims that requires attention, namely, the claim for a bonus for the 2003 financial year. 201 This matter may be dealt with briefly. Provision for annual bonus is made in the July 2002 agreement (see paragraph [27] above). The bonus for a particular period is defined by reference to a formula which takes "Net Receipts on Corporate Transactions" as the starting point and directs deduction of 120% of expenses to produce "total bonus pool". The bonus to be paid is a particular percentage of this "total bonus pool". The percentage actually applicable depends on the size of the pool. 202 The financial year ended 30 June 2003 had, of course, concluded by the time the July 2002 agreement was summarily terminated by Shaw. The services that the bonus was intended to recognise had been provided and the events relevant to its accrual were complete. There is no reason why the bonus should not be paid. 203 As to amount, it is the contention of E8 that a sum of $37,749.65 is payable. Shaw admits in its cross-claim that $36,169.00 is payable. It was indicated in the course of submissions that E8 would not object if the slightly lower amount was awarded. In the light of Shaw's concession and the sensible indication given on behalf of E8, a sum of $36,169.00 will be awarded to E8 in satisfaction of the bonus. This should be augmented by interest from a date to be settled, which I would propose be 10 December 2003, the date of termination of the July 2003 agreement. Orders 204 To give effect to my reasons, the court should: (a) declare that the July 2002 agreement was validly and lawfully terminated by Shaw on 10 December 2003; (b) order that E8 pay damages and interest to Shaw on the basis reflected in paragraphs 102 (a) to (d) of the cross claim, the aggregate being: (i) $98,182.48 on account of the bonus substitute ostensibly under clause 6 of the July 2002 agreement (together with interest on $98,182.48 from the date of payment of that sum by Shaw to E8 to the date of judgment) less $36,169.00 on account of offset for 2003 bonus payment by Shaw to E8 (together with interest on $36,169.00 from 10 December 3003 to the date of judgment); (ii) $11,000.00 on account of the PPK fee (together with interest on $11,000.00 from 29 July 2002 to the date of judgment); (iii) $13,681.25 on account of the Delta Electricity fee (together with interest on $13,681.25 from 31 July 2002 to the date of judgment); (iv) $5,000.00 on account of the CGC fee (together with interest on $5,000.00 from 31 May 2003 to the date of judgment); (c) declare that each of Mr Wookey and Cartesian is liable to render equitable compensation to Shaw so as to be jointly and severally liable with E8 for item (b)(iv) above; (d) order that, except to the extent that they support the offset of $36,169.00 (plus interest) under item (b)(i) above, all claims in the statement of claim be dismissed; and (e) order that the plaintiffs and cross-defendants pay the costs of the defendant and cross-claimants of the proceedings. 205 Interest should, in each case, be at the rate prescribed by the rules of court. 206 I shall make directions separately for the settling of orders. ********** 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.